ATI Inc. ($ATI)

All right. I think we're ready to go here. I don't think I can physically get back here. But, okay, anyway, I'm Doug Harned, Bernstein's Global Aerospace and Defense analyst. Great to have with us again, Kim Fields, now both Chairman and CEO of ATI Materials. So with that, I think we'll get started. But I think to start, maybe you can just tell us a little bit -- give us a little bit about where ATI stands right now and what you're looking at in terms of priorities?

Yes. I mean it's just -- it's been fantastic, right? It's a material constrained market. It continues to be constrained. Demand is coming kind of across the confluent of all of our markets. So we continue to see strong demand in all of the areas that we have differentiated materials. Jet engines continue to grow with OE and the next-gen engines, doubled the content on the LEAP and the GTF and then aftermarket continues to be really strong. It's running at like 2x, so where we historically are, so 50% to 60%. And so again, that really leverages where we've got differentiated capabilities and materials and great partnerships across all the platforms. And so that's really good. And then you layer on top of that defense, the defense growth that we're seeing in things like missiles, nuclear naval and then rotary and fixed wing aircraft, those continue to grow. And obviously, we're continuing to have conflicts around the world. And then specialty energy, which, again, leverages those differentiated materials, demand, that structural demand that's increasing. And those customers are looking at their supply chains in a very strategic way, similar to some of our aerospace and defense. So lots of opportunities for us to continue to grow and leverage that capability and partnering with our customers.

And that's -- we'll get into all this, but it's interesting to have you describe it that way because a year ago, you did not. A year ago, it was so much [ arrow ] and then -- which it still is, right? But all of these other things are a little more dynamic perhaps than they were a year ago.

It is, yes. The demand is higher. I'd say, I think we focused our portfolio a bit more. If you look at aerospace, defense and then specialty energy, that's 80% now of our market. And you can see that in some of the growth that we've had over the last 6 to 12 months. We've started to reprioritize those assets towards those 3 core strategic markets and less so, yes, in industrial, which we talked about last year, but also electronics and medical because it's just the high-value opportunities that demand continues to grow.

So anything -- I mean, since as you're looking -- we're well into Q2 now, anything you want to update after your Q1 results?

Yes. I think the one update I'd say is demand continues to be strong. We haven't seen any changes with our underlying demand from our customers. In fact, if anything, I'd say, there's been an increased urgency for materials, especially as pressure on the engine OEMs to keep pace with the airframe ramp. With Boeing, they're continuing to increase their production and doing well. Airbus clearly continues to want to get to [ 75 ] and so the last few weeks, there's some discussion around, hey, maybe there's a slowdown. I had 3 separate CEOs of companies across these markets call me. And say, Kim, if you have any openings, anybody pushes out, cancels, I will buy that, I will contract it. And of course, you love me best, right? So yes, I mean, everybody is still looking for material. I think from a quarter standpoint, operationally, we are production and supply chain are going well. Our cost position is good. And so we're in a good spot.

So one of the things that a lot of your counterparts here have talked about, we've gotten into this discussion about the Aero aftermarket customers and the risk of a slowdown in the airlines, a lot of them are having a hard time with high fuel prices. I will say so far, whether it's GE, Howmet or -- I mean, none of them have seen anything that's indicated a degradation of demand. Have you -- and as you look at the world now, is there anything on the aftermarket side where you're going? In this time frame, that's when I might have a concern.

Yes. I'd say, to date, we have seen no slowdown, no change whatsoever. In fact, as I said, people are kind of clamoring and saying, we'll take any open capacity and are having a sense of urgency about getting that. From an aftermarket standpoint, the retirements as they're taking out less fuel-efficient planes, those have the older engines in them. It's actually a good thing for ATI. You get more cycles on the next-gen engines where our content is 2x where we are in the legacy engines and so...

So sort of LEAP versus CFM56?

Exactly. Yes, LEAP and GTF are where we're going to have 2x more than 2x of the content. So again, the more cycles and more shop visits, those have the better it is for ATI in the long term. To your point, I am monitoring the situation. There seems to be no impact yet, like you said, to the industry or to the airlines. But as fuel prices continue, either to increase or even the longevity of this, I anticipate that we may see some impact. But to date, I haven't really seen anything yet. And so continue to monitor, I don't know, every day I wake up and the war is over and they've got a new peace deal going.

I haven't checked in the last hour.

Yes, I will say in the last hour, I don't know. By the end of the day, it's off the table. So they were bombing, I don't know. But we'll see.

