Allegheny Technologies Incorporated Stock

Hi. Good afternoon, everyone. I'm Kristine Liwag, Morgan Stanley's Head of Aerospace and Defense Equity Research. I'm very excited to host our next panel with ATI and very excited to have Kim Fields, who's our CEO of ATI. And I think Rob, who's also CFO, he's going to read some disclaimers and I'll also read some. So maybe pass it on to you, Rob.

Sure. Absolutely. Thanks, Kristine. So I'm Rob Rengel, IR Head over here at ATI. Just real quick, and I know everybody loves the disclaimer, but we may make forward-looking statements today. Those, of course, are subject to risks and uncertainties. For a full list of those risks and uncertainties, just look at our most recent earnings slides or our most recent 10-K. That's it. Thank you.

Great. And on my disclosures. For important disclosures, please see Morgan Stanley research disclosure website at www.morganstanley.com/researchdisclosures. If you have any questions, please reach out to your Morgan Stanley representative.

So with that, maybe, Kim, starting off, you've been CEO of ATI now for more than 2 years. So what do you think about -- when you think about your tenure and your role, what has been the most meaningful progress ATI has made? And where do you see the greatest opportunities going forward for the company?

Yes. Thanks, Kristine. Yes, as I look at ATI through my tenure, it's really the transformation that we've done with the business. It started back in 2019 in the AA&S segment as we were looking at and working on SRP and that business and focusing on our aerospace and defense portion of that business, exiting standard stainless, which at the time was about $400 million in revenue and really focusing our resources and investments at those differentiated products that bring the highest value to our customers. Here recently, we continued that focus around aerospace and defense and some scarce resources that we make, hafnium and zirconium. I've talked a lot about that on our calls.

And those products go into everything from commercial nuclear, naval nuclear, hypersonics, space launch and even jet engine additions for those alloys. And taking that with the commercial discipline that we've applied across our business, we were able to capture the value that we were creating for those customers and for that business. And we've seen phenomenal results. In our second quarter alone, we were at about 22% margin in AA&S segment, 23% across the business. In the A&S segment, if you go back a year ago, it was at 14%. So a really substantial increase.

For the segment, over the last 5 years, we more than doubled our aerospace and defense percentage of revenue up to 44%. And so again, substantial transformation that has been going on for a long time. I've been talking about it, but really started to see those financial results come through in the last quarter. And so the team is very proud of the progress that they've made, the focus overall from a company standpoint, we've increased our aerospace and defense percent of revenue up to 68%, 70% of our total revenue, and that was down around 50% back in 2019. So when you look at how quickly that we've transformed and focused our energy, our resources and our investments around those products that are differentiated and bring the highest value to our customers, it's phenomenal. It's been a phenomenal journey.

That's wonderful. I mean those numbers speak for themselves. So with that, Kim, there are so many aerospace and defense suppliers and you have a very broad portfolio of unique capabilities. But why ATI? And also, what differentiates you from your competitors? And for the products that you're making, what's the commodity versus truly differentiated technology?

Yes. As I look across the industry, and unfortunately, the time zone wasn't working with me today. I was up very early. But as I was thinking about this, there is no other company in the industry that has the same combination of differentiated unique products that ATI has. If I look at those areas where we are differentiated, one is the jet engine. We just talked a little bit about aerospace. Focusing in the jet engine, I've talked in the past on my earnings calls, there's 7 proprietary alloys that go into the hot section of the jet engine. We make 5 of them sole-source providers. The sixth, we split with another supplier and the seventh is made by the OEM themselves.

When you think about that, very unique characteristics and capabilities that we bring to this market. In addition to that, we have isothermal forgings. We're 1 of 2 globally that have that capability. Every disk that goes into a jet engine is made through an isothermal forge process. We have the capability. We've developed it. It's a very precise temperatures and pressures and time to make those disks. And again, very unique capabilities that our customers recognize and value.

The other 2, premium quality titanium. Again, goes into a jet engine, but it also goes into missiles. It goes into defense applications and it goes into specialty energy applications. As we look across that portfolio, 1 of 2 globally that make premium quality titanium. We're in the process of qualifying our new asset that we just brought online out in Richland, Washington. And the fourth is our hafnium and zirconium. We've talked a lot about that in my last earnings call, done phenomenally well. We are 1 of 3 Western suppliers that are qualified to make that product and the only one that doesn't have a captive commercial nuclear business, meaning they're supplying their own internal business first before they're selling it to the market.

We're the only independent. And so when you look at that 4, so that combination, that's where I see customers are coming to us. They come to us to solve their hardest problems. They come to us because we have knowledge of almost the full periodic table, and we can work and say, if we had a little bit of this alloy or a little bit of this element, we can change the properties to get to the performance specifications that you're looking for. And so that combination is just -- it's a phenomenal toolkit to have to bring to the industry. And when I look at our competitors, that, combined with decades-long of process know-how and qualifications, we bring a ton of value to helping our customers solve not just today's problem, but the next-generation developments that they're doing.

Thank you, Kim. Now there's a clamor from your customers and the rest of the industry for more capacity. How do you think about capacity additions?

Yes. Capacity has been kind of top of everybody's mind since COVID as we came out. First thing we do is we start with Elevation. That is our operating model and our system, and it's the way we run our business. And it really encompasses everything from procurement savings to operational improvements as well as commercial discipline and portfolio optimization. So we look at our full set of assets, and you've seen probably quite a few changes over the last few quarters as we continue to optimize at which markets, which customers, which products really leverage those specialized differentiated capabilities we have for the highest value.

So we do that and then apply incremental improvement, right, continuous improvement in our facilities to get to increase the flow through the capacity-constrained bottlenecks, work on increased yields, work on improved productivity, reduce costs. And that's really the first step where we can get more out of the assets we already have invested today. Once we get to that point, with our conversations with our customers, we look at putting in new capacity. And I've announced several new ones. A great example is the nickel, super alloy nickel CapEx that we are putting in. In fact, I'm very happy to say we are in commissioning for the remelt assets today.

So I'm excited to see that come into operation. And we'll have new primary melt coming next week -- or next year -- sorry, at the end of next year, we'll be commissioning that. And that was really close collaboration with our customers around what is their demand. And as I talked about this year with our CapEx, about 20% of our CapEx is coming from customer-funded capital. This year, we're going to be between $280 million to $300 million and 20% our customers have said, we are going to give you capital because we recognize the differentiated capabilities you have, and we want to invest in that. And we recognize we can't go and replicate it and move it or get it somewhere else.

And so from a capital standpoint, that's the process we go through. We look to optimize our current installed base. But then more importantly, we look to partner with our customers for both contract and commitments, invested capital and maybe most importantly, their support at expediting the qualification process.

That's super helpful. Customer-funded CapEx always sounds good to me.

It sounds great to me. And I would say it seems like a very foreign concept, both internally and to our customers. The first story of Rob, who is my CFO now, but he was the President at the first business that did that. The customer called me the next day and said, you got this crazy guy running the business out on the West Coast because he told me he wants me to give them capital, but I'm not getting anything for it. All I get is a reservation for some capacity. And I said, no, he's not crazy. That's what we need if you want to go forward. And for our capital, internally, we made our internal benchmarks for all of our capital projects before any investment from our customers. So that's a 30% IRR target.

And then any kind of investment they put in after the fact or on top of that just accentuates that valuation. But I think most importantly, for me on the payback from these capital projects is -- and I wish I had anticipated this completely. But the customers not only have skin in the game because they have the contract in place, and they have capital now that they've put in place. But the most important part they've said is the scarce resource they have is their engineering talent. And with this capital comes a prioritization of saying, no, no, no, we need this product. There are 1 of 2 people in the world that can do it. And we've put our own money and our cash into that.

We're going to have our engineering team put that as their first priority. And so that's allowed us to rapidly qualify new assets, bring them online as we've come out of COVID and get them up and running. And so some of our customers were a little surprised in the beginning, but I think even with current announcements, you're seeing this investment and focus on making sure that, that investment around critical capabilities and very unique capabilities and products are continuing to happen, and there is a willingness to partner to do that.

Thank you, Kim. Now on operations, ATI has made meaningful progress year-to-date. You called out the margin expansion also versus a year ago. And you seem to continue to raise the bar. So what gives you the confidence for the balance of 2026? How do you think about jet engines, airframes and defense?

Yes. So we're very proud of the progress the team has done. It's been a phenomenal year, as you just said, the year-over-year growth. EBITDA was up 57% second quarter. So really phenomenal work by the team. The confidence is coming from things that we already have in hand. We have committed customer orders that are on the books. We've got contractual price and mix improvements that are in place and we're starting to ship against. We've got new capacity that's coming online that we've got commitments and support to qualify. And we've got that backlog and continued commitments from our customers. As you said, those markets that you mentioned, our 3 core markets, we've got phenomenal demand that's across all 3 of them.

Aerospace continues to grow with jet engine being 50% MRO today for us on top of the OE growth that is continuing to come. Defense, defense has been a bright spot. It was up 36% last quarter. Missiles is a small piece of that. Most of our foundation is coming from the naval nuclear programs as well as the rotorcraft and fixed-wing. But defense is up -- our missiles are up 4x when you look at our growth. And it's a small part, but it's growing rapidly, and we're seeing increased activity around some of these missile and munitions programs. We're starting to place some orders for Tomahawk. We're seeing inquiries and we're getting orders for THAAD.

So we're starting to see as this funding becomes more realistic and they're seeing that come through. We're starting to see those orders being placed. And then the last one is specialty energy. They all vie for the same assets, the fungibility of those assets go back and forth. There's tremendous demand around gas turbines. And now with nuclear refueling and restarting, we're seeing demand coming from both of those aspects. It's a unique time where we've got demand across all of our core markets, and we've got great contracts in place, and we're seeing those -- that execution through Elevation really help drive our volume and productivity.

Super helpful. Now on margins, diving deeper on that, you've had significant expansion already. Can you talk about what drove those margin step up? And also, when you look at this incremental volume that's about to come through, which sounds like quite substantive and with strong visibility, how should we think about incremental margins for these new programs coming online, too?

Yes. So we did share some of that in the earnings call. We have shared that we're at 50% incrementals today, and that's phenomenal, and we see that continuing through the rest of the year. As we look forward, we've got an Investor Day that's going to be in November, and I'm happy to share lots of details about that forward path and what we're anticipating. But as I look forward, I see that strength continuing for all those structural changes and improvements that I shared with you.

Thank you. Now when you think about the -- I know it's a little early, but can we talk about 2027? How do you see the earnings trajectory into next year?

Yes. And we did touch on that a little bit with the implied run rate of going into 2027 at $1.35 billion of EBITDA. As I look forward, what I see is this continued momentum. We've got that as a run rate coming into the year. And when I look forward, I see we'll have a full year of these price and contractual resets that happened this year, and that will continue to step up in the back half. We'll get a full year of that next year. In addition to that, I see that we've got new assets, as I just mentioned, the remelts coming online. We're in the process of qualifying EB2. We've got our new Mexico inspection and testing facility coming online.

So all of those are going to provide incremental opportunities for us to continue to grow our capacity and throughput. And then lastly, we're going to continue to do the continuous improvement work through Elevation, both from an operational production standpoint as well as continuing procurement cost savings and commercial discipline as we're going forward, and we're resetting and renewing these contracts towards the -- between now and the end of the year. So yes, next year, we've got great momentum as we go into 2027, and I'm really excited about the future.

So Kim, these contract renewals, do they usually come with significant step-ups in pricing.

So I will say because of that differentiation I just mentioned, it does -- the current environment with demand being as high as it is, I was sharing this morning with some investors, there's really -- jet engine has always been our most accretive market. And there's really been a narrowing of the gap between jet engine and our other markets and other customers because they recognize these are fungible assets. And if I had one customer say to me, Kim, I'm going to take this price increase because I want capacity on these assets, and I know I'm competing with aerospace to get it. And so that is the reality.

Customers understand that. They understand the need to be able to compete and have a good return for the assets that we've got. And so yes, between that and some of the trade restrictions with China and then hafnium and zirconium in particular, with them restricting a lot of the defense programs and energy programs, it is providing a great backdrop for us to get not only price but also mix. I'm seeing -- I don't want to underestimate our quality and our service levels. We're getting many opportunities still where either our customers are looking to diversify. They want to bring in more suppliers. And so they're asking us to qualify or one of their other suppliers isn't quite able to meet the full need, and they said, "Hey, can you come in?" And so we're still seeing share gains, mix improvements, portfolio optimization along with that pricing and terms.

How exciting.

It is. It's a fun time to be in this industry for sure.

So on defense, defense clearly has strong positive momentum, but also space. So when we think about these 2 end markets, how do you see the growth opportunity for ATI?

Yes. So defense is a broad-based market for us. It's an important growth market. As I said, it was up 36% last quarter. Missiles, I think, is a very exciting space, although small for us today, was up 4x, it's going to continue to grow. And as you mentioned, on space, it's one of my favorites. It leverages all of our strengths and our capabilities as a company. It requires some of these very unique exotic alloys that are used in high-temperature, high-strength applications. And so things like the launch thrusters and the propellant. And so as you think about those structural applications, alloys like hafnium and zirconium are being used in niobium-based alloys, titanium alloys are all being used to help support that. Small today, still a very small part. But as I look at just what's happened over the last few years, see a tremendous amount of growth coming from that space as well as missiles.

That's super helpful. Now GE's acquisition of CPP, this has raised a lot of questions about vertical integration and supplier pricing power. Kind of the view is your acquisition of this is to kind of keep the suppliers in check. How do you see that kind of transaction and their approach affecting ATI?

Yes, it's interesting. So I've gotten a lot of questions on that. We don't do castings, and we don't really supply to CPP at all. So from a strategy standpoint, from our business standpoint, there's very little impact. What I will say, though, is I think it's an extension of what I just talked about with the customer capital that we've been receiving. It's this recognition by the supply chain by our customers that there are these very unique capabilities, casting being one of them, that there are very few people in the world that can do that. But if they're not managed and invested, could become the bottleneck for the whole industry. And that's been the case in the past, right, with castings. And we're seeing that with our own products, as I mentioned, around those 4 differentiations, isothermal forgings and super alloy nickel and titanium -- premium quality titanium as well as -- I mentioned -- zirconium and hafnium is the fourth one.

So when you think about those 4, those investments, this is a continuation of that strategy to continue to invest. And ultimately, if this doesn't become a bottleneck, it's going to be better for all of us from a supplier because we won't have to see a slowdown to allow that casting step to catch up to make more products. So I think it's interesting. It's a bold move. But I do think it's along the same lines as investing in core capabilities and unique differentiated capabilities like we've been seeing here in the last couple of years.

Great. So with that, Kim, is there anything that you think investors don't understand about your stock or miss about your story?

Yes. I think especially folks that maybe haven't been following the last few years is they still may think of ATI as a standard stainless metals company that we were back in 2018, 2015. We've transformed substantially. As I just shared with you, we've changed our focus around aerospace and defense now at 70%. We've invested on some of those very differentiated core capabilities, both from a resource standpoint as well as from an investment standpoint. And today, we don't only have one growth engine, which was always HPMC. It's been the core of our company and our most important and biggest growth engine.

Now we have 2 that are very similar in margin profiles, have very similar opportunities in aerospace, defense and specialty energy and provide us an opportunity to leverage these capabilities across multiple markets in multiple alloy and product forms. And so I think that's the one thing that people are surprised if they haven't looked at us in a while that they come back and they think, hey, that's the old ATI, I remember, we're a very, very different aerospace and defense company today.

So now looking into the future, what are your key priorities?

So first and foremost, our priority is to continue to perform for our customers. All 3 of those industries have tremendous amount of demand and backlog for their products. Aerospace obviously continues to grow. The airframers are doing a fabulous job at continuing to step up. And the engine guys have still elevated MRO levels on top of that OE demand. Defense, unfortunately, the world is not getting more peaceful. We're seeing continued demand across all of our forms around naval, air defense as well as missile and space. And then you got specialty energy, which I think I heard what 2032, 2033, backlogs just continue to move out as the need for more and more energy.

So that's our #1 goal. And so where our focus and priorities are, are continuing to implement and execute Elevation, get more from the assets we already have in the ground that we've already invested in, improve our quality, improve our yield, increase our productivity, reduce our costs so that we get the most out of the assets we have today, continue to focus and partner with our customers around investing for the future, making sure that we are making the right investment choices at the right time so that, that capacity comes online to continue to maintain those proprietary sole-source positions. And then last, continue to make sure that we're optimizing and capturing the value that we're creating, which is tremendous for our marketplace and for our customers.

Well, great. Well, thank you very much, Kim. This concludes our session on ATI, and it's not ATI Metals, it's ATI Materials.

Thank you. Thank you so much.

Thank you for joining us, and welcome to the ATI Second Quarter 2026 Results Conference Call. [Operator Instructions]. I will now hand the conference over to [ Rob Rengel], Vice President of Investor Relations. Please go ahead.

Good morning, and welcome to ATI's Second Quarter 2026 Earnings Call. I'm excited to step into this role, and I want to begin by recognizing Dave Weston and the significant contributions he made to ATI before his retirement.

Today's discussion is being webcast at atimaterials.com. Joining me are Kim Fields, Board Chair, 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. Those slides provide additional color and details on our results, capabilities and outlook and can also be found on our website.

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. After our prepared remarks, we'll open the line for questions. Now I'll turn the call over to Kim.

Thanks, Rob, and welcome to the team, and good morning, everyone. Thank you for joining us. Turning to Slide 3.

ATI delivered another strong quarter, demonstrating the increasing earnings power of our business. Second quarter adjusted EBITDA was $284 million, $29 million above the high end of our prior guidance. Excluding a $10 million asset sale gain, underlying performance still exceeded the high end of our guidance by $19 million. Adjusted EBITDA increased 37% year-over-year making this ATI's strongest quarterly EBITDA performance since 2007.

