Hello, and welcome, everyone, to the ATI Second Quarter 2025 Results Conference Call. My name is Becky, and I'll be your operator today. [Operator Instructions] I will now hand over to your host, David Weston, Vice President of Investor Relations, to begin. Please go ahead. David We

Thank you. Good morning, and welcome to ATI's Second Quarter 2025 Earnings Call. Today's discussion is being webcast online at atimaterials.com. Participating in today's call to share key points from our second quarter results are Kim Fields, President and CEO; and Don Newman, Executive Vice President and CFO. Before starting our prepared remarks, I would like to draw your attention to the supplemental presentation that accompanies this call. Those slides provide additional color and details on our results and outlook. 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.

Thanks, Dave. Good morning, everyone, and thank you for joining us. Q2 was another strong quarter for ATI. We continue to exceed expectations driven by operational performance and the high-value products we deliver for commercial jet engines. As the aerospace recovery accelerates, ATI is exceptionally well positioned to grow and step with our customers and ahead of the market. Let's walk through the key financial results. Revenue grew 4% year-over-year, again exceeding $1.1 billion. Adjusted EBITDA reached $208 million, surpassing the top end of our guidance. Adjusted earnings per share came in at $0.74, also above our projected range. Our adjusted EBITDA margin reached 18.2%, a long-standing performance target. A key contributor was our High Performance Materials & Components segment, which delivered margins of 23.7%, a 350 basis point improvement from Q2 2024. This expansion reflects favorable product mix, strong price and operational execution. We expect margin strength to build as A&D continues to lead our growth. Adjusted free cash flow was $93 million, a 94% increase year-over-year. We remain disciplined in our capital deployment and focus on working capital efficiency, while making smart investments to support future growth and reliability. We also returned capital to shareholders with conviction, executing $250 million in share repurchases during the quarter. That brings our total buyback since 2022 to over $800 million, and we still have $270 million remaining under our current authorized repurchase program. Based on our performance and the near-term commercial jet engine demand, we've raised the midpoint of our full year guidance for adjusted EBITDA, EPS and adjusted free cash flow. Our team is executing, our strategy is working, and our outlook is compelling. As we turn to the markets, let me begin with an exciting update. We signed a new long-term guaranteed volume agreement with Boeing for airframe products. This contract is both an extension and an expansion of our partnership, covering long and flat rolled products. It includes material from our new titanium alloy sheet operation in Pageland, South Carolina. It's a clear validation of ATI as a long-term strategic supplier and a critical part of the aerospace supply chain. Earlier in the quarter, we announced a new significantly expanded agreement with Airbus, that agreement now positions ATI as Airbus' top of titanium flat rolled and long products. Both strategic contract wins signal that ATI is earning greater customer share. We're locking in long-term commitments and scaling in lockstep with the growing needs of the aerospace industry. These wins affirm the investments we've made in capacity, technology and customer alignment. Some near-term volatility remains as the airframers balance inventory with supply chain realities, we anticipated this. What matters is how we're positioned as the ramp and build rate accelerates, our ability to deliver with reliability and scale. Moving on to commercial jet engines, the core of ATI's growth in 2025. In Q2, we grew commercial jet engine sales 27%. Year- to-date, we're up 31% year-over-year through the first half of 2025. We expect full year jet engines growth to exceed 20% and we believe there's more upside ahead. Customers continue to report expanding backlog and are raising production forecast to double- digit CAGRs through the end of the decade. MRO activity is climbing steadily, particularly for next-gen engines like LEAP, as GE shared on their earnings call earlier this month. ATI is heavily weighted towards those next-gen platforms with more than twice the opportunity of legacy programs. That shift in the installed base represents sustained profitable growth for ATI through the 2030s. These are long-term contracts with high-value content and they align perfectly with our differentiated capabilities. Defense remains a reliable and sustainable growth driver for ATI in 2025, and we're on track to deliver our third straight year of double-digit growth. We're securing strong positions on several key international programs as the U.S. has deprioritized ground vehicle programs, opportunities in Europe are leading to increase commitments for high-value materials like armor plate and aero grade titanium. We're proud to be part of the U.S. Army's FLRAA program, the successor to the Black Hawk. ATI materials play a critical role on the MV 75, flying faster and farther, enabling the performance our soldiers need to address future conflicts. Our titanium, specialty steels and forgings are proven to perform in the most challenging environments. As we look to the second half of the year, we expect delivery timing in naval nuclear programs, titanium armor plate and rotary wing forgings to contribute meaningfully to our continued defense growth. Outside of A&D, Specialty energy remains an exciting growth opportunity with rising demand in commercial nuclear and land-based gas turbines. We are gaining share in these markets and making discrete investments to expand supporting capacity. Our strategy has positioned us well, and it is delivering. The team is executing consistency, and we're scaling the purpose, investing where it matters most to serve our customers and deliver value to our shareholders. The first half of 2025 confirms we are on the right path. Long-term agreements and customer commitments give us visibility and confidence in the future. Our strategic focus is clear, to achieve consistent profitable growth through innovation, performance and partnerships. We believe the best is yet to come for ATI, our customers and our shareholders. With that, I will turn it over to Don.

