ATI Inc.

online at atimaterials.com. Participating in today's call to share key points from our first quarter results are Kim Fields, President and CEO, and Don Newman, Executive Vice President and CFO. Before starting our prepared remarks, I would like to draw your attention to the supplemental presentation that accompanies this call. Those slides provide additional color and details on our results and outlook. It can also 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 accompanying presentation. Now, I'll turn the call over to Kim.

Thanks, Dave. Good morning, everyone, and thank you for joining us. Q1 was an excellent start to 2025 for ATI. Continuing the strong momentum we built in the fourth quarter, Our focus is firmly on execution and our results reflect that. Demand remains strong in our core aerospace and defense markets. Customers continue to turn to ATI for our differentiated products, recognizing us as a critical supplier in their value chain. Our ability to deliver high quality consistently at scale has led to expansion of long-term contracts and increased share positions across key platforms. Before we discuss our growth drivers, let's look at the Q1 results we announced this morning. Revenues grew 10% year over year, exceeding $1.1 billion for the quarter. Adjusted EBITDA reached $195 million, surpassing the top end of our guidance range by $15 million. Adjusted earnings per share came in at 72 cents, again, beating the top of our guidance range of 55 to 61 cents. And last week we reported that 1,000 USW represented employees in our AA&S segment ratified a six-year labor agreement. This is a good outcome for ATI and our team. It brings long-term labor stability to a critical part of our operations and sets the foundation for continued success. Don will walk through the financials in greater detail shortly, but the takeaway is clear. ATI started the year strong. We're confident in our position, particularly given the sustained strength in A&D demand. At the same time, we're staying prudent amid the recent trade-related uncertainty affecting the industrial markets. As such, we're maintaining our full-year 2025 guidance for adjusted EBITDA and free cash flow as we monitor how the environment evolves. Our capital deployment reflects that confidence. We continue to prioritize returning value to the shareholders. In Q1, we repurchased shares worth $70 million in line with our plan. Looking ahead, we intend to repurchase as much as $250 million in the second quarter, effectively pulling forward our full-year buyback program. We see clear value in our current share price and recognize the opportunity to capture it. Now turning to the evolving trade and tariff environment, we recognize this is top of mind for many. While the headlines continue to shift, we remain confident in our view that ATI is uniquely positioned to navigate the evolving tariff and trade landscape. Here's why. One, ATI is a US-based producer with the majority of our production footprint located domestically, even as we serve global aerospace and defense programs. Two, we have a flexible, diversified global supply chain. While certain raw materials must be imported due to the lack of domestic availability, our sourcing strategy allows us to adapt our supply chain to maintain quality and manage costs effectively. And three, our customer contracts are built to handle volatility. Many include built-in mechanisms like pass-throughs and surcharges to help offset inflation, raw material swings, and tariff costs. I'm pleased to report that to date, these tools are working as intended, preserving income and limiting financial exposure. We're actively deploying all available levers, including duty drawback programs, defense-related exemptions, and ongoing operational efficiencies to mitigate remaining impacts. Let's talk about the tariffs announced in 2025 and currently in effect, including those paused. These represent approximately $50 million in annual cost exposure prior to offset. Thanks to these mitigation offsets, we anticipate minimal impact on our full-year earnings, allowing us to reaffirm our current guidance. From a demand standpoint, tariffs are having little effect on the aerospace and defense markets. Both airframers have recently reaffirmed robust backlogs, and ATI continues to see strong engine material orders. with no cancellations or back push outs. On the industrial side, which represents approximately 20% of our total business, some customers are taking a wait and see posture. That impact, if any, would be confined to our AANS segment. To illustrate how ATI creates value, particularly in A&D, consider a recent example. In Q1, we renewed a profitable sole source contract for an advanced alloy co-developed with a major engine OEM. This material is critical in MRO applications due to its unique performance characteristics. This agreement extends well into the next decade and reinforces ATI's role as a trusted partner in delivering high performance materials for the most demanding applications. Commercial jet engine remains our most strategic end market accounting for 37% of total Q1 revenue. Sales in this area grew 35% year over year. Our alloys for the rotating components in the hot section of the current and coming generation engines are essential. We're the sole source supplier for five of the seven alloys found in the hot section, secured under long-term contracts that extend well into the 2030s and even 2040s. Our relationships span all three major commercial engine manufacturers. As engine production ramps up, ATI is growing with it. We're proud to earn contract extensions and increase share by consistently delivering innovation, quality, and scale. Beyond engines, our airframe business is also growing, representing 18% of Q1 revenue. Our titanium capabilities are in high demand. We've just recently finalized a major new contract with the leading airframe OEM, Establishing ATI is one of their top suppliers for flat products. In defense, our momentum continues to build. We are well positioned across a variety of funded platforms. We've recently qualified a new material for a long-term classified program, and our R&D pipeline has strong backing from the U.S. government and our allies. Our defense sales grew 11% year-over-year in the first quarter. The bottom line, our strategy is working. We're increasing yields. strengthening reliability, expanding capabilities, and unlocking capacity through de-bottlenecking. The investments we have made in press, forging, and downstream assets for testing and finishing are translating into higher output, improved reliability, and enhanced customer value. With strong order rates and a robust backlog, the message from our customers is clear. They need our products and ATI is delivering. Since 2020, we've been executing our growth strategy to focus on high-value A&D applications. This transformation is evident in our results. In Q1, A&D represented 66% of our total revenue. We are pleased to announce that effective today, ATI's Global Industry Classification Standard, or GICS code, has been reclassified to aerospace and defense. This reclassification validates our strategic evolution and provides greater visibility of ATI as a world-class A&D supplier. All of this is made possible by our ATI team, who continue to deliver high-quality products safely, on schedule, and at scale. It's the result of strategic focus, operational discipline, and execution. Our customers are gaining momentum, and with them, so too is ATI. With that, I will turn it over to Don.

