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spk00: Good day, and welcome to the Iconic Corporation's first quarter 2021 earnings conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session, and instructions will follow at that time. If anyone should require assistance during the conference, please press star then zero on your touchtone telephone. As a reminder, this conference call is being recorded. I would now like to turn the conference over to your host. Mr. Shane Ward, Director of Investor Relations. Sir, the floor is yours.
spk05: Thank you, Lara. Good morning, and welcome to the Arconic Corporation first quarter 2021 results conference call. I'm joined today by Tim Myers, Chief Executive Officer, and Eric Asmussen, Executive Vice President and Chief Financial Officer. After comments by Tim and Eric, we will have a question and answer session. For those of you who would like to follow along with the presentation, The slides are posted under the Investors tab on our website. I would like to remind you that today's discussion will contain forward-looking statements relating to future events and expectations. You can find factors that could cause the company's actual results to differ materially from the projections listed in today's presentation and earnings press release in our most recent SEC filings. In addition, we've included some non-GAAP financial measures in our discussions. Reconciliations to the most directly comparable GAAP financial measures can be found in today's earnings press release and in the appendix in today's presentation. With that, I'd like to turn the call over to Tim.
spk08: Thank you, Shane. Good morning, everyone. Again, welcome to our first quarter 2021 earnings call. We had a strong start to the year, and Eric and I are excited to update you. So let's start on slide four to discuss the highlights of our first quarter performance. The markets we serve are recovering and revenue increased meaningfully in several markets during the quarter. Industrial revenue grew 18% year over year, 15% on an organic basis. This was due to a combination of the effects of the U.S. trade case and the ramping up of the investment we made in Tennessee. Ground transportation revenue grew 25% or 17% organically year over year, driven by recent platforms we were awarded easily overcoming the semiconductor chip shortage and North American light vehicle production being down 4%. Additionally, our packaging sales were up 23% for 16% organically at our Russia and China facilities. Net income was $52 million, and adjusted EBITDA in the quarter was $179 million, an increase of 19% for $28 million, sequentially benefiting from rebounding markets and the $100 million in structural cost outs we implemented last year. In the quarter, we secured agreements totaling $3.5 billion of expected long-term revenue with multiple customers across packaging and aerospace. In packaging, we negotiated agreements with six customers, including blue chip companies such as Ball Corporation and AB InBev, totaling $1.5 billion of expected revenue from 2022 through 2024, filling the remainder of the 600 million pounds of incremental annual capacity that we've been discussing. We easily could have booked more than two times this volume at attractive prices if we had more incremental capacity available to sell. In aerospace, three customers awarded us new multi-year contracts totaling more than $2 billion in combined future sales and extending our position as a premier supplier through nearly the end of the decade. Looking forward, we expect our results to be supported by favorable sustainability trends such as lightweighting of ground transportation and the shift to electric vehicles. as well as the continued flight from plastic to aluminum packaging as consumers remain concerned about microplastics entering our water and food sources. We anticipate our results will continue to improve and cash generation will benefit from a more than $230 million year-over-year decline in legacy obligation payments starting next year. In the last year, we've reduced legacy gross pension and OPEB liabilities by $1.8 billion, and today we are announcing the authorization of a $300 million share repurchase program. We're very confident of our forward view of the business, and we believe buying shares back may create a great return opportunity for our shareholders. Turning to slide five, I'll provide more detail on how we performed across our end markets. As you see in the bottom right of the slide, in Q1, we grew our revenue sequentially across all of our market segments. Ground transportation sales increased 21% from the prior quarter and 17% organically year over year, largely driven by continued growth in commercial transportation, which is benefiting from increasing heavy-duty truck and trailer builds. Automotive organic revenue grew year over year despite the challenge of the semiconductor chip shortage. We also increased our market share with 11 new or greatly expanded platforms versus a year ago. Sales in the industrial market increased 22% from the prior quarter and 15% organically year-over-year. This improvement was driven by the continued ramp-up of industrial products at our Tennessee facility, as well as the influence that the U.S. trade actions against 16 countries had on demand for domestically produced common alloy sheet. In the building and construction market, we increased 3% sequentially, but were down 6% organically year-over-year. This market remains depressed as pandemic pressures are still affecting non-residential construction builds in North America. We did, however, see an improvement in bidding activity in our North American Conair Architectural Systems business as the quarter progressed. Sales in the packaging market increased 8% sequentially and 16% organically year over year, largely as a result of growing demand in our China and Russia packaging facilities. Finally, aerospace increased 5% sequentially, but was down 55% year-on-year on an organic basis. The first quarter of 2020 was an extremely strong aerospace quarter for us, and we expect the aerospace market to enter a steady, gradual recovery moving forward. Now I'll turn it over to Eric to review the financials.
