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spk00: Welcome to the Kaiser Aluminum Second Quarter 2022 Earnings Conference Call. My name is Darrell and I will be your operator for today's call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session. During the question and answer session, if you have a question, please press 01 on your touchtone phone. I will now turn the call over to Melinda Ellsworth. Melinda, you may begin.
spk04: Thank you. Good afternoon, everyone, and welcome to Kaiser Aluminum's second quarter and first half 2022 earnings conference call. If you've not seen a copy of our earnings release, please visit the investor relations page on our website at kaiseraluminum.com. We have also posted a PDF version of the slide presentation for this call. Joining me on the call today are President and Chief Executive Officer Keith Harvey, Executive Vice President and Chief Financial Officer Neil West, and Vice President and Chief Accounting Officer Jennifer Huey. Before we begin, I'd like to refer you to the first three slides of our presentation and remind you that the statements made by management and the information contained in this presentation that constitute forward-looking statements are based on management's current expectations. For a summary of specific risk factors that could cause results to differ materially from those expressed in the forward-looking statements, please refer to the company's earnings release and reports filed with the Securities and Exchange Commission, including the company's annual report on Form 10-K for the full year ended December 31, 2021. The company undertakes no duty to update any forward-looking statements to conform the statement to actual results or changes in the company's expectations. In addition, we have included non-GAAP financial information in our discussion. Reconciliations to the most comparable GAAP financial measures are included in the earnings release and in the appendix of the presentation. Reconciliations of certain forward-looking non-GAAP financial measures to comparable GAAP financial measures are not provided because certain items required for such reconciliations are outside of our control and or cannot be reasonably predicted or provided without unreasonable effort. Any reference in our discussion today to EBITDA means adjusted EBITDA, which excludes non-run rate items for which we've provided reconciliations in the appendix. At the conclusion of the company's presentation, we will open the call for questions. I would now like to turn the call over to Keith Harvey. Keith?
spk03: Thanks, Melinda, and thank you all for joining us for a review of our second quarter 2022 results. Our businesses delivered $41 million of EBITDA in the second quarter. in what turned out to be a very challenging quarter due mainly to ongoing supply chain issues at our Warwick rolling mill, which supplies sheep for beverage and food packaging in the North American markets. For the last few quarters, we've been communicating how performance of our main supplier of magnesium, U.S. Magnesium, and the Alcoa Warwick smelter, which supplies a portion of our metal requirements, have struggled to provide us with contracted, consistent, and conforming supply of material and have negatively impacted our results. And while we have worked diligently over the last several months to minimize the impact on our business and our customers, both issues worsened when U.S. MAG abruptly stopped all shipments and the smelter's performance deteriorated substantially in June. These worsening conditions have continued to negatively impact our ability to run low-cost, efficient operations at the Warwick Rolling Mill. In addition to a lengthy period of unacceptable performance by both suppliers, USMAG's abrupt and unexpected change forced us to declare force majeure on shipments of sheet products from the Warwick Rolling Mill for our packaging customers in early July. These two supply issues combined have been a drag on earnings of approximately $20 million through the first half of the year. Allow me to provide more detail on these supply issues and what actions we have and are taking to put these issues behind us. Regarding our supply of magnesium and the events which led to our declaration of force majeure at work on July 7th, As we previously stated, USMAG declared force majeure over nine months ago in September of 2021. During this period, we have received little to no communication on either the cause of the disruption or plans and timelines to cure their issues and return to normal operations. In the last nine months, we have received approximately 50 percent of our expected contracted volumes until mid-June, when USMAG unexpectedly ceased all shipments to us. Since USMAG's force majeure declaration, we have been establishing and qualifying a number of new suppliers to minimize our reliance on USMAG and make up more than the projected shortfalls in USMAG's deliveries based on their projected allocations. with no pre-warning at all to the cessation of all shipments of magnesium, we were unable