ATI Inc.

Good morning. My name is Lauren and I'll be your conference operator today. At this time, I would like to welcome everyone to the ATI Q4 2022 earnings call. All lines have been placed on mute to prevent any background noise. A supplemental slide presentation to accompany the prepared remark can be found on the company's website. After the speaker's remarks, there'll be a question and answer session. If you would like to ask a question during this time, simply press star, loaded by the number one on your telephone keypad, If you would like to withdraw your question, please press star and H-2. Thank you. At this time, I would like to turn over the call to Tom Wright, the Vice President, Investor Relations and FPA. And, Tom, you may begin your conference.

Thank you. Good morning and welcome to ATI's fourth quarter 2022 earnings call. Today's discussion is being broadcast on our website. Participating in today's call are Bob Weatherby, Board Chair, President, and CEO, and Don Newman, Executive Vice President and CFO. Bob and Don will focus on our fourth quarter and full year highlights and key messages. Before starting our prepared remarks, I want to draw your attention to the supplemental presentation that accompanies this call. Those slides provide additional color and details on our results and outlook and can be found on our website at atimaterials.com. After our prepared remarks, we'll open the line for questions. As a reminder, all forward-looking statements are subject to various assumptions and caveats. These are noted in the earnings release and in the slide presentation. Now, I'll turn the call over to Bob.