spk02: Thanks, Tim. I'll start on slide six with highlights. Revenue in the first quarter was $1.7 billion, up 15% from the prior quarter and down just 1% organically year over year. Net income for the quarter was $52 million or $0.46 a share compared with $46 million or $0.42 a share in the first quarter of 2020. Adjusted EBITDA was $179 million which was an increase of $28 million or 19% from the prior quarter. Free cash flow for the quarter was a use of $322 million primarily due to the acceleration of $200 million of U.S. pension contributions to January of this year and increasing working capital from revenue growth and metal price increases to our inventories. As previously announced, we issued an add-on of $300 million to our senior secured notes due in 2028 to fund the $250 million pension contributions associated with the annuitization transaction that was completed last week. We ended the quarter with a cash balance of $763 million and total liquidity of approximately 1.6 billion. Before I move on to discussing our performance in more detail, I want to highlight that our Q1 adjusted EBITDA of 179 million is roughly 90% of our pre-pandemic Q1 2020 adjusted EBITDA, even though aerospace revenue was down 55% organically year over year. Turning to slide seven. Revenue increased 64 million year over year, primarily as a result of metal price, offset by volume, mix, and divestiture impacts. Adjusted EBITDA for the quarter was $179 million, down $25 million year-over-year, largely because of volume and mix resulting from lower aerospace revenues, which was partially offset by strength in ground transportation, industrial, and packaging markets. We achieved net savings of $23 million, primarily related to our $100 million structural cash conservation initiative from last year, and other EBITDA impacts in the quarter was a negative $10 million primarily due to allocation of cost differences from carbon accounting from the first quarter of 2020. Turning to slide eight, I'll provide more detail on our segment performance. Starting with our role product segment, revenue was approximately 1.4 billion, up 6% organically year over year, primarily as a result of strength in ground transportation, industrial, and packaging markets. Adjusted EBITDA was 165 million, flat, with last year as price benefits and cost actions fully offset the impacts of lower volume and mix driven by declines in aerospace. Revenue in building and construction systems in the first quarter was $236 million, down $20 million year-over-year because of pandemic-related disruptions continue to affect construction projects, and adjusted EBITDA was $28 million, only down $2 million year-over-year as cost actions nearly offset volume, mix, and price declines in the quarter. Revenue in our extrusion segment was $75 million, down 42% organically, and adjusted EBITDA was a loss of $4 million versus positive $8 million last year, as the aerospace market decline continues to affect this segment's performance. The decline in aerospace revenue makes up nearly all of the year-over-year decline and the entire revenue decline from the prior quarter. As we mentioned in the past, we continue to implement structural actions in this segment, and improving the financial performance of the extrusion segment remains a priority. Moving to slide 9, I'd like to review our revenue outlook in each end market for 2021. We continue to expect ground transportation organic revenue to increase 25% to 35% year-over-year. We remain bullish on the ground transportation market as indicators for light vehicles are strong and North American heavy-duty truck and trailer production is forecast to increase by approximately 40% this year. This growth, combined with increasing content we have secured on the 11 new or greatly expanded automotive platforms, are expected to more than offset the headwinds created by the semiconductor chip shortage. We have increased our outlook for industrial organic revenue growth to 20% to 25% compared with our prior outlook of 15% to 20% growth. Key factors for this increase are the favorable conclusion of the US trade case reached at the end of March and the continued positive trend for sales and pricing. This market strength enables us to capitalize the investments we made at our Tennessee facility, which creates additional flexibility to pivot production to the industrial market to help offset the impact of the semiconductor shortage in automotive. We expect the building and construction market to be flat in 2021 as the North American non-residential construction market recovers, and packaging revenue continues to be strong, especially in Russia and China, and we now look to anticipate year-over-year growth of 10% to 15% up from our prior outlook of flat to modest growth. We expect the revenues to begin benefiting from access to new markets that previously were unavailable because of the non-compete that expired at the end of last year. Our aerospace revenue outlook is unchanged at a decline of 25% to 30% year-over-year due to slow OEM production growth and ongoing destocking across the aerospace supply chain. We believe we experienced our trough quarter in the aerospace market in Q4 of 2020 and we look forward to a long, steady recovery bolstered by new and extended contracts. Now I'll turn it back over to Tim to discuss our path forward.
