ATI Inc. (ATI) Q2 2015 Earnings Report, Transcript and Summary

Good morning, and welcome to the Allegheny Technologies, Incorporated Second Quarter 2015 Results Conference Call. All participants will be in a listen-only mode. Please note this event is being recorded. I would now like to turn the conference over to Dan Greenfield, Vice President, Investor Relations and Corporate Communications. Please go ahead. Danny L. Greenfield - VP-Investor Relations & Corporate Communications: Thank you, Emily. Good morning, and welcome to the Allegheny Technologies' earnings conference call for the second quarter 2015. This conference call is being broadcast on our website at www.atimetals.com. Members of the media have been invited to listen to this call. Participating in the call today are Rich Harshman, Chairman, President, and Chief Executive Officer; and Pat DeCourcy, Senior Vice President, Finance and Chief Financial Officer. All references to net income and earnings in this conference call mean net income and earnings from continuing op. attributable to ATI. If you have connected to this call via the Internet, you should see slides on your screen. For those who have dialed in, slides are available on our website, www.atimetals.com. After some initial comments, we will ask for questions. During the question-and-answer session, please limit yourself to two questions to be considerate of others on the line. As always, we will make every attempt to reach everyone in the question-and-answer queue within the allotted conference call time. Please note that all forward-looking statements this morning are subject to various assumptions and caveats as noted in the earnings release and on this slide. Actual results may differ materially. Here is Rich Harshman. Richard J. Harshman - Chairman, President & Chief Executive Officer: Thank you, Dan. Good morning to everyone on the call or listening on the Internet. Although business conditions were challenging, we are disappointed in our second quarter results. Being unprofitable is unacceptable regardless of market conditions, and we will be aggressive in our actions to address this issue. Some of the challenges that we faced in the second quarter included a surge of low priced imports of standard stainless products from China created significant pressure on base selling prices, resulting in record low base prices by the end of the second quarter. In addition, the price of nickel on the LME fell throughout the second quarter, resulting in a drop in raw material surcharges. The combination of these two conditions also led to aggressive inventory reduction actions by some of our stainless sheet distribution customers. As a result, shipments and sales of our standard stainless products fell dramatically in the second quarter. Volume decreased 13% and sales were down by approximately 20%, both compared to the first quarter 2015. Demand from the oil and gas and chemical process industry markets continued to weaken in the second quarter of 2015 with ATI sales falling over 17.5% compared to the first quarter of 2015. Due largely to mix changes and a replenished supply chain second quarter sales to the aerospace market moderated compared to the first quarter of 2015. However, first half 2015 sales to this key market are 12% higher than the comparable period last year. The premature defect in the rotary crop shear at our Flat Rolled Products segment Hot-Rolling and Processing Facility or HRPF temporarily disrupted our cost reduction progress in this segment. On the positive side, culminating a multi-year effort, ATI achieved qualification from a leading jet engine OEM for our premium titanium products used in jet engine rotating parts made using the premium quality titanium sponge produced at ATI's Rowley, Utah facility. Premium quality titanium sponge is the critical raw material required to manufacture the most demanding jet engine rotating parts. Our operating teams did an excellent job and beat the qualification schedule. The timing of this qualification is well aligned with forecasted growth in demand from the aerospace market. Also, we announced the expansion of our nickel-based superalloy powder capabilities. This $70 million strategic growth project strengthens ATI's position in the production of technically demanding superalloy powders. A significant amount of the powders from this expansion are needed to meet requirements of our existing long-term agreements with jet engine OEMs that run well into the next decade. This expansion also better positions ATI to continue as a leading supplier of advanced powders to the new and rapidly growing additive manufacturing industry, particularly for 3D printed applications. This expansion builds on ATI's existing powder capabilities located at facilities in Oakdale, Pennsylvania, near Pittsburgh, which are currently operating near capacity. Here is Pat DeCourcy, ATI's Chief Financial Officer for a more detailed discussion of the 2015 second quarter financial results. Pat? Patrick J. DeCourcy - Chief Financial Officer & Senior Vice President: Thanks, Rich. Turning to slide four, looking at second quarter results from continuing operations. Sales were $1.023 billion. 82% of our sales in the second quarter were what we regard as high-value products. International sales represented 43% of our second quarter sales. Net loss was $16.4 million or $0.15 a share. Turning to slide five. High Performance Materials and Components segment sales were $511.1 million, a decrease of 6% compared to the previous quarter and approximately 1% lower than the second quarter 2014. Segment operating profit was $42.6 million. Second quarter 2015 segment operating profit was reduced by a $4.8 million net realizable inventory reserve to offset the LIFO reserve benefit recorded in the Flat Rolled Products segment. This was necessitated by ATI's consolidated LIFO reserve being in a debit balance. As Rich indicated, segment results were negatively impacted by a reduction in sales to the oil and gas market compared to the first quarter 2015. Results also continued to be negatively impacted by low operating rates at our Rowley titanium sponge facility. Flat Rolled Products segment sales were approximately $511.4 million, 12% lower than the previous quarter and over 15% lower than the second quarter 2014. Segment operating loss was $3.4 million or over $11 million lower than the first quarter 2015. Segment results benefited from the reduction in the LIFO reserve of $5.1 million; however, nearly all of this benefit was offset by the previously discussed net realizable inventory valuation reserve recorded in the High Performance Materials and Components segment. Slide six shows the impact of HRPF start-up and Rowley PQ qualification costs have preset the results from continuing operations. Adjusted loss before tax excluding these items was $10.8 million in the second quarter and adjusted EBITDA was $64 million. Turning to slide seven; we maintained a solid liquidity position with $251 million in cash on hand and no borrowings outstanding under our $400 million domestic line of credit facility at the end of the quarter. We are proactively pursuing an asset-based lending facility or ABL. Available borrowing capacity in the ABL is determined by the underlying collateral pool. This type of facility does not have leverage and interest coverage covenants and the borrowing cost are expected to be lower than our current facility. We are receiving strong support from our bank lending group and we expect to close the ABL facility by the end of the third quarter. Given the challenges in some of our end markets we lowered our estimate for 2015 capital expenditures to $250 million from our previous estimate of $290 million. Now I will turn the call back over to Rich. Richard J. Harshman - Chairman, President & Chief Executive Officer: Thank you, Pat. Turning to slide eight; the aerospace and defense market continues to be our largest end market with 2015 first half sales of $794 million. This market represented 37% of ATI's total sales and breaks down as follows; 18% jet engine, 12% airframe, and 7% defense. We expect that the commercial aerospace market will be a significant driver of our profitable growth over the next five years, as production rates ramp for the next-generation engine programs and record backlogs at airframe OEMs are delivered. First half 2015 sales to the aerospace market increased 12% compared to the first half of 2014. The first quarter of 2015 was strong as the supply chain