Thanks, Kim. I'll provide additional insights into our first quarter performance and then look ahead to the Q2 and full year outlook. We finished the quarter well ahead of expectations from a revenue and profit standpoint. Revenue in the first quarter was approximately $1.14 billion, an increase of 10% year over year. You may recall that we expected a modest sequential decline in sales and earnings this quarter, driven by some accelerations in seasonality as we completed Q4. Our guidance also considered anticipated slow recovery for commercial aero customers, particularly airframe, and expected seasonal timing and defense. Even with all of that, our adjusted EBITDA at $195 million was $20 million higher than the midpoint of our Q1 guidance. That's 11% favorable. Strong operational performance in both segments and robust customer demand drove results. Our consolidated adjusted EBITDA margins were 17%, reflecting HPMC margins of 22.4% and AANS margins of nearly 15%. In HPMC, margin increases were driven by the building strength in our A&D core, which is 92% of Q1 segment revenues. HPMC margins were up 240 basis points sequentially and 400 basis points year over year. Even more than we expected, positive pricing and demand powered the step-up in margins. Solid, reliable production from our key melt and forging assets support enhanced sales, and improve absorption. We expect greater gains in the coming quarters. In AANS, we expected a sequential step back in first quarter margins due to the timing of above the line tax reserve releases and 45X manufacturing credits in Q4 2024. As anticipated, margins were down 140 basis points sequentially. Year over year, AA&S margins were up 90 basis points. Segment results this quarter exceeded our expectations. We realized timing benefits in specialty role products as our team worked with customers to mitigate risks and accelerate deliveries during our ongoing labor negotiations and the dynamic tariff environment. The SRP business also generated substantial gains in conventional energy centered on a prioritized project delivery. Congratulations to our team for delivering under a tight schedule, supporting our customers when they needed us most. Turning to cash flow, Q1 pre-cash flow usage was $143 million. That was a lower cash burn than Q1 2024 and modestly favorable to our 2025 estimates. Better than expected performance, was supported by improvements in cash used in operations and lower capex. We expect to be cash flow positive for each remaining quarter of the year as we drive a tightened cycle for working capital and profitable growth. With that, let's turn to our 2025 outlook. As we look ahead, many of our core assumptions in our outlook remain consistent. We are encouraged by the progress we see in A&D. At the same time, we appreciate that some customers still anticipate inventory drawdowns next quarter, largely tied to airframe sales. That keeps our first half outlook balanced. This timing is compounded by near-term uncertainty on the transactional side of the business as the world economy adjusts to the new norm of increased tariffs. With those conditions in place, we expect Q2 to look like the first quarter with more ramp and recovery expected later this year. For the second quarter, we are setting our guidance range for adjusted EBITDA at $195 to $205 million. That equates to an adjusted earnings per share range of 67 to 73 cents per share. For the full year, we strive to balance positive signals of A&D demand and growth with conservatism tied to non-A&D markets such as industrials. We are affirming our full-year adjusted EBITDA guide of $800 to $840 million. We are increasing our full-year EPS guidance to a range of $2.87 to $3.09 per share. This higher view of 2025 EPS is thanks to the benefit of the accelerated share repurchases Kim highlighted as we plan to reduce total share count ahead of our previous schedule. Let me add some color about how we are thinking about the top line mix and adjusted EBITDA margin so that you can better model our outlook. As we shared, A&D continues to show strength, especially in jet engine and defense. Based upon customer demand signals and Q1 performance, we expect full year 2025 jet engine sales to grow between 15 and 20% over 2024 levels. Defense, which grew 11% in Q1, also remains robust. We expect to maintain a growth rate in the upper single digit percentages for full year 2025. Overall, we anticipate AMD sales will grow 12% to 14% in 2025 as momentum in jet engine and defense combines with modest airframe growth. Energy growth is expected to more than offset lower year-over-year sales in industrials and other areas impacted by lower U.S. demand and China's slowed economy. Our EBITDA margins are expected to continue to improve during the year. We anticipate full-year consolidated 2025 adjusted EBITDA margins to be in the range of 18%. Consolidated Q2 margins should be similar or modestly better than our Q1 performance of 17%. Margins should expand in the second half of the year as A&D sales continue to grow. At the segment level, in the second half of the year, we anticipate HPMC margins to exceed 24% and AANS margins to be in the range of 15 to 16%. These margin expectations exclude potential impact of tariff pass-throughs. Stock prices for many A&D businesses have been impacted by recent volatility. Yet our conviction around the opportunity for ATI value creation has never been stronger. Compare the contractually covered profitable growth in our forecast with our stock's current valuation multiple. We are compelled to invest in ourselves, returning even more cash to shareholders this coming quarter than previously planned. At this stock price, how can we not? In the second quarter, we expect to buy back as much as $250 million in shares. moving notably ahead of our previously planned timeline. The strength of our balance sheet and our confidence in current liquidity and favorable cash generation fuel this acceleration. With this confidence, we are reaffirming our full-year free cash flow range of $240 to $360 million. Our full-year CapEx range remains at $260 to $280 million, with continuing opportunities emerging for customer funding of these investments. The CapEx range includes redeployment of cash generated from sale of non-core assets of businesses in late 2024. To summarize, we remain on track for profitable growth. We'll adjust and be agile as the world around us changes. The underlying strength of our A&D end markets coupled with highly differentiated, contractually secure products in high demand guide our course for the future. We are on or ahead of schedule to deliver every day for our customers and our shareholders. With that, I will turn the call back over to Kim.

