ATI (NYSE:ATI) Q1 2026 Earnings Call

0:00 Hello, everyone. Thank you for joining us, and welcome to ATI's First Quarter twenty twenty six Earnings Call. After today's prepared remarks, we will host a question and answer session. I will now hand the conference over to David Weston. Please go ahead. Good morning, and welcome to ATI's first quarter twenty twenty six earnings call. Today's discussion is being webcast at atimaterials.com. Joining me today are Kim Fields, President and CEO and Rob Foster, Senior Vice President and CFO. Before starting our prepared remarks, I would like to draw your attention to the supplemental presentation that accompanies this call.

0:51 Those slides provide additional color and details on our results, capabilities and outlook and 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. Good morning, and thank you for joining us. We're off to a great start in 2026. We delivered strong first quarter performance by driving higher quality revenue, expanded margins, and improved cash flow. This quarter demonstrates that the ATI model is working.

1:36 We're prioritizing the right volume, expanding margins and converting demand into earnings and cash flows. First quarter results exceeded the high end of our guidance, supported by disciplined operational execution and richer mix. Demand across our core markets remains robust, and we continue to grow alongside our customers. I'll highlight the quarter's results. Revenue was $1,150,000,000 in line with expectations, with 69% attributed to Aerospace and Defense. Adjusted EBITDA was $232,000,000 up 19% year over year and above the high end of our guidance. Adjusted EBITDA margin reached 20%, up more than 300 basis points year over year.

2:25 Adjusted free cash flow was $75,000,000 a meaningful improvement from last year and a clear indicator of strong cash discipline. This performance reflects more than favorable market conditions. It signals a fundamentally stronger ATI. What sets us apart today is the improved quality and resilience of our earnings. We are strategically allocating capacity towards our highest value opportunities in aerospace, defense and specialty energy. That shift is driving better mix, stronger pricing and more consistent execution. Order activity continues to be strong with our order backlog growing by 10% sequentially to an all time high of $4,100,000,000 Additionally, lead times are extending for our most differentiated products, superalloy nickels, premium quality titanium, isothermal forgings, and exotic alloys.

3:24 This is a key point. This is not short cycle demand. It is tied to long term contracts, production schedules, and well funded programs, giving us strong visibility into future performance. This momentum accelerates throughout 2026. Operationally, our disciplined execution is delivering results. Across ATI, we are improving throughput, increasing yields and streamlining production flow, particularly in melting, forging and downstream processing. That demand strength is most valuable when we convert it to deliveries, and that's where execution is making a difference. Across operations, we are unlocking capacity through productivity. Weekly output at our primary melt facilities increased by more than 15% year over year.

4:15 We achieved record shipment levels across multiple product lines in both segments, and we continue to improve flow through forging, testing, and finishing operations. These structural operational improvements are being driven by better equipment reliability, tightened product quality control and targeted investments in the highest return areas of the business. Combining this execution with the strong market demand provides the foundation to raise our full year adjusted EBITDA guidance by $35,000,000 bringing the midpoint to $1,035,000,000 This represents 20% growth year over year. Our full year outlook is now adjusted EBITDA of $1,000,000,000 to $1,060,000,000 adjusted EPS of $4.20 to $4.48 adjusted free cash flow of $465,000,000 to $525,000,000 Our outlook reflects continued strength across our core markets, focused execution and confidence in our ability to convert demand into earnings and cash flow.

5:25 Importantly, a significant portion of this growth is already embedded in our $4,100,000,000 order backlog and long term contracts, providing strong visibility into the second half outlook. Like others in the industry, we're closely monitoring the geopolitical developments in The Middle East. The primary areas we're watching are demand impacted by fuel price, MRO activity levels and aircraft retirements. We've seen no material impact on demand or order activity. There have been no changes to our order books or requests for delivery deferrals. In fact, last week, I personally had several calls from customers eagerly emphasizing they'll take any capacity that opens up.

6:11 With our record backlog and the ability to redeploy assets to support multiple differentiated markets, our portfolio is designed for this kind of dynamic environment. Turning to defense. Revenues grew 9% year over year and are on track for mid teens growth in full year 2026. Our materials support a broad range of platforms across air, land, sea, and missile systems with accelerating demand across key programs. I am pleased to share that we have renewed a five year agreement supporting the naval nuclear program. This agreement is projected to generate $1,000,000,000 in revenue over the contract term at attractive aero like margins and more than doubled annual revenue over the prior contract.

6:59 Q1 marks the third consecutive quarter our Advanced Alloys and Solutions segment has achieved margins in the high teens, well ahead of plan. It reflects the success of our strategy to focus on differentiated products, driving stronger value capture and sustained margin expansion. In recent months is the acceleration of missile related demand. Q1 revenue in missiles and missile systems more than doubled year over year as customers are scaling production and replenishing inventories. We have seen a meaningful increase in customer inquiries and order activities tied to the production ramps, even in advance of program funding. Our materials, titanium, nickel, and hafnium, are vital to missile platforms like Tomahawk, PAC three, and THAAD.