Second quarter adjusted EBITDA margin expanded 440 basis points year-over-year to 22.6%, reflecting stronger commercial terms, favorable mix, disciplined execution and operational improvements through elevation. Revenue this quarter increased 11% year-over-year to $1.3 billion, an annualized run rate of more than $5 billion. That expanding revenue was supported by another record backlog of $4.4 billion, up 18% from a year ago and 7% sequentially. Importantly, that backlog increasingly reflects long-term agreements, sole-source positions and strategic programs that provide meaningful multiyear visibility into future shipments and earnings.

Adjusted free cash flow in the quarter was $69 million, bringing first half free cash flow to $143 million, an improvement of $193 million versus the first half of last year. Cash generation will accelerate meaningfully in the second half, putting us on track to generate positive free cash flow in every quarter of 2026.

Our second quarter performance was led by our AA&S segment and it's one of the most important stories from the quarter. Over the last several years, we've transformed AA&S. What was once viewed as a more cyclical lower-margin business has become a second durable earnings engine for ATI. We've improved the portfolio strengthen our commercial discipline and focused our investments where ATI's differentiated capabilities create the greatest value.

The result is a fundamentally different business. Excluding the asset sale gain, AA&S generated an underlying EBITDA margin of approximately 22% compared with 14% a year ago. That's not simply the result of stronger markets. It's the result of better mix, better pricing and better execution.

We built the transformation on 3 key priorities. First, we've optimized the portfolio shifting AA&S toward higher-value aerospace, defense and specialty energy applications while at the same time exiting lower-value products. Today, Aerospace and Defense accounts for approximately 44% of AA&S revenue, more than double their share 5 years ago.

Second, we've leveraged ATI's unique technical capabilities in high-purity hafnium and zirconium. ATI is one of 3 qualified producers in the Western world capable of manufacturing these materials to the purity standards required for aerospace and nuclear energy applications. With China limiting exports to these markets, our capabilities have become even more valuable.

And third, we've translated that scarcity into stronger commercial performance. Improved pricing for high-purity hafnium zirconium benefits our defense and specialty energy businesses and also flows through to our jet engine outlay material, where hafnium and zirconium are critical alloy additions, combined with better product mix, and disciplined commercial execution that has materially increased the earnings power of AA&S.

Now let me be equally clear about HPMC. Nothing about this quarter changes our long-term strategy. HPMC remains ATI's largest long-term growth platform and the foundation of our aerospace strategy. For HPMC, performance in the quarter was within our expectations. Although qualification timing at both our new facility in Mexico and our new titanium electron beam furnace or [ EV2 ] shifted some shipments into future periods. The important point is that our confidence in HPMC's growth trajectory remains intact.

Commercial terms and operational productivity are improving, and we're systemically increasing the productive output of the manufacturing system through elevation and targeted investments. Those improvements support sequentially stronger performance through the second half and position HPMC for additional growth into 2027. Taken together, these results show a stronger, more balanced ATI.

We are not benefiting from just one favorable market or 1 strong quarter. We now have 2 businesses capable of generating durable earnings growth supported by differentiated products, stronger commercial performance, operational excellence and a record backlog that provides meaningful multiyear visibility into the future.

Turning to Slide 4. Based on our first half performance and improved visibility into the balance of the year, today, we are meaningfully raising our full year outlook across every key financial metric. As a result, our updated outlook now includes an adjusted EBITDA midpoint of $1.16 billion, representing 35% year-over-year growth. And adjusted EPS midpoint of $5.04, an increase of 56% year-over-year and an adjusted free cash flow midpoint of $575 million, an increase of 51% year-over-year. Importantly, these increases reflect a sustainable step change in AA&S performance and our ongoing confidence in the HPMC ramp.

Turning to Slide 5. ATI's operating model is helping convert strong demand, improved commercial terms and targeted investments into higher earnings, margins and cash flow. Elevation is the foundation of that operating system. Let me give you some insight into how we operate. First, we increased the productivity of the assets we own. Second, we make targeted investments where ATI has differentiated technology, committed customer demand and the highest returns. And third, we embed our operating system to make those improvements repeatable across the enterprise. That combination is increasing ATI's earning power, strengthening cash generation and creating long-term shareholder value.

Most importantly, we're seeing measurable results through elevations. We've increased year-over-year throughput by 30% in ultrasonic inspection, 15% in isothermal forgings and 15% in primary nickel melt. Those aren't isolated improvements. When combined with our targeted capacity investments, we'll realize higher productive output from our manufacturing network. Every major investment we're making supports existing customer demand and expand ATI's differentiated capabilities.

Moving to Slide 6. Let me remind you about our capacity investments. Our new Chihuahua, Mexico facility supports next-generation aerospace engine testing and inspection. And our EV2 furnace expands premium-quality titanium capability and capacity. Our nickel remelt expansion remains on schedule with our new VIM furnace coming online by the end of 2027. Together, these investments are targeted to increase nickel capacity by approximately 15% to 20% by early 2028 compared with year-end 2025. Across these combined nickel investments, we will deliver approximately $350 million of incremental annual revenue by 2028. The important point is that these investments, combined with elevation progressively increase the productive output of the manufacturing system.

Turning to Slide 7. Across all of our end markets, we're seeing the same underlying dynamics. Customers have increasing need for qualified capacity, differentiated technology and certainty of supply. Those are areas where ATI has built durable competitive advantages through proprietary materials, unique manufacturing capabilities and decades-long customer qualifications.

That competitive position supports stronger commercial terms, long-term agreements and attractive growth opportunities across our portfolio. Jet engines remains ATI's largest and most important growth market. Revenue increased 13% year-over-year and 8% sequentially, reflecting ongoing strength across both OEM production and aftermarket.

The industry is transitioning to our next-generation engine platforms and ATI is exceptionally well positioned to benefit. Our content on these engines is more than double that of legacy platforms, reflecting our differentiated materials in the hottest, most demanding section of the engine. Industry forecasts project next-generation engines will grow from about 35% today to over 50% of the installed fleet by 2030.

Currently, we support every major next-generation commercial engine platform and produced 6 of the 7 most advanced nickel-based super alloys, including 5 where we are the sole source supplier. That differentiation translates into stronger pricing, richer product mix and long-term growth opportunities.

Market conditions are developing largely as we anticipated. We continue to see high teens jet engine revenue growth for the full year. In airframe, supply chain inventories have largely normalized and customer order patterns are now aligning with announced OEM build rates. Our planned production for the balance of the year is supported by firm customer orders. Landing gear alloys remain our strongest airframe product category, while plate demand is improving.

As a result, we continue to see mid- to high single-digit full year airframe revenue growth weighted towards the second half. Defense delivered another outstanding quarter as one of our fastest-growing markets. Revenue increased 36% year-over-year, reaching an all-time high as demand accelerated across naval nuclear, missile and missile defense applications.

Our recently announced naval nuclear renewal extends through 2030 and with improved pricing and product mix, it more than doubles annual revenue compared to the prior contract. We're also seeing strength build across titanium, nickel and niobium products, supporting strategic missile platforms, including [ Tomahawk, FAD and PAC-3]. We've already begun receiving orders in support of the Tomahawk program.

As a result, we've increased our expectation for full year defense growth to the high teens, reflecting growing momentum across the portfolio. Specialty Energy declined in the quarter as we prioritized production toward defense orders with more immediate delivery requirements. That mix will rebalance in the second half supported by nuclear shipments and durable industrial gas turbine demand. We continue to see mid-teens specialty energy revenue growth for the full year.

In closing, we're building the ATI of the next decade, a stronger company with durable demand, better execution, expanding margins and greater cash generation. With that, I'll turn the call over to Rob.

Thanks, Kim. I'll start with the second quarter performance, explain the different profiles of HPMC and AA&S and close with the supporting details for our updated guidance.

As shown on Slide 8, we delivered strong overall results. Adjusted EBITDA and EPS exceeded the high end of our guidance, while we expanded our consolidated margins and generated strong cash flow. These results demonstrate the strength of ATI's differentiated portfolio and the earnings power of our business model.

Second quarter revenue was $1.3 billion, up 11% year-over-year, driven by 13% growth in Aerospace and Defense. Within that market segment, jet engine sales increased by 13% and reflecting increasing strength in high temperature nickel alloys and favorable pricing. Airframe revenue declined slightly, consistent with our expectations with growth accelerating in the second half of the year.

Defense-related revenue grew by 36% compared with the prior year, driven by robust demand and meaningful price gains supported by new long-term contracts. Specialty Energy revenue declined 6%, reflecting our decision to prioritize available production capacity toward higher-value naval nuclear demand during the quarter.

Second quarter adjusted EBITDA was $284 million, up 37% year-over-year. This was $34 million above the midpoint and $29 million or 11% above the high end of our guidance. Excluding the $10 million asset sale gain in A&S, Underlying operating performance still exceeded the high end of our guidance by nearly $28 million, reflecting stronger pricing and mix.

Second quarter consolidated adjusted EBITDA margin was 22.6%, and up 440 basis points year-over-year. First half free cash flow improved significantly to $143 million compared with the use of $50 million in the first half of 2025. We managed working capital as a percentage of sales at the end of Q2 was 34%.

We see further opportunities to improve inventory performance. For example, we are implementing a customer consignment strategy for forging input material to improve working capital efficiency. Capital expenditures were $69 million, including $23 million funded directly by customers. All key growth projects remain on schedule and on budget.

Now on Slide 9, I'll review segment performance. HPMC sales increased 5% year-over-year to $637 million primarily driven by growth in nickel products for jet engines. Segment margins expanded 40 basis points from the same period last year to 24.1%. Demand remains strong, while the timing of customer qualifications related to our new facility in Mexico and the EV 2 titanium furnace shifted certain deliveries into future periods. These are timing effects and were partially offset in Q2 by higher volume and pricing on rotating jet engine nickel alloys. We see the deferred demand converting in the second half.

In AA&S, sales increased 17% year-over-year to $624 million. Growth reflected multiple drivers, including pricing, mix and defense performance. Segment margin expanded 930 basis points to an all-time high, 23.7%, reflecting stronger pricing, execution and a more favorable mix. As Kim mentioned, A&S is a fundamentally different business today. Through portfolio optimization, including 80/20, we have shifted this segment toward higher value applications. We've been building an integrated interconnected business as our unique alloys are used across both HPMC and AA&S.

Looking ahead, we see AA&S EBITDA margins consistently above 20%. This improvement in AA&S means both segments will now contribute to durable profitable growth. We are raising our full year outlook across every key financial measure. Our confidence is supported by contracted pricing committed customer schedules, a higher structural earnings base in our AA&S segment and HPMC shipments that moved from Q2 to the second half.

In AA&S, our renewed nuclear agreements, accelerated defense deliveries and shipments and improved hafnium and zirconium pricing provides support for sustained performance through the balance of the year. In HPMC, completed contract renewals are providing improved pricing and mix for jet engine materials. While customer qualification timing affected the second quarter, the associated demand remains a strong element in our second half production plan. Momentum will build in the third quarter carrying into the fourth quarter and next year.

Our improved outlook reflects not only support of end markets, but a stronger and more balanced ATI. As shown on Slide #10, in the third quarter of 2026, we anticipate adjusted EBITDA of $305 million to $315 million, translating to adjusted EPS of $1.31 to $1.37. At the midpoint, adjusted EBITDA would increase 38% compared with the third quarter of 2025 and 9% sequentially.

We anticipate sequential profit improvement driven by AA&S pricing and mix strength, particularly in aerospace and defense. HPMC performance will strengthen as deliveries built through the second half with momentum starting in the third quarter and building into the fourth quarter. We see consolidated adjusted EBITDA margins expanding in the third quarter compared to the second quarter of 2026.

Turning to Slide 11. Our higher full year outlook reflects the second quarter outperformance in AA&S and a better second half baseline. The increase versus our prior outlook is primarily supported by stronger AA&S pricing, mix and defense performance. Our full year HPMC outlook continues to reflect sequential improvement in performance as we previously anticipated. Specifically, we have committed contracts in place. This is not speculative.

In addition, we will capture the second quarter timing effects during the second half. We are raising our full year adjusted EBITDA guidance to the range of $1 billion $135 million to $1.18 billion. The midpoint of the range represents 35% increase over prior year. This outlook translates to full year adjusted EPS range of $4.90 to $5.18.

We see margin expansion in 2026 with full year consolidated adjusted EBITDA margins now projected in the low 20% range. We now expect full year consolidated incremental margins in the range of 50%. This is an improvement over the 40% we previously communicated, driven by additional strength in our AA&S segment.

We anticipate second half performance to build sequentially. In the third quarter, the primary drivers are continued pricing and mix strength in aerospace and defense for both segments. We see the fourth quarter as our strongest quarter of 2026 for sales and profit. Our midpoint guidance implies approximately $335 million of EBITDA in Q4. That translates to roughly $1.35 billion annualized exit rate.

While we are not providing 2027 guidance today, the commercial and operational drivers supporting that performance extend into next year. At a segment level, we see full year EBITDA margin for HPMC in the mid-20% range, consistent with our outlook from previous quarters. AA&S full year EBITDA margin will be in the low 20% range, an improvement over the upper teens level we communicated last quarter. The uplift is supported by stronger pricing and mix shifting towards aerospace and defense, as we've discussed. Note that the performance of our segments is increasingly driven by similar market dynamics.

Turning to adjusted free cash flow. We are raising the midpoint of our range by $80 million setting the range between $550 million and $600 million. The $575 million midpoint is $195 million higher than the 2025 free cash flow, a 51% increase year-over-year. This implies adjusted free cash flow generation of $430 million in the second half, driven by higher earnings, inventory conversion associated with scheduled shipments and customer-funded capital.

Our capital deployment strategy is unchanged. Our gross CapEx range remains consistent with prior guidance at $280 million to $300 million. This includes the greenfield expansion facility in Mexico, which Kim mentioned. Customer-funded CapEx of $55 million to $65 million will be a partial offset.

Share repurchases remains a priority for deploying incremental free cash flow. We view them as the most efficient way to return capital to shareholders. As of today, after our $50 million repurchase in Q2, we have $495 million remaining under our current repurchase authorization.

Overall, we delivered a strong first half and expect even better second half. Our increased outlook is supported by contracted pricing, a record backlog, committed customer schedules and planned shipment timing. Kim, back to you.

Thanks, Rob. As we look ahead, our priorities remain clear: continue improving execution through elevation, bring differentiated capacity online and allocate capital where returns are highest. We are confident in our ability to convert strong demand into sustained growth, higher earnings and cash flow. Now let's open the line for questions.

[Operator Instructions] Your first question comes from the line of Richard Safran from Seaport Research Partners.

I have one question and one quick follow-up. On the guidance raise, if I did the math right, you did -- at the midpoint, you took EBITDA up by $125 million but you took up your free cash flow guide by $80 million. So I just wanted to know if you could go over what drove that and how we should be thinking about cash and cash conversion going forward?

Thanks, Rich. I appreciate the question. So yes, I'll start. I'll share a little bit on the guide and then I'll hand it over to Rob, who can talk a little bit about the free cash flow and the outlook. I'll say our guide and our raise is really based on the strong performance we've had this quarter, and it's based on things that are already in place.

So this is a contracted pricing improvements that we're seeing flow through recently committed long-term agreements and customer orders that are already committed. And so we have high confidence that this is based on all those things I just mentioned, committed orders and a stronger business and the structural improvement that I shared in the prepared remarks around AA&S.

You add in there some of the timing changes for HPMC and that's what drives our confidence as far as our outlook. And to your point around cash flow, typically, we start the first half off. We started from $143 million this year. It typically accelerates as we go through the year, and we anticipate that continuing as we go forward. But Rob, do you want to add any more color on that?

Yes, Rich, when I think about the cash flow, if you think about the increase in Really, we're talking about higher shipments in the second half. And essentially, the reason why that's not all going to convert is really 2 things.

One, it's the timing of conversion through accounts receivables. So we'll expect some of that higher volume with those late Q4 shipments to be in receivables. And the second piece is we do plan on a little bit more inventory as we prepare for the early part of 2027.

So I think it's important to call out that when you look at our full year cash flow and the guide at the midpoint of $575 million, that represents an increase of over 51% from the full year 2025 and when I think about the free cash flow conversion, that assumes a high 80%. And as we've stated several times, our goal is to drive well over 90% free cash flow conversion.

So I think we're trending in the right direction. And as I think about going forward into 2027, I'm not going to give updated guidance here today on 2027, but the free cash flow conversion at 90% or greater is where we're thinking about the target.

Okay. And then just a quick follow-up on AA&S and at the risk of pressing you on something. So given your remarks about transforming the business, your comments about 20% EBITDA margins. Would you be willing to talk a bit more about the EBITDA margin potential at AA&S? How we should be thinking about it if growth and mix continues to improve? Would you be willing to give out a bit more specific on that?

Sure. Yes, from -- as you said, fantastic performance in the quarter by AA&S in the segment, and it's a transformation that we've been working on for several years. You've heard me talking about it. As we look out, we anticipate we can see AA&S in the mid-20% range going forward. And really, because this is based on structural changes that we've been making in this segment for, as I said, the last few years.

One, it started with the transformation in our flat-rolled business, exiting the standard stainless and focusing our resources on that highest value products through 80/20. And here most recently, we strengthened our commercial model and restructured long-term agreements, improved pricing and mix. And now we're benefiting from the acceleration around defense and nuclear demand as we look forward.

I mentioned in my prepared remarks that A&D is more than double where we were 5 years ago at 44% and maybe even more impressive if I look year-over-year, at the AA&S segment. A&D is up 34% year-over-year. And so as you said, really focused on structural change, both from a market mix, pricing and contractual agreements.

I think the last thing just to mention here that we're also benefiting from is that our business, SA&C on the West Coast is one of 3 qualified Western producers of high purity hafnium and zirconium. And that provides another durable competitive advantage, especially given, as I mentioned in my remarks, supply chain continue to tighten and trade continues to change and create more demand, which allows us to capture that value.