So your jet engine, your sales were up 12% in Q1. I mean how should we think about it? Can you stay and you expect to stay in this double-digit growth level? Or could that even be higher?

Yes. So we are thinking about for the full year that will be in kind of that mid- to upper teens level. And I've got the bias to the upside on this demand, as I said, is very strong. On the aftermarket, we're continuing to see that the upgrade packages, the durability issues, corrosion issues continue to be strong on top of -- LEAPs now starting to come into their shop visits here. And so we're seeing that as well as GTF. And we're pretty heavily involved with that with Pratt and helping them with those accelerated shop visits. So that's 40% of our revenue. And I do think that, that biases to the upside for the year.

Well, yes, that's 40% of your revenue. And then I think, aftermarket is like 40-something percent with -- of that revenue.

Right. Yes, it's about half. It's about half of that.

So when you look at the aftermarket because there is -- I mean, I think it's an interesting dynamic right now because you've seen all the life extensions on CFM56, V2500, even T90s, and so those are, I would assume kind of the core of your aftermarket work. But as you say, you've got LEAPs coming in, but they're coming in typically, they're not -- it's just now where they're really coming in for full performance restoration shop visits. Is the work that you do, if you're coming in for sort of these early parcel shop visits, does that have much impact on you? Or does it really accelerate once you get into sort of the full heavy checks?

Well, on the -- so we do the disks in the hot section. So I shared that for the jet engine. There are 7 alloys that are used by all the OEMs. We are sole source supply in 5 of those and the sixth one we share with a competitor and the seventh, the OEM makes. And so typically, when they're coming in for a shop visit, this is one of the first areas you're looking in that hot section. Are they having to replace a blade? Do they have to replace the disk? And typically, they are taking those disks out. They're very heavily stressed. But even on...

Even on the LEAP, I mean... I know -- the GTF, yes, absolutely.

Even on the LEAP, I just told you the upgrades. Yes, yes. And to be honest for those, I think they're still material constrained. They're making their own material. Those I think they're not able to do the full shop visit when they're coming in. They're doing what they have to replace and then they might have to come in another year, 18 months after that. So those continue and that high rate continues with that. But even on the LEAP, they're seeing design changes that they're doing for lifing, corrosion, some durability with hot, sandy environments. And those are all in those first-stage HPT disks that we make out of that powder alloy through our isothermal forgings. And so again, really highly differentiated. There's only 2 of us in the world making these parts in these materials. And so the demand continues to be really strong. And when I look at their charts, as you said, you can see how maybe those upgrades start to come down, but the LEAP visits and the shop visits start to come up. And so we never really have a dip. It just continues to grow.

Yes, yes. And the content is going to grow on the LEAP substantially pretty soon, I think.

Yes. Yes. So the content on the LEAP and then we're already talking about next generation, these powder alloys are the most differentiated. And they're what's allowing them to run those engines hotter, more efficiently. And so we're at the table, some of those 7 are new development alloys for the next-generation engines.

Okay. That's a [ real ] way is a way right now?

That is. And we're plenty busy, as you said, like I said, we're looking at that upper teens and to the high side. I think that growth will continue. We're making some strategic investments backed with customer co-funding and aligning to that demand but as I look out for the rest of this decade, material constraints is going to continue, I think, to be a theme.

So on the GTF, so if you go back a couple of years, that was a much less important program for you, right?

Sure, yes.

And then, they've certainly had challenges in their own material. How is your role on the GTF progressed over time? How does that compare now to the amount of content on the LEAP, which has been kind of -- I mean I think of it as kind of bread and butter for you guys for quite a while.

Yes. If you think about engine, I'd say historically, to your point, we're probably the heaviest content on the Rolls-Royce engine. So maybe around 40% from a parts standpoint, forging standpoint. And then LEAP was probably closer to like 35%, so neck and neck. Perhaps come up to be even, so if you look at the 3, we start to be even between the 3 with the GTF. And it's been a great story at how with these alloys, a lot of these started out as co-development, joint technology agreements and the technology teams are embedded within each other. And so when this issue came up with Pratt, we were already part of their supply chain. We are already providing parts. And they came to us and said, look, obviously, everybody heard about the issue, it was a big news. And they said, we need to ramp up very quickly, and we can't wait for capacity or capital. And so we looked across and kind of in an innovative way, we shared all IP. We opened up the boundaries and said, if this was under one roof and 1 set of assets, how would we optimize to get the most out. And that's how we were able to triple and quadruple what we were doing historically with them to help them ramp very quickly.