Thanks, Don. Q1 was a great start to 2025 and we have so much more to look forward to. In summary, Strong Q1 results demonstrates consistent execution. Aerospace and defense demand is continuing to grow. We're navigating trade uncertainty strategically and effectively. And ATI is growing while positioned to deliver increasing value in the quarters and years ahead. We're confident in our team's ability to execute. The strength of our people, our products, and our customer relationships continues to drive our performance. Our long-term strategy is not just delivering results, it's unlocking greater promise ahead. The world around us is not without risk, but we believe the opportunities ahead far outweigh them. We are proactive in anticipating and mitigating these risks, backed by the expertise and dedication of our 8,000 team members. That collective experience positions us to maximize the tremendous opportunities we've created together with our customers in this moment for aerospace and defense. And with that, let's open the line for your questions.

Thank you. If you wish to ask a question, please press star followed by one on your telephone keypad now. If for any reason you want to remove your question from the key, please press star followed by two. We ask today that you limit yourself to one question and one follow-up. When preparing to ask your question, please ensure your device is unmuted locally. Our first question comes from Andre Madrid from VTIG. Your line is now open. Please go ahead.

Thanks. Good morning, Kim and Don. Real quick, to start out, can you provide more color on aftermarket or MRO contribution to A&D growth this quarter? Sure.

Well, why don't we, we'll do that in two parts. Let me just share a little bit of color and then Don can share some of the financials and so forth behind it. We continue to see strong demand from MRO as we've shared in, you know, the past calls. MRO is running 40 to 50% and it does seem that that's continuing, that demand is continuing to rise there. We're seeing it both on the materials as well as the foraging side. You know, we've talked in the past about some of the work that we're doing with the GTF and that's continuing to grow. You know, if I step back in 2024, we doubled our revenue from the work that we were doing with Pratt and supporting the GTF program. This year we're anticipating doubling or slightly more than that in 2025. And I think as we look forward, there is an opportunity for us to continue to double that even again between now and the end of the decade. And so that strength that we're seeing in the GTF program, we're seeing across the board for all of the OEM manufacturers as they are continuing to see strong demand on the MRO side. And it is driving both our margins and our revenues up. Don, I don't know if you want to share any details.

What I would add, and one clarification, Andre, I thought I heard you say MRO related to defense. Is it aero and defense or just defense, you're asking?

No, just overall. And then if you want to dig deeper into defense, too, that's fine.

No, you're good. You're good. My hearing is no, it's very good. So, you know, I'll echo what Kim said. When it comes to aerospace and defense and how MRO is impacting, with the jet engine sales, which are now a substantial, part of our overall A and D. This is a category that we really don't have specific discernment in terms of the split between what's driving revenue growth due to the MRO versus what is new bills. But clearly, MRO continues to be an area of strength for us. So we think that a meaningful amount of the growth you're seeing, period over period, around jet engine sales, for example, is certainly tied to it.