So as we think about it and look at A&S today, we're talking about a business that's fundamentally different from an earnings profile than it was a year ago. And that gives me the confidence to say that we're going to be in that mid-20% range going forward.

Your next question comes from the line of Seth Seifman from JPMorgan.

I wanted to ask about the outlook in HPMC in the second half, you talked about catching up on some of the revenue. And to the extent that you also see margin expansion. I think the first half margin is kind of in the range, mid-20s type of range that you've talked about, but had also been thinking about some LTA rollovers and mix improvement driving second half margin expansion there? And if that's still part of the outlook.

Yes. So as I think about it and we look at HPMC, we've been talking about through this year, we had a step-up coming in the back half of the year, so here in the third quarter. And it is based on a couple of things, some I talked about. One is the work we're doing through elevation and the improvements around productivity and taking cost out of our operation.

But more importantly, as you mentioned, we've got contractual renewals that are kicking in and step up in pricing, and we are still expecting to see that. In addition, as you said, we had some timing changes with our 2 new facilities that we are in qualifications, one in Mexico and then the [ EB ] premium quality titanium. So those are also moving out.

As I look at the quarter, we had probably around $30 million to $40 million of revenue that moved from the first half into the second half where the margins were maybe 40% to 50% shifting into the future periods. And that will accelerate as those facilities continue to ramp and come online. But we do continue to see sequential improvement through the balance of the year based on those new contract pricing. And these are the same drivers that underpin our confidence in that stronger half outlook and the improvement in our HPMC outlook as well.

And just one clarification, that 40% to 50%, that's kind of an incremental margin cadence that we're discussing there?

Yes.

Your next question comes from the line of David Strauss from Wells.

Rob, you touched on kind of the implied Q4 EBITDA as an ex-rate into next year. I guess, is there anything unusual in that number? Is there anything -- any reason as to why we wouldn't kind of -- or you guys wouldn't kind of grow off of that level as we head into '27. And kind of within that, are you thinking as we look at '27 is 50% incrementals for the overall business with what you're talking about for A&S now. Is that a sustainable kind of run rate to use for incrementals from here?

Yes. Thanks, David. Well, when I look at Q4 and you think about what that implies for the exit rate for the full year, it implies $1.350 billion of EBITDA and while I'm not going to give 2027 guidance today, I think I can say that it kind of directionally makes sense. And when you look at those incrementals, we have increased our incrementals from 40% to 50%. And so I think it's fair to think about this business from all the structural changes that we've made to be a business that can deliver margins in that 40% to 50% incremental range. But again, we're not going to put a fine point on the 2027 today. but we do expect to give some additional guidance here coming forward.

Okay. And a quick follow-up, Kim, you talked about kind of mid-20s EBITDA margin for A&S. What are you assuming kind of on a go-forward basis, the mix of A&D is within total AA&S sales? I know you're -- I think you're at 44% now, what do you assume going forward?

Yes. So as I look forward, we're assuming that mix of A&D continues to stay at that level and it will continue to rise as we renegotiate contracts I do believe that the tightness in the hafnium and zirconia markets that go into both defense and specialty energy are going to continue to become tight, especially given some of the trade restrictions we're seeing out of China. So I could see that percentage continue to increase. as we look across the segment, and that will help support that mid-20s percent from a structural standpoint.

Your next question comes from the line of Myles Walton from Wolfe.

Could you touch on the still high mid-single-digit outlook for airframe that you talked about, obviously, the first half of the year down and implying you need to get to something closer to mid-teens to get to the back half of the year. Is that predicated on the facilities coming online or any risk to that?

I think you were asking about airframe and our guide and outlook there. From our perspective, as I look at the airframe market, the inventories have largely normalized now, and that's consistent with what we've been expecting and what we've been seeing in our customer order patterns. And so as we look into the second half, as we shared in the last quarter, we anticipate acceleration as we go through this year, and that does seem to be what is lining up.

It's important to remember, our orders don't directly align one for one with that aircraft build rate, but we're encouraged to hear about the step rate changes in build rates and both air framers are doing well. Our material is getting ordered well ahead of that assembly. And so that confidence for that mid- to high single-digit range is really based on a couple of things.

One is our fully committed order book is in place and we've got order books now extending into 2027. We are seeing from both airframers emergent demand in addition to that starting to come in as we go into the fourth quarter here. And we're seeing some pull around widebody as they're starting to prepare for those programs as well. So from where I sit, the inventory normalization is largely behind us. The business is increasing as we expected, and we shared with you early in the year and that underlying production demand is now aligned with their order rates.

Your next question comes from the line of Scott Deuschle from Deutsche Bank.

Kim, can you share an update on the lead times you're now seeing across the different product lines the business has and then also share what drove the sequential backlog growth in the quarter?

Sure, sure. So as we think about lead times, I think it's best to look at both backlog and lead time together because they tell the same story and they work together. On the backlog side, I shared in the remarks, we finished the quarter at another record $4.4 billion. That's up 18% year-over-year and 7% sequentially, about 70% of that backlog we expect to convert into revenue over the next 12 months. So we have good visibility into the business. As you look at lead times, and that's where we see those lead time starting to extend for our most differentiated proprietary products.

Right now, we're at about 12 months, nickel alloys. We've moved out to 20 months on the premium quality titanium as that tightness continues to expand. And we've been running above 24 months on isothermal forging here for a little while. So taking together, those are both a really good indicator that demand continues to exceed the available capacity to support these programs in these differentiated materials.

Your next question comes from the line of Andre Madrid from U.S. Bancorp.

Yes. I wanted to see if you could break down the margin impact specifically in the quarter related to the recently signed naval nuclear agreement.

Yes. I'll let Rob take that one and share a little bit more color on it.

Yes. So the naval nuclear contract is essentially a contract and a relationship that we've had for many decades. And essentially, the new contract that just recently began here effective in the second quarter is essentially a $1 billion revenue contract over 5 years. And that is essentially kind of double what the previous 5-year contract was.

And so a majority of that increase is price mix with some smaller, I'll call it, 2/3 price mix, 1/3 volume in that contract. And essentially, we saw some of that volume and price recognized in our AA&S segment financials a bit earlier than we were anticipating. So while it wasn't a full quarter of shipments under the new contract, it was a majority of the second quarter was shipping under that new contract. So those are some of the dimensions.

Operator, we're ready for a final question.

Your last question comes from the line of Seth Seifman from JPMorgan.

Thanks very much for the follow-up. I like the slide that you added with the various capacity additions and kind of how they come online. It feels like as we progress through the quarters we hear more about incremental demand, whether that's in the defense area.

We got the missile frameworks this year and now people talking about lots of low-cost cruise missiles and CCAs, ITT market remains pretty hot. How are you thinking about -- or how are you evaluating? I assume there are demands for incremental capacity increases beyond what you have on Slide 6, how are you kind of approaching those decisions now?

Yes. That list as you said, there's demand coming from all of our core markets, and it just continues to ramp, as you mentioned, missiles is another great one. That revenue is up 4x in the quarter. And so yes, we're seeing continued demand.

One of the things that we shared was more details around elevation, our operating system, and so the way we approach this is elevation is really about making sure that we get as much out of the assets that we already own before we invest in new capacity. And so that is a continuous improvement activity that the teams continue to work on that improving throughput, increasing yield, shortening those cycle times to create that additional capacity and expand margin and generate cash.

So once we've captured those and as we start to look out and again, our long-term contracts have shared this in the past, provide a lot of visibility in sharing with our customers, especially around those hot section alloys where we are producing 6 of 7 and 5 of them, we're the sole source supplier. We have a lot of discussions around that long-term demand and outlook. And we take that then into account as we start to prioritize where do we make investments, where -- what is the timing?

And of course, all of these projects have to meet our 30% return thresholds internally. You mentioned our newest facility in Mexico. That is really an important part of our downstream growth strategy. So we've talked a lot about the upstream with melt capacities in titanium and in nickel. But downstream, we've talked about from a bottleneck standpoint, is where the industry continues to have tightness as increasing requirements around quality and testing come into play.

And so that facility is going to be a key part of strengthening our ability to support the increased production rates, enhance our position in those programs for the next-generation engine. So there is, as you said, a lot of demand coming in. We are aligning and using elevation to help us maximize the asset portfolio we have today and then working closely with our customers to align on their future demands on those investments.

A great example just to end with is the customer funding that we continue to receive as they support not just the new asset investments but also those qualifications, which can be very, very long and very involved to get to that qualified product. So a lot of great new assets coming online this quarter and in the back half of the year, we see a continued growth and confidence in the outlook, not just for 2026, but as we go into '27 and beyond. So you'll continue to hear from us as we share those results and the great work from the team.

We have reached the end of the Q&A session. I will now turn the call back to Kim Fields for closing remarks.

Thank you, operator, and thank you, everyone, for joining today. ATI is significantly transformed from a company that it was 5 years ago. We're more differentiated, more concentrated in attractive markets and capable of stronger margins and cash generation. We are building the ATI of the next decade and we are only beginning to capture that opportunity and the results you saw in Q2. We look forward to sharing more at our Investor Day later this year. Thank you for joining us, and have a great day.

This concludes today's call. Thank you for attending. You may now disconnect.

All right. I think we're ready to go here. I don't think I can physically get back here. But, okay, anyway, I'm Doug Harned, Bernstein's Global Aerospace and Defense analyst. Great to have with us again, Kim Fields, now both Chairman and CEO of ATI Materials. So with that, I think we'll get started.

But I think to start, maybe you can just tell us a little bit -- give us a little bit about where ATI stands right now and what you're looking at in terms of priorities?

Yes. I mean it's just -- it's been fantastic, right? It's a material constrained market. It continues to be constrained. Demand is coming kind of across the confluent of all of our markets. So we continue to see strong demand in all of the areas that we have differentiated materials. Jet engines continue to grow with OE and the next-gen engines, doubled the content on the LEAP and the GTF and then aftermarket continues to be really strong. It's running at like 2x, so where we historically are, so 50% to 60%. And so again, that really leverages where we've got differentiated capabilities and materials and great partnerships across all the platforms. And so that's really good.

And then you layer on top of that defense, the defense growth that we're seeing in things like missiles, nuclear naval and then rotary and fixed wing aircraft, those continue to grow. And obviously, we're continuing to have conflicts around the world. And then specialty energy, which, again, leverages those differentiated materials, demand, that structural demand that's increasing. And those customers are looking at their supply chains in a very strategic way, similar to some of our aerospace and defense. So lots of opportunities for us to continue to grow and leverage that capability and partnering with our customers.

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

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

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

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

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

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

So sort of LEAP versus CFM56?

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

I haven't checked in the last hour.

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

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

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

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

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

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

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

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

Even on the LEAP, I just told you the upgrades. Yes, yes. And to be honest for those, I think they're still material constrained. They're making their own material. Those I think they're not able to do the full shop visit when they're coming in. They're doing what they have to replace and then they might have to come in another year, 18 months after that. So those continue and that high rate continues with that.

But even on the LEAP, they're seeing design changes that they're doing for lifing, corrosion, some durability with hot, sandy environments. And those are all in those first-stage HPT disks that we make out of that powder alloy through our isothermal forgings. And so again, really highly differentiated. There's only 2 of us in the world making these parts in these materials. And so the demand continues to be really strong.

And when I look at their charts, as you said, you can see how maybe those upgrades start to come down, but the LEAP visits and the shop visits start to come up. And so we never really have a dip. It just continues to grow.

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

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

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

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

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

Sure, yes.

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

Yes. If you think about engine, I'd say historically, to your point, we're probably the heaviest content on the Rolls-Royce engine. So maybe around 40% from a parts standpoint, forging standpoint. And then LEAP was probably closer to like 35%, so neck and neck. Perhaps come up to be even, so if you look at the 3, we start to be even between the 3 with the GTF. And it's been a great story at how with these alloys, a lot of these started out as co-development, joint technology agreements and the technology teams are embedded within each other.

And so when this issue came up with Pratt, we were already part of their supply chain. We are already providing parts. And they came to us and said, look, obviously, everybody heard about the issue, it was a big news. And they said, we need to ramp up very quickly, and we can't wait for capacity or capital. And so we looked across and kind of in an innovative way, we shared all IP. We opened up the boundaries and said, if this was under one roof and 1 set of assets, how would we optimize to get the most out. And that's how we were able to triple and quadruple what we were doing historically with them to help them ramp very quickly.

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

Yes. I think, the way I'm looking at it for this year is the first quarter, we still have some variability due to that inventory normalization. For the most part, even as recently as this week, talking with them, I'd say across their product forms, they are pretty aligned. There is one product form around that they continue to have a little bit more inventory because they bought more. There are other forms that we have that we're seeing increased demand primarily because they really had to disintermediate their supply chain. They were buying finished parts before from Russia, and now they're buying [ bill it ] and it's got to go to forging.

So it's really changed how they're thinking about their inventory. And so that is at an accelerated level for things like landing gear is one area where we're getting a lot more share. We're qualifying new products to help support them. So for the most part, it's 2 halves. As we leave this first half when we go into the second half, we're going to be pretty aligned with their production, their [ pull ] rate, and we'll start to see that growth gradually start to increase.

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

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

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

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

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

Yes. Well, in that particular situation, and in both instances, we're not the problem, but we're the solution. And so I shared those 7 alloys. 5 of them, we make sole sourced, that sixth one, we really got the opportunity because the other supplier wasn't able to meet the demand needs. And so we were able to step in and very quickly ramp from a low level in December to kind of [ 5 backs ] for the year now is our outlook. And so again, we're helping.

Now in the GTF situation, they're making their own material, but I know there is a lot of interest and desire for them to dual source so that they don't ever get themselves in that situation again. And we're perfectly -- we have the capability. We [ all ] these other alloys. We have that capability. And so there's that opportunity in the future.

So to your point, the team has done a fantastic job. I'm going to give them a lot of credit on these alloys, these powder alloys because they went in -- we didn't come into the year with a lot of capacity, and they worked on productivity and changeovers and yield and equipment upgrades. And pretty rapidly in a 3-month period of time, we were able to double the output on this alloy that really help the engine guys meet that demand from the OE.

So can we do that every quarter? I don't know. We're going to keep pushing that envelope and making sure that we're taking advantage of it. And then partnering like that nickel investment I shared a quarter or 2 ago, that's very strategic and very focused on these particular alloys with customer co-funding to support them.

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

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

GTF [ getting private rate ] yes.

Right, they make their own powder. But there's only 3 that make that in the world. Because of the issue that Pratt had with the GTF, the cleanliness, the quality control are very, very difficult and stringent to maintain.

On the other areas we do, the isothermal forgings that we make that then go into the disks. There's only 2 people in the world that do that today. And we're in a great position where we're a main supplier to all the platforms, and we're continuing to do that.

And then you look at premium quality titanium, which is being used in engines, that is rapidly our backlog has gone up. Our lead times are gone out. There is a great demand for that. We've just brought that new asset on that we invested out in Richland, Washington that we're in the process of qualifying that has that capability.

And then the last one is our zirconium and hafnium, which, again, go into nuclear products, commercial and defense. But also uses alloy additions, master alloys for some of these other alloys. And so again, that system works together to create a very differentiated type of product offering that we can provide to our customers.

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

Yes. And I would say these contracts are structurally much different than they've been in the past. So we have margin accretion opportunities as we look at the surcharges and pass-through escalation mechanisms that we've been able to build in.

And to your point, every time -- I think the important thing to remember for folks is any time a customer comes and says, we need a different product or you have 80% share, we want you to go to 100% because maybe our other supplier isn't meeting our full needs, we need to go [ all caps ], we need more material than your cap. That gives us an opportunity to open up that contract and in some cases, not even just that one. Maybe another one is saying, okay, you need this. We need price here, we need different terms, we need surcharges and pass-throughs. And so it allows us, even within that contract and that framework to make sure that we're getting price and we're getting value in this market with capacity constrained as it is, and I don't see that changing for the rest of this decade, maybe into the next one. There is a great opportunity for us to continue to get that value that we're creating for our customer.

And it continues to happen. Like I said, I go to every air show. And I know you've been going to [ him ], too. I go there every year. And I think this is the year we're just going to all celebrate and say, okay, we've got it. Everything is flowing and then moving along and never changes. This year is not going to be any different because I'm already seeing people coming in knowing, I need this, I've got this crisis, I need you to do more. Can you do this? What would have to be true for us to do this.

And so the opportunities continue. To your point, it's a good stress. There's a lot of stress for the team. But I will say, we've got a fantastic group that has really risen to that challenge and figured out ways to be creative in partnering.

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

Well, it's both -- so you're going to see, as you look at our margins through the year, a continual improvement AA&S, our segment has been in the upper teens for the last 3 quarters. That's really a result of all the work we've been doing the last few years around portfolio optimization. So you're going to continue to see that.

On the HPMC side, on the aerospace side and engine, in particular, we're able to capture price. We're getting mix and expanded share and content on these engines. And then we're also seeing the benefits of utilization and cost out that we're doing, one, around quality and also on productivity. And so all 3 of those, when combined then with some of the strategic investments that we've announced, is really giving us an opportunity to expand those margins and increase the profitability of the products that we're doing.

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

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

When is that on specifically?

So it's going into the naval nuclear program for a classified program. I can't give you too many details on that, but for that program, we've been the sole supplier for decades. We've supported that program. It's highly specialized. And it does not contemplate, there's been a lot of talk around the Virginia class and submarine and expanding that to 2 subs a year, that doesn't contemplate any type of growth like that. It's more of just the regular program for the next 5 years. So it could be upside if we were successful at the shipbuilding is expanding that. That's a big one.

I'd say, the one I'm excited about here recently is there's been a lot of demand accelerating around missiles. We do have content on those. Both titanium, that premium quality titanium, as well as some Niobium C103-based, which uses hafnium. And though that demand, the inquiries, the orders are coming in quite quickly now, it's a small part of our business today, a small part of defense. But I do think that's going to be a long-lasting durable stream as we work to replenish the stockpiles.