7:51 These materials are used for structural applications and propulsion systems where high temperature performance, strength, and durability are required. This is a small percentage of our business today, but provides an opportunity for accelerated growth and strong visibility ahead. Our execution is also being recognized by our defense customers. In high performance titanium plate and sheet for ground armor, we were honored to be named General Dynamics Land Systems 2025 supplier of the year. Selected from over 2,500 suppliers, this award recognizes our execution on key programs, including the x m 30 prototype. This distinction reflects not only the quality and performance of our materials, but also our team's speed, adaptability, and coordination.

8:42 We appreciate the recognition and congratulate the ATI Specialty Rolled Products team for their outstanding work. Turning to aerospace. Fundamentals remain strong. Commercial aerospace continues to be supported by increasing build rates and significant aircraft backlogs. We are encouraged by progress at both Boeing and Airbus and are well positioned across these platforms. Airframe performance reflects timing and supply chain phasing. Customer schedules, backlog and production plans support a second half ramp. We remain confident in our full year outlook with revenue growth in the mid to high single digits. Within aerospace, jet engine is our largest and most important growth market.

9:29 Jet engine sales grew 12% year over year, supported by both OEM production and aftermarket demand. The full year outlook for revenue growth remains in the mid teens. This is driven by high fleet utilization, increasing shop visits and continued growth in engine platforms like LEAP and GTF. Our materials are vital in the most demanding parts of these engines where performance and reliability are essential. We supply six of the seven most advanced jet engine nickel alloys. This remains a capacity constrained market where our differentiated capabilities allow us to capture both share and value. Finally, in Specialty Energy, strong momentum continues. Revenue grew 22% year over year, driven by nuclear and land based gas turbine markets.

10:20 We recently extended our long standing partnership with Cameco through a new five year agreement, reinforcing ATI's role as a trusted supplier within the global nuclear supply chain. This $250,000,000 agreement includes meaningful improvements in product mix and pricing. More broadly, our advanced materials portfolio, including highly engineered specialty alloys like zirconium and hafnium, support specialized applications across energy, defense, and space. Performance requirements in these markets are ever increasing and leverage the unique capabilities of ATI. Bringing it all together, our strategy is delivering measurable results.

11:05 We delivered a strong first quarter with higher earnings, expanded margins and significantly improved cash flow. Our customers are ramping, our backlog is growing, and our portfolio is aligned with the most attractive, highest value markets, especially in A and D and specialty energy. With strong core market demand and record backlog, we are confident in our increased full year outlook. Dollars 5,000,000,000 of revenue at 20% plus margins is in clear sight, with an increasing share converting into earnings and free cash flow. That performance enables us to reinvest in the business, create value and return capital to shareholders.

11:50 We are focused on execution and raising the bar for performance. I'll now turn the call over to Rob. Thanks, Kim. The first quarter delivered strong results, exceeding our plan despite typical scheduled seasonal maintenance. Looking ahead, we see robust demand across our aerospace and defense markets. Momentum is building through the year, supported by favorable trends in price, mix and volume in our highest performing markets. Our strong positive free cash flow generation in Q1 puts us in great position to generate positive cash flow in every quarter of 2026. Q1 revenue was $1,150,000,000 driven by 6% growth in aerospace and defense. Within that market segment, jet engine sales increased 12%, airframe revenue declined by 9%, and defense related revenue grew by 9% compared to the prior year.

12:43 Specialty energy revenue increased by 22 year over year. Q1 adjusted EBITDA was $232,000,000 up 19% over 2025. This was $11,000,000 above the midpoint and $6,000,000 above the high end of guidance. Q1 consolidated EBITDA margin percentage was 20.1% as we realized a richer mix from eightytwenty initiatives and other portfolio rationalization actions. Adjusted free cash flow was $75,000,000 compared to a use of $143,000,000 in Q1 last year. This is a $218,000,000 improvement year over year. Managed working capital as a percentage of sales at the end of q one was 34.8%, which is a 110 basis point improvement over q one twenty twenty five.

13:34 Capital expenditures were 55,000,000, including $21,000,000 funded directly by customers. All key growth projects remain on schedule and on budget. Margins in both segments came in above our outlook this quarter. HPMC reported 24.9%, a 250 basis point increase over 2025. AANS was 18.1%, a three twenty basis increase over 2025. Both segments were powered by improvements in price and mix across our aerospace and defense and specialty energy markets. This proves the structural work to expand our margins is working. As Tim mentioned, we're increasing our full year guidance across all key financial metrics.