spk08: Thanks, Eric. Now I'd like to turn our attention to the future. The favorable macro trends we see in the markets we serve, the incremental capacity we've unlocked, the new contracts we've secured, and the strong momentum we are delivering on our productivity initiatives position the company very well for substantial and sustainable growth. In terms of new agreements in the packaging market, as you see on slide 11, we continue to re-qualify with major customers in North America following the expiration of our non-compete. Today, we announced that we've negotiated agreements with six can makers totaling approximately $1.5 billion in expected revenue from 2020 through 2024. These agreements should enable us to fill the remainder of the 600 million pounds of capacity in our North American production network during 2022. The agreed upon pricing, combined with strength in the industrial and automotive markets, should allow us to deliver at the higher end of our previous EBITDA growth guidance for the incremental 600 million pounds of capacity. As I mentioned earlier, we received expressed interest for more than double, actually nearly triple, our available capacity. In the aerospace market, on slide 12, we signed contracts with Boeing, Spirit Aerosystems, and Gulfstream that combined to make up roughly $2 billion in expected future revenue over the terms of the contracts. Taken as a whole, the new contracts improve our aerospace pricing, mix, share, volume, and duration. Through these contracts, we've maintained our position as a premier supplier in aluminum components across the entire airframe, including fuselage sheet and wing skins, throughout the expected recovery and beyond. As you can see on the slide, we believe that our revenue reached a trough in the fourth quarter of last year, and we are looking forward to a steady, sustained recovery. Longer term, we expect aerospace to recover to pre-pandemic levels in 2023 or 2024. Another reason we have confidence in our long-term growth is that many of our products contribute to environmental sustainability, as shown on slide 13. As you know, consumer demand for environmentally responsible products and components continues to grow. Automotive light weighting, particularly in large SUVs and pickups, continues to drive aluminum penetration. Overall, aluminum was 11% of vehicle weight in 2018 and is expected to grow to 15% by 2030, a 36% increase. With the content we delivered on the 11 new or greatly expanded automotive programs in the first quarter, We're now on a total of 68 nameplates serving 20 different customers. We also stand to benefit from the growth of electric vehicles, which were approximately 25 to 35% more aluminum intensive than internal combustion engine vehicles. Global electric vehicle sales are expected to grow at a 29% compound annual growth rate from 2020 to 2030, at which point electric vehicles are expected to represent 32% of the market. We currently supply products on 11 all-electric or hybrid nameplates with applications ranging from body panels, body structure, raving sheet for heat exchangers and cooling systems, and battery cases, and are actively developing a range of last-mile delivery fleet electric vehicle opportunities with multiple customers. Cansheet demand is expected to grow at a 5% compound annual growth rate from 2021 to at least 2025 due to continued consumer preference shifting away from plastics. Aluminum packaging is much easier to recycle than plastic and far less damaging to the environment. Lastly, our building and construction products provide architectural designs and solutions to meet ever increasing energy efficiency standards and stand up to severe weather, which has become more pronounced due to climate change. On slide 14, I'd like to go over the steps we've been taking to advance our environmental, social, and governance goals. First and foremost, we continue to prioritize the safety of our employees. Our total recordable incident rate is less than one compared to an industry average of three to six, and we are focused on continuously improving our safety practices and performance. This clearly leads our industry. Scrap utilization is a critical metric for all of our operations, and over the last several years, we've gone from being a relatively large net seller to a relatively large net buyer of scrap. Last year, we achieved a scrap utilization rate of approximately 58%, up 280 basis points since 2017. That's not only good for the environment, but it's good for our profitability, too, as recycling scrap is less expensive than buying prime. We're committed to continuing to increase scrap utilization and the future expansion of our packaging production will only further improve our recycling rates. In the middle of last year, we launched an initiative to support inclusion, diversity, and social justice. We also expanded the mission of the Arconic Foundation to increase our focus on this very important topic. We badged this initiative, Grow Together, And over the last five months of 2020, our employees recorded more than 2,200 actions of charitable contribution, volunteering, and personal development. Combined with the Arconic Foundation, we contributed more than $460,000 to organizations supporting inclusion, diversity, and social justice. And that's just a start for us. We're also a recent signatory to the United Nations Global Compact, and we're targeting the UN's 2030 Sustainable Development Goals. Initiatives are a key priority for us, and we're looking forward to making more progress on them this year. Our first full year as a standalone company. We'll be sharing more on our efforts and our progress in coming