replenished inventory. The second quarter fell from that high level as we saw customers keep their inventories in line with the projected build rate. The Paris Air Show went well for ATI. Our meetings with customers were many and included discussions on how we plan to continue to grow our strategic relationships. One thing stood out, OEMs are looking for the most reliable suppliers during this massive upcoming next-generation build rate ramp. The assets we have invested in and built, and the product and process technologies we have developed over the last 10 years put ATI in an excellent position to create economic value for our shareholders and value for our customers over the next five years at least. On slide nine, we have quantified the impact that our previously announced new long-term agreements are expected to have on our forgings and castings business. Currently, our hot-die forge and titanium investment casting operations are in the early stages of ramping up production of recently awarded legacy and next-generation parts. As we have said, we expect to at least double the size of our forging and casting business over the next five years. Our design engineers are working with our customers to qualify new tooling and parts which have been awarded to ATI by our customers over the last year. A leading indicator for growth in forgings and castings is called NPI or new product introduction. We are currently working through our NPI forging and casting backlog of over 300 parts won under LTAs in late 2014 through June 2015. These new parts are expected to generate incremental sales in excess of $1 billion from 2016 to 2020 mostly to our strategic aerospace market customers. In addition we have good momentum and are continuing to win new parts with existing customers and in some cases with new customers. We believe we're well-positioned to maintain and in several instances to increase our position on certain long running legacy programs and maximize our position on certain key next-generation growth programs. Turning to slide 10, shown is the most recent market forecast of commercial aircraft build rates. The black line on this chart represents the number of next generation airplanes in the build rate forecast. As we have said in the past, this is a good proxy for ATI's potential aerospace market growth trajectory, since we have secured increased positions on many of the next-generation airplanes and engines that power them. As you can see, record growth in the next-generation engines is expected through at least 2019. This market forecast is from Airline Monitor, note that their forecast recently has moved higher for 2019, which now shows only a slight decrease from 2018. Airline Monitor's previous forecast showed a more noticeable drop in 2019. This revised forecast is more consistent with the OEM forecast. Slide 11 shows the most recently available reported OEM firm order book of the major engine programs, which as of May 31, 2015 stands at over 21,000 large jet engines. This represents the backlog prior to the Paris Air Show. The first five lines show the backlog for engines that power single-aisle airplanes. Note the over 11,000 next-generation engines in the backlog, again a good proxy for ATI's growth opportunities in this important market. Moving to slide 12, the oil and gas/chemical process industry market is our second largest end market. For the first half of 2015, sales to this market were $383 million and represented 18% of ATI's sales, 12% oil and gas and 6% chemical process industry. ATI's second quarter 2015 sales to the oil and gas and chemical process industry fell just over 17.5% compared to the first quarter of 2015. High Performance Materials and Components segment orders and sales for exploration and other down-hole applications declined compared to the first quarter of 2015. Our customers have revised their forecast downward resulting in significant reduction in orders that are expected to continue to impact our results at least through the rest of 2015. Our Flat Rolled Products segment sales to the oil and gas market are up nearly 12% in the first half of 2015 compared to the first half of 2014, mostly due to a large pipeline project. Shipments for this project are expected to be completed this month, and at this point, this volume is not expected to be replaced by existing demand for the balance of 2015. We're in a period of great near-term uncertainly in most of the oil and gas markets that use ATI materials. While there are signs that the supply side economics which led to the glut are being – beginning to self-correct, the certainty of the correction and the pace at which this correction will occur is uncertain. Long-term, we expect that demand from the oil and gas markets will recover and growth will return. This is a technically demanding and critical market for the world's developed and developing economies. Therefore, we remain focused on oil and gas as a key global market for ATI. We have new products for this market that are enabled by our new capabilities and are focused on relentless innovation. We continue to expand our product offerings to the oil and gas and CPI markets. The HRPF gives us the capability to offer larger and flatter coils of nickel-based alloys, duplex alloys and other specialty alloys and stainless alloys. Our 48-inch wide nickel-based alloys are being embraced by our customers. We are actively pursuing innovative applications of our ATI Flowform products made from our nickel-based alloys and specialty alloys. So far, early trials are going well and Flowform pipe and tube products have attracted significant interest from the oil and gas equipment producers due to the value proposition of this manufacturing process. Turning to slide 13; sales to the automotive market during the first half of 2015 were $179 million and represented 8% of ATI sales. Customer demand for our high value Flat Rolled Products from our automotive customers in the U.S., Europe and Asia remains strong. We have seen gains as our products are being accepted by foreign automotive companies with North American manufacturing facilities. Our product mix continues to trend favorably as nickel-based alloy and specialty alloy applications continue to grow due to higher engine operating temperatures. Car manufacturers continue to develop smaller and lighter engines that use turbochargers to boost performance. This creates an engine environment that demands specialty materials capable of operating in high-pressure, high-temperature environments in applications such as turbochargers, gaskets, and connectors. This secular shift is somewhat similar to the trend we see in jet engines, and ATI is well-positioned to transfer aerospace technology to the automotive market. High-pressure, high-temperature engines often require aerospace alloys such as nickel-based superalloys and specialty alloys, including some recently developed ATI proprietary alloys. We are near the end of our extraordinary capital expenditure cycle that has transformed and modernized ATI and positioned our business for long-term success and profitable growth. We've built the foundation for creating long-term value through relentless innovation and we've secured our position to grow faster than the market during this once-in-a-lifetime aerospace market transition from legacy to next-generation airplanes and jet engines. Slide 15, although busy tells the story of the second quarter. The slide shows the double whammy that hit the flat rolled stainless sheet market. The blue bar represents the surge in imports. The chart on the right shows the direction of the LME nickel price during 2015. Surging imports and falling raw material prices, not good for base selling prices and raw material surcharges or customer demand. Let's spend a few minutes on the import situation. Note the import level in 2010, 2011, and 2012 is pretty much flat. In late 2014, the U.S. market saw the beginning of a surge in imports primarily from China. Based upon year-to-date May 2015 data, the latest available, imports from China increased nearly 150% during the first five months of the year compared to the first five months of 2014. Also note, the box located to the right of the blue bars. China is now exporting more stainless sheet and strip to the U.S., than Europe and Mexico combined. A familiar story, the EU initiates trade cases against China, which they have done. And the U.S. market becomes a target for Chinese producers to dump product. While ATI continues to be active to