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

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

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

So several of the ones you mentioned that were on PAC-3, THAAD, Tomahawk, MRAM. We've got content on those. And to your point, the primes have gotten a lot of pressure around missile and missile production and ramping up. And so we've already seen where we're on some of these programs where people are coming in placing orders for they're indicating up to 6x, the normal quantities that they've taken and are starting to place orders ahead of that funding coming from Washington. So that they're ready from a supply chain standpoint.

And so -- like I said, it is -- we'll continue to -- it's a small part today, but we'll continue to scale and ramp as the supply chain ramps. And again, our materials are they're bringing from a structural, high-temperature structural applications, propulsion, those really unique alloys that we produce.

Because there's an interesting dynamic here where separate even from this new heightened demand. One of the challenges, and I'm just sure you're much more familiar with this. But one of the big challenges here has been on solid rocket motors as an example. So you've had those issues at Lockheed, you've had them at Raytheon and trying to get -- increase those.

However, let's say you magically do that. Well, you still have to get more seekers, you have -- there's a lot more to this than just one very important piece of the puzzle. And so -- how do you -- like, say, PAC-3, like are you looking -- are you currently on PAC-3 and just looking at higher volumes -- or are you looking at even more content on there because everybody is going to be stretched across everything they do on these missile programs.

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

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

Yes. So it's another one I'm excited about like missiles, it's a small part today, but it's a critical part of the space industry. So we're on applications like the Stage 2 rockets, propulsion systems, the dray go nozzle, so we're on the fuel nozzles. And so it's at C103 material that uses the niobium, it's for very, very high temperature applications. I think I shared with you last year a second stage rocket that's flowing in the sky.

And for the launch companies, we're one of the only Western U.S. suppliers that make that. And we are the only one that's qualified for any type of manned aircraft and flight due to our consistency of our quality, the consistency of our product. And so they're continuing to ramp. I'm seeing forecasts that go out to 2,100 and how many launches they want to do. And that's the material that in that second stage, it burns for 6, 7, 8 minutes. And it's not reusable. It's gone as it leaves the atmosphere. But to your point, it's a very difficult alloy to make. It was developed by the company that ATI bought ultimately and Boeing for the Apollo mission.

And over the last 50 years or so, there still hasn't been another company that's been able to crack the code and make it consistently like we do. So there's a ton. I think there's going to be a ton of growth, and it's not just that material. We're doing additive parts that we are making for all of the different launch companies we're partnering with them as well as some super alloy nickel products as well that go into those.

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

About 10%.

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

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

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

Yes. Through the navy and through -- yes. So it's supporting the, like I said, the nuclear naval program, aircraft carriers, submarines, you think about the Indo-Pacific and that priority. So that's where the funding is coming from. So yes, those are well supported and long-term programs that have been in place.

The other piece is -- so I'd say the other 2 big pieces that we haven't talked about, one is armor, which is less of a priority in the U.S. but is increasingly important in Europe. We've got relationships supporting BAE, Romital, U.K., GD. So we're continuing to support it as they grow their manufacturing base and they start to ramp up production that we'll be ramping with them.

There is no substitute in Europe for what you do.

Well, so they're using titanium for weight, right? So it has a higher strength-to-weight ratio than steel. And so you get a much stronger, and it's usually used in the undercarriage but now with drone warfare coming, they're really looking at how do we create the envelope because now we have to protect from the top as well as the bottom. And so I do see that expanding rapidly not just with production, but with the use within the tanks. And then the last one, obviously, is the jet fighters. We're on the current generations, we're getting and working on development for the next generations.

And so then that brings us to the last with missiles and space, which are about 2% today. And so if I look out 5 years, if it grows, let's say, maybe we're not quite as successful at our ambitions to grow 6x over the next 5 years, maybe it's only 3x, that could go to like 5%, 6%, 7%.

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

It's going to keep growing, yes.

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

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

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

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

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

Exactly, yes.

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

Yes. So to your point, and I think I mentioned this last year, before COVID, we had just signed the new contract with Airbus and had not really even begun supplying them. And so as we came out when Russia invaded Ukraine, they rapidly work to get us qualified because they wanted that supply in. And today, we're at about 50% share on the products that we're selling to them. And when you look between Airbus and Boeing, it's pretty even. It's balanced between the 2.

So yes, before COVID, we were a Boeing GE company, and we were really focused there. And I'd say, as we've looked at the portfolio and diversified both our customers and the programs, we've expanded that participation on these different programs and expanded the product portfolios in content that we have as well. So again, it's very balanced between the airframers as well as the engines, and we've got all of our different products participating in these programs.

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

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

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

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

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

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

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

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

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

They're trying.

They're trying, right?

Yes.

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

I think as we go into next year, we are looking for that. And to your point, those widebodies use 5x more titanium. And so we are thinking that, that's going to continue. We put in that new EV melter out in Richland to help us prepare both for the PK, the premium quality side as well as the standard quality side. And so we believe that we're positioned to help support that wide-body ramp as we go into the back half of this decade.

But that's the one area in addition to defense and all of the other demands that are coming in that has not come all the way back to pre-COVID. And so yes, that would be -- we're well positioned. And I think there's some other assets coming on in the industry. So I think that we're in a position to support it.

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

Yes. I'd say it comes down to really the 3 big ones: aerospace, defense and specialty energy. We haven't talked as much about specialty energy, by video and my chat with [ Scott Strazik ] out, it came out yesterday. And really, that's an area that we've got increased concentration and focus. A lot of the materials we use for jet engines are similar or the same that are used in the gas turbines.

And that market has changed so substantially just from a structural standpoint of very long backlogs into 2032 now, and they're starting to think about their supply chain strategically like the aerospace do. They're looking at surety of supply and access to capacity and new product development, both on the material as well as forgings. And so we're continuing to expand our content and participation in our contractual relationships with those energy companies.

In addition, you've got the nuclear renaissance, the refueling, the restarting and our business out on the West Coast with the hafnium so that naval nuclear business is also does commercial nuclear. And so hafnium, zirconium we're helping to support that. And we really -- if you think about it in the Western world, there's only 3 companies that make these products for commercial nuclear applications.

The other 2 have captive nuclear plant arms that they're supplying. We're the only independent. And so if you think about the market and people that are looking for access, they're coming to us and bringing in some cases, capital because they want more capacity, they want more access to that reserve capacity so they can make sure that they've got that to support their business.

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

Okay. Do the same thing.

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

Yes. Well, I'll start with, I'm excited with you because I do think that those kind of growth numbers you're thinking about are possible as we go through the rest of this decade. So we're providing similar materials that we do to the jet engine. So it's a super alloy nickel products that go into the disks. We're making forged parts for blades and discs for that. And then there's some joint technology, which, again, I'm excited because I'm seeing them thinking longer term.

In the past, this material has really been something that we would use for the assets that if we had an opening from jet engine, we'd say, hey, let's make some stuff for the gas turbine market. Now they're looking at more strategically is saying, we need that reserve capacity, and we're willing and we want to work on new alloys because we want to run these hotter and more efficiently. So like those niobiums and some of the more exotic.

So I do see that this is continuing to grow. And I think the opportunity for us is not just growing from a market standpoint, but growing our content and our contractual partnerships with these big Venovo and Siemens and energy providers as they're trying to ramp and meet their demand.

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

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

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

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

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

Yes. Well, that's where our discipline comes in, right? Because there's a lot of opportunities that are in front of us. And we're staying very focused on meeting our 30% return thresholds for any investments. and staying very disciplined around our total CapEx investment being around net $220 million, $230 million. This year, you saw that we came out with a higher number, closer to $280 million with $60 million of that coming from customer-funded capital. And this is where these conversations are very strategic with our customers of saying, look, we've got more projects than we're going to fund that meet our return thresholds you're looking for this capacity to hit at a certain point, let's partner together. If you want to do that, we're going to go ahead and you can help co-invest and have access to, call it, 10% or 20% of this capacity. And if you give us a forecast and a contract to take or pay, then you can have that. But if you don't, then we're going to go and use this to meet needs within the industry.

And yes, the conversation gets a little uncomfortable because then, of course, they go, well, of course, we're going to get a better price, right? And the answer is like, no. This is where the market price is, and this asset is really just to help you get access to capacity the price is still at market. And so I think customers recognize the value to them is if they don't have the material for if it's a gas turbine or a jet engine, they're not selling the engine, they're not selling a plane, right? As I said, I was in Seattle this week, they had 30 777s sitting, waiting for engines. And so that's money sitting on the ground. And the cost of this material in comparison to that cost is something that they're willing to do to make that sale. So lots of opportunities.

And so that's how we're thinking about it. And we're prioritizing our investments. I think the one thing that I'm very focused on with the team is that we're not just putting capacity in, we're putting capability in. And so every new investment is improving our capability to making better quality products, more productive cost efficient products. Some of those specific melt projects that I've talked about, they're going to have much -- they're going to have higher quality and produce up to 2x what the same size furnace does in the vintage era.

So we're really looking at how do we take this investment today? Yes, meet the demands, but also to make sure we're upgrading our capabilities. In what we do today as well as new technologies like additive. We've got our new additive facility down in Florida that just got security clearance. And now we're making parts for classified parts for the defense and the space programs down there. And so -- we're continuing to drive that technology for those highly differentiated products to continue that differentiation of that moat that we've created.

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

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

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

All right. Thanks, Doug.

Good morning, ladies and gentlemen. I'm Bob Wetherbee, Executive Chairman of the ATI Board of Directors. I'm sorry, but I'll turn it back to the operator.

Hello, and welcome to ATI's 2026 Annual Meeting of Stockholders. Please note that today's meeting is being recorded. It is now my pleasure to turn today's meeting over to Bob Wetherbee, ATI's Executive Chairman. Mr. Wetherbee, the floor is yours.

Good morning, ladies and gentlemen. I'm Bob Wetherbee, Executive Chairman of the ATI Board of Directors. It's 11:30 a.m. and in accordance with the notice of meeting, I call to order ATI's 2026 annual meeting of stockholders. Today's virtual meeting is a live audio webcast. As previously announced, ATI chose to conduct today's meeting in a virtual-only format. We believe utilizing this technology provides the greatest opportunity for your participation in today's meeting regardless of your physical location. We'll conduct a meeting in accordance with the agenda and the rules and procedures of conduct that are available electronically in the meeting center.

Before the business of the meeting begins, I'd like to make certain introductions. Participating in today's webcast is Amanda Skov, ATI's Vice President and Corporate Secretary. Amanda will act as Secretary of this meeting and has been duly sworn to perform the duties of the Inspector of Elections.

Good morning.

I would also like to welcome the other members of our Board of Directors who are participating in today's meeting in a listen-only mode. I'd now like to ask Amanda to report on the mailing of the notice of the meeting and the presence of a quorum.

Thank you, Bob. This meeting is held pursuant to the printed notice dated March 24, 2026, that was mailed beginning on that day to each stockholder of record as of March 16, 2026. A list of stockholders entitled to vote at this meeting has been available for at least 10 days prior to this meeting in accordance with Delaware law. All documents concerning the notice of the meeting will be filed with the records of the meeting. The count of shares present immediately before the meeting began indicated that 136,462,390 shares of the company's common stock were present in person or by proxy. This is approximately 89% of all shares entitled to vote at this meeting. A quorum is present at the meeting.

Since the meeting has been duly called and a quorum is present, the meeting is ready to transact business. The polls for each matter to be voted on at this meeting are now open at 11:33 a.m. today, May 14, 2026. If you've not voted or wish to change your vote, you may do so now by clicking on the link provided online. Any stockholder who has already voted and does not want to change that vote need not take any further action at this time. Will the Secretary please introduce the matters for stockholder consideration.

The matters for consideration by the stockholders today are: first, the election of 3 directors; second, an advisory vote regarding the 2025 compensation of the company's named executive officers and third, our ratification of the selection of Ernst & Young as independent auditors for 2026. These matters are described in detail in the proxy statement. The results of the advisory vote are not binding on the company.

Thank you, Amanda. We'll now allow a few moments for any remaining online voting.

[Voting]

I now declare the polls closed for the matters voted on at this meeting as of 11:34 a.m. today, May 14, 2026. Will the Secretary please report the preliminary results of the voting?

Yes. A total of 136,462,390 shares of the company's common stock are present at the meeting in person or by proxy. The preliminary voting results are as follows: first, with respect to the election of directors, the 3 nominees named in the proxy statement for this meeting received the highest number of votes cast. Second, in an advisory vote, the stockholders have voted to approve the 2025 compensation of the company's named executive officers; and third, the stockholders have voted to ratify the selection of Ernst & Young LLP as independent auditors for the year 2026. These voting results are preliminary. Final results will be reported on a Form 8-K to be filed with the SEC. The final report of the Inspector of Elections will be filed with the records of the meeting. That concludes my report of the preliminary results of the meeting.

Ladies and gentlemen, this concludes the official portion of our meeting, and I declare the meeting to be formally adjourned at 11:35 a.m. today, May 14, 2026. We'll pause for a moment while we gather any online questions.

No questions. With that, our program for the day has concluded. As you noticed, I was a little excited to get this call going. This is my last official act as the Executive Chairman of ATI's Board of Directors. I want to take 3 quick notes to share with everyone. Number one, we want to recognize Brett Harvey, the Independent Director of ATI since 2007. He ends his service to the company today. He's always been engaging, responsive, and we all appreciate his many perspectives. ATI is in great hands with Kim Fields as President, CEO, and, as of now, Board Chair. Along with her team and this set of very engaged experienced directors, all the best to Kim and the ATI team going forward.

My time at ATI has come to an end. I will always miss the people of ATI. The team has transformed and differentiated itself as a market leader. As a leader, team's success is the most rewarding to me. The team has proven to perform every day. And you can't fly without ATI either. So that's it. Thank you for your support and continuing interest in ATI.

This concludes the meeting. You may now disconnect.

Hello, everyone. Thank you for joining us, and welcome to ATI's First Quarter 2026 Earnings Call. [Operator Instructions]

I will now hand the conference over to David Weston. Please go ahead.

Good morning, and welcome to ATI's First Quarter 2026 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. 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. 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 $1.15 billion, in line with expectations, with 69% attributed to aerospace and defense. Adjusted EBITDA was $232 million, 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. Adjusted free cash flow was $75 million, 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 $4.1 billion. Additionally, lead times are extending for our most differentiated products: super alloy nickels, premium quality titanium, isothermal forgings and exotic alloys.

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. 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 million, bringing the midpoint to $1.035 billion. This represents 20% growth year-over-year.

Our full year outlook is now adjusted EBITDA of $1.010 billion to $1.060 billion; adjusted EPS of $4.20 to $4.48; adjusted free cash flow of $465 million to $525 million.

Our outlook reflects continued strength across our core markets, focused execution and confidence in our ability to convert demand into earnings and cash flow. Importantly, a significant portion of this growth is already embedded in our $4.1 billion 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 see no material impact on demand or order activity. There have been no changes to our order books or request for delivery deferrals. In fact, last week, I personally had several calls from customers eagerly emphasizing they'll take any capacity that opens up. 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 5-year agreement supporting the naval nuclear program. This agreement is projected to generate $1 billion in revenue over the contract term at attractive aero-like margins, and more than doubled annual revenue over the prior contract.

Q1 marks the third consecutive quarter our Advanced Alloys & 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. The most notable evolution 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-3 and THAAD. 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 XM30 prototype. This distinction reflects not only the quality and performance of our materials, but also our team's speed, adaptability and coordination. 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. 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 6 of the 7 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. We recently extended our long-standing partnership with Cameco through a new 5-year agreement, reinforcing ATI's role as a trusted supplier within the global nuclear supply chain. This $250 million 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. 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&D and specialty energy.

With strong core market demand and record backlog, we are confident in our increased full year outlook. $5 billion 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. 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 $1.15 billion, 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. Specialty energy revenue increased by 22% year-over-year.

Q1 adjusted EBITDA was $232 million, up 19% over 2025. This was $11 million above the midpoint and $6 million above the high end of guidance. Q1 consolidated EBITDA margin percentage was 20.1% as we realized a richer mix from 80/20 initiatives and other portfolio rationalization actions.

Adjusted free cash flow was $75 million, compared to a use of $143 million in Q1 last year. This is a $218 million improvement year-over-year. Managed working capital as a percentage of sales at the end of Q1 was 34.8%, which is a 110 basis point improvement over Q1 2025.

Capital expenditures were $55 million, including $21 million 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. AA&S was 18.1%, a 320 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 Kim mentioned, we're increasing our full year guidance across all key financial metrics. For the second quarter of 2026, we are positioned for adjusted EBITDA of $245 million to $255 million, 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 2025. This 8% sequential increase at the midpoint of guidance is driven by the strength of price and mix, particularly within A&D.

For the full year, we are raising our adjusted EBITDA guidance to a range of $1.010 billion to $1.060 billion. The midpoint of $1.035 billion 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. 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 million, setting the range between $465 million and $525 million. The $495 million midpoint is $115 million higher than 2025, a 30% increase year-over-year. This is driven by our projected $35 million increase in earnings. 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 million to $300 million will be partially offset with customer-funded CapEx of $55 million to $65 million.

As we previously stated, returning capital to shareholders is a priority for ATI. In the first quarter, we repurchased $75 million 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 million in Q1, with the total remaining authorization now at $545 million. 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 and customer inventory balances normalize.

In defense products, we see growth rates in the mid-teens. Our A&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&D-like margins and are targeting mid-teens growth for the full year 2026.

As we have previously mentioned, we strategically prioritized aerospace, defense and specialty energy, using 80/20 and allocating differentiated production capacity to capture further growth within these high-value markets. 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 2026. 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 AA&S in the upper teens. 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 AA&S, 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. 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.