14:22 For the second quarter of twenty twenty six, we are positioned for adjusted EBITDA of $245,000,000 to $255,000,000 which equates to an EPS range of $0.98 to $1.04 At the midpoint, this represents a 20 increase in adjusted EBITDA over Q2 twenty twenty five. This 8% sequential increase at the midpoint in guidance is driven by the strength of price and mix, particularly within A and D. For the full year, we are raising our adjusted EBITDA guidance to a range of 1,010,000,000 to $1,060,000,000 The midpoint of $1,035,000,000 is a 20% increase over full year 2025, as we continue to execute strong operational performance and capture increased demand for our products in aerospace, defense and specialty energy.

15:12 These earnings translate to a full year adjusted EPS range of $4.20 to $4.48 Turning to adjusted free cash flow, we are raising the midpoint of our range by $35,000,000 setting the range between $465,000,000 and $525,000,000 The $495,000,000 midpoint is $115,000,000 higher than 2025, a 30% increase year over year. This is driven by our projected $35,000,000 increase in earning. We look forward to continuing gains in cash flow efficiency throughout the year. Our CapEx range remains consistent with our prior guidance. Gross CapEx investments of $280,000,000 to $300,000,000 will be partially offset with customer funded CapEx of $55,000,000 to $65,000,000 As we previously stated, returning capital to shareholders is a priority for ATI.

16:07 In the first quarter, we repurchased $75,000,000 in shares. We see share repurchases as the most efficient and effective way to return capital to shareholders. We increased our share authorization by 500,000,000 in q one, with the total remaining authorization now at $545,000,000. With strong and increasing free cash flow, share repurchases remain a priority. Now turning to end markets. We see strong demand in our major end markets and confidence in our outlook remains unchanged. In jet engines, our largest end market, we see growth rates in the mid teens for the full year 2026 as we leverage price and mix to our advantage. In airframe products, we see mid to upper single digit growth, with most of the growth occurring in the second half of the year as OEM production rates increase, customer inventory balances normalize.

17:01 In defense products, we see growth rates in the mid teens. Our a and d sales mix will continue to be a significant portion of our sales volumes. Aerospace and defense sales are in line to represent more than 70% of sales for full year 2026. Moving to specialty energy. We continue to evolve this business into a model of sustainable and profitable growth. We're leveraging long term contracts with accretive A and D like margins and are targeting mid teens growth for the full year 2026. As we have previously mentioned, we strategically prioritize aerospace, defense and specialty energy using eightytwenty and allocating differentiated production capacity to capture further growth within these high value markets.

17:47 Sales for our industrial, medical and electronics are trending down by low to mid single digits for the full year 2026. Looking forward to adjusted EBITDA margins, we see continued margin expansion in 2026, with full year consolidated margins in the range of 20% plus. We exceeded our margin outlook in Q1 due to favorable mix and price, and Q2 margins are tracking to be similar, expanding above 20% in the second half of twenty twenty six. In the second half, sales, profits and margins will be lifted by price increases and mix under LTAs. At a segment level, full year margins for HPMC will be in the range of mid-20s and AANS in the upper teens.

18:34 Full year consolidated incremental margins will average 40% with second half margins outpacing first half margins due to LTA pricing and mix. As stated, HPMC incremental margins are typically higher than AANS, reflecting sales mix and end market pricing dynamics. Both are general guidelines that fluctuate by product, end market, and customer, serving as primary indicators of ATI's future growth. To summarize, we are off to a strong start and remain confident in our outlook. We are focused on delivering consistent performance. We are well positioned to execute and deliver, meeting and exceeding the expectations of our customers and shareholders. Kim, I will turn the call back over to you. Thanks, Rob. We are off to a great start.

19:22 We are executing well and building momentum in 2026 supported by strong demand, differentiated products, and consistent execution. Let's open the line for questions. We will now begin the question and answer session. Please limit yourself to one question and one follow-up. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, please press star one again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q and A roster.

20:09 Your first question comes from the line of David Strauss with Wells Fargo. Your line is open. Please go ahead. Thanks. Good morning. Good morning. Good morning. To ask about the the Arrow aftermarket piece of your business, Kim. Maybe size that for us, how it performed in the first quarter? And if you're seeing any sort of impacts out of what's going on with The Middle East and higher fuel? Or how you're thinking about that business from here? Sure. Sure. So aftermarket continues to be very strong across the aerospace, especially in jet engine where, you know, we're continuing to see both MRO shop visits, upgrade packages, driving demand.

21:03 And as I look at our lead times, we did talk a bit about our backlog and our lead times. Those are moving out substantially based on that demand that's coming in. Like others in the industry, we're continuing to monitor what's happening there in The Middle East, but we're not seeing any impact to our business, no changes in demand or the deferrals or any disruption to the order book. In fact, just over the last week, the conversations I've been having with customers, the first thing they say is if there is any openings that come, that they want them, and they will contract and commit to them. So demand's very strong across the board. As you saw, that back log went up to 4,100,000,000, our highest level ever.