months. Turning to slide 15, I'd like to update you on where we stand against our $300 million EBITDA growth program first introduced last August. The program represents a 50% uplift over last year's profitability. And we expect additional EBITDA growth on top of this as the aerospace and building construction markets continue recovering to pre-pandemic levels. As I mentioned earlier, with industrial demand strength, increased automotive volumes, and the recently secured $1.5 billion of CAN sheet agreements, we will fill the 600 million pounds of incremental North American system capacity we identified on a run rate basis in the second half of 2022. Roughly half of this capacity will produce canned sheep, while the remaining half will be filled with automotive and industrial products. We expect to achieve the high end of the $100 to $120 million EBITDA growth guidance range for this opportunity. We expect to have the $100 million of structural cost outs, which we initiated in the second quarter of 2020, to be fully achieved by the end of this quarter. We recognize $60 million of the reductions in last year's exit run rate, and delivered another $22 million in the first quarter of this year. Lastly, our productivity initiatives remain on track to save an additional $70 to $80 million on a run rate basis by the end of this year as well. These represent a range of efforts from higher casting throughput, increased scrap utilization, and increased asset utilization. Approximately $40 million of the $70 to $80 million originally identified was recognized and realized in 2020. Assuming our markets continue to be strong, execution on these three initiatives should enable us to deliver $1 billion in annual adjusted EBITDA when the aerospace market returns to pre-pandemic 2019 levels. Returning to slide 16, we continue to make great progress in reducing our liabilities. Last week, we announced the conclusion of a $1 billion annuitization transaction that brings the total reduction in our gross pension and OPEB liabilities to approximately $1.8 billion, or 35% since separation. Our net after-tax pension and OPEB liability has now decreased by $700 million, or 47% since the separation. Additionally, the majority of our environmental payments are related to one discrete project in Messina, New York, which will near completion at year end, lowering our expected environmental remediation payments by over $60 million next year. When we combine the reductions in pension and OPEB obligations with recently enacted pension funding relief legislation and the significant step down in environmental spending, it combines for more than $234 million less cash being required next year and almost $300 million less per annum than when the company started just a year ago. When we combine this with the increased earnings power that I described on the previous chart, it's exciting to think about all the cash that we're going to be generating and what we'll be able to do with it to continue growing the business and identifying other means to create returns for our shareholders. Throughout this presentation, we've outlined a variety of ways that the company has executed on its growth opportunities and continues to do so. I'd like to boil it down to a couple of key points presented on slide 17. First, We continue to benefit from the hard choices and actions we took in 2020 to reduce costs and pay down our liabilities. As you've seen, these actions are combining to significantly improve future profitability and free cash flow conversion. Although the automotive industry is experiencing issues with semiconductor chip shortages, demand is strong across ground transportation, and our share gains in automotive are supporting growth. Additionally, our strategy to invest in more industrial capacity in Tennessee has greatly enhanced our flexibility. The first quarter was a proof case for the tremendous agility and optionality we now have to quickly pivot our capacity to whichever market is most attractive. We've outlined in detail the drivers behind the industrial and packaging growth that is already happening. Both of these markets are experiencing secular tailwinds that should provide profitable growth for the foreseeable future. Finally, we're in the process of studying additional affordable opportunities to create incremental capacity without large-scale capital expenditures. I'll close with our updated 2021 outlook. We're increasing our full year 2021 revenue guidance to be in the range of $7.1 to $7.4 billion from our prior guidance of $6.6 to $6.9 billion, reflecting the effects of higher aluminum prices combined with the growth in our packaging and industrial sales. We're also increasing our adjusted EBITDA guidance for the year to be in the range of $710 to $750 million compared with prior guidance of $675 to $725 million, primarily driven by better-than-expected volume and pricing in the packaging industrial markets. This guidance includes the challenges that we see in the automotive industry due to the chip shortage that will continue to be a headwind, particularly in the second quarter. We expect this will begin to modestly recover in the second half of 2021 as consumer demand remains strong for the automotive OEMs. Adjusted free cash flow for the full year 2021, excluding the $250 million contribution to U.S. pension plans in connection with April's $1 billion annuitization, as well as approximately $350 million of additional funding of legacy pension, OPEB, and environmental liabilities, is expected to be in the range of $300 to $400 million. At this time, we'd like to open up the calls for questions, and I'll turn it over to Lara to help facilitate those.