[Operator Instructions] Your first question comes from the line of David Strauss with Wells Fargo.

I wanted to ask about the aero 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. So aftermarket continues to be very strong across the aerospace, especially in jet engine where we're continuing to see both MRO shop visits, upgrade packages driving demand. 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 is very strong across the board. As you saw, that backlog went up to $4.1 billion, our highest level ever. And it really reflects that sustained demand.

As we look forward, the things that I'm looking at and thinking about are changes to possibly retirements due to fuel-driven demand. But frankly, as we go forward, those type of retirements are going to 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 is roughly 2x where we are on 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 is strong, the backlog is growing, and we're not seeing any near-term impacts from the conflict.

Great. And a quick follow-up, Rob. I 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. I guess, where is the -- what is the source of the uplift in the EBITDA guidance?

Yes. We're really confident in where the guide is at. We're seeing the strength, primarily within 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 jet engine, and defense, low to mid-teens. But I'd say my bias is towards the upper end of that guide. 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 defense for our defense business 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, the low to mid-teens. The bias is towards the higher end of that defense business for both HPMC and AA&S.

Your next question comes from the line of Richard Safran with Seaport Research Partners.

I was very interested in your comment in the slides and opening remarks about pricing and HP margins. I wanted 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?

Yes. So Rich, so when we shared over our past that we don't really see a differentiation between OE versus MRO, that our parts, we make a disc and we're not always have clear visibility to which use it's going to. And so really what you are seeing is that price and that mix is a material driver in the first quarter here. And we see that continuing to accelerate as we go through the year.

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, titanium PQ is almost to 2 years.

So we're seeing that tightness in these contracts as 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 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 alongside that, we've talked a lot about increased content on these platforms and expanded scope. 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 meet 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 large portion of the value that we're creating to continue that ramp and helping them meet their commitments.

And so as I look through, it's a structural shift. It is in HPMC, but it's also on the AA&S side. And I just wanted to add, 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 some of the reductions and not growing in those noncore markets because we're really focusing, especially in our 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 will be even more pronounced in the second half.

Okay. Now second, the -- no secret the Department of War has been pressing industry for additional capacity. 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 maybe comment on when they might come online.

Sure. So defense is -- has been very strong in the first quarter. And I know we've guided to low and 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, order placements even in advance of that funding by the Department of War.

But as we look at capacity, we've announced previously our titanium investment. Our nickel investment is in progress. Both of those 2 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. In titanium, we're in -- already in qualifications for premium quality engine.

So both of those are on track, and we're in a good position. I think 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, as we go and think about some of our other exotic alloys or isothermal forgings, which has consistently been over 2 years' worth of backlog, that's an area that we'll continue to have conversations with our customers and make sure that 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. And I do believe though as you look forward, defense is going to be an important growth market for us for 2026 and beyond.

Your next question comes from the line of Scott Deuschle with Deutsche Bank.

Rob, did AA&S 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&L?

Scott, there wasn't much benefit accrued into the Q1. That's really going to be a prospective benefit. And as Kim mentioned, that's going to be some of those exotics, the zirconium and hafnium. And we're really making structural changes in that business. And what you're going to see is, I'll call it, more aero-like margins starting to come through. So that's going to go into the AA&S 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 out of a story of really 2 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 ramp in the second half. Based on -- these are all contract driven. And our orders are typically placed around 12 to 18 months, and so most of those orders and certainly all of the forecasts have been shared with us and we are aligned to those. 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 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 those long-term agreements allow us that visibility and alignment. And we've been talking, in some cases, since last September around what they were going to be looking for as we went into the year, and we have frequent updates with them.

So most -- again, we're 9 months -- 9 to 12 months ahead of the production schedule. So most of those forecasts are all in and most of those orders are already booked in our books. And our contracts, just to remind everyone, have -- most of them have minimum quantities and frozen order windows, where changes can be made, and we're rapidly approaching where the rest of the year, the back half of the year, will be frozen.

Your next question comes from the line of Andre Madrid with BTIG.

Looking -- you made a comment backlog is the highest it's ever been, over $4 billion 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 business. And 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 at a year plus from forgings and PQ billet, titanium PQ, it's close to 2 years. So you need to look at both of those together. We are seeing those extend.

As I look at the distribution, I would say about 3/4 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 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 rein too, with the rebound of airframe in the second half, I mean, just how should we expect, I guess, the percent of titanium sales to shift going forward?

Yes. So jet engine, as you said, it's about 40% of our market today. This is where 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 -- jet engine and aerospace, let's just say aerospace in total, that could go up another point or 2. A&D is around 69%, 70%. Those are going to continue to grow, and that's going to be intentional. 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 as I look at that, A&D mix is going to continue to go higher, which will help us continue to drive higher margins along with stronger value creation. So I would expect they're going to be above 70% and it could trend up. Jet engine may be up a couple of points as well.

As far as titanium sales, I think, as I said, with airframe sales, the first half is going to be somewhat flat and it will 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 widebody start to gain in their ramp and build rates.

The one area that we are seeing quite a bit of demand out for titanium is in defense. It does go into structural applications that are used for high temperature and performance. And so that we are seeing now and is starting to come into our mix. And so you may see that uptick here through the year as well.

So there's a couple of key markets drawing on that. But I would say you'd probably see much stronger titanium sales growth in '27.

Your next question comes from the line of Myles Walton with Wolfe Research.

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 7-year frameworks? Are they trying to lock in your supply for longer than normal duration?

Yes. 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 referenced, but the rate of acceleration is really what's notable there. Yes, 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 our military and missiles and munitions.

So the programs that we're on that really require the performance materials that we have are PAC-3, THAAD, Tomahawk, all substantially been advertised, they're up 3, 6, 10x as they're trying to build the supply chain. And we're really working with those folks in the supply chain to increase our -- and align our capacity to those needs.

And it's really across a couple of key areas. I talked about titanium, our premium-quality titanium or exotic alloys like zirconium, hafnium, niobium. And that's continuing to drive this uptick. And yes, it grew triple digits. I expect that will 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, right now, we've got -- we've kind of laid out the 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 6 weeks.

Okay. And Rob, can you just remind us of your tariff outlook for '26 after the changes with IEEPA and 232, where we are positive, negative?

Yes. Just to jump in there. So yes, for tariffs, we've kept -- 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 we're able to. And we are recovering any tariffs that we're seeing.

Your next question comes from the line of Gautam Khanna with TD Cowen.

I was wondering if you could opine on where we are on that debottlenecking initiative that you announced about 3 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 6 to 18 months? I'm just curious how close to 100% utilization you're at.

Sure. So I think the debottlenecking you're talking about is in our primary nickel melting. There is some 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 in my 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 make it ready for delivery.

And so we are well ahead, I will say, walking through the plants. They are doing a phenomenal job. 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 will be just in time. 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 said how we think about that over the next 6 to 18 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 in our highest value products. But as I'm looking forward, you'll see the first uptick in the beginning of next year where we really [ unleashed ], call it, 5% or so more volumes through 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 8% to 10% uptick that will continue to allow us to take advantage of all the improvements and all of the investments that we're making.

So from an overall, I'd say we are being selective and deliberate in how we're directing our capacities. We're going after the hardest-to-make, most differentiated products. I talked a lot about those 6 of 7 alloys that in 5 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 finding meaningful capacity through the work that the team is doing and, frankly, the learning curve improvement of our employees as we continue to move up that base and people get more experienced and learn our operations.

And Rob, I just wanted to get your opinion on incrementals by segment. I remember Don used to talk about 40% and 30%, respectively, HPMC and AA&S. Is that what you think we should be penciling in over the next 1.5 years, 2 years, whatever?

Yes. So I'll break it down, but first, I'll start with the consolidated look. For the full year 2026, 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 margins on the incremental basis kind of drifting higher from the HPMC segment and maybe a bit lower from the AA&S segment, for the overall composite of about 40%.

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-30s to maybe the upper end of 40%. I think we're now pretty confident in that 40% year-over-year incremental margin on a consolidated basis.

Got you. And any view on '27 with that framework?

Yes. I won't talk about 2027 other than, from model standpoint, 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 prepared that. And overall, my confidence is really high in our ability to get into that guide range.

And if you look at the second half run rate here, which we're thinking about, you'll see if you connect the dots, that that puts you well within the range. And the point I want to make is we're not going to stop growing. So I think what I would say is I have a bias towards the upper end of that 2027 guide for the either dollars and the consolidated margin percentage.

Yes, we'll go through our normal process and you can expect an update sometime in the Q4 time frame.

Your next question comes from the line of Seth Seifman with JPMorgan.

I wonder if you could talk a little bit about the supply side angle of things that are going on in the Middle East. When we think about upward pressure on anything in your cost base, whether that's energy costs or any particular inputs or the availability of any inputs, anything you're monitoring? And any way maybe in particular to think about the way that you can pass through higher energy costs?

Yes. So as we -- coming from 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 a couple of 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 U.S. And so we're monitoring that closely. It's a small portion of our costs. So it's not critical. And we do have alternatives that are readily available. So that's one area that we're paying attention to, mainly from a 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, we do pass through all of 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 12 to 18 months and, in some cases, even 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 flat and align to what those costs are.

And then there's some other innovative ideas and things that we're pursuing projects or pursuing around energy and energy generation that long term may come into play as we think about how we want to manage those costs. But to date, no impact from the Middle East 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 stable. And then energy cost is something that, even for what's happened over in the Middle East, has been on our agenda and something that we've been working on.

Great. That's super helpful. And then just maybe thinking a little bit about the cadence. Obviously, a lot of demand, and so high confidence in the revenue outlook for this year. The A&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 Q2? Or is that something that's going to be more back half weighted?

Yes. You will see that acceleration. It's going to be sequentially stepping up as we go through the year. So you'll start to see it in Q2. 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. 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.

Your next question comes from the line of Pete Skibitski with Alembic Global.

Kim, going back to the start of the Q&A, you were talking to Dave about the impact of higher jet fuel prices on potentially driving the retirement of legacy aircraft. I just want to get a 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? I'm trying to get a sense of where we are sort of in the cycle for you.

Yes. I would say it's heavily weighted towards the next gen. We've got twice the content. As I've shared in the past, a lot of these next-gen engines are still, in the life cycle of an engine, in 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 first round of shop visits that LEAP and others are starting to hit. And so those are all coming together.

So there is more revenue and demand, that is more heavily weighted. So it is a very favorable trend for us as we accelerate into those next-gen engines. And those legacy engines, 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 material, similar capabilities and are required for those, which is it's basically the engine on the ground.

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. I appreciate the color. Just one last one for me. On the defense growth this year, I'm kind of -- 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, hiring more people, supply chain is improving in shipyards. So is it the exotics for you within defense, 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?

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 are looking to expand that capability. I shared that new naval nuclear contract that we just signed, which is about 2x the revenue over the next 5 years than we had in the past contract. And as you said, we're seeing strong growth in that area, and that is an area that we're continuing to invest in.

It is predominantly coming from those exotic alloy, zirconium, hafnium, some nickel as well. So it does translate to a little bit into our HPMC business as well, but predominantly the AA&S. And you're seeing that with the margin accretion that you've seen over the last 3 quarters.

Your final question comes from the line of Samuel McKinney with KeyBanc Capital Markets.

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. 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 we said, we are prioritizing capacity and line time as you called it. And what we find typically is jet engine is our highest-margin business, although that's been rapidly shrinking. 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.

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 kind of talked about down low to mid-single digits is in our medical, electronics, our overall industrial applications, we are deemphasizing those and moving the capacity to those other 2 higher markets -- higher-margin markets.

Yes. 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. If 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.

Sure. With specialty energy, as you said, we delivered strong performance in the first quarter, and as you said, we are saying mid-teens for the full year. As you look at that growth, it's going to be somewhat lumpy as the orders come in, in an intermittent, kind of chunky fashion. But it's being driven by really 2 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, where, as I just mentioned, we're very well positioned with our capabilities and differentiation.

The second is in nuclear. We just talked about that. We've got the Cameco 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. And that's really focused around zirconium, nickel and hafnium.

So as we think about it, it's going to 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 they also deliver in larger chunks.

We have reached the end of the question-and-answer session. I will now turn the call back to Kim Fields for closing remarks.

All right. Thanks, everyone, for your time and for your continued interest in ATI. Just to wrap up today, our message is clear, ATI's executing at a high level in a strong demand market. We're expanding margins, 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.

Hello, and welcome, everyone, to the ATI Fourth Quarter and Full Year 2025 Results Conference Call. My name is Becky, and I will be your operator today. [Operator Instructions]

I will now hand over to your host, David Weston, to begin. Please go ahead.

Good morning, and welcome to ATI's fourth quarter 2025 earnings call. Today's discussion is being webcast at atimaterials.com. Joining me are Kim Fields, President and CEO and Rob Foster, Senior Vice President and CFO; and Don Newman, ATI's retiring CFO, now senior adviser to the CEO.

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 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, everyone, and thank you for joining us. Before I begin, I'd like to welcome Rob Foster as ATI's new Chief Financial Officer. Rob brings deep operational experience, strong financial discipline, and proven leadership to this role after more than a decade at ATI. He has been a trusted financial partner of mine since 2019, and I'm confident he will help lead ATI into its next phase of profitable growth. I also want to thank Don Newman for his leadership over the past 6 years. Under Don's tenure, ATI completed a successful transformation, expanding margins, strengthening cash flow and sharpening our focus on differentiated aerospace and defense markets. Don will share highlights from our 2025 performance shortly.

Turning to our results. The fourth quarter capped a very successful full year. We exceeded profit and free cash flow expectations, expanded margins, improved operational reliability and deepened our customer relationships. We are entering 2026 with momentum across our core markets in aerospace and defense.

Let me start with the key results in the fourth quarter. Q4 revenue was $1.2 billion, adjusted EBITDA was $232 million, above the high end of our guidance range. Adjusted EBITDA margin was 19.7%, an increase of 180 basis points from Q4 2024, demonstrating continued progress towards our 2027 margin goals. For full year 2025, revenue was $4.6 billion, up 5% year-over-year, driven by 14% growth in aerospace and defense. Adjusted EBITDA exceeded $859 million, up 18% year-over-year. Adjusted EPS was $3.24, up 32% from 2024. Adjusted free cash flow totaled $380 million, up 53% from 2024, also exceeding the high end of our guidance. We returned $470 million to shareholders this year, representing 124% of free cash flow. These results reflect disciplined execution, strong pricing and favorable mix, driven by our most differentiated products. Given our confidence in customer demand and our ability to execute the ramp, we are guiding to $1 billion of adjusted EBITDA at the midpoint of our guidance range for 2026, a 16% increase year-over-year.

There are three key reasons we are confident in this outlook. First, aerospace and defense demand continues to be strong, entering 2026. Commercial aerospace demand is accelerating across narrow-body and wide-body platforms. Next-generation engines continue to gain share. Airframes and engines rely on ATI's proprietary always, forgings and specialty materials. We're seeing a step change increase in order activity beyond what we would normally see in seasonal first quarter strength, across both long-term agreements and transactional demand. Within A&D, full year engine sales grew 21%. As fleets transition from legacy to next gen engines, ATI's content per engine is increasing. With these newer platforms moving into service, we also see aftermarket demand growing.

Together, these dynamics create compounding growth that strengthens our position year after year. A clear example of the growth we've seen is ISO thermal forging deliveries to Pratt & Whitney, where ATI's content has grown 6x from 2023 to 2025 with further growth ahead. This is largely in support of Pratt's GTF accelerated shop visit programs. As a priority supplier to our key aerospace customers, we continue to gain share and expand content as customers increasingly value on-time delivery, execution, quality and reliability particularly in areas where other suppliers have experienced constraints meeting ramp-up requirements.

In defense, demand remains strong and diversified with increasing governmental spend across naval, air, missile and ground systems. ATI's annual defense revenue grew 14% year-over-year, with missiles up [ 121%, ] driven by sustained demand for alloys like C103, and titanium 64 across multiple programs.

In 2025, Aerospace and Defense represented 68% of our full year revenue, up from 62% in 2024. With forecasted double-digit growth in jet engines alongside continued strength in defense and airframe demand, this mix will continue to increase over time. Beyond aerospace and defense, specialty energy is emerging as a meaningful growth driver for ATI, delivering 9% year-over-year growth in Q4. While it remains a smaller portion of our portfolio today, the growth is supported by multiyear customer commitments. The business is ramping as demand for AI-driven power infrastructure accelerates across nuclear and land-based gas turbine markets. We recently renewed a long-term specialty energy contract that expanded our share by more than 20%, establishing ATI as their majority supplier and further strengthening our visibility and pricing position as this demand cycle continues to build. ATI's differentiated capabilities in zirconium, [indiscernible] and other exotic alloys position us as a preferred and increasingly key supplier. The second thing driving our confidence, ATI's growth is anchored in proprietary products and long-term agreements that expand share, improve mix and secure enhanced pricing.

Turning to Slide 6. I'm pleased to announce that ATI is now producing 6 of the 7 most advanced jet engine nickel alloys with the remaining alloy produced exclusively by the OEM. We're expanding our proprietary portfolio and reinforcing ATI's competitive moat on the key components of next-generation engines. These products are supported by long-term agreements that secure volume, pricing and returns and align capital deployment with customer demand. Very few suppliers can match our capabilities at scale.

Number three, capital discipline and operational execution remains central to our strategy. As I've shared in the past, our top priority is unlocking capacity through productivity, yield improvements, debottlenecking and equipment reliability. In 2025, these actions delivered measurable results, including double-digit increases in remelt output, significant cycle time reductions in downstream heat treat and increased equipment uptime, all without significant incremental capital. When we do invest projects are secured with long-term customer commitments, often a decade or longer. Many include direct customer funding, enhancing predictability and increasing returns above our 30% return threshold. And each investment is evaluated holistically to ensure durable pricing and protect long-term returns.