promote fair and free trade, we also recognize that we must have a cost structure that generates profits from our stainless business throughout the cycles, and we are taking actions to achieve that goal. This requires more than just the investment in the HRPF. Turning to slide 16, the HRPF was built to enable a more competitive profitable high quality Flat Rolled Products business and provide the capability to better compete globally with a lower cost structure, high reliability, a broader product range, and larger wider coils. As expected the HRPF is proving to be a game changing investment designed to significantly enhance ATI's Flat Rolled Product capabilities and reduce manufacturing cycle times for all of our Flat Rolled Products. The HRPF investment enables us to reengineer our Flat Rolled Products business with renewed focus on shorter manufacturing cycle times, customer responsiveness, and an improved and more competitive cost structure. The integration of the HRPF in the daily operations was going extremely well, until a defective rotary crop shear or RCS component was discovered this past May. After the defect was discovered, our team did a great job reprogramming the HRPF to produce most of our Flat Rolled Products without the RCS. The defective RCS has been removed and the replacement installation is expected to be completed by the end of December. The RCS outage, while frustrating, is a temporary disruption. New product qualification and development continues to move forward. For example for the aerospace market we are qualifying products new to ATI Flat Rolled Products, such as a 48-inch wide nickel-based alloys and new titanium alloys. For the automotive market, we are providing auto exhaust alloys to new customers and improving our high value product mix to meet our customers' needs to make components for engines operating at higher temperatures. However due to the RCS defect, we expect the $150 million of annualized benefits to now begin to be realized closer to the early 2016 than later this year in the fourth quarter of 2015. ATI Flat Rolled Products is fortunate to have several differentiated product lines. For these high value products, we must increase our global market position, while relentlessly embracing continuous improvement initiatives to reduce the cost of manufacturing these products. The second quarter of 2015 shows once again that we are currently not profitable in our Flat Rolled Products business, when a challenging market for stainless steel causes losses that sap the profits from our high value product mix. We can cite imports. We can cite slow growth. We can cite the price of nickel. These factors are all true, but we do not use them as excuses. We also know that when the stainless market recovers, and it will, it is cyclical and these market dynamics will happen again. To create sustainable value for our shareholders and to secure the future of the business, we must generate a profit on our Flat Rolled Products business in times like these when the price of standard stainless products retraces record low levels. The production flow path from our melt shops to the HRPF and DRAP which is a continuous automated finishing facility can be efficient and productive stainless steel production flow path, but by itself is not a panacea. Total hourly employment costs in our Flat Rolled Products business represents one-third of our non-metal operating cost. This is too big a cost to ignore. Our total hourly employment costs are significantly higher than those of the major U.S. located flat rolled stainless competitors, a competitive gap that we must begin to address for this business to be successful and create sustainable value for our shareholders and customers, and opportunities for our employees. Turning to slide 17; ATI has made significant investments in our U.S. manufacturing capabilities in the last 10 years. These investments are changes in technology that help address changing customer needs and expectations, and a changing competitive landscape. By definition these investments help keep great manufacturing jobs in the United States. In the ATI businesses that have collectively bargained labor agreements, these agreements must have the flexibility to respond to changing market conditions and competitive factors. Businesses that have such agreements can be successful manufacturing products in the U.S. as opposed to exporting those jobs overseas. The requirements of some of our current labor contracts are legacy requirements from a market environment that no longer exists. As we have said many times, the HRPF is an important strategic investment, but it is an enabler, it is not the sole answer. Just as we have invested in new technology, we must change the other aspects of our business to ensure that we can be profitable throughout the inevitable business cycles. The labor agreements between ATI and the United Steelworkers for most of our U.S. Flat Rolled Products facilities and for two High Performance Materials and Components facilities located in Albany, Oregon and Lockport, New York expired on June 30, 2015. Presently our USW-represented employees at these locations continued to work under the terms of the expired agreements. We, ATI, continue to work diligently and in good faith with United Steelworkers on a negotiation process in an attempt to reach new, fair and more cost competitive agreements. Our goal is to negotiate agreements that are more competitive and more – and cost – that are more market and cost competitive, have contemporary benefits and wages that will remain among the best in the industry and in the U.S. and provide more flexible competitive operating language. The HRPF is a tremendous investment in manufacturing in the U.S. and is located in Western Pennsylvania, right in the industrial heartland. We must focus on all cost factors, including wages and benefits in order for ATI Flat Rolled Products to return to consistent profitability. Only a profitable Flat Rolled Products business can secure the future of this business and the excellent jobs it provides. ATI and the USW continue to have differences relative to the path forward. ATI has made several proposals designed to come to agreement on the important benefits and language changes that will help return ATI Flat Rolled Products to sustainable profitability. We have not requested a reduction in wages. Although our average hourly wage rate is one of the highest, if not the highest in the industry. We believe that these are some of the best jobs in the country for manufacturing positions and will remain so with our proposed changes; safe, well-paying jobs with attractive benefits, including competitive healthcare plans and retirement savings plans. We will continue to work toward agreement that will retain great jobs in this area and also reflect the competitive landscape that exists today. However, it takes both parties to be willing to negotiate. Earlier this year, we were pleased to have reached agreements with our USW-represented employees at ATI's Lebanon, Kentucky, Forged Products facility and ATI's Oakdale, Pennsylvania powder facilities. So we know it is possible. Until new agreements are reached, ATI is fully prepared to support our customers throughout this process and we're hopeful that we can reach market competitive agreements with United Steelworkers soon. In summary, long-term drivers of our secular growth markets remain intact. The markets we serve are inherently cyclical and some of our key markets are currently highly volatile. Our long-term strategy is to offset or limit the resulting negative impact from this volatility with the benefits of ATI's diversified product mix and end market focus. Our extraordinary capital expenditure cycle is nearly behind us. The HRPF has been successfully integrated into daily operations in our Flat Rolled business and the rotary crop shear component replacement is on schedule. We are making premium quality specialty materials for jet engine rotating parts using our own premium quality titanium sponge. As always, we face numerous market challenges and we must execute. Our challenge and our opportunity are to execute our business strategies. Our strategy includes being focused on actions to align and integrate ATI's specialty materials businesses, enhance ATI's competitive position, and continuously improve the cost structure and operating efficiencies of our businesses to achieve long-term sustainable profitable growth. Operator, may we have the first question, please?