21:48 And, you know, it really reflects that sustained demand. You know, as we look forward, you know, the things that I'm looking at and thinking about are, you know, changes to possibly retirements due to fuel driven demand. But, frankly, as we go forward, those type of retirements are gonna be in those legacy, less fuel efficient engines, and the shift will accelerate towards the next generation platforms like LEAP and GTF, where our content's roughly two x where we are on the the legacy engines. And so that will continue, I think, to sustain that MRO demand as we go forward. So stepping back and just looking at it all, demand's strong, the backlog's growing, and we're not seeing any near term impacts from the conflict.

22:39 Great. And a quick follow-up, Rob. Guess the guidance increase, especially on the adjusted EBITDA side, what is the source of that? It sounds like you kept the margin forecast for the segments about the same place. So I guess, where is the what is the source of the uplift in the EBITDA guidance? Yeah. We're we're really confident in in where the guide is at. You know, we're seeing the strength, you know, primarily within the the defense and jet engine business. So I didn't change the guide for the full year. Right? We're still in the mid teens for for jet engine and defense, you know, low to mid teens. But I'd say my bias is is towards the the upper end of that guide.

23:28 So it's really the defense business and the jet engine business and the contracts that we're securing give us the confidence. Okay. So HPMC? Not just HPMC. We've got contracts, you know, defense for our defense business in in both of our segments that we're securing the contracts and the full year guide. Like I said, I have confidence in that higher end of the low to mid teens. The bias is towards the higher end of that defense business for both HPMC and AANS. Got it. Okay. Thanks very much. Your next question comes from the line of Richard Safran with Seaport Research Partners. Your line is now open. Please go ahead.

24:17 Thank you. Good morning everybody. I was very interested in your comment in the slides and opening remarks about pricing and HP margins. I want to know if you could expand on that and maybe talk a bit more about pricing and why in the midst of an OE ramp where the model is typically to see a step down in price, you're actually going in the opposite direction. Yeah. So, Rich, you know, when we shared over our past that we don't really see a differentiation between OE versus MRO that our parts you know, we make a disc, and we're not always have clear visibility to which which use it's going to. And so, you know, really, what you are seeing is is that price and that mix is a material driver in the in the first quarter here. And we see that continuing to accelerate as we go through the year.

25:12 And really where that's coming from is there this is a constrained market. We're doing the most differentiated materials. Our backlogs are moving out for those differentiated materials on the engine side to a year plus. Now in some cases, tie titanium PQ is almost to two years. So, you know, we're seeing that tightness in these contracts as we're we're reviewing them. They're getting embedded. We're getting price. It's reflecting the value of what we supply. It's not just short term based on scarcity, but it's long term and contractual, and it's getting built in. And and it's coming through all kinds of sources. There's step ups. There's escalators. There's price resets given where markets have moved. And, you know, alongside that, we've talked a lot about increased content on these platforms and expanded scope. You know, we're still getting calls today where there are others in the supply chain that may not be able to meet the full demand and are struggling to to meet that that level that our customers are looking for, and we're picking up share gains as well. And, again, in those situations, we're able to capture a port a large portion of the value that we're creating to continue that that ramp and helping them meet their their commitments.

26:27 And so, you know, as I look through, it's a structural shift. It is an HPMC, but it's also on the AA and S side. And and I just wanted to add, you know, that is a structural shift, and it's been deliberate around our portfolio management. You see it in some of our other end markets and and some of the the reductions and and not growing in those noncore markets because we're really focusing, especially in our exotic exotic alloys, on those differentiated markets where we can capture the value that we're really providing, particularly in aerospace, especially in defense and specialty energy. So a lot of great work by the team, and you'll see that continue to accelerate, and it'll be even more pronounced in the second half. Okay. Thanks for that. Now second, no secret the Department of War has been pressing industry for additional capacity.

27:22 At the same time, we're seeing a rate ramp in aerospace, which you've been talking about. I want to know if you'd be willing to discuss planned or anticipated capacity additions and then, you know, maybe comment on when they might come online? Thanks. Sure. So, you know, defense is has been very strong in the first quarter. And, I know we've guided to low to mid teens, but as Rob just shared, our bias is to the upside on that. And so to your point, we're seeing very strong demand across our whole portfolio. And as we look at the capacity to meet that, especially in missiles, that's been an area that's really upticked from inquiries or replacements even in advance of that funding by the Department of War. But as we look at capacity, we've announced previously our titanium investment.

28:20 Our nickel investment is in progress. Both of those two are both on track and on schedule to come online. Nickel remelt will be this year, and then the primary VIM melting will be online next year. And titanium, we're in already in qualifications for premium quality engine. So both of those are in on track, and we're in good position. I think, you know, as we think about some of the missile, some of the nuclear naval applications, we've got capacity in place to support that ramp as we go forward. Now that said, you know, as we go and think about some of our other exotic alloys or our isothermal forgings, which has consistently been over two years worth of backlog, that's an area that we'll continue to have conversations with our customers and make sure that we're we're aligned with them. We're not at a stage to announce any new significant projects today, but we are talking with those customers. We have very strong close relationships with regard to capacity planning, how they're seeing that landscape change.