Thanks, Kim. I'll provide additional insights into our second quarter and first half performance and then look ahead to Q3 and the full year outlook. In Q2, we delivered earnings, EBITDA margins and cash flow ahead of expectations. Revenue in the second quarter was approximately $1.14 billion, an increase of 4% year-over-year. In Q2, our adjusted EBITDA was nearly $208 million, delivering a 14% increase year-over-year and a 7% increase over a strong first quarter. Contribution margins in the second quarter were almost 50%. Overall, adjusted EBITDA margin for Q2 was above 18%. Through the first half of 2025, our revenue growth is 7% above 2024, and adjusted EBITDA growth is 21% above 2024. You can clearly see the benefits of price, volume and mix in our sales even ahead of the full effects of the commercial aero production ramp. Our continued efforts to optimize costs and improve performance within our operations are also key drivers. As noted, HPMC margins were up 130 basis points sequentially and 350 basis points year-over-year. Our advanced alloys and unique forging capabilities are at the center of profitable growth within this segment. We expect this performance and momentum to continue building into the coming year. Our sustained strong performance in A&D drives continuing margin expansion. With our contractually secured customer base come higher margins from increased volumes, pricing, and product mix. As anticipated, AA&S took a sequential step back in Q2 after a strong Q1. this reflects timing impacts in airframe, defense and non-A&D markets. That said, AA&S Q2 performance was actually above our expectations. with 50 basis points of sequential decline. We anticipate reversing course in the second half based on the demand mix and volume we see in the segment's core markets. We're excited about the progress and results we delivered this quarter with $93 million of positive adjusted free cash flow. The favorable results reflect our focus on reducing seasonality in our quarterly cash generation. Our goal to improve not just cash conversion efficiency, but also quarter-to-quarter cash generation and predictability. We continue to tighten execution around inventory and receivables. and the results are notable compared to past cycles. We expect more favorability in the second half with managed working capital still at 36.5% of sales through Q2. that's compared to our target of less than 30%. The cash generation improvements in the first half strengthened our balance sheet and increased optionality looking forward. Coming off of a strong first half, let's take a closer look at the rest of 2025, including our guidance for Q3. The core of A&D remains robust. with an even brighter outlook expected in 2026. At the same time, we are balancing our near-term expectations. Jet engine remains our largest end market and a key growth driver for the rest of the year. Timing and airframe, defense and our non-A&D markets keep us on track to deliver second half revenue growth in the upper single-digit percentage range. As a result, we favorably shifted our range estimates for adjusted EBITDA, EPS and adjusted free cash flow, capturing our first half performance. We believe upside beyond our current range is tied to an inflection point for airframe growth and delivery timing in defense. Looking ahead into 2026. we expect growth to continue in all A&D markets. With these dynamics in play, we expect Q3 performance to modestly increase from Q2 with more growth building in our fourth quarter. For the third quarter, we are setting our guidance range for adjusted EBITDA at $200 million to $210 million. That equates to an adjusted earnings per share of $0.69 to $0.75 per share. For the full year, we have narrowed our range to $810 million to $840 million of adjusted EBITDA, raising our midpoint by $5 million. With this balanced approach, the corresponding range for adjusted EPS is now $2.90 to $3.07 per share. As you model your estimates, I would consider the following for our end markets. For the full year, we see greater than 20% growth in jet engines. We expect double-digit defense growth in the full year, reflecting the strength Kim shared. We're holding our full year airframe estimates flat from '24 levels, driven by inventory destocking by our customers. We still see offsets in our non-A&D markets expected to decline from 2024 levels in the range of 5% to 7%. Key factors for these markets are driven by customer behavior, including tariff concerns impacting order activities, inventory management and conservatism around the macros in our industrial markets. I would expect our EBITDA margins to be at or above 18% for the second half and full year. delivering on the range that we've been targeting for several years. At the segment level, in the second half of the year, we anticipate HPMC margins to exceed 24% and A&S margins to be in the range of 15% to 16%, consistent with previous expectations. The cash flow strength we have delivered in the first half allows us to narrow and increase our range of full year adjusted free cash flow to $270 million to $350 million. This represents a $10 million increase to the midpoint of the range. As you may recall, we generated $70 million of cash in late 2024 by selling noncore assets. Our 2025 CapEx and free cash flow includes reinvesting those sales proceeds as additional CapEx. That brings our free cash flow to net income ratio into the range of our 90% target net of the redeployed capital. We will continue to hold CapEx at $260 million to $280 million. I will note that with continuing customer investment and prudent management, I am biased to the lower end of the range at this time. To summarize, this has been an excellent first half for ATI and we're navigating the dynamics of our core markets and the shifting timing for growth with our customers. We remain fully on track to our expectations. This strong first half has reduced risk and solidified our path for profitable growth for 2025. It sets us up for a strong 2026 and beyond. With each new long-term agreement we signed, the path for consistent, predictable value creation becomes even more clear. With that, I will turn the call back to Kim.