Thank you. We will now begin the question-and-answer session. Our first question is from Gautam Khanna of Cowen and Company. Please go ahead.

Hi. Good morning. Richard J. Harshman - Chairman, President & Chief Executive Officer: Good morning, Gautam. How are you?

Pretty well. Thanks. I appreciate the opportunity to ask the question. Hey, I wanted to ask, if you could just comment a little more on what you're seeing in the jet engine channel? In the past, I think you mentioned the mill product demand was a little better, but the forging, the downstream products were lagging. Was there any change within the mix in jet engines? And then I have a follow-up. Richard J. Harshman - Chairman, President & Chief Executive Officer: Okay. No, I don't think so. I think on the mill product side, I think we did as you really sort through the first half, I think, we clearly saw higher demand in the first quarter, largely through the replenishment of the supply chain which had been drained at a low level and really wasn't at a sustainable level to support the rate ramp that was going on. So, we saw that demand for those products moderate a little bit in the second half – in the second quarter. I think, the programs that we're on right now, which are really not shipping in any – the new – the next generation programs aren't shipping in any meaningful way here in the first half of 2015. So the programs that we're on, on the parts and component side are more of the legacy programs. I think as we move through late second half of 2015 and certainly into 2016, so you will see the parts and components business pick up from the new generation, the next generation of jet engine platforms. And I think even on some of the legacy programs, you're still seeing some tightness in the powder supply perhaps for some of the jet engine OEMs that result in isothermal forge products. I mean, one of the reasons why we're making the investment on the powder capabilities is because of the tightness in the market today that will need to be addressed in order to support the OEM build rates going forward over the next five years. So, we saw a little bit of a delay probably in some of the ISO forgings in the second quarter and really in the first half that we don't see correcting itself until probably later this year, but certainly in early 2016.