Yes. And so on top of it now, you've got Boeing is on the OE side. So the other half of your business. So you're seeing Boeing ramp. When you look at the Boeing ramp today, and I kind of throw Airbus [ into ], but more Boeing. So Boeing has had a lot of inventory, and they've had a lot of engines. I mean, we heard some yesterday that at least on the engine side, that inventory has been worked down. And so for you all, when you look at the demand on the OE side, should we assume that, that's kind of moving with that Boeing production rate now? Is that fair?

Yes. I think, the way I'm looking at it for this year is the first quarter, we still have some variability due to that inventory normalization. For the most part, even as recently as this week, talking with them, I'd say across their product forms, they are pretty aligned. There is one product form around that they continue to have a little bit more inventory because they bought more. There are other forms that we have that we're seeing increased demand primarily because they really had to disintermediate their supply chain. They were buying finished parts before from Russia, and now they're buying [ bill it ] and it's got to go to forging. So it's really changed how they're thinking about their inventory. And so that is at an accelerated level for things like landing gear is one area where we're getting a lot more share. We're qualifying new products to help support them. So for the most part, it's 2 halves. As we leave this first half when we go into the second half, we're going to be pretty aligned with their production, their [ pull ] rate, and we'll start to see that growth gradually start to increase.

That's it -- so you're still seeing that. I mean, that's the old -- the old VSMPO work, right?

We're still working through some of the plates and some of those things that they had, they had bought quite a bit of and they're still aligning that. Now I'm encouraged by the progress they're making on their production ramps and they're burning through it pretty quickly.

Yes. Okay. That's great. Well, when you look at all this, and if I go to the engine side rather than landing [ here ] for the moment, so you've got high demand in the aftermarket. And it sounds like it's more, say, on the LEAP than I would have thought. And then you've also got the strong OE demand. How does that work in terms of your ability to deliver with capacity because you sort of got a double stress here on what you need to do.

And if you take these other markets, defense and energy, so the gas turbine, those are coming straight to the same assets. So you're right, we are seeing a lot of demand and a lot of [ pull ]. And to your point, as Boeing continues to ramp, that pressure is going to even get greater. And so a lot of the focus that we've been doing in the last couple of years, I've been talking with you about is how do we invest in discrete downstream assets to debottleneck, to increase our flow. We've done a lot of work in the last 2 years around equipment reliability and spending more money on maintenance and spare parts. Using some AI tools that have really helped us hone our repairs. And we're seeing a lot of increased throughput, just this last quarter. Our yields in one of those differentiated alloys I talked about for the engine hit the same level we were at in 2019. So our employees are coming up the learning curve. We're getting back to that stable production, those quality and productivity levels, and we're making some discrete investments that, again, they're aligning with our customers for these proprietary materials.

So if I were to think about this, if I'm sitting -- I'll use this one because it's very, very real. So if I'm sitting at Airbus, and I'm complaining about getting engines, are you guys like you're not the problem, right? I mean, so the stress down in that supply chain, I just wonder across the board, the people get singled out a lot and are you able to respond and deal with both of these growth markets? I mean, it's a good problem to have, but it's a challenging one, right?

Yes. Well, in that particular situation, and in both instances, we're not the problem, but we're the solution. And so I shared those 7 alloys. 5 of them, we make sole sourced, that sixth one, we really got the opportunity because the other supplier wasn't able to meet the demand needs. And so we were able to step in and very quickly ramp from a low level in December to kind of [ 5 backs ] for the year now is our outlook. And so again, we're helping. Now in the GTF situation, they're making their own material, but I know there is a lot of interest and desire for them to dual source so that they don't ever get themselves in that situation again. And we're perfectly -- we have the capability. We [ all ] these other alloys. We have that capability. And so there's that opportunity in the future. So to your point, the team has done a fantastic job. I'm going to give them a lot of credit on these alloys, these powder alloys because they went in -- we didn't come into the year with a lot of capacity, and they worked on productivity and changeovers and yield and equipment upgrades. And pretty rapidly in a 3-month period of time, we were able to double the output on this alloy that really help the engine guys meet that demand from the OE. So can we do that every quarter? I don't know. We're going to keep pushing that envelope and making sure that we're taking advantage of it. And then partnering like that nickel investment I shared a quarter or 2 ago, that's very strategic and very focused on these particular alloys with customer co-funding to support them.