spk00: Thank you, sir. Ladies and gentlemen, if you have a question at this time, please press the star then the number one key on your touchstone telephone. Again, that's star then the number one key on your touchstone telephone. If your question has been answered or you wish to remove yourself from the queue, Please press the pound key. Your first question will come from the line of Kurt Woodworth from Credit Suisse. Your line is now live. Go ahead, please.
spk07: Great. Thanks. Good morning, Tim and Eric. Congrats on a great start to the year. I was wondering if you could provide a little bit more color, you know, with respect to the near-term outlook, right? Like, I mean, Ford's discussing some pretty material production questions to you. it seems like thus far order entry and error has been relatively stagnant. So I'm just curious, sequentially, as we move into the second quarter, how you see things shaping up.
spk08: Sure, Kurt, and thank you. We were pleased with the quarter. I think the team did a very good job of bringing down the opportunities in front of us. The semiconductor issue, on its surface, probably – probably had an impact of maybe $10 million of EBITDA in the quarter. But we were able to pivot quite a bit of that capacity into the industrial segment, which is relatively strong. We probably forecast the impact to be greater in terms of automotive this quarter. But also, you know, we had a little more visibility. So we've already pivoted quite a bit of our supply chain over and gotten the materials we need to make more industrial products this quarter. And so, you know, my hope is that our commercial team is able to sell through the semiconductor chip shortage. And, you know, we're going to continue on.
spk07: Okay. And with respect to some of the new products, I guess, contract extensions or agreements in Arrow and also in packaging. Can you give us any sense for the profitability of the packaging deals you were able to secure? And then on Arrow, you talked about improving mix, volume, share. Can you give us any sense of what that could imply for mid-cycle profitability increase in that business?
spk08: Sure. So, I mean, first of all, you know, 600 million pounds, upper end of the, you know, upper end of the range on the to $120 million. I think you can kind of back into what the profitability for metric done is for the combined opportunity there. With the level of interest that we had from the can makers, we were able to, I think, do a fair job of capturing value in terms of terms and pricing and also picking lanes that were good for us and also getting the specifications that we were excited about. So I was pretty pleased with how that came out. In regards to aerospace, the contracts, they vary in terms of their longevity across three customers. You can't really get into specifics there, but what I can say is if we see 2019 build rates, we would see an uplift in price and volume. collectively across those three customers and mix.
spk07: Okay. And then just last one on pension. Can you quantify what the impact of the pension reform and the stimulus bill was in terms of amortization schedule doubling? And I think they raised the interest rate score. And then with the pre-funding, I know you have a slide for 22 in the deck that Would those numbers look similar for 23 in terms of your cash outflow?
spk02: So to answer your question on the impacts of the legislation reform, it essentially smoothed. It doubled the rate of smoothing. So to some extent, our $50 million that you have on slide 16, it had a dramatic reduction of that because it spreads it over double the years. As far as the impacts on 23 and beyond, You're starting off a base of 50, so volatility of interest rates and mortality are starting with a much smaller base. So, Kurt, the way to look at it is it will have impact, but on a very, very small base. So you should expect 23 and beyond to be in a similar level. Got it. Okay. Thanks very much. Appreciate it.
spk00: Thank you, Seth. Your next question will come from the line of Josh Sullivan from the Benchmark Company. Your line is now live. Go ahead, please.
spk06: Hey, good morning. Hey, Josh. Morning, Josh. I mean, it's really great you guys are filling the announced capacities so quickly. I think if I heard you right, you said you had tripled the request that maybe you had available. But, you know, what are your thoughts on industry capacity? You know, historically, the rolling market faced some overcapacity cycles. Just what are your thoughts on balancing gross versus capacity discipline? You know, you obviously have a pretty attractive corporation. cash profile building up here. Just curious on your thoughts about that.
spk08: Well, I think that we're going to continue to focus on the types of opportunities that we have in the past. The pricing levels that you have in this industry, in terms of thinking about greenfield capacity, probably don't support that. And so what we need to do is continue looking for affordable opportunities to invest in our footprint so that we can continue creeping the capacity and the assets that we have. And, you know, the market is there, certainly. And, you know, we're going to maintain our discipline in terms of, you know, how we capitalize on those opportunities.