Thanks, Don. Q2 built on our strong first quarter momentum and further demonstrated the power of our strategy and action. We're delivering consistent results today, and we're positioned even better for tomorrow. Everything starts with executing for our customers and staying true to the commitments we make to our shareholders. Our strong first half results reflect reliable performance, disciplined execution and market leadership. Our customers are planning for accelerated growth and ATI is aligned and ready to scale with them. The depth of our customer partnerships and the strength of our aerospace and defense product portfolio continue to reinforce our long- term growth strategy. We remain mindful of near-term uncertainties and but the long-term fundamentals are clear and compelling. Our advanced capabilities, secured contracts and proven ability to perform are creating real momentum. ATI is built to lead, and we're excited about what the remainder of 2025 holds. And with that, let's open the line for your questions.

[Operator Instructions] Our first question comes from Seth Seifman from JPMorgan.

Thanks very much, and good morning, everyone. I thought the airframe outlook for the year at flattish was, I guess, fairly consistent with what I had been looking for. But as we got the news this week that Boeing is now up at 7 a month on 787, can you share with us what you know maybe about the level of inventory that's in the channel for widebodies. I assume that's kind of what we're waiting for here for 787 and for A350 in particular?

So sure, let me talk about that. So yes, the first half of the year, you see our revenues have been pretty flat. And as you said, it's that customer destocking inventory rebalancing as we are looking forward, we're expecting this dynamic to continue through the rest of the year as Boeing continues to ramp. They're doing really well. They're stable. I think they're accelerating but as we look at it, it's not consistent across all of the product categories. And so there are some categories that we're expecting to see signs of demand returning in the back half year. in billet, in landing gear alloys, where inventories are tighter, especially as you commented, for the wide-body ramp and so as we look ahead, we're in a strong position. We secured that long-term agreement that we announced, and it sets us up for growth. We're anticipating the contract, will expand. It's expanding our scope and volume of products that we're providing to them. So we do anticipate that we're going to see an uptick in demand just as we increase that product portfolio. And as you saw, as the widebody starts to accelerate, if I look forward and think about the ramp, if they continue to operate we've used conservative build rate numbers and assumptions. And I know Dave and Don has shared some of those with you. If that continues to be strong and accelerate, we would look at the end of the year, fourth quarter start seeing orders for that wide body. But as customers' inventories normalize, we're ready. We've got the new titanium capacity online. We've expanded our shares across both of the airframers. We've got broader product offerings. These new contracts bring with it some derisking and some pricing and margin appreciation. So we anticipate to start to see some gradual growth as we leave this year and go into next. But right now, our guide kind of anticipates that were flattish through the rest of the year.

Excellent. Excellent. That's very helpful. and then really strong performance again in Jet Engine and it looks like a continued strong performance in the back half. When we think about going into next year, I guess, kind of assume that the demand pull from there is going to remain really strong. How can we think about where you are now in terms of capacity utilization and kind of the ability to for ATI to increase volumes going into 2026.

Yes. So I'll start, and then I'll hand it over to Don, he can share some more of the financials. But from a capacity standpoint, we're in good shape to meet our 2027 target. We've been making discrete investments. across melting, forging and finishing that we shared with you around debottlenecking, improving flow productivity. And we have seen increased outputs in forging and melt over the year. We're also continuing to make discrete investments in our nickel melting in particular. And that's going to be coming on next year. We anticipate another 8% to 10% from those investments, and that capital is included in the guide that we shared with you for our capital spend. So we do think that we're in good shape against those 2027 targets we gave you. But to your point, growth continues to accelerate, and it's -- as we're having conversations with our customers, we're continuing to evaluate that. It continues to be stronger, and we do believe the duration will continue longer in the years to come. So probably more upside and opportunity there. Don, I don't know if you want to add anything.