Got it. That's super helpful. I guess beyond that, and this might be a little bit more of a high-level question, and, I mean, given the timing, it might be hard to give a definitive answer, but, you know, we did see the U.S. and Ukraine sign the mineral deal yesterday. Apparently 6% of global production comes from titanium mines. Do you think this could have any impact on ATI and sourcing of feedstock?

Well, certainly, as you said, probably not in the near term. Historically, Ukraine was a supplier and one of our partners in a joint venture that we had here. But I do believe that that will be a positive as we go forward and we look at this aerospace ramp in demand and continue to diversify the titanium sponge supply into the melters here in the U.S. So I do think, again, getting that deal confirmed and finalized will, as they start to develop in Ukraine and they get the war behind them, You know, and they start to develop it out and we start to get access to that. As you said, there's a lot going on here, but you have to go through any levels of qualification first to get into airframe and then to get into jet engine. But historically, they've been at that place. So I do think that there's opportunity for this to maybe expand that supply chain from a titanium sponge standpoint.

Got it, got it. That's super helpful. I'll leave it there. Thanks so much.

Thanks.

Thank you. Our next question comes from Richard Safran from Seaport Research Partners. Your line is now open. Please go ahead.

Thanks. Tim, Don, Dave, good morning. I wanted to know if you could talk a bit more about pricing. Good morning. I wanted to know if you could talk a bit more about pricing at HP. It's just that it appears to be improving in the face of higher volume, and that's a bit counter to typical step-down pricing. I'm curious as to how much of the pricing was impacting your 1Q results and just how we should think about pricing from here in the face of higher volume.

So I'll tell you what, I'll take that question. We are seeing price. And to give you some perspective on the HPMC side, the way to think about the Q1 price year over year. We saw prices increase both in titanium and nickel generally in the 6% to 7% range. And we also saw some nice increase in terms of volumes for nickel in that segment. From a titanium standpoint, the volumes were down a bit. But we're very, very pleased with the direction of price You know, of course, a lot of our HPMC business is tied to LTA. And with each of the renewals of a contract, we are very purposeful in going after appropriate price increases. And because they're long-term agreements, when we capture those price increases, they stay with us for multiple years. So those trends are certainly looking in our favor.

Okay, thanks for that. Just follow up on, Kim, on your opening remarks about the $50 million tariff impact, but mitigated by offsets, I thought you might elaborate a bit more, get more specific about those offsets, what's driving you to maintain your outlook. And I'm just kind of wondering if the macro situation were to deteriorate, I mean, do you have further offsets that you can use to mitigate that?

Sure. Yeah, it's certainly been dynamic time with tier of headlines changing almost daily, it seems. But, you know, as you mentioned, we do believe our overall cost impacts can be manageable with, you know, that where you might see from tariffs. One of them is, like you said, the cost management. I think, you know, we've got multiple levers there that we can pull. You mentioned, you know, one of the big ones, which we talked about here earlier, is We have a pretty diversified, nimble supply chain. We're able to move our supply to low cost sources, depending on how the trade and tariff environment evolves and how those trade deals evolve. So we're continuing to monitor that and use those levers to make sure that we're tapping into the lowest cost supply. Secondarily, we're also looking at taking costs out, driving productivity to help offset this for our customers as well. And so those are things that, as you mentioned, you've seen some of the uptick from the improvements in reliability and productivity that we've got already starting to come through. Then there's levers like duty drawback and defense exemptions. that we can utilize as well. And we are taking advantage of those, and we've used those in the past. So we anticipate doing that. I think the last one, and we talked a lot about this, our contracts are really built to manage this type of volatility. They're set up with surcharges and mechanisms to pass through material fluctuations, to pass through inflation, and to pass through tariffs, which Frankly, we started implementing and incorporating this into our contracts back in 2017, 2018, during the first administration when we started to see the use of these tariffs become more prevalent. And so that allows us, if there are any of these tariff costs that we aren't able to offset, to pass through to our customers to make sure that it doesn't impact our financial results. Now, I think the more... You know, the one area that we are looking at is on the demand side. I do think it's going to take a little bit more time for us to fully understand what the impact might be. Clearly, if there's a recession, the industrial markets will start to feel that. I'd say today, as I mentioned, we do see some behavior of people kind of taking a wait and see approach, a pause, trying to process and determine where the markets are going. clearly the outcome of these trade negotiations will have an impact into both domestic with distribution and others, but also international customers and how they think about their supply chains. And so we're continuing to monitor that. I'd say, though, our defense and aerospace is very, very strong and growing demand. You know, strong backlog, obviously, with airplane orders, new builds. And strong MRO, which we just spent some time talking about, that continues to build. And the engine guys are continuing to try to, you know, get on pace with the demand that they're seeing. So I think across the board, you know, this is, you know, it's going to be an evolving situation. I do feel comfortable that we're going to be able to mitigate or pass through any of the costs and then we'll react to the changing demand situation on those

industrial markets thank you very much sure thank you our next question comes from scott deutschler from deutsche bank your line is now open please go ahead hey good morning nice results thanks scott

Don, just to be clear and follow up on that last question, does the reiterated guide include significant contingency for softer sales and other industrial end markets for the second half of the year? Just wanted to double check on that and get a further sense for what specifically is being assumed there. Thank you.