In 2026, capital investment, net of customer funding will be in the range of $220 million to $240 million, with growth CapEx focused on proprietary engine alloys and high-return opportunities. This CapEx guidance includes investment in our nickel melt system, including a new primary melt VIM furnace, along with the previously announced remelt equipment. We are modernizing and upgrading our melting systems, expanding capability, improving quality and delivering operating efficiencies for our differentiated engine alloys our customers rely on.

The new capacity will come online in the second half of 2027, contract backed with customer co-funding, these [ subjects ] target a run rate of about $350 million of incremental nickel revenue by mid-2028. Our targeted phase investment strategy is focused on differentiated nickel capability, not broad capacity expansion. These commitments reflect strong demand for ATI's proprietary [ high fraction ] alloys and customers willing and partner with us to secure essential supply.

2026 is off to a strong start. Incremental operational improvements are already underway, and we see tangible opportunities to streamline processes, reduce costs and expand margins. As an operations' leader part, I know the value created by integrating our capabilities and delivering as one ATI, and I'm confident that opportunity remains firmly within our control.

I'll now turn the call over to Don.

Thanks, Kim. 2025 was a proof point for ATI. Strong aerospace and defense demand translated into a richer mix, sustained margins, robust cash flow and a stronger balance sheet. In the fourth quarter, we finished the year with solid execution across the business and strong cash generation. This reinforces our confidence in ATI's long-term strategy. Revenue for the full year totaled $4.6 billion, our highest annual revenue since 2012. Sales were up 5% over 2024, powered by 14% growth in Aerospace and Defense overall. Within A&D, jet engine sales grew 21% year-over-year, and defense grew 14%. Our transformation continues as we focus our mix on ATI's most valuable products and customers. Full year adjusted EBITDA exceeded $859 million, up 18% over 2024. Adjusted EBITDA was $232 million in the fourth quarter, $1 million above the high end of our guidance. This is a 3% sequential increase over a strong third quarter and up 11% over last year's fourth quarter. The cash flow for the full year totaled $380 million, up 53% year-over-year. Full year operating cash flow increased more than 50% to $614 million. Managed working capital improved sequentially to 32.5% of sales in the fourth quarter.

Capital expenditures for the year totaled $281 million, of which customers funded $25 million for a net expenditure of $256 million. These investments supported growth, reliability and improved product flow focused on our highest return differentiated products. Other deployments include repayment of $150 million of debt in Q4 and repurchasing a total of $470 million of our shares during the year. We are pleased with the continued progress in expanding margins.

In 2019, our adjusted EBITDA margins were 10.7%. Then we launched our strategic transformation. The strategy to focus on our differentiated products in the A&D markets along with improving operations resulted in adjusted EBITDA margins of 19.7% this quarter, a 900 basis point increase in profitability. The momentum is building. Full year 2025 consolidated adjusted EBITDA margins were 18.7%. That's a full year increase of 200 basis points, up from 16.7% in 2024. Both segments are contributing.

In HPMC, our full year margin was 23.6%, up 330 basis points over 2024. Q4 margins were 24%, up 400 basis points from the same period last year. The AA&S segment continued its strong A&D expansion with a full year margin of 16.3%, up 90 basis points over 2024. AA&S Q4's margin was 18.5%, an increase of 220 basis points from the same period in 2024.

Let me say it's been an absolute pleasure and honor to the ATI CFO these past six years. I am confident the strategy we have put in place will be successful. The transformation we've achieved together in my time here is nothing short of extraordinary, and there is much more to come. This is a business with unique and integral capabilities perfectly positioned in key end markets that will see robust growth for years to come. I have absolute faith in Kim, Rob and the team to take ATI to its full potential. Thank you to our entire ATI team for their tremendous performance. This is only the start. As Kim and Rob will outline there is a long runway for growth ahead with a fantastic next chapter beginning in 2026.

Now I will turn the call over to Rob.

Thank you, Don. I'm honored and privileged to serve as the next Chief Financial Officer for ATI, building upon the record of success you and Kim have delivered for many years.

Let's jump right in with our 2026 guidance. As I look at 2026, I see API growing the top and bottom line, expanding margins every quarter. That growth and margin expansion reflect price capture under LTAs, volume increases, improved mix as well as operating efficiencies. For the first quarter of 2026, we are positioned for adjusted EBITDA of $216 million to $226 million, which equates to an EPS range of $0.83 to $0.89. At the midpoint, this represents a 14% increase in adjusted EBITDA over Q1 2025. The guidance for Q1 reflects seasonality, including planned maintenance and HPMC. For the full year, we are setting initial adjusted EBITDA guidance of $975 million to $1.025 billion. The midpoint of $1 billion is a 16% increase over 2025 as we extend the path for profitable growth in our core markets beyond aerospace and defense to include specialty energy. These earnings translate into initial full year range of adjusted EPS of $3.99 to $4.27.

Turning to adjusted free cash flow. We target a full year range of $430 million to $490 million. The $460 million midpoint is $80 million higher than 2025, a 21% year-over-year increase. Embedded in this range are gross CapEx investments of $280 million to $300 million, which will be partially offset with customer CapEx funding of about $60 million. As we said before, our growth plans include substantial commitments from our customers. Net of customer funding which is the most meaningful representation of cash invested by API, our adjusted 2026 CapEx range is $220 million to $240 million. These investments prioritize our differentiated products, and are supported by customer product purchase commitments under LTAs with contracted prices. Our adjusted free cash flow range reflects reduction in managed working capital as a percentage of sales to 31% or lower in 2026. We continue to build upon the efficiencies we are unlocking in inventory and receivables management.

The successes we've achieved in 2025-point us towards more consistent cash flow generation by quarter as we work to reduce the seasonality in our cash flows. In terms of capital deployment beyond CapEx, we have no meaningful debt maturities until December 2027 and no significant planned debt repayments in 2026. Returning capital to shareholders has been and will continue to be a priority for ATI. Since 2022, we have repurchased about $1 billion of our shares at an average price of $51 per share. We currently have $120 million remaining under our existing share repurchase authorization to be completed in 2026. As this program completes, we intend to seek board approval for additional share repurchase authorization.

Let me share some of the key building blocks and the financial metrics that support our 2026 outlook. Here's how we see growth for the year, starting with end markets. In jet engines, our largest end market, we see 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 growth occurring in the second half of the year as OEM production rates increased and customer inventory balances normalize. The projected increase in defense spending is well represented in our diversified portfolio of defense products. We are on track for 2026 to mark our fourth consecutive year of double-digit growth in defense with growth rates in the mid-teens. Our A&D sales mix will continue to increase in 2026, with our A&D portfolio in line to represent more than 70% of our sales for full year 2026.

We're evolving into a model of sustainable and profitable growth in specialty energy, targeting double-digit growth in 2026. This will be underpinned by an expanding portfolio of long-term contracts with accretive margins, similar to our A&D LTA portfolio. We are purposely prioritizing A&D and specialty energy using 80/20 and allocating differentiated production capacity to focus on our highest value markets. We're strategically reducing capacity allocations in industrial, medical and electronics. Our 2026 sales are trending down by low to mid-single digits. As a reminder, medical and electronics each represent only 3% to 4% of our total sales.

Turning to adjusted EBITDA margins. we see continued margin expansion in 2026 with full year consolidated margins in the range of 20%. To put a finer point on it, margins are tracking to the upper teens in the first half of the year, been above 20% in the second half. That reflects planned maintenance in the first quarter. In the second half, price increases under LTAs lift sales, profits and margins. For modeling purposes, consider their first quarter consolidated EBITDA margins to be between 18.5% and 19%. At the segment level, full year margins for HPMC will be in the range of 25% in A&S in the upper teens, with sequential expansion each quarter. Building out the model a bit further, planned for consolidated incremental margins for the full year to average 40% with second half 2026 margins above 4% due to LTA price increases. As noted in the past, HPMC incremental margins are typically higher than AA&S, reflecting sales mix and end market pricing dynamics. Both are general guidelines that can vary by product, end market and customer that serve as top level indicators of ATI's anticipated growth impact this year. These incremental margins are higher than we have signaled in the past, that increase reflects improved mix, price, volumes and operational performance delivered across our portfolio.

There are additional elements to our guidance included in the slide deck we shared this morning that will help with modeling 2026. As I begin my tenure as ATI's Chief Financial Officer, I am confident in our opportunities and energized to extend and build upon the performance of this highly differentiated and capable enterprise.

Kim, I will turn the call back over to you.

Thanks, Rob. ATI enters 2026 with a strong foundation, differentiated capabilities, robust contractual partnerships, disciplined capital deployment and a proven ability to execute. Over the past several years, we've transformed ATI into a business where these strengths reinforce one another. Differentiated materials lead to long-term contracts, those contracts secure premium pricing expand share and generate cash, and that cash is reinvested with discipline, expanding capacity, improving reliability and deepening our role across the most strategic customer platforms.

The world increasingly relies on ATI's differentiated capabilities to support next-generation aircraft, advanced defense systems and expanding energy generation, and we are delivering to meet that demand.

With that, let's open the line for your questions.

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

Don, I just want to say thanks for all the help over the years, and congratulations and best of luck. I wanted to start off maybe with a little bit of a big picture question. I know you probably can't talk about a lot of the details, but when we're thinking about expanding capacity with customer support, how do we think about how much of the new capacity is dedicated to the customer versus how much you have at your disposal to serve other customers. And then also the customer support helps to reduce the denominator and the ROI. How do we think about the impact on the numerator?

Seth, yes. And you're right. We can't share a lot of details around what products or what projects these go to unless we've done a public press release, which we have on some of these in the past. The way to think about that, and the way that these are structured these agreements is that it's really around security of access to highly constrained differentiated materials. And so as we are partnering to do these investments, the customers are; one, looking to ensure that, that capacity is available and they have right of first refusal for whatever that negotiated amount is. But Beyond that, as we are managing our mix and managing demand, we're able to flex and move that to support whatever business at the time makes the most sense for us. So it does give them, like I said, that surety that there's investment and supply coming. We work very closely. I think the other benefit for us, maybe twofold. One, is that alignment around customer demand when they need it. So it's coming on exactly when that demand is coming, but also the qualification becomes much more abbreviated because of the focus around resourcing and the investment and alignment of interest there. On your question around the returns, I've shared in the past our threshold for returns on our projects are all 30% plus. And obviously, with this contributed capital from our customers that helps drive those projects even more robust returns for us over the project time line.

Excellent, excellent. And maybe just as a quick follow-up, if you could provide an update on, I think you talked about airframe growth being more pronounced in the second half of the year, just maybe an update on the stocking situation there, and what kind of visibility that you have?

Yes. I would say, airframe inventories are getting much closer to being in line. Inventory alignment has progressed meaningfully through 2025. And as I shared in the past, they only had pockets where the inventory they are working to normalize that. And so from our perspective, as we see inventories across that supply chain, it's largely will be rightsized by 2026, and that's where we are anticipating that we'll start to see some modest improvement in order rates and demand as we get into the second half. And clearly, Boeing had some great news to share this week. They're on a great path. And as they continue to pull and increase their ramp build rates, we anticipate that normalization moving even quicker.

Our next question comes from Pete Skibitski from Alembic Global.

Nice quarter. Kim, you've had some great history here in terms of defense sales and a nice projection, and we still -- it seems like there's still a lot of runway there where this reconciliation bill spend yet to come I was wondering if you could parse out some of the pieces of defense revenue. I think naval is about 50% defense for you, but maybe you could talk about missiles some more in terms of how big that could be? Because we've seen some historic contracts for PAC-3 and FAD, items that you guys have content on. So I was just wondering if you could parse through some of the growth drivers in defense there.

Yes, sure. And yes, I'm very excited about defense. For the full year '25, it was up 14%. We're expecting that growth to accelerate into the mid-teens in '26. And as you said, the spending that is coming in the programs that we have content and are supported are going to just continue to accelerate that. So as you said, as we break down, and I look at the defense market, just generally, naval nuclear is probably a little bit less than you said, closer to 35% to 40% of that overall. And then missiles today is around, say, 20% of that total. And as I mentioned, we're continuing to win new content on both current programs as well as development in new programs. And so I mentioned in the prepared remarks, specifically around PAC-3 and FAD, utilizing our very specialized C-103 material. We're one of the few U.S. suppliers and producers of that material, and that really goes into that high temperature, high-strength applications and then the titanium for, which goes to helping support the EV investment that we made over the last few years. It's coming online very well. It's right at the right time. And as you said, both of those missile programs, I think they're up 3 to 4x in spending as we work to replenish our stockpiles. So defense is an area that has continued to grow. It's a very attractive market for us, and it does have a lot of improvement and opportunity as we go into '26 and beyond.

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

Don's been great working with you. Best of luck. First question I have, I think you see obvious one, are you still with your 2027 guide that you have out there, I'm kind of curious if you'd like to update it now. I mean you're guiding to $1 billion to $1.2 billion in -- EBITDA in '27. And as Kim, you said you're guiding to $1 billion in '26 at the midpoint. And if I heard you right, you're expecting 40% incremental margins to '26. So I guess what does this all say about your '27 guide?

Yes. Rich, this is Rob. I'll jump in here. When I think about the 2027 guidance, I'm really confident in the guidance it's not -- I guess everyone doesn't know, but I was a part of the team prior to being the President of our specialty alloys and components business, I was running the operational finance group. So been very closely involved with these numbers and very confident in our ability to achieve these kind of targets. At this point, I'm going to spend some time in the chair, and we're going to get to reviewing the outlook in longer range in normal course. And I'll be in a position to give you an update whenever we get to that point. I'm not there yet, but I will say that I do have some bias to the top end of the EBITDA margin percent. And I do feel really confident with those 2027, but we're in a position right now to give an update.

Okay. Second, Kim, this is following up on some of your comments about defense, but possibly. But past three years have been pretty good for share gains, VSMPO, you picked up. I'm kind of curious what the opportunity set is for share gains in 2026. And I'm thinking, given spending levels, are most of them in defense right now. I mean that's just my take on things, but I'm pretty interested in what you're seeing.

Yes, Rich. That's an interesting perspective because as I look at 2026, I see opportunities for share gains. And in fact, we've already had a couple of early in the year across three key markets. One is defense, as you mentioned, and I talked about some of those programs in the missiles, but also in the jet and rotor hub areas as well where I know we are winning share, taking share, winning new programs and new parts on those -- on that equipment. But the other two areas that I think we still have opportunities, are one in jet engine and second in specialty energy. Both of those, I would say, over just the last 30 to 60 days, we won significant new share positions and really are related to where our peers maybe are challenged to meet the requirements of the ramp are challenged to meet the requirements of the OEMs to support those rates. And when that -- and again, I mentioned those materials on Slide 6 that we've got the proprietary differentiated materials. Those give us an opportunity then to grow and continue to grow that content on each of those engines. And I'm very pleased that our customers do feel like they can rely on us to deliver reliability, high-quality products. And I'm seeing share gains across all three of those. And again, the tailwinds for the growth of those three markets as well and increasing demand, I think, are going to continue to open up new opportunities for us to go in and win share and win new program positions.

Our next question comes from Scott Deuschle from Deutsche Bank.

Kim, based on the $350 million revenue disclosure you offered, it looks like you'd be adding around 9,000 tons of annual nickel mill capacity with this new Vim at least based on my napkin math. Does that sound roughly right in the right ballpark?

Scott, generally, it's a little bit mix dependent, right? So the materials that is purpose-built capital is going in for have differences around melt rates, around production time, and so you're in the ballpark. But again, that's part of the reason we shared the revenue targets because some of these are very, very difficult and complicated to make. And so it doesn't equate to what you may see as a general purpose, capacity or run rate.

Just as a follow-up, can you share how the melt times typically compare for one of these exotic alloys like Rene 65 versus a more standard alloy like 718?

Yes. I would say if you take kind of 718 versus maybe one of those proprietary alloys on that Slide 6, it could be up to 3 to 4x longer melt times. They're all -- these are all specified controlled melts to get that quality and grain structure requirements that the OEMs are looking for.

3

That's really helpful. And then, Rob, I was just wondering if you could walk us through the 2026 pricing outlook, specifically for the exact alloys today and make zirconium hafnium and niobium, obviously, some big moves on hafnium market. So curious what that pricing outlook looks like for '26?

Yes. So at a high level, when I think about the walk from the 2025 EBITDA to the 2026 guidance. The way to think about it is roughly 50% pricing, 50% volume. And yes, there has been some pretty significant movement with some of the alloys within our specialty alloys and components business as well as some of the other businesses that we have. We don't really disclose that detail. We do talk about zirconium and related products. Thinking about that in the context, is just under 10% of our kind of volumes in terms of revenue. But I will say that the pricing assumptions that were used in the 2026 guidance aren't too far from the current information available. So we've considered a lot of that movement into our 2026 guide.

Our next question comes from Andre Madrid from BTIG.

Don, thank you again for everything and best of luck in future endeavors.

Thank you, Andre.

So not to nitpick, but when looking at airframe, I think you got now projecting mid- to high single digit, but before it was just high single digit for '26. I mean, what's giving you any pause there? And what would need to happen for you guys to come in on the lower side of that range?

Yes. I'd say our guidance is built on executing customer production schedules and contractual commitments and not necessarily those headline build rate targets. So as you said, we're coming in at that mid- to mid- to high single-digit growth rates. But specifically, what we base our outlook on is the OEM order rates, the schedules that they've given us for both Airbus and Boeing, contractual minimums, I'll just remind you that our Boeing contract has contractual minimums. There's order frameworks and timing for both of those at high demand -- material demand to those actual production plan. And I would say what's really coloring this is maybe a conservative view of the timing, particularly early in the year where we are today rather than assuming immediate full rate execution. And so we'll continue to update that as we go through the year. But we're encouraged by that progress Boeing shared on production. But we're not assuming best case rate acceleration as we go through the year. So the guidance is really a measured ramp airframe weighted toward that second half with production rates that convert to orders and shipments. And as far as upside or what would have to be true these contracts, as I shared with you, expanded both our mix, our participation, our product portfolio. We want price, we want share. And so as they start to accelerate those build rates we anticipate capturing that share and that volume as we go into the back half of the year. So together, it's -- taking all of this together, support is really -- we're looking at a steady airframe growth throughout the year, modest in the first half, accelerating in the second half, resulting in that mid- to high single-digit growth for 2026.