Yes, I would love to. So Kim mentioned several different sources that we're leveraging in order to make sure we have the capacity in hand in order to meet our customers' needs. And one great example that I would share is an investment that we started last year in melt, it's nickel related. It is a debottlenecking investment. And we've talked about debottlenecking a lot. I think what's important is that if you take a step back and realize we have a substantial production footprint for nickel and titanium that exists today. What we're doing is we are adding incremental investment to that incredibly strong platform. And what that does is it gives us a few benefits. This example is a great example of it. So we began this project. Ultimately, it will take roughly 2 years and that project started, like I said, last year. So those assets will come into service in 2026. The investment magnitude, first of all, the investment itself was included in our capital spend program and the magnitude, call it, $15 million, We expect that, that 1 investment is going to increase the HPMC nickel volume capacity rather, by 8% to 10%. So think about the speed, think about the incremental increase in capacity that a pretty modest investment gives us. Those are the things that we're doing set that will set us up to truly take advantage of this incredible ramp that we can foresee around jet engine.

Our next question comes from David Strauss from Barclays.

Good morning. Wanted to see if you could touch on what you're seeing out of your industrial end markets and what you're anticipating or kind of baking into your guide for the second half of the year. It sounded like as it relates to AA&S that you're maybe expecting a bit of a step -- further step back in Q3, at least from a margin perspective? And then Q4 rebound, I wasn't exactly clear on that.

Yes, I'm happy to share some more color. First, in the quarter, our industrials were flattish overall. But there were certainly some variances within that overall. And for example, we've seen some positive growth in conventional oil and gas. That's tied to things like project related project-related sales that we benefited from in the first 2 quarters. There is some other deep sea projects that we think will be potential captures later in the year. So we've seen some reasonably good growth in conventional oil and gas. But you look at other areas, and we've seen a meaningful drop and those would be in areas like construction and mining or in food equipment and appliances. Food Equipment and appliances, for example, it's a small dollar amount but from a percentage standpoint, we saw that drop sequentially by double digits. So the -- we see a mix. Now I think when you take a step back and say, okay, well, why is that? Why are we experiencing a flatness around industrials? Well, there's a few drivers to that. One is we believe that the tariff impact on order activities is one of the drivers. And as we sell through, for example, distribution, those customers are looking at the option to wait and they will as they see all this dynamic raw tariffs unfold. We're also seeing where non-U.S. customers are preferring to work with non-U.S. suppliers so that they don't have to deal with the cost of tariffs. with the U.S. supplier side of things. And so we've seen where order activity has been down related to those kinds of situations. So I think as a tariff situation unfolds, then we'll see stability. We're also seeing some good news in that area and that if you're a U.S. producer and you have a U.S. customer, that U.S. customer is certainly more interested in using a U.S.-based supplier. Again, to eliminate the tariff impacts. So that's one impact. The other impact that I would mention is the macros. The macros around industrial that we're seeing are still rather soft. And so I think as the economy picks up and then that improves and I think we'll see recovery here. Last thing I would say is remember that when it comes to these industrial end markets, they can sell quickly, but then they can accelerate quickly. And so we would expect that when these uncertainties fall away, we'll see that recovery rather quickly. Was there anything that you wanted to add, Kim?

No, I think you covered it. I was just -- as you think about our overall portfolio, it's about 20% of our overall revenue. So it's a much, much smaller portion than it was 5 or 6 years ago before we made some of those changes and moved really focused on A&D. So as Don said, we've got this rotation of demand that's happening. And we do, with some of the stability coming from the trade policy, we are seeing stability and order rates start to pick up, but it's probably early days before we say the back half of the year is going to continue to be stable and then rise.

Okay. That's great. I wanted to ask about the HPMC margins. So margins -- the incrementals, Don, that we've seen in the first half of the year have been very strong, 55%, 60%, I think, I assume benefiting from jet engine versus airframe mix. You talked about the second half. It sounds like a bit of margin improvement -- further margin improvement in HPMC. But how do you think about kind of normalized or incremental margins that at HPMC from here as we think out your targets for 2027?