Well, and for those of us, can you give us a little bit of a picture of what differentiates you in a way that, like me included, I may not understand all of the technology behind us, so if you can do an easy version of what differentiates you guys in this area. That would be great.

Yes. I'll start broadly and then talk maybe more specifically and you stop me if I get too technical. But if you think about it, those super alloy nickels that are using the hottest section, if you think of a pyramid, that's at the very highest level decades of work. A lot of these had joint technology agreements where we worked and developed it together. The engine guys said, here's what we need for the specifications and we develop the technology and that is all kept internal to us, not even shared with the engine guys. And so those very difficult, very difficult alloys to make. They're powder. There's only 2 companies in the world -- well, 3 if you include GTF, but that provide...

GTF [ getting private rate ] yes.

Right, they make their own powder. But there's only 3 that make that in the world. Because of the issue that Pratt had with the GTF, the cleanliness, the quality control are very, very difficult and stringent to maintain. On the other areas we do, the isothermal forgings that we make that then go into the disks. There's only 2 people in the world that do that today. And we're in a great position where we're a main supplier to all the platforms, and we're continuing to do that. And then you look at premium quality titanium, which is being used in engines, that is rapidly our backlog has gone up. Our lead times are gone out. There is a great demand for that. We've just brought that new asset on that we invested out in Richland, Washington that we're in the process of qualifying that has that capability. And then the last one is our zirconium and hafnium, which, again, go into nuclear products, commercial and defense. But also uses alloy additions, master alloys for some of these other alloys. And so again, that system works together to create a very differentiated type of product offering that we can provide to our customers.

Well, given that, and what we just talked about, about the pressures of demand, the aftermarket OE, you and I talked about this a fair amount last year. But when you're in a position like this, you've got long-term contracts. How do you take advantage of the pricing opportunities here?

Yes. And I would say these contracts are structurally much different than they've been in the past. So we have margin accretion opportunities as we look at the surcharges and pass-through escalation mechanisms that we've been able to build in. And to your point, every time -- I think the important thing to remember for folks is any time a customer comes and says, we need a different product or you have 80% share, we want you to go to 100% because maybe our other supplier isn't meeting our full needs, we need to go [ all caps ], we need more material than your cap. That gives us an opportunity to open up that contract and in some cases, not even just that one. Maybe another one is saying, okay, you need this. We need price here, we need different terms, we need surcharges and pass-throughs. And so it allows us, even within that contract and that framework to make sure that we're getting price and we're getting value in this market with capacity constrained as it is, and I don't see that changing for the rest of this decade, maybe into the next one. There is a great opportunity for us to continue to get that value that we're creating for our customer. And it continues to happen. Like I said, I go to every air show. And I know you've been going to [ him ], too. I go there every year. And I think this is the year we're just going to all celebrate and say, okay, we've got it. Everything is flowing and then moving along and never changes. This year is not going to be any different because I'm already seeing people coming in knowing, I need this, I've got this crisis, I need you to do more. Can you do this? What would have to be true for us to do this. And so the opportunities continue. To your point, it's a good stress. There's a lot of stress for the team. But I will say, we've got a fantastic group that has really risen to that challenge and figured out ways to be creative in partnering.

And when you look at -- what are the margin expansion opportunities here?

Well, it's both -- so you're going to see, as you look at our margins through the year, a continual improvement AA&S, our segment has been in the upper teens for the last 3 quarters. That's really a result of all the work we've been doing the last few years around portfolio optimization. So you're going to continue to see that. On the HPMC side, on the aerospace side and engine, in particular, we're able to capture price. We're getting mix and expanded share and content on these engines. And then we're also seeing the benefits of utilization and cost out that we're doing, one, around quality and also on productivity. And so all 3 of those, when combined then with some of the strategic investments that we've announced, is really giving us an opportunity to expand those margins and increase the profitability of the products that we're doing.

If we switch to defense and a lot of the growth, I think, on the defense side, you've had, it's been on the AA&S side. Can you talk about what's driving that growth?

Yes. We are -- I think our -- one of our benefits and strengths is the breadth of our defense portfolio. We're on several key programs and areas that the administration is prioritizing, a big one is the naval nuclear program. That's about half of our defense revenue today. I just announced a big contract that we signed for $1 billion, and that was a renewal of a prior contract where we're a sole source supplier. And that's about 2x what it's been historically. But just to give you some perspective...

When is that on specifically?