Got it. That's helpful color. And if I could just squeeze one more in. I mean looking at jet engine it looks like this was a second quarter of MRO coming in at about half of jet engine. Do you expect similar contribution into '26. Is that what's baked in the guide?

Yes, Scott, so when I look at the frame, I would say that the jet engine growth in 2026 assumes roughly that continuation of mix being 50% MRO, 50% OEM.

Our next question comes from Myles Walton from Wolf Research.

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Really sharing the total capacity add. As I said, it's difficult to measure given the product portfolio and how that mix can change depending on which products that we're making. As I said, we're adding this capacity, it's targeted, and it's phased. It's going to focus on supporting those next-gen alloy platforms like LEAP and GTF with that differentiated rotating part alloys that are shown on Slide 6. So that's the $350 million run rate and '28 is a good way to think about the incremental revenue as you start to model and look forward. From a VIM capacity standpoint or number of VIMs that we have, we have currently 4 VIMs. But what I might caution is, obviously, this investment allows us to upgrade with state-of-the-art equipment and technology, helping to drive the highest quality product and cost competitive reduction. And so we anticipate that there will be some improvements in productivity and output from the brand new equipment and new controls and so forth. So today, we have 4, this would be our 5th.

Is it simple to say, if you go to 4 to 5, it's 25%. I'm just ballpark. I'm not asking for specifics.

Yes. Well, I'd say I shared previously, the remelt gives us kind of 8% to 10%. And I would say this is in that ballpark.

[Audio gap]

compressor discs and turbine disks. And so as we're going forward, we're continuing to maintain that value-based pricing. It's protected under long-term agreements. I would say, as you look at our guide for 2026. For example, you can say half of that is related to price and mix, that uptick and the other half is volume. And I would anticipate that continuing throughout the decade as we bring on these new assets and bring these new materials to our customers.

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

I wanted to just ask a general question on headcount, and what are your plans on staffing for '26 as you meet some of these growth aspirations?

Yes. Thanks, Phil. I'd say we're stable on headcount. As I look at -- and that really stabilized through 2025. And you saw the efficiency and the equipment reliability and that improvement that was then flowing through our financials as our employees moved up the learning curve and become more experienced. So from an overall metric, we're not seeing any spikes in hiring or a lot of new hiring coming in. Now as you mentioned, for this new capacity, we are -- we've got some open positions to help support that even today. But I will tell you, support from our current experienced workforce has been overwhelming. For example, I know they posted six positions here just in the last two weeks, and they had 60 of our current employees that are excited and want to be part of this project and moving over. And so our goal is to bring in our most experienced operators that know how to make these very, very tough to produce and long qualification times. And that's really where I'm focused as we think about how do we accelerate the qualification of these new -- this new equipment that we brought in. I've given you kind of a 6- to 9-month qualification time with the revenue run rate, but I do anticipate, given the experience operators will be moving in and the installed base and quality systems that already support these products. And obviously, the alignment with our customers that we'll be able to accelerate that. So overall, not huge hiring demands. We'll do it in a measured, disciplined way. But we've got a lot of enthusiasm. I'd say, from our current workforce that want to be part of these investments in this new project.

Just as a follow-up on isothermal forgings. You've got jet engine growth in the mid-teens for 2026. Is the isothermal forging piece likely to grow beyond that as you continue to gain share in content and new expanded wins with folks like Pratt. And I think you also have maybe more engine manufacturers and growing in that portfolio even beyond Pratt with capabilities. So maybe talk to some of that because I know it's an important differentiator for you.

Yes. ISO forging is, it's a very important part. It's in high demand. Our lead times are out beyond 18 months at this point. As you look at the engine OEMs, we support all three, almost as close to an even mix between the three, especially as you mentioned, with the GTF and the growth in the share we've had over the last two years with them. That will continue to grow. I do see continued increased demand from all three, where they're looking for things between MRO, upgrade packages, modifications. So those are continuing to come in. And we're really focused on the productivity, the debottlenecking, continuing to expand the new heat treat and ultrasonic testing capabilities that we brought online. So we do see growth there. I do think as we work through this year, but as we think about the rest of this decade, that will be an area that -- we'll be talking with our customers closely around making sure that we got the right capacity in place to continue to support their needs.

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Their support, and most importantly, our ATI team for another outstanding year of execution. We're confident in the path ahead and look forward to updating you on our progress.

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

Hello, and welcome, everyone, to the ATI Third 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 to begin. Please go ahead.

Thank you. Good morning, and welcome to ATI's Third 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 third 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, 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, those are noted in the earnings release and in the accompanying presentation.

Now I'll turn the call over to Kim.

Good morning, everyone, and thank you for joining us. Q3 was another strong quarter for ATI, delivering results ahead of our projections, advancing our long-term strategy and strengthening our leadership in aerospace and defense. Our teams continue to perform at a high level, meeting growing customer needs and driving sustained value.

Let's start with a quick overview of our Q3 results. Revenue was up 7% year-over-year, once again exceeding $1.1 billion. Adjusted EPS was $0.85, $0.10 above the high end of our projected range. Adjusted EBITDA totaled $225 million. Excluding approximately $10 million related to the sale of oil and gas rights, $215 million of adjusted EBITDA exceeded the high end of our guidance by $5 million. Adjusted EBITDA margin exceeded 20%, our highest since the pandemic and almost double 2019's margin. Bulk segments delivered excellent profitability. Our High Performance Materials & Components segment margins were above 24%, and Advanced Alloys & Solutions segment above 17%, driven by strong pricing, mix and increasing aerospace and defense content. Cash generated from operations year-to-date reached $299 million, a $273 million improvement from last year. We also returned $150 million to shareholders this quarter through share repurchases with $120 million remaining under our current authorization. Given this performance and our outlook for Q4, we are raising our full year guidance across the board. Adjusted EBITDA for 2025 now forecast between $848 million and $858 million, a $28 million increase at the midpoint. Adjusted free cash flow now forecast between $330 million and $370 million, a $40 million increase at the midpoint. Don will share more details on this in a moment.

With 1 quarter left in 2025, I want to highlight 3 key themes driving ATI's continued momentum and future outlook. First, we have strong demand in our core markets with aerospace and defense leading the way. Total A&D revenue rose 21% year-over-year in the third quarter, fueled by record defense performance and sustained demand in jet engines. This quarter, A&D reached an all-time high of 70% of total revenue, marking an important milestone in our strategy. Long-term agreements and differentiated materials are supporting consistent growth through 2026 and beyond.

I'll detail what I see in these markets. Our largest market, jet engines, now 39% of total revenue, grew 19% year-over-year in Q3, with MRO representing about 50% of total engine sales. Next-generation programs such as LEAP and GTF continued to accelerate with strong production and aftermarket demand. You probably heard OEMs make those forecasts in their recent earnings calls. This sustained momentum supports long-term growth for ATI's proprietary alloys and forged turbine discs. Our order book extends into the mid-2027, underscoring tight supply and the strength of our customer partnerships. As a priority supplier, we've gained additional share in content where others have faced execution challenges while maintaining pricing that reflects the value of our capabilities. Looking ahead, we expect Q4 jet engine revenue growth in the high single to low double digits. For the full year, jet engine growth is expected to exceed 20%. With multi-decade customer agreements and increasing platform demand, ATI is well positioned for continued share gains and profitable growth through this aerospace cycle.

Airframe sales grew 9% year-over-year and 3% year-to-date this quarter, supported by the ongoing ramp in Boeing and Airbus production and timing of customer orders. Boeing's production rate increase of 42 per month on the 737 and Airbus' A320 target of 75 per month by 2027 signal healthy sustained demand. We expect Q4 airframe revenues to finish modestly above 2024 levels as airframers adjust their inventory to production needs. ATI's expanded titanium capacity and advanced processing capabilities are driving share gains and improved pricing across OEM platforms, enhancing our mix of higher-value structural components and supporting continued margin expansion. Next year, we anticipate high single-digit growth in airframe revenues, driven by steady production ramps, increased ATI content and favorable pricing under new long-term contracts that start at the beginning of 2026. Beyond 2026, as build rates rise, ATI's airframe business is poised to grow faster than overall industry volumes, reflecting our differentiated titanium portfolio and deep customer alignment.

Defense markets remain exceptionally strong. Revenue increased 51% year-over-year and 36% sequentially, reflecting broad-based strength across naval nuclear, rotary cracked missile and armored vehicle programs. Our diversified product base benefits from both U.S. and allied spending growth, we continue to qualify our new programs entering early production. ATI's Defense business has now delivered 3 consecutive years of double-digit growth, outpacing defense spending. Highlights this quarter include being named Supplier of the Year by General Dynamics U.K., underscoring customer trust and ATI's performance and reliable delivery. Missile and propulsion programs are expanding rapidly. ATI's advanced materials are increasingly specified in [ FAD and PAC 3 systems ] where production is accelerating to meet recapitalization demand. We're also supporting emerging initiatives like [ Golden Dome ], positioning ATI for above-market growth into the next decade.

Emergent Naval Nuclear also contributed meaningfully to Q3 performance, showcasing the resilience and scale of our defense portfolio. With expanding qualifications, multiyear visibility and growing international participation, defense is set for continued record performance as modernization and replenishment programs ramp worldwide. Bottom line, A&D remains the foundation of ATI's growth.

My second key theme, operational excellence and disciplined execution are the backbone of our performance. This quarter, the team delivered strong productivity gains. Across ATI, we're delivering what we call the triple threat: higher uptime, improved first pass yield and expanding manufacturing capabilities. We have examples across the company. In our nickel remelt operations, output increased by double digits. In the isothermal flow path, heat treat cycle time improved 3x. Accelerated throughput is lower in cost and [ frame ] capacity for our crucial jet engine products. At our Specialty Materials business, we also expanded powder atomization capacity by over 25%, improving yield and quality. We expect to see the benefits of this improvement in our first half 2026 shipments. Our specialty enrolled product business achieved a new record for monthly coil shipments, another demonstration of increased throughput and efficiency. Specialty Alloys and Components unlocked more than 20% additional capacity in the zirconium sponge process. This was accomplished through standard work and maintenance optimization requiring minimal capital investment.

As a reminder, ATI is the leading producer of high-purity zirconium at scale in the Western world. This material is important to national defense, energy and aerospace. It's a small but highly profitable part of our business today with significant growth potential ahead. Collectively, these initiatives have expanded available capacity by roughly 10% with the greatest impact in our differentiated [ mode ] products and contribute to our margin gains. These are not just operational wins, they enhance reliability, increase asset utilization and drive long-term earnings growth. By securing additional customer qualifications on new equipment and products, we're building the foundation for ATI's next chapter of performance and profitability.

My third theme this quarter, our strategy and investments continue to drive long-term value. Our strategy is working, with 70% of revenue now coming from aerospace and defense, ATI is firmly focused on our most differentiated, high-value materials and markets. Our nickel investment expands differentiated capacity at the top of the value chain. You'll recall, we're the sole-source producer for 5 of the 7 most advanced super alloys in the jet engine. Before we decide to invest, each project undergoes a disciplined review process, requiring projected internal rates of return above 30% and clear alignment with long-term customer contracts. In many cases, our customers are funding alongside us, reinforcing shared confidence in the demand outlook and guaranteeing needed capacity is in place for the future. We'll continue deploying capital with focus and discipline, prioritizing differentiated products, high-return investments and strategic partnerships that sustain ATI's leadership and create long-term value.

I've been recently asked by a few investors whether investing in nickel melt capacity will negatively impact our pricing. The short answer is no. Our focus is on our most differentiated products. This is about expanding the competitive moat while supporting the engine ramp and our customers' ambitious growth targets.

In summary, strong aerospace and defense demand, a relentless focus on operational excellence and a strategy that's creating long-term value resulted in Q3 being ATI's strongest quarter of the year. We're well positioned to extend our momentum to finish 2025 strong.

And with that, I'll turn it over to Don.

Thanks, Kim. I'll provide some additional detail on our financial performance and discuss our outlook for the fourth quarter and full year. In Q3, we once again delivered results ahead of expectations. Adjusted EBITDA was $225 million, including a $10 million gain from oil and gas right sales. Excluding that, EBITDA of $215 million represents a 19% year-over-year and 6% sequential improvement with margins at 20% or 19.1% excluding asset sales. Strong price, mix and volume performance, particularly in defense and jet engines, drove this outperformance, resulting in nearly $10 million of operational upside versus our prior guidance range midpoint. Year-to-date, our sales are up 7% and adjusted EBITDA is up 19% over the prior year, excluding asset sales. This reflects improved mix, cost discipline and incremental margins, which remain near 50%, demonstrating the leverage of our business model.

Segment performance was strong. HPMC EBITDA margins expanded to 24.2%, up 50 basis points sequentially and 190 basis points year-over-year. A&S margins improved to 17.3%, a 290 basis point increase sequentially and a 250-point increase year-over-year. This reflects gains from ongoing transformation and efficiency efforts. Cash generation also remained strong. Through the third quarter, we have generated nearly $300 million in operating cash flow, supported by working capital improvements and strong earnings. We continue to monetize noncore assets including the oil and gas rights sale and a small noncore machining divestiture, all while keeping capital investments focus and discipline. Gross capital expenditures year-to-date totaled $188 million. Managed working capital as a percentage of sales remains around 36% with opportunity to improve. We expect a strong finish to the year. The seasonal working capital release and projected strong Q4 performance position us for robust fourth quarter cash generation.

Now let's look at our guidance for the fourth quarter and full year. Building on Kim's comments, we are raising full year guidance to reflect stronger performance and visibility through year-end. Adjusted EBITDA, $848 million to $858 million, up $28 million at the midpoint. Adjusted EPS, $3.15 to $3.21. Free cash flow, $330 million to $370 million. CapEx, $260 million to $280 million. That's unchanged from prior guidance. Q4 adjusted EBITDA is projected at $221 million to $231 million, a sequential 5% increase, excluding oil and gas gains. The midpoint of $226 million is driven by continued growth in jet engine forgings, improved price and mix and sustained strength in defense programs.

Turning to margins. Based upon our continued strong performance, I expect consolidated margins in Q4 will exceed 19%, and full year margins will be in the range of 18.5%. At the segment level, HPMC Q4 margins should continue to increase, exceeding Q3 margins of 24.2%. AA&S Q4 margins are expected to be between 16% and 16.5%, consistent with sales mix expectations. We expect another strong quarter of cash generation supported by collections and improved working capital efficiency. We are on track for $330 million to $370 million in adjusted free cash flow this year. This is a $40 million increase to the midpoint of the range. Gross capital expenditures will stay within the planned range of $260 million to $280 million, partially funded by proceeds from sale of noncore assets. Cash generated from sales of noncore assets and businesses totaled approximately $30 million year-to-date and $76 million in 2024. Our focus remains on high return, customer-supported investments that enhance mix, margin and long-term competitiveness.

Each quarter this year, we have increased EBITDA, margins and cash generation. Q4 will build on that performance, creating momentum that we will carry into 2026.

With that, I will turn the call back over to Kim.

Thanks, Don. As we shared on September 11, Don has elected to retire from his role as CFO following our fourth quarter call. We'll have more to say about Don and his outstanding career next quarter, but I want to take a moment now to thank him for his leadership and many contributions that help put ATI in the strong position we're in today. The search for Don's successor is well underway. We're considering both internal and external candidates to identify the best possible leader. I'll share progress on the search in the months ahead for a seamless transition. Our disciplined financial strategy will continue.

Before we turn to Q&A, I want to reflect on what makes ATI a compelling aerospace and defense story. When we began this transformation several years ago, ATI served a wide range of products and customers with limited concentration in our most differentiated materials. Fast forward to today and the transformation is clear. ATI is an aerospace and defense leader with more than 70% of our revenue coming from these high-value markets. In 2019, our margins were roughly half the 20% we delivered this quarter, and our growth rates were more susceptible to price and input cost swings. Today, we are structurally stronger, anchored and [ differentiated ] materials, long-term customer relationships and sustainable pricing power. We've made tremendous progress, but we're not finished.

The path forward centers on 3 levers: First, strategic pricing and mix optimization. Demand continues to outpace supply in key markets like jet engines, defense and specialty energy. We're optimizing our product mix at our most valuable assets to capture higher value opportunities. Our long-term agreements and strategic pricing actions capture the value we deliver, securing the price, terms and pass-throughs that reflect our differentiated materials and the reliability our customers depend on. These long-term partnerships also underpin future investments and joint technology development, ensuring we expand capabilities in alignment with customers' needs.

Our second lever is operational excellence and productivity. Across ATI, yield and throughput improvements are expanding capacity without adding capital. Product and process innovation drive efficiency and reliability, supporting record margins and cash generation across both segments.

Our third lever is focus and simplification. We apply an 80-20 mindset, investing where ATI creates the most value and exiting where we don't. We're redeploying capital to high-value, high-growth areas. ATI is more agile, more profitable and better positioned to deliver long-term value. These levers are driving continued margin expansion, strong cash generation and higher returns on capital. Customers recognize ATI's reliable track record, long-term contracts and technical expertise, reinforce the surety supply our partners count on.

ATI's foundation is strong. We're profitably growing, expanding margins and generating robust cash flow, trends we expect to continue well into the next decade. We're ahead of schedule on our 2027 growth and margin targets and our business model provides clear visibility through 2030 and beyond. Even as customers build schedules fluctuates, ATI continues to gain share across A&D, optimize its asset base and deliver consistent growth and increasing returns. Our differentiated materials, technical expertise and integrated capabilities create a durable competitive moat, one that aligns closely with our A&D partners. We've accomplished a lot, and we're just getting started.