Okay, sure, happy to. So before I jump to what -- how to think about normalized, let me just give a little bit more color in terms of the HPMC incrementals this quarter. So they were very favorable, north of 60%. One help -- 1 tailwind in the high performance this quarter is last year, we had about $30 million of revenue from the business that later in 2024 was disposed of. And so that created a bit of a lift in the calculated incremental margin. You strip that effect out, it's still a really good incremental. It's north of 40%. And so how should you think about HPMC incrementals going forward? We -- what I said in the past is expect that we would see HPMC incrementals north of 35% moving into the 40% neighborhood, well, it feels like we're there. And so I think expecting something in the 40% range would be a rational thing to do for HPMC. And then as you're also modeling your margins to expect to see HPMC margins, EBITDA margins, to live north of that 24% mark..

Our next question comes from Richard Safran from Seaport Research Partners.

Kim, Don, David. Kim, I think you made some aftermarket comments in your opening remarks. I wanted to know if you could give us maybe a bit some more specific comments about aftermarket trends. You think that might be moderating a bit given the production ramp we're seeing at Boeing and Airbus. But I thought you might talk a little bit more about what you're seeing there.

Sure. Thanks, Rich. Yes, I do think what we're seeing on the OE side is going to drive growth. But I'll share -- I'll say, MRO continues to be really strong, and we anticipate that's going to continue to be strong probably through the rest of this decade. I know we all heard GE's call earlier this week, LEAP is going to increase with their installed base by triple and shop visits doubling between '24 and '28 So what I'm hearing from all of the engine OEMs is that we're going to continue to see sustained high MRO and spares demand, something in the range of the 40% to 50% that we've been seeing, which to your point, it's going to really drive growth overall because I think the OE with the ramping that's happening is also start to bring more demand as well. I think the -- as we're looking at it, the thing that's important for us is we've got those exclusive alloy positions that I talked about last time, many of these programs that -- and we've got more than twice the content on these next-generation engines. So in our conversations, we're anticipating this to continue the rest of this year and then through the rest of this decade, be it both shop visits upgrade packages, some of the lifting issues that are getting addressed kind of across all 3 of them. So we're anticipating that that's going to continue to be a big value driver for us for the rest of the decade.

Okay. Next up, you may have talked to this, but I wanted to press you a bit more about the terms in those contract extensions that you just mentioned. Could you talk a bit more -- I think you said they include share gains. Do they include beneficial changes to mix, pricing or terms and when you were thinking about your long-term targets, with all this contemplated and factored in.

So the short answer is, yes, to all of those items. I won't share all the specifics. But we did talk about last time, just touching Airbus that more than doubles our revenue, and that will start in 2026, significant share gains. It does cover a broader range of titanium products as well. For Boeing, it's an expansion of both volume and range of products probably most importantly, the titanium alloy sheet that's coming out of our new facility in Pageland, South Carolina. And that's a really major milestone for us. It's been a gap in our product portfolio. And so both contracts include that. As well as this contract, an agreement with Boeing includes an expansion of the alloys that we're providing, many that go into landing gear and other applications for the wide-body. So I think the other thing is how the contract is structured, you asked. We've got volume-based minimums. So there is a solid -- so there's a solid baseline there. And then upside as demand increases, both volume and margin benefits come into play. Our pricing terms, over -- we've talked about our contracts. We've been working to derisk those. So they both allow for inflation and cost pass- through, so we're not exposed to future risks. So overall, both of these contracts that put us in a fairly even position, frankly, across both airframe OEMs, sets up meaningful growth in revenue and margin expansion as we move through the rest of the decade. Don, I don't know if you want to talk about how this compares to the 2027 guide?

Yes, I'd be happy to do that. So when you think about the Airbus contract, the Airbus contract, of course, when we put our 27s out, the Airbus relationship was much smaller for us, Rich. And so a lot of this new contract tailwind is not baked into our expectations for 2027. The way to think about that is when we were looking at our targets, I'm estimating that for Airbus, we probably were assuming something in the $75 million annual sales kind of range. with this new contract, we're going to see that double and more. And so -- what I would do is I would assume that for 2027, it's incremental $75 million to $100 million, let's say, of revenue. But importantly, it's not just about those targets, it's -- it's also the derisked profile that Kim talked about, the breadth of offerings, which has a secondary beneficial effect to those 2027 targets because we would expect a richer mix of products than we would have assumed in the base amount of the Airbus relationship in those targets. Now in terms of Boeing, -- in terms of Boeing,, what I would say is I would -- in our 2027s, we would have assumed similar share. So from that standpoint, I think we're in alignment but what's improved is we have gotten some price. We have gotten, again, richer mix. We've broadened our product offerings. So I would expect an enhanced top line not quite the step change that we would see with Airbus, but enhanced top line and richer drop-through. Does that help?

It surely does. Thanks very much to both of you.

Thank you. Our next question comes from Gautam Khanna from TD Cowen.