to replace the remaining balance of U.S. Mag's reduced supply to the Warwick operation on such short notice. In the announcement to our customers, we stated we expect shipments in the month of July to be impacted as much as 30 to 40 percent and as much as 50 percent for the balance of the third quarter in each case based on contracted deliveries of magnesium at the time and assuming no further deliveries from USMAG. We're in daily communication with our customers on our efforts to establish new magnesium supplies and contain this issue to third quarter shipments. And the situation has improved over the last two weeks as USMAG has provided additional material and we continue to identify and qualify additional supplies. We now believe shipments will be higher than the levels in our previous announcement based on the progress we've made, and we expect to return to full production sooner than previously anticipated. As we previously discussed, we initiated litigation against USMAG in April of this year in connection with USMAG's force majeure declaration. Now moving to the supply and performance issues of Alcoa smelter on the Warwick site. We receive approximately 30 percent of our metal supply for the Warwick rolling mill from the Alcoa smelter, mainly in the form of molten aluminum, when the smelter is operating effectively. While the smelter's performance has negatively impacted the efficiency and financial performance of the rolling mill for several quarters now, The smelter's performance degraded further in the second quarter, resulting in the curtailment of one of the three operating lines due to reported operational challenges. Furthermore, replacement ingot to make up the shortfall in conforming molten metal deliveries was not delivered on a timely basis, further impacting our operations. While we will continue to work with Alcoa to attempt to work through the operational challenges at the smelter and mitigate the impact of those challenges on the Warwick Rolling Mill, we are in the process of qualifying other hot metal sources for the Warwick Rolling Mill to ensure we will have an alternative sources of supply. The Warwick Rolling Mill has run successfully in the past without metal from the smelter. And going forward, we are preparing for the mill to run without this smelter as part of our plans to meet long-term financial and sustainability objectives and lower the carbon footprint of the rolling mill. With the intent to continue strengthening and diversifying Warwick's supply chain and meet the objectives we've set for our packaging business, there are a number of initiatives underway at the Warwick plant that will ultimately reduce our need for third-party magnesium and hot or cold prime metal sourcing. The Warrick plant has one of the largest and most sophisticated cask houses in the world, and we have plans to further improve its ability to utilize more scrap and rely less on current metal sources. Last week, we initiated startup of our new coated scrap melter that will enable us to process in excess of 100 million pounds that painted and bear low-cost scrap annually. We are also developing and currently testing new alloys with significantly lower magnesium content and enhanced recyclability characteristics to meet our and our customers' needs for more highly sustainable products. Commercially, all new negotiated contracts for beverage and food can sheet have increased closed-loop return scrap provisions, thereby providing our business with a greater supply of low-cost scrap. These changes are impactful and provide insight into just a few of the areas we've already acted to strengthen this business. Again, these issues have mainly impacted operations that are rolling them. All other operations have had no impact from the US MAG or Alcoa smelter issues. Looking forward now on our market outlook for the remainder of the year, we anticipate continued strong demand in all markets with the exception of automotive, where despite continued tepid shipments due to supply chain shortages, we have been successful in improving prices. We delivered another solid quarter on improving aerospace shipments with continued strengthening demand in defense, commercial, and business jets expected for the remainder of the year And we have declarations reflecting continued improvement in these applications moving into 2023. Our general engineering business remains strong with continued solid demand in semiconductor and other various applications for plate and extrusions, along with improved pricing. Packaging demand remains exceptionally strong. As noted in last quarter's earnings call, We have begun a long-planned multi-week outage at our Trentwood facility to refurbish our heavy gauge stretcher there. In addition, the new roll coat line investment at Warwick continues to move forward with startup and qualifications scheduled for the second half of 2023 with full production slated for early 2024. I'll now turn the call over to Neil to review the quarter in more detail, and then I'll be back with some closing comments. Neil? Thanks, Keith.