Yeah, I'm glad you asked the question. Just for clarity, when you look at our guide for 2025, we have built in risk that we see and the trend that we're seeing around those industrial ordering patterns. So yes, it should be included.

Great. Thank you. And then, Don, you spoke recently about spending a greater share of your growth capex on nickel alloys. I just wanted to get maybe a better sense as to what that looks like in terms of any specific product areas that growth capex might focus on, how much capacity that might add on a percentage basis, and over what period of time that would come online. And then maybe more for Kim, just generally curious for how you're thinking about balancing the need for capacity to discipline with the current demand impulse that you're seeing from customers. Thank you.

So I'm going to take a run at that. I think that was a one question with 10 subparts to it. So there's a high probability, Scott, that I will miss something. But, you know, long short. So let me just from a history standpoint, let me touch on one thing. With titanium, we saw titanium demand really ramping in 2022. It was accelerated by the invasion of Ukraine, and we reacted dramatically. We reacted really accelerating a strategy we already had in place, restarted a plant very cost efficiently, built some additional capacity through Brownfield. The outcome of all of that is the titanium business is performing well, even though right now there's a destocking. And if you look at what we've done with that titanium business between 2022 and 2024, we have doubled the titanium revenues. Back in 2022, they were about 400 million. 2024, they were about 800 million. You asked about nickel. Why am I talking about titanium? Because the plays that we are running for nickel will look a lot like the plays we ran for titanium. For nickel, the demand for nickel, which is primarily, I mean, it's many areas of our book, but, you know, think jet engine, right? The hot section of the jet engine is where we have our greatest competitive advantages and where we are quite focused, whether it be in melt or it's in isothermal forgings or it can be in powder applications. We are interested in defending our competitive advantage in market positions, which are very, very powerful. We're interested in defending those. Our expenditures are going to reflect running those plays. So where are we thinking about spending from a capital standpoint? First, as a reminder, we said we're going to spend on average about $200 million a year on CapEx. So the nickel investments we're talking about to meet the current demand and our contract commitments are all encompassed in that guide. And so our prioritization within there is First, you have to be able to melt. If you can't melt at purity and at scale, you can't unlock the value. So we have great melt assets. We've invested in de-bottlenecking in that area. We're reaping the rewards of that. We are investing in new discrete pieces of equipment that will help with that de-bottlenecking. And we're going beyond just de-bottlenecking and saying, hey, we can add incremental value VIM capacity, for example, and other elements in production that could be really well-returning investments. So all of that is being driven by this underlying consistent demand around jet engine materials and components, which our customers – it's not an exaggeration, Scott. Every day we are hearing from the major OEMs. They're communicating to us. We're a critical part of the supply chain. They want us to be a critical partner and a consistent partner. And our discrete investments are all pointed toward helping to meet those needs, but with discipline on our side. So I don't know if I hit one of your sub points or if I hit half of them. So what else would you like me to answer in that regard?

No, I think I took up enough of the call. I appreciate that, Don. That was a good answer. I appreciate it.

I don't think you took up the call. I think it was me taking up the call. So, all right. Fair point. Thanks, guys.

I'll pass it along, though. Thank you.

Thank you. Our next question comes from Seth Seifman from JP Morgan. The line is now open. Please go ahead.

Thanks very much, and good morning, and good results. Maybe to follow up quickly on the last question, When we think about the 15 to 20% growth in jet engine that you're looking for this year, you know, there's some additional CapEx this year, but I assume that that's probably not yet contributing much, and that'll be in front of us. So, you know, first of all, is that sort of correct? And then when we think about that 15 to 20% increase on the jet engine side this year, you know, how much of that comes from maybe, you know, Patrick Corbett- Additional capacity and capital spending that's been been done in recent years and and how much comes from kind of the improved, you know, maybe some improved productivity versus versus last year.