I was wondering if you could elaborate on the nickel melt capacity increase. Are these actual new furnaces? You mentioned it's debottlenecking. If you could just give us a little more color on that and then secondly, I wanted to ask about the titanium furnaces that you guys have added already and that are set to come online next year. And if you can update us on your estimated revenue contribution from the ones coming online next year.

Sure, Gautam. So yes, so the nickel investments we're making, there are -- there are going to be new melting equipment that's going to be put in. And as Don said, it's fair -- it's much -- it's discrete investments. So they're not monolithic, big investments that we're putting that will allow us to capture another 8% to 10%. It will go into our existing footprint, where we've got trained operators and qualified operations. So those will be in next year. And so they'll be operating starting to ramp up as the demand that we've been talking about here with Jet engine. And frankly, energy continues to ramp. It will give us that 8% to 10% capacity increase that we've been talking about that we see coming. The investments before that, there were some specific pieces of equipment that we put in, primarily downstream and finishing. We talked a lot about ultrasonic inspection. We've talked about heat treat. We had a brand new facility come up as we came out of COVID, So those really helped us maximize the use of those upstream assets. And so this investment makes sense now at this point because now we're able to increase the melt and flow it through the operation. So that's that one. EV2 out in Richland, on titanium, as you mentioned, that's actually up and running now. So perfectly timed with the ramp that we anticipate seeing. We're in qualification. We expect to be -- we're running qualification heats right now for our customers. We expect to be qualified standard quality, which would go into airframe and Armor type applications by the end of this year, probably as we go into the second half, third quarter, and then we -- this asset, if you remember, has the flexibility and capability to do premium quality, so rotating grade for engine, and we'll be starting that qualification as we get to the middle and back half of the year. So as we go into next year, it gives us additional capacity to support the engine demand and ramp that we've been talking about.

And the dollar value of that -- is it still like...

Yes, that's right. Yes.

So let me give some more color on that, if you don't mind. So just to go back and refresh folks memories a little bit. So we talked about the fact that we were going to increase our titanium melt capacity by 80% and we started having those conversations in '23. There were 2 pieces to it. The first piece was a restart of an existing plant. That got us to 45% and you're right. You remember that, that plant at run rate would be expected to generate $150 million to $170 million of incremental revenue. Then we have the brown field that Kim was talking about. That plant is up running. It was completed on time, on schedule. The qualification is right in line with what we expected. The metrics that we have shared on that is that's increasing our melt capacity by 35%. So the easy math is if you just take the same 45% gets you $150 to $170 million do the math, 35% would get you proportionately $125 million, $135 million, something in that range. The drop-through to assume, I've been consistently saying, "Hey, use 35% in your modeling. -- okay? Now the reality is we're going to do better than all of that and deliver more value to the shareholders. And so that's our objective. But for modeling, I encourage you to use the numbers that I just talked about. There's 1 editorial comment that I would make, though. Last call, I had shared that we have doubled the size of our titanium business between '22 and '24 It went from roughly $400 million to roughly $800 million. That, of course, is before the additional Airbus business before the Boeing contract that we just announced and so as you think about the investment that we made around that 80% increase in total, it was probably $100 million, $125 million, including that brownfield and those investments enabled us, number one, to get the contracts that we've talked about over the last 2 quarters and number two, sets us up perfectly for the ramp of titanium demand that's going to be heading our way. So this was the strategy, the plan that we were setting up when we made those investment decisions and we see them unfolding now. Thank you.

Our next question comes from Scott Deuschle from Deutsche Bank.

Don, I think you said jet engine revenue would grow more than 20% for the year. Should we be thinking 20% to 25% as being the new range? Or could it be more in the high 20s given the strong first half here?

Yes. I would -- I think you called it right. I would assume between 20% and 25%.

Okay. And then, Kim, I believe you're making 1 of the alloys for the upgraded version of the Trent engine from Rolls-Royce. I think it's RR1073 is that alloy already in production even if it is, is that handover additive to your growth? Or does it mainly just replace revenue you're generating on the prior generation Rolls-Royce alloy?

So yes, we are partnering with Rolls-Royce to make their new alloy. They are introducing it. I think in some cases, they are looking at that as an enhancement to their engines. So there is some trade over. But what they've shared with us is that early test results have been very promising, and they're looking at accelerating that and have expanded the scope much wider of what they're thinking about using that alloy for. So we are ramping with them today. We're continuing -- they're continuing to go through regulatory review, and so that will be the pacing item as they get each of these parts qualified and change. So we do see growth in that space with them for those alloys.