With that, let's open the line for your questions.

[Operator Instructions] Our first question comes from Richard Safran from Seaport Research Partners.

Don, congrats to you on the retirement, and thanks for all the help over the years. I appreciate it. Okay. So Kim, I heard your opening remarks, but I'm not exactly sure I understand what's changed since 2Q to drive the revised outlook and the guidance increase. So maybe you could discuss what's changed in your outlook and going to the moving pieces that drove this guidance increase we see today?

Sure. Thanks, Rich. So let me start with the guidance is reflecting that stronger-than-expected A&D performance, particularly in defense, we had a tremendous quarter. And we see the A&D growth and momentum in third quarter continuing through the rest of this year, and frankly, into 2026 -- we delivered $225 million adjusted EBITDA, and excluding the oil and gas rights, that's $215 million. HPMC was over 24% in margin, AA&S was over 17%. And the operational productivity that I talked about is really starting to flow through, and we're seeing that in those margin numbers. Free cash flow continues to be a standout at $299 million year-to-date, up $273 million from last year. So as we look at the momentum that we built in the third quarter, we see that, we anticipate that strength going into Q4 across A&D and frankly, continuing into 2026. So overall, strength in markets and strength in our position and the returns that we're getting on the investments from an operational mix and pricing.

This next 1 is a somewhat related 2 part question about nickel and titanium. You have a lot of single source nickel alloys, I'm talking about things like Rene 65. On the OE side, you're facing [ rate 52 ] at Boeing, [ rate 75 ] at Airbus. There's aftermarket demand. So first part, what are you doing to manage this [ melt ] capacity you discussed in your opening remarks?

Second part, Kim, I think you recently said ATI is now the #1 source of flat-rolled titanium products to Airbus. What actually does that mean? And how does that translate eventually to the P&L, if you would?

Sure, sure. So you're right. We continue to see record demand for premium nickel alloys, especially those used in next-generation engine products like LEAP and GTF, as well as defense, which, as I just mentioned, we had a fantastic quarter. So we're seeing demand across all of those market segments. And meeting that demand this year has really been focused around that productivity and reliability, higher melt yields, more downstream processing, the increased testing capacity in our forged products business. Those actions are delivering these strong results that you're seeing and how we supported that more than 20% jet engine growth this year as well as the margins at HPMC over 24%. So we're going to continue to focus on expanding process efficiency and customer co-funded projects. And as I mentioned in my remarks, these investments will exceed 30% IRR, our internal rate of return targets and ensure that supply assurance without adding unnecessary melt capacity.

But at the same time, as you said, this demand that we're seeing this year is going to continue to grow. The other OEMs have said on their earnings calls, they're expecting this to continue to build and accelerate through the decade. And so we're also looking at selectively expanding our [ mill ] capacity to support that long-term growth, particularly in these high priority -- or I'm sorry, proprietary alloys. Those hot sectionalities, I talked about 2 quarters ago, [ those 5 of 7, ] not the standard nickel alloys. So we're doing very purpose-built type of capital expansion. And these projects are being developed in partnership with our customers. They're backed by long-term agreements. They have co-funding to ensure the new capacity and capabilities align with the future needs of this market. And as I mentioned, all these products are well in excess of the 30% target.

So it's important to remember those proprietary alloys, in many cases, we are sole sourced on those 5 of 7 in the hot section with very, very long qualification times and difficult learning curves and under LTAs for decades. So we're managing it in the short term, both from a productivity standpoint to continue to improve our output from our current asset base. And then in the long term, selectively investing purpose-built assets for those hot section alloys where we have those sole-source and long-term agreements.

On the second question, you asked me around Airbus. Yes, that's, like I said, is a great success story. I'll just remind everybody before COVID, we weren't shipping anything to Airbus at that time. We had just signed our first contract with them. We hadn't even started shipping. We went into COVID, Ukraine was invaded and quickly, they need to engage and get us up to speed became an imperative. And today, as I mentioned, when I say we're the #1 flat rolled supplier in the industry -- or I'm sorry, in the product portfolio that we're selling them that means we're the majority supplier today. The share-based contracts allow us to expand that share in content as they continue to ramp and grow, there's mechanisms for pass-through for metal, inflation, tariffs. And we effectively, starting next year, doubling our Airbus revenue and expanding those margins. So the benefit, as you asked to the P&L comes through that stronger mix, consistent volume, expanded content and share and the higher margins from the premium titanium plate and sheet.

Yes. I just want to mention here, there's been -- go ahead, sorry.

Just on your [ MELD ] comment, are you effective -- if I understood you right, are you effectively saying you're managing to the high-margin products, is that what [indiscernible]

Yes, in both the short and the long term, yes. We are optimizing the mix. So you see that in some of our aero like and other categories and growth. So we are managing to the highest value mix in the short term and optimizing the throughput and output. And then in the long term, putting purpose-built assets in partnering with our customers for that.

Our next question comes from Myles Walton from Wolfe Research.

I was hoping to dig a little deeper into the engine mix that you have going on with MRO being 50% of total engine sales. How much of that do you have a sense as in production MRO work or in production engines being MRO versus out of production engines being MROed?

Well, for us, as I look at our mix, we have a higher content on the next-gen engines that are out, the LEAP, the GTF. So what we're seeing is continued MRO and continued heavier shop visits where as I've mentioned, those forge dips that we make are typically the #1 place that they're going to start looking if they're coming in for either for just a typical upgrade as they're continuing to increase life and efficiency as well as the normal scheduled maintenance visit. So I would -- for us, it's mainly the next-gen engines that we have the higher content. That's where those powder alloys and those proprietary alloys that I just talked about really are predominant. And that's what drives that increased efficiency and life in those engines.

Okay. And a lot of the engine OEMs are talking about mid-teens type growth into next year. Is that something that would be in line with the level of growth you'd expect in your engine end market?

Yes, I'd say that's in line with how we're thinking about it. We do see, as you said, they are sharing, and we see that continued growth in demand, not just in the short term but through the whole decade and because of our LTA or long-term agreements and our relationships, customers -- we have very transparent communications, we're aligned. These alloys in their hot section being a sole source or proprietary supplier, really affords us the opportunity to partner closely. And to your point, we do see the growth as they're saying next year, but also through the decade and then we're looking at investments to ensure that we're continuing to support that.

Our next question comes from Phil Gibbs from KeyBanc.

Good morning. So excluding the oil and gas rights, you were ahead of the midpoint by about $10 million in the quarter for your adjusted EBITDA. Should we think about that based on some of the comments you were providing earlier that maybe half of that is operational and half of that is due to the stronger or strong defund sales you had in the quarter?

Yes. I mean, I think that's fair. We've done work across all of our assets. Defense, like I said, that was really a bright spot, and the team did a fantastic job. We had -- defense continues to grow at double digit for us, and that pace across missiles, nuclear naval and rotary programs but we had some demand come in last quarter. That is going to continue through the rest of this year and into next year that really allowed us to focus and you saw some of the numbers moved around a little bit as we prioritize those shipments to those customers. But we expect that double-digit growth in Defense to continue into 2026, missiles, like systems like [ VAD, PAP 3 ] are continuing to expand. And we were blending those mature programs we have with some of these new cutting-edge programs like the [ MB75 and the F47. ] So yes, it comes from both, the productivity, which we'll continue to keep focusing on so that we can keep meeting the demand that from an A&D standpoint does continue to come in very strong.

So Kim, the defense sales levels overall, do you expect those to continue in the fourth quarter? Or was some pulled into the third quarter?

No. I mean -- so we did have some significant shipments from the forging business in the third quarter, and we will see that moderate a bit as we go into the fourth quarter. But as I look forward, the strength and momentum of the demand coming from these defense programs are going to continue to build as we come through the fourth quarter and into 2026. Now that said, Jet engine overall, you will see that uptick in the fourth quarter. As like I said, we prioritized some of our assets and shipments in the third quarter for some immediate defense needs that will start to come back, and it will be up.

And then lastly, on the net working capital side, that was a pretty strong improvement in terms of the free cash flow bridge. Where is that coming from predominantly? Is it mostly inventory? Or is it some inventory and payables? Just curious on that.

I'll tell you, I'll take that question. Part of the improvement that we saw in working capital really throughout the year, but especially in Q3 was tied to our management of accounts receivable. Now we are making progress certainly on the inventory side of the house, we've improved our efficiencies and our intensity there. But for accounts receivable, we put in place a securitization facility and that securitization facility, we did execute some of the AR factoring in the period. And so that benefited some of our working capital efficiencies in Q3. But as you take a step back, though, and you look at the full year guidance when it comes to free cash flow, clearly, we're making progress, both operationally and the cash that's generated through operations, and we are making progress across the working capital, especially AR and inventory to improve that part of our cash generation.

Our next question comes from Gautam Khanna from TD Cowen.

Congrats, Don. I know we had you for a little longer, but congrats. Guys, I had a couple of quick questions. You did mention in 2026, you expect airframe sales to be up, high single digit. And I wanted to ask if you had any other preliminary color you could provide on 2026 with respect to other end markets, like jet engine, maybe if you could just opine generically on incremental margins at HPMC. Any sort of parameters you'd give us as we start to pencil in '26.

I'd say, as you mentioned, I'll just -- I'll talk about the guidance. I'll let Don talk a little bit about the incremental margins, which we do see expanding. But for 2026, as you mentioned, we're expecting that airframe growth to be steady throughout the year, maybe start modestly and grow as we get to the back half of the year and accelerate as the planned increase rates start to take effect. From an engine standpoint, we do see, as I mentioned, continued growth and strength in that space. We're not giving specific guidance on every market. We wanted to share some things around airframe because there was a lot of questions on that last quarter. But as we're finalizing our plans, we'll give official guidance in the first quarter and share all of those numbers. But that said, we are seeing and anticipate demand for jet engines to remain exceptionally strong through next year and into 2027 based on our order book and what we see already today.

Don, do you want to talk about margins at all?

I would love to. So to your point, yes, we've been seeing some really excellent performance around our incremental margins. Year-to-date, we're approaching 50%. And so we're really pleased with that. It's not a surprise to us. We've talked in the past about what our expectations were over time when it comes to incrementals. The standing rule that we've shared with our [ standing ] guidance that we've shared with you guys is assume incrementals live in the 30% to 40% range. Think about 40% as aligned to HPMC expectations, 30% more aligned to the A&S part of the house, but we expected as our mix was improving as price was being captured as efficiencies were being delivered that our incrementals would improve. Now we've seen that in the first several quarters of this year. And the question -- the basic question is, okay, is this an indicator of a new incremental that we should be modeling to?

I would say at this point, we would continue to recommend the 30% to 40%. In the future, in the near future, I would expect management will share with investors and analysts if that margin needs to be increased to a higher level. But I can tell you from my standpoint, while I'm really happy with the performance we're seeing when I'm modeling the business, I still use that 30% to 40% range. And -- but I do expect that we will see the improvement that we have indicated as time unfolds here.

Our next question comes from Andre Madrid from BTIG.

Don, congratulations. Again, I'm glad we have you for 1 more, but it's been a pleasure. So you called out Naval Nuclear is one of the main drivers at defense, but maybe could you just give us a status update there on the zirc supply chain and how things are going there vis-a-vis China?

Yes. So obviously, the news continues to change depending on if we have a trade deal or not. But I'd say from the supply chain side on the zirc product, it's been very stable. We haven't seen any impacts or anything that is concerning from our standpoint. I will mention that -- I think I've mentioned this in the past, we've also built stockpiles, both the raw materials as well as finished products to make sure if there's any intermittent impacts that, as we can see through some of these trade negotiations that we're able to maintain that and manage that. And so we're in a really good position from the supply chain side of things. When I look at the market, though, I'm expecting positive momentum as we go into the -- into Q4. We used these last couple of quarters, frankly, to and upgrade some of our equipment with some customer-funded capital because, again, our customers are looking at some of our capabilities and seeing tightness with the demand that they've got coming both nuclear, defense as well as energy, gas turbine energy. So we did put some upgrades. So we do anticipate to see some of those benefits starting to come through and the demand fundamentals are solid. So we're working on new qualifications and new material to get qualified for those applications as well.

Got it. Got it. And in terms of the stockpile, if you can share -- I mean how much -- how long of demand does that reflect those stockpiles? Like how? Is it like a year or 2?

I would say we generally on finished products, we have almost 2 years, probably around 2 years of inventory. And on the raw material side, we have over a year of materials. You have to remember, these raw materials are not -- especially the raw materials for zirc, it's not a very high -- and it's only half. So let me [ quantify ], it's only half of the raw materials that we put in to make our zirc product and it's not a very high dollar amount. And so we're able to hold large amounts of inventory in that raw materials. And as I said, we haven't had this jump to pull into that or use any of that. We're actually -- we're maintaining and managing it. We haven't seen disruptions this year. There's been good flow, and it hasn't been threatened as of yet. But again, if there's any bubble or any momentary disruption, I think we're in a good position to maintain through that.

Got it. Got it. And if I could just squeeze 1 more in. I mean, you said MRO is roughly half of engine. What was that percentage previously, pre-COVID and whatnot? .

Yes. Pre-COVID, I would say, typically, what our [indiscernible] 20%, 25%. And we've seen that accelerate rapidly and you know all of these things, Andre, as you look at shop visits and the airlines waiting on planes to get delivered to some of those older planes are staying in service longer.

I think the other aspect is the next-gen engines. They're continuing to drive lifing and efficiency, so they're doing upgrade packages. So all of those are coming to bear. And again, they all hit squarely into that hot section, those forge disks, that have so much wear that basically provides a threat for the engine and the plane to get off the ground. And so we are seeing, like I said, a substantial increase. And I will talk for the OEMs. They're sharing it publicly, but they're sharing with us that they're seeing this to continue through the decade as we go forward and these engines get into their first and second shop visits.

Kim, that's super helpful color. I'll leave it there.

Our next question comes from Seth Seifman from JPMorgan.

Thanks very much. Nice results and nice remarks. And Don, thanks for everything. So I guess just starting out, you mentioned in the HPMC business kind of a change in the structure of a contract, I think, something that goes -- that moves it more towards just recognizing your value add on work rather than all the materials. Is there -- do you anticipate more happening there? And kind of -- what kind of determines when that happens and when it doesn't?

Seth, it's Don. So let me take that one. You're right. In the quarter, we highlighted because we were wanting to explain the movement in our jet engine revenue sequentially. We highlighted that we had a contract, a particular contract that we had converted from a materials and conversion structure, which means we would buy the material and convert the material and sell the product to our customers. We converted at the request of our customer, that contract to a conversion only. What that means is we don't buy the material, they provide the material. And the long and the short of that is you have less revenue that you recognize. It doesn't negatively impact your bottom line, and it can actually be a help to your margins. So that's the background there.

Is it a trend? Well, it's not unusual in our business to have conversion contracts. We don't see a trend that the material contracts will transition to conversion contracts. It was, I would say, generally an isolated situation where it shifted over. That particular contract had about a $10 million effect on revenue from Q2 to Q3. That particular contract will be with us through the end of this year. So you'll see that same effect in Q4. But no, not a trend and no messaging around this particular change.

Excellent. Great. And then I think this probably follows up a little bit on Andre's question, but specialty energy in the slides, you talked about it being kind of a longer-term growth market. In recent years, there's been a little bit of growth, but not a lot and down this year. And so how do you think about the time frame for that? And is it sort of linked to -- should we think about it more linked to developments in nuclear energy or anything else?

Yes. I would say we're going to start to see growth in that market segment next quarter, and that's going to continue to accelerate as we go into 2026. For us, and you're right to point that out, it's both. It's both gas turbine. And I'd say that is going to be in the immediate the next few quarters. You'll see that will be what's behind that growth, and you'll see that continue to increase. We are in the process of developing some new materials there and getting qualified. And so there is significant demand there.

I'd say on the nuclear side, as you said, we are in a unique position. We're one of the only western suppliers of some of the zirconium in the [ Trax ] or tubing form that is really needed for the commercial nuclear facilities globally. And so that business, as I mentioned, we did some upgrades. We put some capacity freed up some bottlenecks there. And so we're going to see that continue to grow. I know they're trying to fast track some of those nuclear facilities and bringing them back online. And we're seeing that demand come in now in orders for that today. So both of them, but I'd say the gas turbine really being driven by the data centers and the demand for energy.

And for both, this is a market that we don't spend a ton of time. We talk a lot about aerospace. But it really leverages our differentiated materials, our breadth of materials, zirconium, hafnium, as well as titanium and nickel products and those capabilities. I know we've mentioned it, I probably underemphasized the capabilities of our assets and the flexibility of those to be able to flex into some of these markets where there are very few, if any, in the Western world that have those capabilities in that product form. So we are seeing a lot of demand. I'm very excited about the future for energy for us. I do think it's a small part of our business today, but I do see that growing, and it's a very profitable part of our overall portfolio.

We currently have no further questions. So I'll hand back to Kim Fields for closing remarks.

Thanks. Well, thank you, everybody, for the call today. As I said, we had a fantastic quarter. I'm very pleased with the results that we've demonstrated in the third quarter and the momentum that we see going into the fourth quarter and frankly, into 2026. Next quarter, we'll share our official formalized guidance. But just to close on, we're going to stay focused on where we're most differentiated, those advanced materials and forgings for aerospace and defense. The next phase is really around growing our content per platform, scaling those co-funded investments and improving operational leverage. We continue to see that mix grow. And A&D is going to continue to grow faster probably than our other markets as we go into next year and that momentum will continue from Q4 to 2026.

Over time, like I said, the bottom line is our transformation is working. We're seeing that in both our margins, our mix and our overall growth. Now it's really about compounding that performance for the rest of this year and into 2026.

Thank you guys for your time. I really appreciate it, and I'll talk with you later.

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