spk06: And then just on the extrusions, What do you think the cadence recovery looks like? Is there anything in the infrastructure bills or environmental regulation that you see that's suggesting an uptick in any particular products?
spk08: I think fundamentally for that business to recover, we need to see the aerospace volumes come back. We're already qualified with those customers on those products. We have some pretty unique assets to service that market area. particularly in one of our facilities. So we're, you know, continuing. We've taken a tremendous amount of cost out of that business already. But with, you know, almost 55% of its pre-pandemic sales in aerospace and, you know, the entire decline in our revenue in that business was all aerospace sequentially and, you know, approximately 90% of the decline we saw year on year. So that's kind of our focus is continuing to get it lean and mean. And when that volume comes back, we'll expect to see the margins uplift.
spk06: Got it. And then just one last one on the North America packaging qualifications. Can you talk about how many you have in process or how maybe those have moved forward from Q1 to Q2?
spk08: So we started shipping our first trial coils last week, in fact. I think we've got, and I may miss this, but I think we've got 13 trials scheduled this quarter. So, you know, we're making really good progress on getting ready for the new contracts.
spk06: Thank you for taking my questions.
spk08: Thank you.
spk00: Thank you, sir. Your next question will come from the line of Colleen Blanchard from Deutsche Bank. Your line is now live. Go ahead, please.
spk03: Hey, good morning, guys, and well done on the first quarter. That was a pretty impressive result. I mean, most of my questions have already been answered, so I just have a couple more. I was just thinking, like, what do you expect for the rest of the year in terms of working capital assumptions? And, like, how much have you taken into account into the free cash flow guidance?
spk08: So, you know, we've, I think we've seen quite a bit of the ramp up. You know, so I think it should level out. I expect that, well, if you look at our guidance, you know, we were negative 300 million free cash flow plus in the first quarter. To essentially get back to zero, we're expecting to generate over $300 million as we go through the rest of the year. I guess one thing that we have to keep our eye on is the LME has continued to rise unabated, and that does have an impact on our cash as we ramp up inventory and AR. But I would describe it as a steady state moving into the second half of the year.
spk03: So working capital is steady for the second half of the year, that's what you say?
spk08: Yes. And then again, we'll probably, you know, obviously we'll have some ramp up as we turn the corner into next year as we get into the packaging contracts.
spk03: Yeah, that makes sense. And I mean, the other question is more again on the financial aspect. What do you expect for the SG&E and corporate expenses for the rest of the year?
spk02: should be relatively flat. I mean, the restructuring efforts that we announced last year have been implemented, so you see a relatively flat.
spk03: Okay. And if I may, just one last, and it's just to try to listen. I mean, obviously on the packaging contract, as everyone has mentioned, it's pretty good news. You have over like 50% of the incremental volume from Tennessee already committed. I don't think anyone asked the question, but do you expect to allocate more volume from those 600 million pounds to art packaging? Or do you, given, you know, it was a very successful process for you, would you still continue to focus on having roughly art packaging and art industry?
spk08: So the makeup is 50% packaging and 50% industrial and automotive packaging. We're already recognizing a significant amount of the other 300 million pounds. That was a big part of the growth that we saw in the first quarter. If you look at our industrial sales and annualize them for the first quarter, they would equate to $1.4 billion. If you looked at the last four years, we've averaged about a billion dollars of industrial sales. So Now, inside of that, you had the metal uplift, but we had 25% kind of growth, and a lot of that is ramp-up of Tennessee. And then some of the automotive sales that we didn't experience in the first quarter, I mean, we were planning on, so we booked volume in automotive and industrial to absorb that other 300 million pounds, and we're well on our way towards ramping it up.
spk03: Okay. Okay. I mean, another question I have is, and I know it has been touched at the beginning of the call, but more to understand the impact of the semiconductor. So you said it was maybe about 10 million EBITDA impact for one Q, and you said you expect it could be greater in two Q. I was You have taken that into account for the revised guidance. Which kind of impact have you taken into account into the guidance?
spk08: Yeah, and let me dimension that a little further, too. I would say if we wouldn't have been able to backfill in the first quarter, it would have been $10 million. I'd say that we probably cut that in half, you know, as we pivoted over and backfilled some of that missing volume with industrial equipment I think that the overall impact of automotive standalone will be a little bit greater this quarter, maybe $15 million. But I think that we're going to be able to keep the overall impact around that $5 million this quarter, and that is what we assume in our guidance. And then we're planning on seeing a modest recovery second half versus first half in the semiconductors, but not fully recovered until next year. So that's built into our guidance.