spk02: Good afternoon, everyone. Turning to slide eight, value-added revenue of $376 million for the second quarter of 2022 increased $58 million, or 18%, on relatively flat shipments as compared to the second quarter of 21, primarily reflecting improved pricing to mitigate inflationary costs. Value-added revenue for the first half of 2022 of $747 million increased $257 million, or 53%, with a 42% increase in shipments driven by the inclusion of a full six months of packaging applications as compared to the first half of 2021. In addition, the higher value-added revenue in our aerospace and high-strength and general engineering applications, which I will cover on the following slides. Moving to slide nine, Aerospace high-strength value-added revenue of $97 million for the second quarter of 2022 increased $17 million, or 21%, on an 18% increase in shipments compared to the prior year period, reflecting improved pricing and continuing improvements in underlying commercial aerospace shipments and steady strength in defense and business jets. Aerospace high-strength value-added revenue for the first half of 2022 of $192 million, improved $41 million, or 27%, on a 22% increase in shipments compared to the first half of 2021. Compared to the second half of 2021, first half 2022 value-added revenue was up $28 million, or 17%, on an 11% increase in shipments. The increase in value-added revenue in shipments reflect continued strength and demand for our defense and biz jet-related applications, and improving demand for commercial aerospace as we continue to see the recovery in air travel and higher shipments of new commercial aircrafts from both major airframe producers. Moving to slide 10, second quarter 2022 packaging value-added revenue of $154 million, up $22 million, or 17%, on 3% lower shipments from the prior year period, reflecting improved contract pricing, and increased surcharges to offset higher inflationary and commodity costs. For the first half of 2022, total packaging value-added revenue was $300 million on 355 million pounds of shipments, up from the first half of 2021. Value-added revenue of $132 million reflected a full six months of packaging revenue and shipments following our acquisition of the rolling mill on March 31st, 2021. Compared to the second half of 2021, value-added revenue improved 17 percent, or $42 million, on relatively flat shipments, reflecting improved pricing and increased surcharges to offset the inflationary and commodity costs. Turning to slide 11, General Engineering's second quarter 2022 value-added revenue of $96 million increased $19 million, or 25 percent, on relatively flat shipments compared to the second quarter of 2021. reflecting continuing strong demand for our GE applications, higher prices, and alloy recovery to offset inflationary and commodity costs. General engineering value-added revenue of $198 million in the first half of 2022 increased $50 million, or 33%, on an 11% increase in shipments compared to the first half of 2021. Compared to the second half of 2021, value-added revenue also improved 34% and a 14% increase in shipments. The increase in value-added revenue in shipments continue to reflect strong underlying semiconductor plate, industrial, and machine tool demand, in addition to the improved pricing and alloy recovery. Moving to slide 12, automotive value-added revenue for the second quarter of 2022 was $26 million. Relatively flat as compared to the prior period, a little change in shipments, reflecting the continuing impact of ongoing semiconductor chip shortages and other supply chain disruptions in the automotive industry. Automotive value-add revenue for the first half of 2022 of $50 million was down $3 million, or 5%, on a 7% reduction in shipments compared to the first half of 2021. Compared to the second half of 2021, auto value-add revenue was up $6 million, or 13%, on a 9% increase in shipments. reflecting improvement in pricing and a slight improvement in demand. Additional detail and value-added revenue and shipments by end-market applications can be found in the appendix of this presentation. Turning to slide 13, adjusted EBITDA for the second quarter of 2022 was $41 million, down $18 million at 30 percent compared to the prior quarter. The second quarter of 2022 was primarily impacted by $17 million of incremental costs related to supply chain issues, as discussed by Keith, in addition to higher major maintenance, manufacturing, energy, and employee-related costs. Our work operations were materially impacted due to lack of consistent hot metal delivery and quality related to the alcohol work, smelter operational performance, in addition to the higher alloy, energy, and freight costs which were partially offset by improved pricing and commodity and freight surcharges. Adjusted EBITDA for the first half of 2022 was $96 million, which was equivalent to the first half of 21. The first half of 2022 EBITDA was impacted by approximately $30 million of incremental costs, including approximately $20 million driven by the Elko Smelter operational performance and U.S.