29:26 I do believe though, as you look forward, defense is gonna be an important growth market for us for 2026 and beyond. Thank you. Thank you. Your next question comes from the line of Scott Deuschle with Deutsche Bank. Your line is now open. Please go ahead. Hey. Good morning. Rob, did AANS see any benefit from this new Cameco contract in the first quarter? And if not, when should we start to see that benefit flow through the p and l? Yeah. Thanks, Scott. There wasn't much benefit accrued into the the q one. That's really gonna be a prospective benefit.

30:11 And as Kim mentioned, that's gonna be, you know, some of those exotics, zirconium and hafnium. And, you know, we're really making structural changes in that business. And what you're gonna see is, you know, I'll call it more arrow like margins starting to come through. So that's going to go into the a and f segment and benefit that segment here for the foreseeable future. Okay. And then are you seeing firm purchase orders today that support the second half ramp in airframe sales, or are those purchase orders expected to come a little bit closer to the second half? Now as you think about our airframe story, as I shared, we're looking at it as a story of really two halves. The first half of the year, which, as I shared at the last call, is going to be flattish as that inventory normalization continues to align more closely with production orders, and we are expecting to see that acceleration and ramp in the second half.

31:12 Based on our these are all contract driven, and our orders are typically placed around twelve to eighteen months. And so, you know, most of most of those orders and certainly all the forecasts have been shared with us, and we are aligned to those. And and even in the last week, I've had conversations and reconfirmed. And as many I won't speak for our customers, but they've come out and reaffirmed that they're sticking to those targets and and build rates. And so we have strong visibility based on these relationships and contracts to those backlogs and shipments. So we feel confident where we are today. It is not short cycle buying. Most of this long term agreements allow us that visibility and alignment, and and we've been talking, you know, in some cases since last September around what they were gonna be looking for as we went into the air, and and we have frequent updates with them. So most of again, we're nine months nine to twelve months ahead of the production schedule. So most of those forecasts are all in, and most of those orders are already booked and and on the in our books. And, you know, our contracts, just to remind everyone, have you know, most of them have minimum quantities and frozen order windows where changes can be made, and and we're rapidly approaching where the rest of the year the back half of the year will be frozen.

32:32 Great. Thank you. Your next question comes from the line of Andre Madrid with BTIG. Your line is now open. Please go ahead. Yep. Thanks for taking my question. Good morning, everyone. Morning. Looking you know, you made a comment backlog is, you know, the highest it's ever been over $4,000,000,000 right now. I mean, could you give us a split as to how that looks across all the different end markets you play in? Yes. So, yes. The backlog is at the highest level ever, just almost a year's worth of business. And, you know, as I've shared in the past, it really needs to be taken in conjunction with our lead times, which as I just mentioned earlier, they are moving out substantially based on demand coming in, and so we're we're at a year plus.

33:28 And and from forgings and PQ billet, titanium PQ, it's two close to two years. So you need to look at both of those together. We are seeing those extend. As I look at the the distribution, I would say about three quarters of that is in our HPMC segment given the strong demand in jet engine. Got it. Got it. That makes sense. And then looking at jet engine engines, pretty impressive. Rose to about 41 of total company sales in the quarter. I guess, should we expect this to grow any higher as a percent of sales? And kind of in a similar range too, with the rebound of airframe in the second half, I mean, how should we expect, I guess, the percent of titanium sales to shift going forward?

34:19 Yeah. So jet engine, as you said, it's a it's about 40% of our market today. This is where our some of our most differentiated capabilities are, both for nickel alloys as well as our isothermal forgings. As we look at jet engine, I mean, that could you know, jet engine and aerospace, let's just say aerospace in in total, that could go up another point or two. A and d, you know, is around 69, 70%. Those are gonna continue to grow, and and that's gonna be intentional. You know, we're prioritizing, as I said, that valuable capacity to those highest value opportunities where we're able to get long term contracts and margins are the strongest. So, you know, as I look at that, you know, a and d mix is gonna continue to go higher, which will help us continue to drive higher margins as long as as long as along with stronger value creation.

35:11 So I would expect that we're gonna be above 70, and it could could trend up. Jet engine may be up a couple points as well. As far as titanium sales, I think it's as I said, with airframe sales, the first half is gonna be, somewhat flat, and it'll start accelerating through the second half. So you will we will start to see some of that titanium SQ that typically goes into the airframe start to increase. But what I would anticipate, you'd see more substantial increases for airframe in '27 and certainly as the wide body start to gain in their ramp and build rates. The one area that we are seeing quite a bit of demand though for titanium is in defense. It does go into structural applications that are used temperature and and performance.

36:02 And so that we are seeing now, and it's starting to to come into our our just our our mix. And so you may see that uptick here through the year as well. So there's a couple key markets drawing on that, but I would say you'd probably see much stronger titanium sales growth in '27. Got it. Got it. Kim, that's incredible color. Thank you so much. I'll I'll leave it there. Your next question comes from the line of Myles Walton with Wolfe Research. Your line is now open. Please go ahead. Good morning. Kim, last quarter you talked about the missiles as a percent of your defense exposure. Can you remind us where that is now given what seems to be a constant doubling of revenue? And then are you party to the seven year frameworks? Are they trying to lock in your supply for a longer than normal duration?