Thanks, Tom. Good morning, and thanks for joining us. We ended the year strong. ATI's quarterly revenue once again topped a billion dollars. That's the second quarter in a row we achieved this milestone. We ended the full year at a run rate of $4 billion in revenue, 37% higher than 2021. We're executing expertly against robust markets. We're meeting our commitments and getting better every day. Today, I've summarized our performance in four key headlines. Headline one, we're achieving what we set out to do. In the fourth quarter, we delivered adjusted EBITDA of $140 million. This was driven by continued strength in our core aerospace and defense markets. Adjusted EPS of 53 cents surpassed the midpoint of our November guidance. The team is laser focused on execution and it shows in our results. On a full year basis, ATI adjusted EBITDA was $549 million, or 14 percent of sales and almost 400 basis point increase over 2021. Adjusted earnings per share was $1.99. We generated $148 million in free cash flow. Don will dive deeper into the financials in a few minutes. Headline two, our deliberate actions and transformation are delivering the results we projected. It comes down to our team, our capabilities, and optimizing our business with discipline. Let me add a little color here, starting with our team. As 2022 began, we were on the front lines of the war for talent, hiring nearly 1,000 new team members during the year. Now, with our workforce largely in place, we're focused on accelerating. Our team is quickly moving up the learning curve, now cross-qualifying from one job to multiple jobs to gain flexibility. Their productivity and proficiency grow every day. To those 1,000 new employees, I say, you made a great decision to join ATI. We look forward to performing together. And to our entire team, thank you for your hard work and focused efforts. You are driving ATI's success. Next up, our capabilities. We're optimizing our existing footprint to increase opportunity. When it comes to titanium and nickel melt, we're focused on two things. First, operational efficiency to increase output, and second, increasing inventory velocity. Some more color on titanium specifically. Russia's invasion of Ukraine has structurally disrupted the global titanium supply chain. An outcome of this tragic situation, is the most significant titanium opportunity in years. Titanium product lead times have grown from eight weeks just a few quarters ago to 60 to 70 weeks today. We're operating with a disciplined, controlled order entry process that leads to optimal use of our capacity. Last quarter, we shared our plans to increase near-term titanium melt capacity for aerospace and defense applications by 25 percent using our existing assets. Now, we're revising this plan upward. Based on overwhelming customer commitments, hearing that the word contracts, we're increasing near-term capacity, not just by 25%, we'll increase by 35%. That's over the 2022 baseline. It requires only nominal CapEx, less than $10 million, which is included in our CapEx guidance. Clearly, demand is growing and the team is responding and we're responding quickly. It's been a busy 90 days. We've restarted a melt shop in Oregon, melting the first ingot a few weeks ago. It was actually out there last week, so my hand's safely on it. Feels great to see the output. We expect production to ramp through the first half of 2023, and we'll start to see benefits from that capacity in the second half of this year. On top of that, a previously announced brownfield investment to further increase long-term titanium melt capacity. is on track to produce first ingots by the end of 2024. Customers are committing to this capacity as well. This brownfield investment is within the scope of previously provided capital estimates. It's crucial to ATI's ability to meet the significant long-term titanium demand. Those of you listening to this call likely aren't the people placing orders for titanium these days, but you probably know some people that are. If you're speaking to anyone about it, my advice is to get those remaining contracts signed up soon. There's very little capacity in 2023 that's unspoken for, and that's increasingly true for 2024 and beyond. Some of our product lines actually have started customer commitments and bookings in early 2025. So it's a tight market. The specialty role products business transformation and footprint consolidation is nearly complete. We're on track to produce first coils at the new Bright O'Neill furnace in Vandegrift, Pennsylvania in the next 90 days. Full qualification and production will come soon after. This Bright O'Neill furnace provides our customers with state-of-the-art sheet finishing capabilities and optimizes our operating footprint to significantly streamline production flow paths. My third headline today, we're performing in growing markets, especially our aerospace and defense core. Our repositioning to an aerospace and defense leader is well on its way. In the fourth quarter, our overall product mix attributed to aerospace and defense increased to 53% of total sales, up 12 points over the same period last year. In reality, and for clarity, I think we have a good shot to see our A&D product mix go north of 60% by the back half of 2023. The progress we've made is really great and continues, and we're well on our way to the 65% goal we've discussed with you guys earlier. Why is this important? These markets offer premium growth rates and higher margins compared to commoditized products and markets. Those factors provide great opportunity for ATI to generate cash and create shareholder value. It's worth noting that quarter over quarter, Fed engine and airframe sales were flat versus Q3. We attribute this primarily to efforts across the supply chain to control year-end inventory. This was accentuated by planned shutdowns and intentional order recalibrations in the near term to increase the industry's supply chain reliability for the longer term. We expect a strong growth trend to resume in the first quarter. The momentum in our core markets is driving profitable growth across the enterprise. In our HPMC segment, Q4 sales of commercial aerospace products increased by 85% compared to the prior year. Total aerospace and defense sales comprised 83% of HPMC revenue in the fourth quarter. Year over year, total HPMC segment sales climbed by over 40%. EBITDA margins expanded over 400 basis points. This strong operating margin growth reflects higher sales of next-gen jet engine products as well as higher operating levels. In the AANS segment, commercial aero sales grew by 113% versus the prior year. Total A&D sales were over 30% of that segment's Q4 revenue. This mixed improvement, along with the ongoing efficiency benefits of our transformation, drove a 30% increase in full-year total AA&S sales. EBITDA margins improved by over 300 basis points versus 2021, a clear indication to me, and hopefully to you, that our transformation is paying off. Headline number four, the modest headwinds we're experiencing impact only a minor portion of our business, and that portion continues to get smaller. We see some recessionary softness in construction, mining, and general industrial end markets. The good news, due to our transformation, a little more than 15% of our AANS segment is exposed to those headwinds. That's a much smaller portion than in the past. We continue to face near-term softness in our Asian Precision World Strip business. There's a lot of uncertainty there. While we see some positive signals, we're forecasting this business to remain at current levels or even modestly contract until we see a clear upward trend. What I can say for sure, we'll be ready when Asian demand picks up. Okay, now let's go do a quick review of our markets and what we see heading into 2023. These can be found on slide four and the accompanying slides on our website. In commercial aerospace, as I mentioned earlier, we're in the most significant production ramp this industry has seen in several decades. ATI's 2022 jet engine sales doubled from the prior year, an astounding ramp rate. 2022 airframe sales grew 79% versus 2021. Recovery of the airframe market for ATI has lagged at engine throughout 2022. But looking ahead, that's changing. We've been watching for two signals to indicate the commercial aerospace market is at a critical positive inflection point, what some analysts would call growth catalysts. I'm pleased to report we've seen both in recent weeks. On the narrow body side, we've been awaiting increased clarity on future 737 MAX demand. December's mega order from India is a big step toward reducing inventory. Add to that the Chinese Aviation Authority's declaration in January that the MAX is approved to return to service. And then just this week, Boeing announced a fourth 737 MAX assembly line in Everett, Washington. These are growth catalyst number one. The second signal we've been watching for, the resurgence of 787 production on the widebody side. United Airlines' order of 100 Boeing 787s was clearly good news on this front and reinforces exactly what we've been anticipating, even a little earlier than we expected. Positive growth catalyst number two. We expect ATI airframe product shipments to accelerate throughout 2023. In our other core market, defense, growth in global spending continues to create significant opportunities for ATI. In the near term, we're seeing a record level of demand for products like titanium armor going into new military vehicles. In the fourth quarter of 2022, ATI defense sales grew 18% versus Q4 of 2021. The sequential increase was driven largely by accelerated support for the Navy's carrier and submarine fleets, and increased shipments for military rotorcraft applications. We expect 2023 defense sales to be strong in these subsectors, as well as ground vehicle armor and military aircraft. I think most of us saw the news of the allied nations sending tanks to support Ukraine. I think it's just one more reminder of how quickly things have escalated in terms of demand for defense materials. We expect that demand to be sustained for multiple years based on all the signals that we're getting from the federal government. In addition to our core A and B markets, we leverage our expertise to critical adjacent applications with arrow-like characteristics. This includes specialty energy, medical, and electronics. We're seeing growth in these markets too. A little more color about these is on slide four. of the accompanying presentation on our website. I'll now turn the call over to Don to walk through financials and guidance. I'll be back after that to conclude and take us into Q&A.