Okay. That's helpful. And, Rich, I just wanted to ask on the rotary crop shear part you mentioned you're going to get the spares, the replacement parts soon. Have you gone through a full review to make sure that this is not a design flaw? It was just a defective part as opposed to a design flaw that would be maybe more serious. Richard J. Harshman - Chairman, President & Chief Executive Officer: Yes. No, it's a great question and, yes, we have, not only with Siemens and Siemens has been – Siemens now Primetals – has been very supportive throughout the process of the outage. It was their responsibility, it was their design and it was their supply chain that built the component. So they've been very supportive and have lived up to their obligations and we greatly appreciate that. They've done a failure analysis, an engineering analysis. We're also doing an independent one and I think all the indications are that it was not a design failure or a design problem with the RCS. It was a material issue with some of the components, either a material issue or a processing issue on the material, perhaps an annealing issue, but that's what things look like today. That has not yet been finalized, but I think all indications are pointing in that direction.

Thanks a lot. Good luck and appreciate it. Richard J. Harshman - Chairman, President & Chief Executive Officer: Thanks, Gautam.

Our next question is from Richard Safran of Buckingham Research Group. Please go ahead.

Hi. Good morning. Richard J. Harshman - Chairman, President & Chief Executive Officer: Good morning, Rich. How are you?

I'm doing well. Thanks. Rich, this is a bit of conjecture on my part, but one theme that seems to be is that your customers may not be communicating with you as effectively as they have been in the past. Like we saw this with Rolls-Royce and destocking and we seemed to have seen this, this quarter with engineering firms that order oil and gas equipment. So first, I mean do you agree with that conjecture on my part? And could you describe any efforts you're making to try to improve on that communications, because it looks like your customers may be taking a different approach on how they place orders and communicate inventory levels. Richard J. Harshman - Chairman, President & Chief Executive Officer: No, I really don't agree with your bottom line conclusion. I mean I think that in both cases – I mean the fact circumstances are different in both cases and I think that the dynamics of the market and the complexity of the supply chains are such that we have regular dialog and we have very deep discussions with our customers in all end markets. And we challenge them because we try to connect a number of different data points obviously that we're seeing from a macro basis as well as from a micro basis on the supply chains. But in the end, they're far more knowledgeable about the complexity of supply chains than we are. And I think the dialog is always robust, I think it represents the best information available to both parties. I think the challenging of the conclusions are there. I just think that it's a dynamic environment and the complexity of the supply chain is such that information is constantly changing and the information that we heard from our oil and gas customers late last year in terms of what they felt their expectations were and in terms of how it was going to impact our business with them turned out to be probably more optimistic at the time than it ultimately culminated in, and I think that's just due to the quite frankly the complexity of the supply chain and the dynamics of the market.

Okay. Thanks. And just as a follow-up here. Just want to ask a quick question on aerospace. So you noted in the release the mix got a bit worse. So if you said this, I apologize if I missed it. But you noted that the mix got a little bit worse compared to 1Q and I believe you had been thinking that under your PFS agreement with Boeing, you thought the mix might be getting better, more high value-added content alloy for example. So I'd like to know, if you still expect the mix to get better from here? Do your comments today indicate there's been any change in your view with improving mix? Richard J. Harshman - Chairman, President & Chief Executive Officer: Yes, I think year-over-year, I do think that the mix gets better. I think there is some volatility on a quarterly basis. I mean what we have seen on the airframe side is that there are mix changes from quarter-to-quarter as you progress through the year. And the first quarter, first half tends to be more heavily loaded quite frankly from an overall volume standpoint than the second-half. While that's less than ideal, I mean we wish it would be more evenly loaded, we respond to the needs of the customer. So I think on a year-over-year basis, the trend is that way. I think there is some volatility within a quarter, within a year that can be unexpected. It ultimately is what does the customer need and when do they need it. So we aim to be as responsive as we can to that. Makes planning and forecasting a little difficult but that's life.

Thank you very much. Richard J. Harshman - Chairman, President & Chief Executive Officer: Thanks.