Yeah, I'll take a crack at that and just add a little color to what, as you said, Don just talked a little bit about. So we have been spending on capacity. We've talked about some of our downstream de-bottlenecking, ultrasonic inspection, heat treat. We have a brand new heat treat facility that's come on with our Forge products. As you mentioned, additionally, the work we're doing about de-bottlenecking and reliability upstream in our melt are all coming and we're seeing good results and momentum from the work that we've been doing. We do have several projects in the pipeline that have been installed or getting installed and are coming up to speed. And really what's driving this is the demand from that jet engine. And, you know, I'll direct everyone to kind of page five in our presentation materials. You know, in that jet engine, we're producing, you know, most of the proprietary alloys at a sole source position well into 2030s and in some cases into 2045. And so, as our engine customers are growing and their MRO needs are growing, they're really looking for us to keep pace with them so that we can continue to supply those critical alloys for those applications. I would say just around the discipline, around capital, we are being very disciplined where we see if customers want to put in capital or accelerate capital investment, we're looking for their contribution and participation in that capital cost. And as we've shared on past calls, we are seeing multiple customers that are willing to do that, again, to have that shared supply and position. So that's really... you know, what we're thinking about, and that's what's driving that demand. And so it is a combination, as you said, of both process and productivity improvements, reliability, as well as some of those prior investments in downstream testing and finishing.

Great. Great. Thanks. And then maybe as a quick follow-up in, you know, when you think about ANS and on the titanium side, when you think about Justin Cappos- The progression on wide bodies through the year and the poll from the OEMs. How are you thinking about that with regard to you know 787, A350, and 777X?

Well, yeah, I mean, from the airframe side, obviously, like you said, with the wide body that has up to five times more titanium than the single aisles. And so that demand is starting to come. You know, we've gotten good news that Boeing is, you know, is ramping well. And we are seeing some, we're starting to have conversations around what that demand will be as we're looking in the back half of this year and into next year. Remember, our melt's going to be a very long lead time in advance of those rate step changes. I would like to share, you know, our new investment in titanium that we talked about out in Oregon and our brownfield is online and is melting now. And we are in qualification. So we've got new capacity coming online to support that ramp as they start to pull more need for demand. And I'd say lastly, I'm very excited to announce that we just signed this week a new five-year agreement with Airbus. that approaches $1 billion in sales over the next five years and really puts us in a position as the leading flat roll supplier for them. So lots of good things happening there, capacity coming on at the right time along to match the demand that's coming from both air framers, Airbus, and Boeing.

Great. That's super helpful. Thanks.

Thanks.

Thank you. Our next question comes from Bill Gibbs from KeyBank Capital. The line is now open. Please go ahead.

Hey, thanks so much. Good morning.

Good morning.

Good morning. The isothermal forgings business, can you talk about how that business has developed and grown over the last several quarters and what you see moving ahead and Sub-question to that, where are your headcount additions specifically related to that business now and looking forward? Meaning, are you still adding folks to grow that business? Because I know it was an imperative last year.

Yes, so our forage products business has grown pretty substantially over the last few years. In fact, our lead times right now, we're booking out into 2027. So, isothermal demand is very high. And as you said, we have been focused on adding headcount and shifts to One, get to a 24-7 schedule, but also we've put in, as I mentioned, some new capacity downstream from a finishing standpoint, both testing and heat treating that we're getting up and running. We have finalized, we've finished adding new crews, and so now we're working on training and development. I think I've talked in the past about some of our ultrasonic testers. That's a pretty extensive qualification period, up to six months. many, I think we're about two-thirds of the way through that qualification. And so we've got about another third of new employees that are coming and they'll be qualified as a level two and then hopefully get a few to level three. So, but we are from a hiring standpoint, we've reached our stable point or a level point. All of our crews are now staffed. We're training and they're coming up to speed and you're seeing that benefit. You know, I talked a little bit about some of the productivity, we are starting to see improvements at productivity outputs from both of my HPMC businesses, and they're doing a nice job at meeting this demand, but it's continuing to grow. And they are on a path to be over a billion dollars here in the next five years, and the demand is there. Well, let me correct that. They'll be over a billion dollars this year, just to be very specific. And so that's up about 20, 25% in the last year. And with our lead times and our backlogs, we have more opportunity. So we're clearly having conversations with customers around how do we continue to expand our capacity.

Perfect. And then I have one question as it relates to titanium. So the the new titanium upstream capacity that you talked about just a little bit ago are you harboring some of those p l costs you know given some of the qualifications you're talking about and early early stage production prior to adding you know stronger volumes meaning meaning is that a drag on the results right now and then secondly the the airbus contract you talked about the five years for one billion was that specifically for titanium thank you um so

for the the the new facility, I would say, number one, it's, you know, certainly a use of cash in terms of our adjusted earnings. It is not a drag on our earnings at this point. And then in your last question, could you repeat that, Phil?

I asked was the billion that you mentioned. Yeah, the billion that you mentioned for the five year contract with Airbus. Was that specifically for titanium? Thanks.

Yes, it is. It would largely be titanium.

Thank you.

Thank you.

Thank you. Our next question comes from David Strauss from Barclays. Your line is now open. Please go ahead.