Okay. And if I could just sneak one more in. Don, it looks like there was some COVID error deferred employee retention credits that got recognized this quarter. I had thought that was behind you. Can you just clarify how much of that is still out there that might be recognized in the future? And what, if any, is in the second half guide for that?

Sure. Nothing in the second half is the short answer. There's $5 million that's still on the books. And with the recent Big Beautiful Bill that was passed the statute of limitations on those credits don't expire until 2028. So that's when I would expect that, that would get released.

Our next question comes from Myles Walton from Wolfe Research.

I was wondering if I could focus on the -- the isothermal forging business and the share gains you've had there with GTF. And if you can give us a color on where you are relative to the targeted share levels and at what point we should expect you to start growing more with overall volume versus share gains?

So yes, I mean, that -- actually, that story is a real bright spot for our forging team, forge products team. So as I've shared in past calls, we anticipated doubling or more than doubling our share in output this year with Pratt I'd say, in the first half of the year, we've shipped almost as much as what we shipped all of last year in forgings to them. And I think they've shared some statistics on their forged parts increases and improvements. So I won't talk to that for them. But we anticipate that continuing to grow. We'll probably -- we're looking at potentially another 50% over the next year or two but more broadly, as we think about our Forged Products business, that business, especially given the MRO demand and the upgrade packages and other issues that the engine OEMs are addressing. We're seeing very, very strong demand across the board, where our lead times are out into 2027. We're continuing to work on debottlenecking. We've talked -- I talked a little bit about some of the downstream one. Sonic is a huge 1 for the industry, not just for us, and we've put capacity in to relieve that as well as be able to address some of the heightened quality requirements by the FAA for the powdered alloy parts. So that is going really well. That partnership is going well. I think from our standpoint, we're continuing to talk to them about new parts and new share because clearly, they want to work through this backlog and get back on track. And so we're doing everything we can jointly -- but that's a really good news story and a great partnership example of how we've pulled together and looked at the overall system.

Got it. And maybe, Don, on the titanium side, what is the target level for this year? You talked about the doubling to $800 million I think it's flattish year-to-date. Is there a second half ramp that you're anticipating in titanium.

I wish I could say yes, but of course, the titanium area is where we -- that's the material that goes into the airframe. And I would assume flattish overall. We'll have some pockets of growth, but it -- I would expect that to be pretty modest growth from an HPMC standpoint. And when I say modest I mean really modest.

Our next question comes from Phil Gibbs from KeyBanc Capital Markets.

As it relates to the tariffs, you called out the somewhat indirect impact from sort of subdued non-aerospace and defense sales and some relative competitiveness there. But any direct tariff impacts as it relates to the cost structure this year? And any potential for any of those potential cost to change with all the recent backing and forth thing on the trade deals.

Yes. So it's a dynamic situation, right? So based on what we know today, we feel like we're in a really good position because our contracts are structured such that we have a number of means to recover under our LTAs, whether it's in surcharges or transactional deals, we can typically adjust price things of that sort. So we feel like we're pretty insulated or pretty well positioned to be able to recover costs that are incurred. Of course, we start with how do we minimize these costs. And we've got a pretty diverse supply chain that enables us to reduce some of that exposure. But for what's left, we go after a full recovery. And to be frank, we've had good success in executing under that model. And nobody likes to pay more and our customers include it, but it's -- we have what we believe are good contractual rights or other mechanisms. And what was the second part of your question?

I basically was just asking if given the recent trade deals, if anything changes in your mind relative to how you thought about it a few months ago.

Yes. That's fair. Thank you for reminding me. So I mean it's dynamic in these situations change by the day. And so what we do is what every other good business as you react to what you know and you try to prepare for the possibilities. And I think we've been successful in doing that. So same -- it will be the same answer for any new tariffs, and we'll be -- we'll try to reduce with our supply chain leverage and then we will seek to recover as appropriate. To be really clear, we are very, very defensive when it comes to our margins. We realize that margins are a key driver in the valuation of our stock. And it's our ambition to get our margins where we believe they should be, which is north of 20%. And see them there consistently, you can't give up points if you're going to do that.

And I just have a follow-up as it relates to the exotics business. It's not usually talked about on these calls all that often. But given a lot of the discussion around nuclear and critical resources as of late. Just curious in terms of what you're hearing, you're seeing from your customers in terms of future readiness for some of the interesting and unique products that you provide there?