Our next question is from Timna Tanners with Bank of America Merrill Lynch. Please go ahead. Timna Beth Tanners - Merrill Lynch, Pierce, Fenner & Smith, Inc.: Hello, good morning. Richard J. Harshman - Chairman, President & Chief Executive Officer: Good morning Timna. Patrick J. DeCourcy - Chief Financial Officer & Senior Vice President: Hi, Timna. Timna Beth Tanners - Merrill Lynch, Pierce, Fenner & Smith, Inc.: Okay, so I have a couple things. Just for starters, where is the CapEx change coming from? What's the reduction coming from? Patrick J. DeCourcy - Chief Financial Officer & Senior Vice President: I think it's largely just a variety of projects that we're looking at that closer and challenging some of the underlying assumptions, given where some of the end-markets are, and I don't think we've necessarily cancelled any of them. We're just delaying them and pushing them out. Timna Beth Tanners - Merrill Lynch, Pierce, Fenner & Smith, Inc.: Okay. And then there's a number of things that you've talked about in the past that I feel like we didn't get an update on, so I'm just going to go through them and ask if you can just give us your latest thinking there? Richard J. Harshman - Chairman, President & Chief Executive Officer: Sure. Timna Beth Tanners - Merrill Lynch, Pierce, Fenner & Smith, Inc.: One is, we've been hearing improvement on GOES and I know, AK Steel has done some exports there. Can you just remind us of if you have any exposure to that improving market or if it has to remain end of year? And then the next one is just on the partnership for the HRPF. You mentioned in a couple conference calls ago you expected that to be finalized this year. And then the trade case on stainless if you're still pursuing that or just where that stands? Thanks. Richard J. Harshman - Chairman, President & Chief Executive Officer: Okay. Yes on GOES, yes, we are seeing an improvement in GOES on the demand side as well as on the pricing side. So the pricing still has a long way to go to where we would consider it to be attractive, but it is improving and the demand is improving. So that's a positive – a mildly positive story on the flat rolled product side. On the HRPF partnership side, obviously when you look at the carbon steel industry today, there is a lot of issues going on, not only in the U.S. but globally, but our dialog continues. As a matter of fact, I think it's fair to say that our dialog is expanding and we expect it to continue to expand across more potential partners. Initially, it was very narrowly focused and we're willing to continue to consider that, but quite frankly, I think that there's opportunities for other interested parties who have contacted us in some cases and we've contacted them in other cases, and so there's quite a bit of interest out there and we'll see what happens. Whether the timing is obviously always partnership specific, a partner specific and market sensitive? The timing will be, when the timing will be. And I hope it's the end of this year, but if it isn't that doesn't mean that we're changing our perspective on the opportunity that exists with the carbon steel partner on HRPF. On the trade side, yes, absolutely the industry, the domestic industry is looking at that. As you know that's a data intensive, fact-specific issue, but it's only ATI, it's other impacted parties who believe that trade laws are being violated by foreign producers, specifically China, but perhaps not just China, and all that information is being collected and the prospects of the trade case I would characterize as likely. Timna Beth Tanners - Merrill Lynch, Pierce, Fenner & Smith, Inc.: Okay. If I could get one last one in. Thanks for all that. I'm keeping track of my three different part questions. The only last one I have is, so you spent a lot of time, a lot of slides on the conference call talking about how the HRPF is not a panacea and more needs to be done and you need to be profitable through the cycle, but I'm sorry if I was dense. I don't really see like how are you getting there then? So if HRPF isn't enough and you know that stainless is going to be pressured. It's a global commodity. It's part of your business. Like what are the other measures that you can take to ensure more competitive stance in this global commoditized market? Richard J. Harshman - Chairman, President & Chief Executive Officer: Yes. Well, I think that I have been consistent for years saying that the HRPF is not a silver bullet; that it's an enabler. And it gives us the opportunity to really reengineer that business. And we did make a $1.2 billion investment to run that business the same way, because quite frankly the competitive landscape and the market dynamics have changed over, believe it or not, over the last 5 years to 10 years and we have to be responsive to that. So how we look at that is on the whole cost structure in terms of it starts really with how are you going to run the business, right. How do you go from an order to a shipment in terms of streamlining the operations, in terms of using the capabilities of the HRPF and for the high volume or standard or commodity grade product, the flow-path from the melt shop through the HRPF through the Direct Roll Anneal and Pickle Line, the DRAP Line in Midland, can't be a cost-effective flow path and it can be a very quick flow path. So with that comes a lot of issues in terms of how the whole manufacturing support structure is engaged and when I say it's an opportunity to reengineer the business, it's just that. It's an opportunity to look at how we conduct that business from transaction, order entry, all the way through the shipping of the product and the collection of the cash. There are no sacred cows, right. Everything is up for grab. We've been working on that for a number of years as the HRPF began to be integrated back into the business. And the workforce, the production labor issues are part of that process. And that's a part of the dialog we're having with the United Steelworkers and in terms of what changes have to be made. I know perhaps some would view that changes were made as part of a negotiation back in 2008, whenever the HRPF was approved by our board. I think it's safe to say that when you look across that business, a lot of things have changed since 2008. So what may have worked in 2008, doesn't necessarily work in 2015. So it is a complete look at that business in terms of how do we continue to grow the differentiated products, right, that are more global and harder to make and therefore have a different competitive landscape, and how do we grow faster than the market in those products, which I think is possible, but how do we position the more standard or more competitive commodity-type products, which is the larger volume products, how do we position our business and our cost structure to be successful and profitable in a down market. And my comments that you've heard me make consistently is that our thinking is that those products have to be profitable on a pre-tax basis when base selling prices are $0.50 a pound for the typical 304 service center gauge product. And that's what drives the whole strategy and that's always been what's driving the strategy at least for the past four years, five years. Timna Beth Tanners - Merrill Lynch, Pierce, Fenner & Smith, Inc.: Okay. Thank you. Richard J. Harshman - Chairman, President & Chief Executive Officer: Thank you.