-made supply chain disruptions at our work operations, $6 million higher than normal international freight costs out of our treatment operations, as discussed in the first quarter of 2022 results, and additional inflation-driven higher energy manufacturing and employee-related costs that were not fully recovered and timely through pricing actions. Moving on to slide 14. Reported operating loss for the second quarter of 2022 was $2 million, adjusting for approximately $16 million in non-run rate items. Adjusted operating income was $14 million, down from the $33 million in a prior year quarter, primarily reflecting the changes in EBITDA, as previously discussed, and an additional $1 million in depreciation and amortization expense. Reported operating income for the first half of 2022 was $23 million. Adjusting for non-run rate items, adjusted operating income was $42 million, reflecting $15 million of additional depreciation and amortization as compared to the first half of 2021, primarily related to the work acquisition made on March 31st, 2021. Compared to the second half of 2021, Adjusted operating income was down $3 million, reflecting $2 million of additional depreciation, in addition to the changes in EBITDA, as previously discussed. Reported net loss for the second quarter of 2022 was $14 million, compared to a $22 million loss in the prior quarter. Adjusting for non-run rate items, adjusted net loss for the second quarter of 2022 was $1 million, compared to the prior year quarter adjusted net income of $16 million. As a reminder, second quarter 2021 reported net loss reflected a $36 million charge related to the refinancing of our $350 million, six and a half for senior notes that were due in 2025, with our $550 million, four and a half percent senior notes due in 2031. As reported, loss for due load share were $0.87 in the second quarter of 2022 compared to a loss of $1.42 in a prior year quarter. Adjusted loss for due load share was $0.03 for the second quarter of 2022 compared to an adjusted earnings per diluted share of $1 in the second quarter of 2021. As reported, loss for due load share were $0.36 and $1.13 for the first half of 2022 and 2021 respectively. Adjusted reported earnings per due load share were 63 cents and $1.64 for the first half of 22 and 21, respectively. Our effective tax rate for the second quarter of 22 is 23 percent. For the full year and long term, we continue to believe our effective tax rate will be in the mid-20 percent range under the current tax regulations. We anticipate our cash taxes paid will be approximately $6 million in 2022, The cash tax rate will remain below the statutory tax rate until we fully utilize our federal NOLs of $187 million as of year end 2021. Now moving to slide 15. As of June 30th, we had $235 million of cash and cash equivalents. Total availability under our recently amended $575 million revolving credit facility which expires in 2027, was $551 million, providing total liquidity of $787 million. There were no borrowings on the revolving credit facility during the quarter, and the facility remains undrawn. With the recent easing of aluminum prices as compared to the first quarter of 2022, we do not expect any cash requirements for working capital funding during the second half of the year. Our senior notes, are fixed at an annual interest cost of $48 million, and we have no debt maturing until 2028. Capital expenditures for the first half of 2022 were $46 million. For the full year, we expect our capital expenditures to be between $180 million and $200 million, predominantly related to the previously announced additional rogue holder for our packaging operations. And finally, We continue to remain confident in our long-term strategy and continuing ability to generate solid long-term returns. On July 14th, we announced that our Board of Directors declared a quarterly dividend of 77 cents per common share, reflecting a $13 million quarterly return to shareholders. We have consistently paid quarterly dividends since 2007, and we have steadily increased each annual payment over the past 11 years. And now I'll turn the call back over to Keith to discuss our business outlook. Keith? Thanks, Neal.
spk03: Turning to slide 17. While the integration and establishment of the Warwick rolling mill into a standalone business within Kaiser has had its challenges, we remain excited about the long-term profitable growth opportunities in packaging and the other markets we serve. The Warwick facility and organization has a proven history of being a market leader and important supplier to the packaging industry, and we are well along in executing our strategy to further strengthening that position. We are making a number of investments to support our strategy there, and we have been successful in securing long-term agreements with our customers. The market outlook remains very strong, and we are well positioned. We are confident We will achieve operational excellence at work as we have achieved in our other businesses, and as discussed earlier, we are taking a number of actions to address the current supply chain issues moving forward. The aerospace and high-strength markets have continued to steadily improve since the low-water mark experienced in the second half of 2020. Demand for our products in defense and business jet have remained strong, and we are experiencing improving demand in the commercial aerospace sector. Declarations of shipments for all aerospace and high-strength products for 2023 are the highest since 2019, and we expect strong demand to continue as airframer supply chain issues and regulatory hurdles are resolved. We remain on track to return to record levels experienced in 2019 in the 2023-2024 timeframe. The general industrial markets have been quite robust. Recent market data shows inventory levels at service centers