37:00 Yeah. So missiles is one of those markets that we're seeing really meaningful uptick in demand and inquiries. It is a small portion of our revenue as you as you referenced, but the rate of acceleration is really what's notable there. You know, we've seen that increase inquiries, order activity. As I mentioned, folks are placing orders because of the lead times that we've got. They're placing orders in advance of that total funding that's come through just based on the replenishment needs for, you know, our our military and missiles and munitions. So, you know, the programs that we're on, you know, that really require the performance materials that we have are PAC three, THAAD, Tomahawk, all substantially, you know, been advertised. You know, they're up three, six, 10 x as they're trying to build the supply chain.

37:54 And we're really working with those folks in the supply chain to increase our and then in align our capacity to those needs. And and it's really across a couple key areas. I talked about titanium, our premium quality titanium, our exotic alloys like zirconium, hafnium, niobium, that's continuing to drive this uptick. And and, yes, it grew triple digits. I expect that'll continue to grow at that rate to become a meaningful part of the portfolio, both from a growth and margin perspective. Just to remind you, you know, right now, we've got we've kind of laid out there low to mid teens growth for the year, but I would say my bias is to the upside given just the recent activity here in the last month to six weeks.

38:44 Okay. Rob, can you just remind us of your tariff outlook for '26 after all the changes with AIPA and 232 where we are, positive, negative? Yeah. Just to to jump in there. So, yeah, for tariffs, we've kept know, right now, we're status quo. We've got pass throughs for all of our contracts. So any tariffs that we're still experiencing, we're passing those through. Clearly, given the administration, we're still trying to work through what may be a refund policy. Although, I'll be honest, there has not been a lot of progress in that regard. So we're continuing as those come in. We've got alignment with our customers, and and we're able to and and we're we are re recovering any tariffs that we're seeing.

39:32 Okay. Thank you. Your next question comes from the line of Gautam Khanna with P. D. Cohen. Your line is now open. Please go ahead. Hey, thanks. Good morning, guys. Good morning. Was wondering if you could opine on where we are on that debottlenecking initiative that you announced about three quarters ago. And if you could characterize kind of what percentage of your nickel alloy capacity is being utilized at this point and how that might change over the next six to eighteen months? I'm just curious how close to 100% utilization you're at.

40:20 Thanks. Sure. So I think I think the debottlenecking you're talking about is in our primary nickel melting. There is some other other work that's going on downstream, but I think that's what you're referring to on the nickel side. And so that's progressing very well. I shared, you know, in my per prepared remarks that we've seen a 15% uptick in output. And maybe more importantly, we've seen a significantly improved product quality control parameters. So not only are we getting more output, but we're also making a higher percentage of material that doesn't need to be reworked or have any additional steps taken to to make it ready for delivery. And so we we are well ahead, I will say, walking through the plants. They are doing a phenomenal job. And and quite frankly, this was in advance and in preparation for the capital investment that I shared around our remelt assets that are going to be coming online here towards the end of the year in the fourth quarter. And it'll be just in time.

41:29 Like I said, we are rapidly working on how we increase productivity through our remelt operations across our system to take advantage of that increased primary melt. But there's still some work to do. And so as I look, you you said, you know, how we think about that over the next six to eighteen months. I do think we are already seeing upticks. You're seeing that both in output and mix and pricing as well because we really are focusing that on our in our highest valued products. But as I'm looking forward, you'll see the first uptick in the beginning of next year where we really unleash, you know, call it 5% or so more volume through the the operations. And then we've got the primary melt that's coming in at the end of next year, which I've talked about is kind of that eight to 10% uptick that will continue to allow us to take advantage of all the all the improvements and all of the investments that we're making.

42:27 So from an overall, I'd say we we are being selective and deliberate in how we're directing our capacities. We're going after the hardest to make, most differentiated products. You know, I talked a lot about those six of seven alloys that in five of those cases, we're the only ones making those today. And so we are prioritizing that. You're seeing it in the margin uplift, but we're continuing to drive those bottlenecks and and finding meaningful capacity through the work that the team is doing and, frankly, the the learning curve improvement of our employees as we continue to move up that base and people get more experienced and learn our operations. Thanks. And Rob, I just wanted to get your opinion on incrementals by segment.

43:19 I remember Don used to talk about 4030%, respectively, HP and C, AA and S. Is that what you think we should be penciling in over the next year and a half, two years, whatever? Yeah. So I'll break it down. But first, I'll start with the consolidated look. You know, for the full year, you know, 2026, you know, modeling in something close to that kind of 40% consolidated incremental for the full year is how I'm thinking about it. And if you double click and unpack that by segment, I think what you'll see is, you know, margins on the incremental basis kind of drifting higher from the HPMC segment and maybe a bit lower from the a and s segment for the overall composite of about 40%.