Hi, good morning. This is Josh Korn on for David. So I wanted to ask, you mentioned that Good morning. You mentioned the potential for AA&S, some of the industrial markets, to see declines in the rest of the year. In that scenario, how do you expect margins to hold up?

Thanks. So let me take a shot at that. I think I included in my prepared remarks some color around what we expect for margins. The bottom line with AA&S is you know, we're in the mid-teens right now, even with the headwinds that we can foresee with the industrials and potential pullback on sales demand there, you know, we would still expect that business to be generating, you know, EBITDA margins in those mid-teens. So 15% to 16%, I think, is what I shared for the second half of the year. You know, that segment, includes the industrial, but there's other good businesses in there. We've got what we call Aerolike Specialty Energy and our electronics business, as well as medical. They generate very, very nice margins, and we would expect that that would continue throughout this year, which will help to buoy the ANS margins for the balance.

Great, thanks. And then just wanted to ask about any financial impact on the new labor contract.

Yeah, I can let Don take that. I would say just generally that it was in line with what we expected, and it's built into our guidance. And we're very pleased that we came to a fair contract for the employees and for the business so that we can continue to support these aerospace customers that have come to rely on us in this new contract so that we can support their ramp. But, Don, if you have any specifics.

I can't add a single word. You hit it all. Thanks.

Okay, great. Thanks for taking the questions. Thank you.

Thank you. Our next question comes from Gautam Khanna from TD Cowan. Your line is now open. Please go ahead.

Yes, thanks. Good morning, guys. Good morning. Good morning. I had two questions. I was curious on the Airbus contract, which is very promising. Can you size how much of an increase the contract represents relative to what you have been doing kind of over the last five years? Is it 30% more, 50% more? Do you have a sense that you can give us?

Yeah, I mean, I can give you a sense of that. Don can share more color if he'd like. You know, I just want to, if I step back, you know, and we go back to 2020, we had no share at that time with Airbus. I think we had just announced winning the con bid and winning a position in that contract. And through the last five years, we really accelerated our support of them, especially with the conflict in Ukraine. And I'd say as we look at this contract, it will double our participation next year. with Airbus.

That's great. Thank you. And I enjoyed that slide you showed where you have a number of sole source alloys on the nickel side. I'm curious, what is the duration of the contracts there? Is there any risk that in the next five years you'll see a second source come in on any of those alloys? And are any of them much more meaningful that we should be paying closer attention to in terms of contribution to the business today.

Yeah, no, I appreciate you asking. I know there's been a lot of conversation about some of these alloys. So I would say, you know, the duration, I won't share any specifics about a specific customer or contract, but all of these alloys are contracted into the middle of next decade, and many of them go into the middle of 2040. primarily because being a sole source provider of these critical alloys, these customers want to make sure they have the surety of the supply and they make sure they're aligning to us because this is critical. They don't have other alternatives. You know, as I look at these alloys here, you know, the ones that, you know, we think about around the Rolls-Royce or, I'm sorry, the R1000, is an integrated supply chain. We do both the forgings and the powder supply for that. And so that is one that we are continuing to optimize the work that we're doing there. And it hits both the specialty materials as well as the forage products business. And so that's one that we spend a lot of time with them. We help co-develop their new next generation alloy, and we're continuing to work together to expand that participation. I just want to mention these alloys, as I mentioned, are critical to our customers. There is no substitution for these alloys. There isn't another alloy or another supplier that they can go to. So, again, making sure that they have the capacity, the quality, the consistency to continue to support. And since they go into the hot section of the jet engine, predominantly in the disk, That is a very, very high frequency MRO part, and that's where you're seeing that increase of 35% on jet engine growth.

May I just follow up? Is it one of those things where there's not a second supplier because there's exclusivity with ATI through the next decade, or is it there's still the potential for a second supplier, they just haven't qualified yet?

No, with these contracts, they are 100% share or most of them are 100% share. But I think more importantly to remember is the barriers to entry are pretty high. These are difficult alloys to produce. They take a lot of focus and discipline around controlling both the melt and the forging process, heating times, forming times. They are, again, they're very, very difficult. primarily because of the composition that they put in there to be able to withstand the temperatures as well as the stresses on them in that hot section of the engine. So our contracts have, you know, long sole source, 100% share positions, and they've taken years to develop and perfect the process.

Excellent. Thank you. Great job, Grace.

Thank you. Thank you. Our next question comes from Tim Natanas from Walk Research. Your line is now open. Please go ahead.

Yeah, hey, thanks and good morning. Wanted to probe a little bit more on the industrial side, not taking away from all the strengths obviously in A&D, but given that that is one area that you called out, how easy or desirable would it be to try to pivot some of that business to some of the stronger areas?

Well, so the strategy of continuing to attack our product mix is something we work on a regular basis. It's one of the reasons why we've been able to really accelerate our focus on aerospace and defense. So as far as the industrial, we're going to continue to look for opportunities to maximize where the demand is as it aligns to our our capabilities, and especially our core capabilities. And so if there's room there for us to create value and it makes sense to the core, of course we would do that.