slightly elevated over recent previous periods, suggesting supply is catching up to the strong demand we've been experiencing. Pricing and lead times for these products have risen to record levels with strong demand, especially in semiconductor applications continuing. We expect strong demand through the balance of the year for these applications. Not much change is expected in automotive demand in the second half of the year from the first half. Periodic shutdowns at multiple assembly plants continue on relatively short notice, many times based on shortages of chips, but we understand other supply shortages have also impacted our customers. We remain in a strong position to grow as these issues with our customers begin to abate. While concerns of a pending slowdown in the general economy have been widely discussed, at present, demand in our markets remains strong. We are prepared to quickly adjust for any downturn in our markets with plans in place to adjust our businesses as necessary. We continue to maintain a strong balance sheet with significant liquidity, and we have the playbook to quickly adjust cost and spending as conditions dictate. Our focus now is addressing Warwick supply chain issues, mitigate the impact of these events on our customers, and achieve the level of performance expected in our operations there. The expected outlook for EBITDA margins of 17 to 20 percent for the year will not be achieved due to the many supply chain issues we've encountered in the first half of the year. However, as these issues are resolved, the business is positioned to perform at these levels and better as we continue executing on our strategies, fix our supply issues, and perform for our customers. As previously stated, We remain confident our portfolio of businesses are positioned to deliver approximately $2 billion in value-added revenue with EBITDA margins in the mid to high 20 percentage points once the strategies, normal operations, and planned investments are in place. I'll now open the call for any questions you may have. Daryl?
spk00: And if anyone has a question, it's 01 on your touchtone phone. Once again, if you have a question, it's 01 on your touchtone phone. And our first question comes from Emily Chang. Go ahead, Emily.
spk05: Good afternoon, Keith and Neil, and thank you for the update today. My first question, as you can imagine, is just around the US MAG announcement there. Given you are seeing some progress in terms of qualifying some new supply and you maybe received some additional ad hoc supply from USMAG recently, could you provide some sort of glide path as to when you might anticipate the return to full production at Warwick? Is that a 4Q event or could that be early 2023 at this point?
spk03: Well, good afternoon, Emily, and thanks for that question. Our 8K, when we announced the force majeure, we felt at that time, and we were looking at all of our suppliers and through the balance of the year, we felt that the numbers that we provided, the 30 to 40 percent at risk in July, and that's pretty much on track for that amount of shipments impact for July. But then we felt we could go down as low as 50% for supply for the balance of the quarter. We've had a tremendous amount of activity, as you might imagine, over the last two and a half weeks in really moving forward, fast-tracking qualifications, looking at a number of other sources. And we had a number of these underway prior to the force majeure event. So, our focus going forward was then to let's look at what that supply base would be for the balance of the year without expectations of any more shipments from U.S. MAG. And with that activity that we've done and the qualification process and the hard work that's been going on at Warrick, we now feel that we can contain that possibly to the third quarter. could return to full shipment sometime in the quarter before the end of the quarter. As you might imagine, it's fluid right now. We have a number of qualifications underway, but the conditions have improved, and we think we will limit it to the third quarter. And not only will we also secure those amounts of MAG for the balance of the year, we're negotiating for full 2023 supply.
spk05: Great. I understood. That's really good to hear that. And perhaps a similar question, but around the metal supply that was lost from the pot line closure at Alcoa, how easy has it been to replace those loss of volumes there? Because you've also seen other curtailments of domestic metal as well.
spk03: Well, Emily, our arrangement with Alcoa there, that is, they're unable to provide hot metal sources to us. So from their other locations, we're to receive cold prime metal. So other than the timing of receiving that metal as hot metal became reduced, they've been able to secure our needs with the use of cold prime and our use of additional scraps. Now, what we are preparing to, and as I said in my prepared remarks, Emily, and as you can imagine, we're a little gun-shy at this point. We're not going to wait for just that issue to cure itself or to improve, possibly improve. We are actively qualifying other hot metal sources that we will utilize going forward. And as I mentioned, we have a number of initiatives underway, like the coated scrap melter that I referred to in my prepared remarks, to really take ourselves less dependent on any of the prime metal sourcing and move this business more to longer-term sustainable use of scrap as its primary metal source.