So it's going into the naval nuclear program for a classified program. I can't give you too many details on that, but for that program, we've been the sole supplier for decades. We've supported that program. It's highly specialized. And it does not contemplate, there's been a lot of talk around the Virginia class and submarine and expanding that to 2 subs a year, that doesn't contemplate any type of growth like that. It's more of just the regular program for the next 5 years. So it could be upside if we were successful at the shipbuilding is expanding that. That's a big one. I'd say, the one I'm excited about here recently is there's been a lot of demand accelerating around missiles. We do have content on those. Both titanium, that premium quality titanium, as well as some Niobium C103-based, which uses hafnium. And though that demand, the inquiries, the orders are coming in quite quickly now, it's a small part of our business today, a small part of defense. But I do think that's going to be a long-lasting durable stream as we work to replenish the stockpiles.

So that's a topic that over here, we've been talking about a lot.

Okay. I've heard a few questions on this.

We're going to hear more tomorrow, RTX is here tomorrow, but certainly, Lockheed Martin talked about Northrop Grumman, L3Harris, [ Ander ], all of them talked about this growth path here. So for you, I mean, what -- we know, right now, their frameworks to triple and quadruple production on PAC-3, THAAD, SM3, MRAM. I mean you can kind of get prism, you can kind of go through a lot of these. What programs are you on? And are there some that you're specifically targeting?

So several of the ones you mentioned that were on PAC-3, THAAD, Tomahawk, MRAM. We've got content on those. And to your point, the primes have gotten a lot of pressure around missile and missile production and ramping up. And so we've already seen where we're on some of these programs where people are coming in placing orders for they're indicating up to 6x, the normal quantities that they've taken and are starting to place orders ahead of that funding coming from Washington. So that they're ready from a supply chain standpoint. And so -- like I said, it is -- we'll continue to -- it's a small part today, but we'll continue to scale and ramp as the supply chain ramps. And again, our materials are they're bringing from a structural, high-temperature structural applications, propulsion, those really unique alloys that we produce.

Because there's an interesting dynamic here where separate even from this new heightened demand. One of the challenges, and I'm just sure you're much more familiar with this. But one of the big challenges here has been on solid rocket motors as an example. So you've had those issues at Lockheed, you've had them at Raytheon and trying to get -- increase those. However, let's say you magically do that. Well, you still have to get more seekers, you have -- there's a lot more to this than just one very important piece of the puzzle. And so -- how do you -- like, say, PAC-3, like are you looking -- are you currently on PAC-3 and just looking at higher volumes -- or are you looking at even more content on there because everybody is going to be stretched across everything they do on these missile programs.

Right. So for those missile programs, to your point, we are on those programs today. But there is opportunities to your point because they're trying to ramp so quickly for us to expand our content. And so we are having conversations in our whole product portfolio. to see what other applications might make sense. But today, it's mainly on that premium quality titaniums. It's on C103, which was that niobium, hafnium-based alloys that are used both for defense as well as hypersonics and space. So again, to your point, there's multiple demands pulling on those supply chains.

And if we flip over to space, there are very different characteristics of at least I've known from the past of the materials you're using in space applications. But -- so can you talk about how you fit in there because that's clearly a high-growth market as well.

Yes. So it's another one I'm excited about like missiles, it's a small part today, but it's a critical part of the space industry. So we're on applications like the Stage 2 rockets, propulsion systems, the dray go nozzle, so we're on the fuel nozzles. And so it's at C103 material that uses the niobium, it's for very, very high temperature applications. I think I shared with you last year a second stage rocket that's flowing in the sky. And for the launch companies, we're one of the only Western U.S. suppliers that make that. And we are the only one that's qualified for any type of manned aircraft and flight due to our consistency of our quality, the consistency of our product. And so they're continuing to ramp. I'm seeing forecasts that go out to 2,100 and how many launches they want to do. And that's the material that in that second stage, it burns for 6, 7, 8 minutes. And it's not reusable. It's gone as it leaves the atmosphere. But to your point, it's a very difficult alloy to make. It was developed by the company that ATI bought ultimately and Boeing for the Apollo mission. And over the last 50 years or so, there still hasn't been another company that's been able to crack the code and make it consistently like we do. So there's a ton. I think there's going to be a ton of growth, and it's not just that material. We're doing additive parts that we are making for all of the different launch companies we're partnering with them as well as some super alloy nickel products as well that go into those.

So if you want to take your defense business today, and I cannot remember how the dollars...

About 10%.