spk03: Okay, okay, great.
spk00: That's it for me. Thank you.
spk08: Yep, thank you.
spk00: Thank you, man. Your next question will come from the line of Michael Glick from J.P. Morgan. Your line is now live. Go ahead, please.
spk01: Hey, good morning. Just a quick one for me on capital allocation. How do you think about using your free cash flow for buybacks versus dividends and then Do you view the buyback as more opportunistic or systematic in nature?
spk08: Yeah, I mean, you know, certainly, you know, we're looking at our projection for the future and, you know, where our share price is, and we thought, yeah, there's a great opportunity for our shareholders. Clearly, we also think about dividend policy moving forward. At this point, we thought the Share repurchase represented a good opportunity for our shareholder. If the stock runs away from us, then we'll keep our powder dry and think through what we want to do with capital allocation as we move through the year and into next.
spk01: Got it. Thank you.
spk00: Thank you, sir. Your next question will come from the line of Carl Blunden from Goldman Sachs. Your line is now live. Go ahead, please.
spk04: Hey, good morning. Congrats on the strong results and the outlook. I think you're already on to part of my capital allocation question, but I was also wondering if there is scope for M&A in your plans and how you think about that at this point, given the flexibility you've created on your balance sheet right now.
spk08: I would say that the board is wide open for us. We should start – generating quite a bit of cash from this quarter forward. So we will certainly consider opportunities in M&A if they represent a good return for our shareholders, and we'll continue to compare those with the options of investing in our own footprint, looking at initiation of a dividend, and whether or not it makes sense to repurchase shares.
spk04: Let me just... Following up on some of the end markets, the aerospace segment has been weaker, and it's across the industry. It's not specific to yourselves. When you think about your long-term investment plans in that area, have those changed at all based on what you've seen over the last year, or do you fully expect a rebound and similar plans for investment there as when you split off from the broader enterprise?
spk08: Yeah, you know, prior to the separation, our rolling business was really at the end of a pretty significant investment cycle. The last big investment we made was that $100 million investment that we made in Tennessee that, you know, essentially is ramped up. Just before that, we made a couple of sizable investments to support the aerospace market. One of them was a very thick plate stretcher. which, by the way, was one of the assets that allowed us to pick up some new share in the contracts that I just mentioned, the unique capabilities of the stretcher. And we also expanded our heat treat capacity. So, you know, we're fully ready to take on the recovery in aerospace with zero capital investment required.
spk04: That's helpful. And packaging... You've spoken about packaging and the ramp in revenues and activity starting next year. I was just curious how that works mechanically. As you ramp that up, is there a period of lower utilization and, you know, some fixed costs that you struggle to spread at that point in time? So basically looking for some kind of a, you know, what's EBITDA headwind as you go from, you know, not fully ramped to getting that business fully up and running?
spk08: Well, you know, first of all, Our cost structure is 85% variable. We've got a cold mill that's sitting there waiting for a crew. So we start ramping up the crew as we're bringing the volume in. I wouldn't see a lot of friction there. We will have a ramp-up quarter at the beginning of 2021. And if you think about that $1.5 billion in contracts over the three years, you kind of think 25% next year, 35% in 2023, and 40% in 2024. But we'll be flexing our labor up, and we've already got the management team on the floor down in Tennessee, so there won't be a lot of additional fixed costs going into the plant.
spk04: That's helpful. Thanks very much.
spk00: Thank you, sir. And I am showing no further questions at this time. I would now like to turn the conference back to Mr. Tim Myers for the closing remarks.
spk08: Okay. Well, in closing, I'd like to summarize, you know, first of all, thank you again for joining us today. We appreciate your interest. In closing, you know, we delivered a strong financial start to the year. We've increased our outlook for 2021 with adjusted EBITDA up 18% year over year at the center of the range. We secured $3.5 billion in new business. We announced a $300 million share repurchase program. We reduced $1 billion in legacy liabilities, opening the door to strong free cash flow conversion. And we have our eyes on $1 billion in adjusted EBITDA in the not-too-distant future. We're excited to tell you about our prospects, and I look forward to updating you all again next quarter. Thank you.
spk00: Thank you, sir. Thank you so much, presenters. And again, thank you, everyone, for participating. This concludes today's conference. You may now disconnect. Stay safe and have a lovely day.
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