spk05: Understood. And maybe final question, if I could squeeze one in. Are you able to share perhaps what percentage of your magnesium requirements at Warwick previously came from USMAG? And clearly you're shifting away from that with your upcoming qualifications, but perhaps where you would like to be on a normalized basis once this is all resolved?
spk03: Sure. Well, when we purchased the facility, Emily, the agreements with U.S. MAG were already established, and they were a significant, I'll leave it, I won't put a number to it, but they were a significant supplier of MAG to the Warwick facility. And another issue around the Warwick rolling mill, we utilize a lot more MAG because of the applications that we serve. So by our supplying a significant amount of food can and other products which require a higher use of MAG, then we have a fairly large requirement there for that facility. However, I will say, due to the issues that we've had and the success we've had in securing other sources, we're actually not putting them in any strategic level of supply for that facility moving forward. So, we feel confident we're going to be able to find other supplies more reliable and diversified supply so that we're not faced with that by one individual supplier moving forward. And I would say that comment also reflects our position on metal sourcing as well.
spk05: Great. That makes a lot of sense. I appreciate the call. Thank you. Thank you, Emily.
spk00: And once again, if you have a question, it's 01 on your touchtone phone. And our next question comes from Josh Sullivan from the Benchmark Company. Go ahead, Josh.
spk01: Good afternoon. Hi, Josh. In the past, you mentioned when Warwick has run without hot metal, what's the cost differential to use cold metal as a source?
spk03: Interesting. We had the ability, because of the casthouse that we have at work there, we can utilize cold metal pretty effectively as compared to the hot. And the reason that you've had a lot of hot metal there is because this was a fully integrated business when Alcoa owned it at the time, Josh. So it was logical for them to use more molten aluminum, therefore, you know, to utilize the metal from the smelter in that in that service. When the smelter was previously shuttered for a short amount of time, the facility was able to get the amount of hot metal they needed and utilize the additional sources from scrap in that they saw no significant impact from being able to move sources. Now, I will tell you that we believe going forward in our focus on this business we're going to significantly reduce the amount of cost from our metal sourcing by the use of lower cost scrap and the utilization of the material that we're generating from the coated scrap melter and other resources. So we actually believe we're going to be able to significantly improve our operating costs once we move away from the hot metal sourcing period.
spk01: Got it. And what are your thoughts on some of the recent industry capacity announcements for new rolling mills? You know, just how do you think those are going to enter the market?
spk03: Well, it's a surprising announcement that somebody really finally acted on the Brady Initiative. And we know there's been a couple other announcements. But quite frankly, those decisions do little to deter or alter the strategies we have for this business. I think, as you recall, we believe we purchased this business at a very good price. As opposed to a green site that has to be built, qualified, and go through a number of things, this business has, the Warwick Rolling Mill has 50 years of experience in supplying products with our customers. So they're a well-known quality house that is already existing, so therefore little risk from our customers' perspectives. The other thing, you know, the others have mentioned that these are going to be multipurpose mills that they're building. And, you know, Kaiser's got some experience in doing that in the past, in the 90s. We weren't very successful doing that. We actually liked the focus factory approach with having a Warwick. Warwick is going to do and participate only in the packaging markets. We don't intend to divert any of their capacity to automotive sheet and common alloy, so therefore we won't be competing with these other mills. And then ultimately, our strategy moving forward is to really focus this business in a niche area, and that's backed up by the investments we've made in our additional coder that we're putting in place, the new coding line. And we're going to be uniquely qualified and be able to strengthen our position with these investments and with the long-term agreement that we have in place. So, we intend to be further along in this strategy by the time any of the other mills are eventually built. So, we like the investment, continue to like it. We made to acquire the rolling mill there and it worked. We like the price and the fact that they're a market-proven supplier.
spk01: Got it. And then, you know, a lot of these new players and existing players as well are focusing on using a lot more scrap. You know, how do you see the recycling market for aluminum, you know, developing? Do you think the historical recycling ecosystems are going to be altered, you know, as Warwick and others demand more?