And I would just add that was a big portion of the transformation. Tim, I was just going to add, that was really what our focus on the transformation was, was to move into those higher margin aerospace and defense alloys. And it's been very successful. You've seen the A&S margins come up over the last three or four years. And with this announcement, we are now producing almost, we're reaching parity for both of the large air framers. So I think it's been very successful. We'll continue to drive in that direction and go after more opportunities to leverage the strengths of that business.

Now, of course, I know, but you've also mentioned that because of the strength in A&D, you were able to have some leverage with some of the stronger components outside of A&D. So just wondering if that was still the case and wondering if there was opportunity to do further pivoting or if it would require further investment.

I would say we wouldn't expect something like that to take any significant investment. But, you know, most certainly we're looking at opportunities that will more fully utilize our assets. And if there's an opportunity to expand business with customers and leverage other capabilities, we're keen to do that. One other thing to remember, clearly right now we're seeing where the industrial demand is kind of pausing as the distributors, for example, try to evaluate where all this stuff is going to settle in the macro. Just like that pauses quickly, it can spring back very quickly. Now, we haven't baked into our guidance, Timna, the assumption that industry will come back screaming in the third quarter. We've kind of assumed flatness in terms of that demand, but that truly can happen. And so we're looking to maximize the cash generation and bottom line in terms across all of this.

But keeping some spare capacity for that potential recovery is part of your strategy, it sounds like.

Yeah, I would say. And whatever capacity we have, we certainly want to maximize it. We're also continuing to develop new products that open up new opportunities for us. One example would be we built a a titanium alloy sheet facility in South Carolina in 2024. That facility is in service. That's something we're bringing to the market that, you know, again, is a product offering that opens up not just capabilities to sell that product, but can open up opportunities to sell other products, you know, including some that you might classify as industrial, for example.

Okay, I'll leave it there. Thank you.

Thank you. Our next question comes from Josh Sullivan from the Benchmark Company. Your line is now open. Please go ahead.

Hey, good morning.

Good morning.

What is the buck stop with pass-throughs as they relate to tariffs? You know, most of the supply chain outlining passing through tariff costs, you know, and then this morning, Another large, historically very vocal European airline talking about canceling orders of tariffs materially affect the price of aircraft. How does this evolve? Does this mean there's just greater leaning on MRO? Is this figured out? Or are there just only so many options for Lyft and that demand will move elsewhere? Maybe it's just too early to know, but curious on your thoughts.

Yeah, I think it is early. It's going to evolve. And I've seen certain airlines either choose to not take delivery, or I think I even heard yesterday an airline taking delivery in an Asian country to avoid tariffs here in the US and having them just do long haul flights. So yeah, it is very early. We'll have to see how this develops. But ultimately, Demand for air travel, we've seen the ages of the aircraft that are in the industry. That's not going to reverse without new airplanes. And there's two air framers in the world that are developing and building planes. And so I do think that possibly in the short term, in the near term, you could see people slow down on taking delivery of planes. I haven't heard, and I'll let Airbus and Boeing talk about their business specifically, but I haven't heard anything that says that they're seeing any cancellations or huge push outs or anything that would say in the near term that there's concern. Now, long term, you know, I do think it will depend on how the trade deals continue to evolve and develop. And, you know, if that treaty back from 1979 gets put back in place, which, you know, the aerospace industry being is very global. And I think many would say successful because of that treaty that that would help resume resume deliveries. But right now, as I mentioned in my prepared remarks, we've seen no push outs. We've seen no cancellations. Everybody's continuing, frankly, to try to catch up with the demand. And, you know, as they start to ramp the wide body, that's going to put even more demand into the system.

Got it. And then maybe just on that wide-body comment, you know, as we look at the airframe inventory drawdowns currently, and then just as you look at that skyline expectation, you know, what inning do you think we're in the D-stock right now?

I think early. I do think that they've had some good early success with their ramp. And that's good news for the whole industry. As I look at it, we've seen some small emergent demand in orders, but I think that's more offsetting where they might not have demand. But overall, they're working that inventory level down and right-sizing it. So as I look at opportunities, the faster they ramp. what I would say is that pulls, you know, and puts opportunity for 2026. And that's where we would start to see those orders coming in and that demand start to ramp much quicker than maybe that our outlook has today.

Great. Thank you for the time.

Sure. Thank you. We currently have no further questions, so I'll hand back to David for closing remarks.

Thank you. We just want to thank everyone for their time today. We're very pleased with our first quarter results. Please reach out to Clay and myself and the investor relations team if you have any further questions. Have a great day.

This concludes today's call. Thank you for joining. You may now disconnect your line.