Okay. So when you go within that what is the mix today of applications for defense? And what do you see it in 5 years when you're looking at missiles and space contributing?

Yes, that's interesting. So today, within that 10%, as I mentioned, half is the naval nuclear I think that is going to continue to grow, obviously, with the shipbuilding and so forth. Today...

In all of those programs, even though I can't know what it is, that area is well supported.

Yes. Through the navy and through -- yes. So it's supporting the, like I said, the nuclear naval program, aircraft carriers, submarines, you think about the Indo-Pacific and that priority. So that's where the funding is coming from. So yes, those are well supported and long-term programs that have been in place. The other piece is -- so I'd say the other 2 big pieces that we haven't talked about, one is armor, which is less of a priority in the U.S. but is increasingly important in Europe. We've got relationships supporting BAE, Romital, U.K., GD. So we're continuing to support it as they grow their manufacturing base and they start to ramp up production that we'll be ramping with them.

There is no substitute in Europe for what you do.

Well, so they're using titanium for weight, right? So it has a higher strength-to-weight ratio than steel. And so you get a much stronger, and it's usually used in the undercarriage but now with drone warfare coming, they're really looking at how do we create the envelope because now we have to protect from the top as well as the bottom. And so I do see that expanding rapidly not just with production, but with the use within the tanks. And then the last one, obviously, is the jet fighters. We're on the current generations, we're getting and working on development for the next generations. And so then that brings us to the last with missiles and space, which are about 2% today. And so if I look out 5 years, if it grows, let's say, maybe we're not quite as successful at our ambitions to grow 6x over the next 5 years, maybe it's only 3x, that could go to like 5%, 6%, 7%.

So well, yes, you have to -- the problem with that is that the top line grows,too.

It's going to keep growing, yes.

But I guess the point here is that it's like 2% today and that could triple in 5 years.

Yes, exactly. And I would say if I think about just the growth rate, defense, chat engine, we're looking at kind of upper -- mid- to upper teens, both of those on bias the high side for 2026. We're seeing substantial demand coming in, a lot of growth. If we're able to make it and produce it and ship it, there's a lot of demand to take that. And then specialty energy is in there, and that's also in that kind of mid-teens area as well. So really strong demand. And so you're seeing in some of our other markets, we're redeploying the assets away from those so that we can really help support these ramps.

So on airframes, going back to commercial, you talked a little bit about kind of destocking, I guess, there are some things that are still -- there's still excess inventory to burn down some things not. Is that correct?

Yes. In one product form, I'd say, for the most part, it's aligning. But I'd say as we go through the rest of this quarter, we'll have that full alignment.

Now historically, Boeing has been a bigger customer, but you've gotten much more involved with Airbus over the last couple of years.

Exactly, yes.

So where are you -- now, where are you playing with Airbus on the airframe side?

Yes. So to your point, and I think I mentioned this last year, before COVID, we had just signed the new contract with Airbus and had not really even begun supplying them. And so as we came out when Russia invaded Ukraine, they rapidly work to get us qualified because they wanted that supply in. And today, we're at about 50% share on the products that we're selling to them. And when you look between Airbus and Boeing, it's pretty even. It's balanced between the 2. So yes, before COVID, we were a Boeing GE company, and we were really focused there. And I'd say, as we've looked at the portfolio and diversified both our customers and the programs, we've expanded that participation on these different programs and expanded the product portfolios in content that we have as well. So again, it's very balanced between the airframers as well as the engines, and we've got all of our different products participating in these programs.

Yes, I know that even though a lot of people don't like to talk about it. The European players continue to source some from Russia even once the U.S. companies had completely shut it down. Where does that stand today in terms of titanium that's still getting -- coming out of Russia and going into Europe because presumably, that's going to come -- if it hasn't, it will have to come to an end at some point.

Yes. I know I get questions a lot. Well, what happens when they come back in, and I'm like, well, before has stopped first for that to happen. But to your point, I think there is some that's still coming in to some of those European companies, but not in the engine. So I'd say anything that has rotating parts or premium quality attached, what I have heard from them is those require on-site quality audits on an annual or biannual basis. None of them can get in, yes, exactly. You can't get in. They can't go and see it for themselves and judge it. And so there isn't anyone that's comfortable. So obviously, the certifications have lapsed, but they're not comfortable using those because although you would think that a lot of the processes and procedures are being place, they know some personnel as change. And until they are able to validate that, they aren't using it in those applications, which for us is where our differentiated materials typically go, and that's why that premium quality titanium, I think is in such high demand is because that there is anyone comfortable buying it from there.