Our next question is from Steve Levenson of Stifel Nicolaus. Please go ahead. Stephen E. Levenson - Stifel, Nicolaus & Co., Inc.: Thanks. Good morning, everybody. Richard J. Harshman - Chairman, President & Chief Executive Officer: Good morning. Patrick J. DeCourcy - Chief Financial Officer & Senior Vice President: Hi, Steve. Stephen E. Levenson - Stifel, Nicolaus & Co., Inc.: In the materials today, you make a number of references to forgings and castings and improvement there. Can you give us an example maybe on the LEAP or B737 MAX. How much of that additional content is coming from forgings and castings as opposed to just coming from metal, no products? Patrick J. DeCourcy - Chief Financial Officer & Senior Vice President: Well, that number that we gave, at least $1 billion in revenue is all parts and components, it's all forgings and castings. Stephen E. Levenson - Stifel, Nicolaus & Co., Inc.: Okay. Again as an example on the LEAP or B737 MAX, you've gone from about $550,000 to $1.1 million, I know you haven't disclosed it, I don't know if you can, but it would be interesting to know how much of that addition is from forgings and castings and which part is metal? Patrick J. DeCourcy - Chief Financial Officer & Senior Vice President: I think most of it, Steve, I see what you are saying, I think most of it is parts and components as opposed to metal. I mean there is some metal because of the Rene 65 and the 718Plus, but when you're talking numbers that big, the majority of that increase is parts and components. Stephen E. Levenson - Stifel, Nicolaus & Co., Inc.: Okay, thanks. Is that something you think you can duplicate on the GE9X and the Trent 7000, which still I guess are waiting for contract awards. Richard J. Harshman - Chairman, President & Chief Executive Officer: Yeah, that would be our goal. Stephen E. Levenson - Stifel, Nicolaus & Co., Inc.: Okay. In Rowley, can you tell us where the capacity utilization is now, how you expect it to ramp up and how long does it take to flow from sponge to appear in mill products and then into parts and component revenue? Richard J. Harshman - Chairman, President & Chief Executive Officer: Well, there is lot of questions there. The flow time from sponge into a mill product, I mean we're doing that now, right, so I mean we have been using our own sponge for a number of years, we just couldn't use it until recently on certain premium quality rotating part mill products, either for the aerospace or in some cases for the medical market, which has similar specifications for a wide variety of reasons. So, now we can. We're producing basically at a 15 million pound annualized run rate. We will continue at least at that rate. I think the question for us as to whether we increase it in the second half of the year is really more tied to the cost competitiveness of our tickle supply because tickle is such a significant cost of the production of sponge that we're in discussions now on that front in terms of our tickle supply beyond 2015 and it really just becomes an economic decision of what is the economical price point of tickle and how does that relate to the ultimate production cost of sponge at varying operations, either 15 million pounds or ultimately 20 million pounds or 24 million pounds at that facility versus the cost of procuring the raw material units externally. So, those were the things we will always balance out and I think the one thing we've learned about ramping up greenfield facilities, not the end greenfield facilities, but greenfield facilities, is that we want to do that in chunks, I mean because when we brought the facility down because of we didn't need as much of the sponge being produced because it wasn't PQ, we backed down the workforce to a number that was minimal and now we are hiring and growing, but what we want to do is do that really in manageable segments so that we get the work force added, the crew added, they become trained, it becomes very stable, we come down the learning curve and then we'll go the next pace. So, we'll continue to do that in an orderly fashion. Stephen E. Levenson - Stifel, Nicolaus & Co., Inc.: Okay. So, not much more this year, but depending on the cost of your raw materials you may go up next year. Richard J. Harshman - Chairman, President & Chief Executive Officer: Yeah. I think that's a good conclusion. Stephen E. Levenson - Stifel, Nicolaus & Co., Inc.: Okay. Thanks very much. Richard J. Harshman - Chairman, President & Chief Executive Officer: Thank you.

Our next question is from Phil Gibbs of KeyBanc Capital Markets. Please go ahead.

Hey, morning, Rich. Richard J. Harshman - Chairman, President & Chief Executive Officer: Phil, how are you?

Doing well. I just had a question on the oil and gas business. I think before you had mentioned that drilling applications are going to be down 20% to 25% this year. What's the update now on the magnitude of the downside, obviously things have changed? Richard J. Harshman - Chairman, President & Chief Executive Officer: Yeah. I think it's more than 20% to 25%. It feels more like 35% to 40% quite frankly. And the impact of that is obviously not just on that revenue stream, but also on the load factors and the facilities. Including on the forging side, I mean we had a significant piece of the oil and gas business, and forgings not necessarily in what you might think the traditional Cudahy, the former Ladish facilities, but more in the legacy former Teledyne facilities in Portland, Indiana, and Lebanon, Kentucky, so those businesses have been impacted negatively from reduction and obviously impacts the cost absorption and everything going all the way back to melt. So it's impacting us in the high performance materials and component segment. In melt, in our Sheffield, UK operations, which is more heavily involved in oil and gas, the oil and gas market than aerospace, quite frankly, and then in some of our forgings. So I think the depth of the correction continued to worsen and discussions with our customers as we move through the second quarter. I think what we're seeing now is what we expect to see at least through the end of 2015. And I think quite frankly the dialogue we're having and just the assessment of the overall market, I personally don't see that those market conditions improving, absent some geopolitical event which none of us want to see, I don't see the market demand and the fundamentals improving until probably mid-2016 at the earliest.