44:07 And that's an improvement from where we've been historically. If you think about where we would historically guide, it was in the mid thirties to maybe the upper end of 40. I think we're now, you know, pretty confident in that 40% year over year incremental margin on a consolidated basis. Gotcha. And any view on '27 with that framework? Yeah. You know, we I won't, you know, talk about 2027 other than, you know, from a a model standpoint. You know, we have the guidance out there from 2027, and I'm very familiar with that guidance. I was part of the team working with Don and Kim that that prepared that. And overall, you know, my confidence is really high in our ability to get into that guide range. And if you if you look at the second half run rate here, which we're thinking about, you know, you'll see if you connect the dots that that puts you, you know, well within the the range.

45:07 And the point I wanna make is we're not gonna stop growing. So, you know, I think what I would say is I have a a bias towards the upper end of that 2027 guide for EBITDA dollars and the consolidated margin percentage. Thank you, guys. So we'll go through we'll yeah. We'll go through our normal process, and you can expect an update sometime in the the q four time frame. Great. Your next question comes from the line of Seth Seifman with JPMorgan. Your line is now open. Please go ahead. Thanks very much and good morning. I wonder if you could talk a little bit about the supply side angle of things that are going on in The Middle East.

45:59 When we think about upward pressure on on anything in your cost base, whether that's energy costs or or any particular inputs or the availability of any inputs, anything you're you're monitoring, and any way, maybe in particular, to think about, the way that you can pass through higher energy costs? Yeah. So as we you know, coming COVID, supply chain monitoring, I think, has become one of the strengths that we have. I'm sure every company does as well. So we are monitoring couple things. We have not seen any uptick, so there's been no impact to date. But I will say one key input is helium that goes into our processes So that I know several of the suppliers have started to export that from The US, and so we're monitoring that closely. It's a small portion of our cost, so it's not critical.

46:58 And we do have alternatives that are readily available. So that's one area that we're paying attention to mainly from a, you know, just Middle Eastern supply and transport aspect. From an energy cost standpoint, we are seeing other impacts outside of just what's happening with The Middle East, but data centers and other things that are providing and putting more pressure on some of the electrical pricing and other things. And so we've got multiple mechanisms to deal with that. One, you know, we do pass through all those inflationary costs through in our contracts, and so we've got protections and mechanisms to do that. We manage natural gas hedges that we have become more conservative with as we look out twelve to eighteen months, and in some cases, longer than that, that, again, allow us not just not to control it, but to allow us to stay aligned with those mechanisms from an inflation indexing standpoint so that we're able to stay stay flat and aligned to to what those costs are.

48:05 And then there's some other innovative ideas and things that we're pursuing projects we're pursuing around energy and energy generation that long term may come into play as we think about how we wanna manage those costs. But but today, no impact from The Middle East and and what's happening there from a cost standpoint, and we'll monitor a couple of those things. But so far, it's been very very stable. And then energy cost is something that even before what's happened over in The Middle East has been on our agenda and something that we've been working on. Great. Great. That's that's super helpful. And then just maybe thinking a little bit about the cadence. Obviously, lot of demand and so high confidence in the revenue outlook for this year.

48:54 The A and D growth rate and in particular also the jet engine growth rate, I guess, should be accelerating from here. Should we look for some of that acceleration, in in q two, or or is that something that's gonna be more, more back half weighted? Yes. You will see that acceleration. It's gonna be sequentially stepping up as we go through the year. So you'll start to see it in q two. It's coming through, as you said, in both demand, in enhanced mix, and expanded content as well as price. And so you'll see that coming through. We are being very deliberate around how we allocate our resources, our capacity.

49:42 And so, you'll probably see that those impacts more heavily weighted towards our margin and EBITDA line more so than the revenue line as we go through the year and we continue to pivot our mix and portfolio to support those high value markets. Great. Great. Very helpful. Thanks. Your next question comes from the line of Pete Skibitski with Alembic Global. Your line is now open. Please go ahead. Hey, good morning. Hey, Kim, going back to the start of the Q and A, you were talking to Dave about the impact of higher jet fuel prices on potentially driving the retirement of legacy aircraft.

50:29 I just want to get the sense if we think about commercial aftermarket for jet engines, is your revenue at this point on the newer jet engines aftermarket, is that the same or above the aftermarket revenue for legacy jet engines? Or are we not there yet? Just wanted to get a sense of where we are sort of in the cycle for you. Yeah. I would say it's heavily weighted towards the next gen. We've got twice the content, as I've shared in the past. You know, a lot of these, you know, next gen engines, are still in the life cycle of an engine in or the early cycle. So there's upgrade packages, durability packages, and we're seeing that demand on top of the OEM build rates and just the the first round of shop visits that leap and and others are starting to hit. And so those are all coming together. So there is more revenue and demand that, you know, that is more heavily weighted. So it is a very favorable trend for us as we accelerate into those next gen engines. And and those legacy engines, you know, for those materials, what we find is our assets are very fungible, and so they're very useful in other markets like specialty energy, which uses similar materials, similar capabilities, and and are required for those, which is, basically an engine on the ground.