Now, there's a lot of titanium on widebodies, right?

There is, yes. 5x more than a narrow body.

How do you contrast your -- the profile of your airframe demand is it predominantly A350, 787.

If you look at the titanium demand today, it's fairly balanced. Like you said, wide-bodies haven't come back to the level that we were forecasting 5 years ago. but narrowbody are much higher. And so when you look at it, they start to come balance on the volume of titanium.

So you're saying, you sort of balanced narrowbody and widebody?

Right, in total. In total titanium, you might have less on a narrow-body, but there's so many more those, yes. [indiscernible] but flight body comes back.

That's what I was going to say. So we're -- everybody is behind, right? So Airbus is...

They're trying.

They're trying, right?

Yes.

But it's been a little difficult lately. And Boeing is says they will be 10 a month by the end of the year. So that would suggest that you've got a ramp coming here certainly on the Boeing side and hopefully, on the Airbus side, they have strong aspirations just I think, some operational challenges. would we expect to see another step up once that starts to come in?

I think as we go into next year, we are looking for that. And to your point, those widebodies use 5x more titanium. And so we are thinking that, that's going to continue. We put in that new EV melter out in Richland to help us prepare both for the PK, the premium quality side as well as the standard quality side. And so we believe that we're positioned to help support that wide-body ramp as we go into the back half of this decade. But that's the one area in addition to defense and all of the other demands that are coming in that has not come all the way back to pre-COVID. And so yes, that would be -- we're well positioned. And I think there's some other assets coming on in the industry. So I think that we're in a position to support it.

Well, let's like jump over to these other markets. So you've got -- there's a bunch of them in your portfolio. Can you go back to highlight the ones that you think can be material in terms of growth right now?

Yes. I'd say it comes down to really the 3 big ones: aerospace, defense and specialty energy. We haven't talked as much about specialty energy, by video and my chat with [ Scott Strazik ] out, it came out yesterday. And really, that's an area that we've got increased concentration and focus. A lot of the materials we use for jet engines are similar or the same that are used in the gas turbines. And that market has changed so substantially just from a structural standpoint of very long backlogs into 2032 now, and they're starting to think about their supply chain strategically like the aerospace do. They're looking at surety of supply and access to capacity and new product development, both on the material as well as forgings. And so we're continuing to expand our content and participation in our contractual relationships with those energy companies. In addition, you've got the nuclear renaissance, the refueling, the restarting and our business out on the West Coast with the hafnium so that naval nuclear business is also does commercial nuclear. And so hafnium, zirconium we're helping to support that. And we really -- if you think about it in the Western world, there's only 3 companies that make these products for commercial nuclear applications. The other 2 have captive nuclear plant arms that they're supplying. We're the only independent. And so if you think about the market and people that are looking for access, they're coming to us and bringing in some cases, capital because they want more capacity, they want more access to that reserve capacity so they can make sure that they've got that to support their business.

So I'm curious, if we go back to industrial gas turbines. What -- I mean how much -- I'm trying to understand how much content you provide for those because clearly, we're looking at very, very strong ramps right now. And so how important is that business. I mean if you're using, I would say, a modern industrial gas turbine, and that technology continues to go up, temperatures continue to go up. What does that mean for you all? Can we look at -- it was very interesting yesterday morning because at the same time, we had GE Renova in here. We had Baker Hughes down the hall and Helmet, which I was doing down around the corner.

Okay. Do the same thing.

I think so, but I -- let's just say, not everybody is willing to like own up to what this growth rate could be, which you could see 20% type growth rates in volume and you add price on to that, and this gets to be a pretty exciting market, if you're if you have a substantial amount of content. So I'm just trying to understand where you are because I don't understand exactly what the value you would be putting into these relative to an aero engine.

Yes. Well, I'll start with, I'm excited with you because I do think that those kind of growth numbers you're thinking about are possible as we go through the rest of this decade. So we're providing similar materials that we do to the jet engine. So it's a super alloy nickel products that go into the disks. We're making forged parts for blades and discs for that. And then there's some joint technology, which, again, I'm excited because I'm seeing them thinking longer term. In the past, this material has really been something that we would use for the assets that if we had an opening from jet engine, we'd say, hey, let's make some stuff for the gas turbine market. Now they're looking at more strategically is saying, we need that reserve capacity, and we're willing and we want to work on new alloys because we want to run these hotter and more efficiently. So like those niobiums and some of the more exotic. So I do see that this is continuing to grow. And I think the opportunity for us is not just growing from a market standpoint, but growing our content and our contractual partnerships with these big Venovo and Siemens and energy providers as they're trying to ramp and meet their demand.