Yes. Thanks for that question. You're right. We don't talk about that business often. But yes, with the executive order and this resurgence in nuclear and land-based gas turbines, we are seeing momentum in that business and in those segments. Our nuclear demand was up 24% year-over-year. We anticipate that's going to continue to go up. We make some very unique alloys and we're 1 of the few globally that kind of less than 3 that can do this at scale. And also on the gas turbine side, I'd say we're also seeing demand there, obviously, given the surge for the need for electricity. And we've got strong relationships in both areas, both with the nuclear OEMs and the gas turbine and our ability to deliver those advanced alloys, specialty steels position us well. And those sectors are going to continue to scale we've seen, like I said, good growth and demand, and we're expecting to see that steady growth in the back half of this year and going forward. The 1 thing I will mention is some of those other markets that we've talked about that are outside A&D either have been impacted by some of the trade or we've seen some pivoting of demand, we've been able to repurpose that capacity into these high-margin opportunity markets and energy is 1 of those. And I will say on the nuclear side, I think we've talked about maybe last year, we made some very discrete investments to increase output of that process around 15% to 20%. And we are -- that's in production. They've been getting that -- we've got very, like I said, strong demand globally for those products from that business. So yes, they're doing well, and we anticipate that momentum to continue.

Our next question is from Andre Madrid from BTIG.

I want to touch on, in light of the Airbus and Boeing agreements, can you maybe just give us an update overall LTA mix -- sorry if I missed it, but I don't think you guys called out exactly where that stands right now. And I mean, given that you're committed to marine defensive around margins in that 20-plus percent target. I mean how does that factor in? Do you feel like a higher LTA mix might prevent you from capturing upside through transactional pricing? How are you guys thinking about that internally? Sorry if that's a little loaded, but.

No. No. I appreciate you highlighting that because this gives us an opportunity. So our LTA mix with these new contracts is going to be around, call it, 60% to 65% and overall, for all of ATI, if you want to talk just about HPMC that's closer to 70%, 75% And what we're being -- what we're able to do is these capacity investments that we've been talking about, both the downstream debottlenecking, productivity improvement, we're seeing increased output. I mean, you're seeing that in our revenues you're seeing in the HPMC margins. So we're seeing that increase output, which is giving us some really nice opportunities to opportunistically participate in transactional business as it's coming along with short lead times and as you said, market pricing. So I think as we're going forward, we've talked about some investments we're putting in. We talked about the new melter out in Richland that's going to come on. It's going to give us increased capacity. as well as capability, so it does give us the flexibility to move between standard grade and premium grade. So we're continuing to keep pace to keep that -- keep a part -- a proportion of our mix available for transactional or emergent demand, which we didn't talk about. We've talked about the contract. We talked about the volumes. We do anticipate as the build rates start to accelerate, that we are going to see at first in pockets of products and then later in the decade, more generally, emergent demand coming from the airframe as well as the engine guys as they're continuing to keep up, which in these contracts, we -- because, again, we have to be very, very careful that we have the capacity available. They all have volume maximums, which allow us to manage our capacity and make sure that we always have that increased volume that we can use either from a market standpoint. or to service these contracts, but maybe more importantly, it allows us to flip to market pricing if that demand exceeds these contract limits. So Again, smart contracting team did a really, really nice job. We're excited about all these contracts. But that's how we're thinking about maintaining that balance in the LTA versus transactional business.

That's incredibly helpful. And then I guess again, apologies if I missed this, but you talked a bit about industrials and puts and takes there. But medical also seemed weaker in the quarter. I know a peer of you always called that out last quarter as well. Are we seeing a broader downturn there. I know it's different from a volume perspective, but what is -- could you provide any insight as to how things are trending in Medical broadly?

Yes, sure. So that's a tough story this year, and you mentioned that our revenue is flat sequentially, but down year-over-year. And that softness, we see that continuing. It's a little bit the story changes depending on what part of the medical market that you're thinking about. We see elevated inventories in certain pockets and destocking where people maybe got ahead of demand bought We do see Don talked a little bit about these broader macro and trade-related headwinds, particularly as they tied to China and both from a demand and also some competitive pricing. Pricing pressures have intensified and frankly, that's made this market more competitive in the near term. And so as we've thought about this correction that we're navigating that we're continuing to keep that discipline, focused on maintaining our price and our product mix. At the same time, those assets are very [ fungible ] rate to be used in this engine market where demand and MRO is accelerating so quickly. And so again, as that pricing pressure comes, we're able to shift from the medical market into the engine. So I do see that softness though continuing. And again, for us, we're thinking about how do we deploy that for the engine and energy markets.

We have no further questions.

Thank you. Thanks, everyone, for your time today. We look forward to talking more about our results for the second quarter. Feel free to reach out to us and the IR team with follow-up questions. And again, thank you for your time. Have a great day.