spk03: I think absolutely the availability of scrap is going to continue to rise. And I think all of us, this isn't a – a big magic pill. We fully know that the utilized scrap moving forward, and that's not only securing that on the open markets ourselves, but in coordination with our customers who are also very, very privy and focused on sustainability and lowering the cost of the material. And I believe that there are strong positions in place and that there is additional scrap capacity will be generated that we should all have an availability. Now, that being said, we're fast at work securing all of our metal needs, which includes scrap. And so, I think that's going to be a strategic position for any of the businesses moving forward. And I know we're thinking that way. And not only will that also support what we need from a sustainability, It's really how we're going to drive additional profits and financial returns on these businesses. So I believe we're all focused on the same thing, Josh. It's just making sure that we have a strong strategic position in place to support the business going forward.
spk01: Got it. And then just one last one, just with the lawsuit against U.S. MAG, any key dates you can provide? And then, you know, what damages are you pursuing? Is it quantifiable at this point?
spk03: Yeah, well, right now, the outlook is for the trial to begin early in 2023. And when we filed the lawsuit in April, in the filings, we listed that roughly there had been $10 million. But that's a running total. They've certainly added to that in the second quarter with their performance and inability to meet their contractual obligations. And so that keeps running up. And then it's still to be determined whether or not additional costs will be rolled into even further on that litigation. So we believe we have a strong case. We're well prepared. And I want to share this. We learned how not to treat customers when you go into a a period of something like a force majeure. So unlike how we've been treated, we're communicating with our customers on a daily basis, and we are absolutely focused on returning to full production very soon to minimize any impact, short-term or long-term, to any of our customers. So we take all of these very seriously, and we intend to pursue these things with great earnest.
spk01: Thank you for the time.
spk00: Thank you, Josh. And our next question comes from Michael Glick from JP Morgan. Go ahead, Michael.
spk03: Hey, guys, just one question for me.
spk01: How should we think about margin progressions in the second half of the year?
spk03: Michael, you broke up on us. We didn't get that. Sorry, yeah. Did you repeat the question?
spk01: How should we think about margin progressions in the second half of the year?
spk02: Michael, you're still really breaking up. Can you try one more time?
spk03: We understand it's about margins on something.
spk00: It looks like he's dropped off. Okay. Okay. We don't have any more questions in the queue. Oh, wait. We've got one more from Emily Chang. Go ahead, Emily.
spk05: Hi, Keith and Neil again. Maybe just to follow up on that prior question, I think it was around margin progression for the remainder of the year?
spk03: Yes. So the third quarter we know will be impacted by partial production from the packaging industry, packaging side of the business. So we really don't have an outlook right now of what that may be. We do anticipate, however, moving into the fourth quarter with hopefully production back to full levels, and then we'll have also the outages we have at our Trentwood facility. So we expect to be able to return back to those margins I hoped for for the full year in the fourth quarter of this year. And the third quarter, it's to be determined, Emily, based on how fast we can return full production.
spk05: Understood. And maybe just while we're on the topic of costs, I think energy and labor and manufacturing costs continue to be elevated during the second quarter there. But any sort of line of sight to perhaps labor or manufacturing easing or what's sort of the path ahead for those pieces?
spk03: Sure. Well, I quite frankly feel we're in really good position from a pricing perspective on our products. In every category, we've been able to move costs through fairly securely, and I think we've offset the majority of those costs. The few that have not and that impacted and that nil reflected, it's really just a reflection of a lag of a cost. We expect some of these costs, if you remember, we have put in position the ability to move these costs, especially in packaging. through on a shorter timeline with our customers there than the annual contracts that allow. And so, there's a lag in securing those costs. But overall, we actually believe that we've covered most of our costs. We believe some of these efficiencies, when we get these supply chain issues behind us and some of the outages, we believe once we return to high efficiency levels, we're going to be able to actually begin cutting back on some of those costs. So, you know, labor's obviously a little higher, but we think we've offset those costs. So, I think our position should be improving as we go into the, especially the fourth quarter.
spk05: Understood. That's all for me. Thank you.
spk00: Thank you, Lee. We have no more questions at this time. I'll turn it back to the speakers for any closing comments.
spk03: Okay, well, thank you for joining us today. We look forward to updating you on our third quarter results later in the year. All right, thank you.
spk00: Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect.
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