I mean how -- today, how big is your -- what are your revenues like today.

Yes, energy -- especially energy is about 10% of our revenues. And it's probably -- it's about 60-40, so 60% gas turbines and 40% nuclear. I think both of them are growing. And we'll see if nuclear continues on the pace that it's at or if the gas turbine starts to overtake that.

Yes. I mean I would just expect that, I mean, nuclear, there's a big opportunity, but it takes a while.

It does, right, which -- to be honest, I kind of like that from a growth standpoint, this durable growth. We've got the short-term opportunity for us to ramp fairly quickly, I'd say, in the next 7 to 10 years. to meet that demand. And then nuclear will continue to ramp up as these new SMRs and other things get installed.

So we're talking about a lot of growth areas here. Where's your investment? Like how do you think about CapEx with a whole set of high-growth areas in front of you?

Yes. Well, that's where our discipline comes in, right? Because there's a lot of opportunities that are in front of us. And we're staying very focused on meeting our 30% return thresholds for any investments. and staying very disciplined around our total CapEx investment being around net $220 million, $230 million. This year, you saw that we came out with a higher number, closer to $280 million with $60 million of that coming from customer-funded capital. And this is where these conversations are very strategic with our customers of saying, look, we've got more projects than we're going to fund that meet our return thresholds you're looking for this capacity to hit at a certain point, let's partner together. If you want to do that, we're going to go ahead and you can help co-invest and have access to, call it, 10% or 20% of this capacity. And if you give us a forecast and a contract to take or pay, then you can have that. But if you don't, then we're going to go and use this to meet needs within the industry. And yes, the conversation gets a little uncomfortable because then, of course, they go, well, of course, we're going to get a better price, right? And the answer is like, no. This is where the market price is, and this asset is really just to help you get access to capacity the price is still at market. And so I think customers recognize the value to them is if they don't have the material for if it's a gas turbine or a jet engine, they're not selling the engine, they're not selling a plane, right? As I said, I was in Seattle this week, they had 30 777s sitting, waiting for engines. And so that's money sitting on the ground. And the cost of this material in comparison to that cost is something that they're willing to do to make that sale. So lots of opportunities. And so that's how we're thinking about it. And we're prioritizing our investments. I think the one thing that I'm very focused on with the team is that we're not just putting capacity in, we're putting capability in. And so every new investment is improving our capability to making better quality products, more productive cost efficient products. Some of those specific melt projects that I've talked about, they're going to have much -- they're going to have higher quality and produce up to 2x what the same size furnace does in the vintage era. So we're really looking at how do we take this investment today? Yes, meet the demands, but also to make sure we're upgrading our capabilities. In what we do today as well as new technologies like additive. We've got our new additive facility down in Florida that just got security clearance. And now we're making parts for classified parts for the defense and the space programs down there. And so -- we're continuing to drive that technology for those highly differentiated products to continue that differentiation of that moat that we've created.

And maybe to finish up here, just -- can you refresh us on sort of guidance for this year, including free cash flow. And also, how you think about it in light of all of the things you've just walked through, where there appears to be a lot of upside. And I don't know how that fits into your guide?

Yes. Well, so everything I've talked about is in the guide. So as we've shared with some of these very targeted investments that are -- those are all built in. It's aligned with customers and backed by customer contracts. And so those are all in place. We're continuing to drive cost out, productivity improvement so that we're getting more incremental capacity as we do that and when we debottleneck we're able to take advantage to help meet these growth in these ramps. From a cash flow standpoint, we're still very focused and dedicated to a balanced capital allocation strategy. And so we're making those very purpose-built investments in organic growth. We're continuing to have disciplined balance sheet. We've got a very good debt leverage ratio. We're not looking to really lower our debt levels at this point, but we're returning capital to shareholders. And so we just got a new share repurchase authorization, $500 million. It was approved by our Board. We purchased $75 million in the first quarter. And so with our prior authorization in this one, we still have about $545 million of authorization to go back and buy back our shares as we see that as still a good investment and a good way to bring capital back to our shareholders.

Sounds good. Well, Kim, thank you very much for doing this. It's been great.

All right. Thanks, Doug.