51:53 And so between specialty energy and some of these defense applications we were just talking about, we're able to pivot to those high value, very differentiated capabilities into those other markets as we as they start to retire some of those legacy planes. Okay, great. Appreciate the color. Just one last one for me. On the defense growth this year, I'm trying to obviously, missiles is growing really fast. It's still small. I'm trying to get a better sense for the core driver for you in military. And it seems like recently the shipyards are showing a lot of improvement in throughput. They're hiring more people, supply chain is improving in shipyard. So is it the exotics for you within defense, the zirconium for the nuclear navy? Is that kind of driving is that the biggest muscle mover for the military growth? Or are there other factors as well?

52:47 The nuclear the naval nuclear is our largest contributor when you look at our overall defense sales. As you mentioned, it's very long cycle funded programs. They're looking to expand that capability. I shared, that new naval nuclear contract that we just signed, which is about two x the revenue, over the next five years than we had in in the the past contract. And as you said, we're seeing strong growth in that area, and and that is an area that we're continuing to invest in. It is predominantly coming from those exotic alloys, zirconium, hafnium, some nickels as well. So it does translate to a little bit into our HPMC business as well, but predominantly the a and s.

53:35 And and you're seeing that with the margin accretion that you've seen over the last three quarters. Okay, great. Thanks so much. Your final question comes from the line of Samuel McKinney with KeyBanc Capital Markets. Your line is now open. Please go ahead. Hey, good morning. Thanks for getting me in. Good morning. Just given the rich margins that you guys get in Defense Aero, can you just talk to us a little bit about how you're thinking about managing or prioritizing line time on some of these assets that can serve both the defense and commercial aero in the context of the OEM build ramp? I'm sorry. It cut out a little bit.

54:23 Could you repeat that question? I said given the rich margins that you get in defense aerospace, can you talk to us about how you're thinking about managing or prioritizing line time on some of these assets that can serve defense or commercial in the context of the OEM build ramp? Yes. So as we thought, as you said, we are prioritizing capacity and and line time, as you called it. And, you know, what we find typically is jet engine is our highest margin business, although that's been rapidly shrinking. You know, as we think about defense and specialty energy, we're seeing both of those start to accelerate very quickly given the tightness of the market and the differentiated nature of the materials that we're using.

55:12 So, obviously, some of these military programs are priorities, and so we're continuing to make sure that we're aligning our capacity and we can support those. But we are, again, with those long term contracts, having conversations around what are the forecasts, what are those needs so that we're making sure that we're also prioritizing our jet engine customers. What you are seeing, though, and where you will see through the rest of the year, and we've we've kind of talked about down low to mid single digits is in our in our medical electronics, our overall industrial applications. We are deemphasizing those and moving the capacity to those other two higher markets higher margin markets. Yep. That all makes sense. And then next one, you just you called for mid teens revenue growth in specialty energy this year, but that's off the back of a 20 plus percent increase in the first quarter. So you could just give us a little more color about both what's exciting for you in that market and the rationale for the softer comps that you're implying later this year?

56:20 Sure. With Specialty Energy, as you said, we delivered strong performance in the first quarter. And as you said, we we are saying mid teens for the full year. You know, as you look at that growth, it's gonna be somewhat lumpy as the orders come in in an intermittent kind of chunky fashion, but it's being driven by really two core areas. The first being the land based gas turbines. Demand is continuing to be driven there based on data centers and energy security, and that's really going to tap into our high performance nickel alloys. Whereas I just mentioned, we're very well positioned with our capabilities and differentiation. The second is the nuclear. We just talked about that. We've got the chemical agreement that I talked about in my prepared remarks. We're seeing strong demand from that as well, both with life extensions and refueling cycles.

57:12 And that's really focused around zirconium, nickel and hafnium. So as we think about it, it's gonna be somewhat lumpy. We do see growth as we go through the year, but and we had a great first quarter. But again, those orders come in in a larger size, and and they also deliver in in larger chunks. Okay. Thanks, Jim. Sure. We have reached the end of the question and answer session. I will now turn the call back to Kim Fields for closing remarks. Alright. Thanks, everyone, for your time and for your continued interest in ATI. Just to wrap up today, our message is clear. ATI is executing at a high level in a strong demand market.

58:01 We're expanding margins. We're generating meaning we're generating meaningful free cash flow, and we're continuing to strengthen our position in the most attractive aerospace and defense markets. Our teams are focused on delivering for our customers, capturing the opportunities in front of us, and driving long term value for shareholders. We look forward to updating you next quarter. Thank you. This concludes today's call. Thank you for attending. You may now disconnect.