Okay. And the sequential decline in operating profit in High Performance Metals, any way to characterize how much of that was oil & gas related, load factor related, aerospace, meaning how much of it was kind of associated? Richard J. Harshman - Chairman, President & Chief Executive Officer: I think it was pretty evenly split quite frankly. I think that the oil & gas had a pretty dramatic impact on it, probably more so than just the normal margining off of the revenues because of the load factors and the lower utilization and what happens with those fixed costs. So, we need to replace that business quite frankly and we need to focus on reducing the cost structure and that's what we'll be doing here. And then when the market does come back and it will, quite frankly, the cost structure will be better and the margins will be higher.

Just have a quick one and I'll jump right off, I really appreciate it. The comment that you made on a pre-tax basis for profitability for the stainless business at $0.50 base prices, does that include a more positive resolution to the employment situation? Thanks. Richard J. Harshman - Chairman, President & Chief Executive Officer: Yeah. I think it's an important factor and really what we're trying to do is just – what we're trying to accomplish with our negotiating strategy is really not an overall cost reduction, it's more of a stabilization at the existing level, so that the current all-in rate that we have now doesn't continue to grow. And if we can do that and then capture the benefits of attrition and normal attrition and improve productivity, which is really where some of the language and work rule changes come in, then I think that that's supportive of that, plus what we need to do in other cost areas in that business outside of the represented employees. I think that's where the strategy of $0.50 a pound profitability can work. So, the aim is not to do that 100% on the backs of the United Steelworkers, that's just not the case at all.

The next question is from Jorge Beristain of Deutsche Bank. Please go ahead.

Good morning, Rich and everybody. Jorge Beristain with DB. My question, I guess, was just following up on the HRPF to get that facility sort of maxed out in terms of utilization. You've mentioned bringing in a strategic partner, and now you're saying that there is not really a firm yearend timeline there maybe because of the current state of the carbon steel industry. But could you talk about other options, and at what point would you consider perhaps more of a tolling arrangement just basically to get that utilization filled up? That's my first question. Richard J. Harshman - Chairman, President & Chief Executive Officer: Yeah. Well, I mean I think that the – while our preference is as a joint venture, I mean I think as a temporary basis, would we reconsider tolling for a carbon steel partner on a short-term basis? The answer is sure, we would. I mean the first thing we need to do is get the rotary crop shear replaced, right, which is the end of September. And then we need to – our primary focus has always been to continue to focus on the products that we make and to maximize the learning curve opportunity there, and then at the same time, turn our sights to what we're going to do on the carbon steel side, or what opportunities exist on the carbon steel side. I mean as I've said many times, the return on investment calculation of the HRPF did not assume a carbon steel partner or any type of carbon steel tolling for that matter. We just believed that because of the power and the capabilities and the available capacity of the HRPF that it makes sense and it would make sense for ATI and someone else to use the capabilities of this very unique asset in a very capital efficient way. And we still believe that and quite frankly the dialog that we've had, in one case it was more advanced, in other cases it's very early, is an intriguing proposition to potential carbon steel parties. And I'll just leave it at that. And I'm not going to put a self-imposed – do I have a goal in mind in terms of when we would like to have that completed? Yeah, tomorrow, but we're not going to do it for the sake of doing it, it's going to be with the right partner or the right – if it's a tolling arrangement on an interim basis, the right party that makes sense for them and for us under the right terms and conditions. So, it's not something that we're going to do just to check the box.

Okay. And may be a second question, could you just talk a little bit more about trade cases? Obviously, we've seen this past week some positive news there on some trade cases moving forward, but you haven't really touched on that as potential something that could favorably impact your business. Could you really kind of drill it down a little bit for us in terms of what grades or what products you think would be most beneficial or benefited from any further trade case action? And could you comment how actively involved you're in launching those? Richard J. Harshman - Chairman, President & Chief Executive Officer: Yeah, sure. Well, I think it's mainly targeted towards the more commodity 300 series of stainless, the 304-type stainless mainly, primarily in terms of sheet product form and to a lesser extent in terms of strip product form. I think it's not only us. I think a more successful trade case is representative of industry participation and we work that process quite frankly through a U.S.-based trade association called SSINA. ATI is very important member of SSINA and has been for a very long time. So, if there is any one company or one member of SSINA that tends to drive these types of issues and considerations on the trade side through SSINA, it's probably ATI. So, we take that responsibility seriously. We know what the trade laws are in terms of when you can bring a successful trade case. I think we have worked in partnership, I know we worked in partnership in the past with other affected parties like the United Steelworkers and the leadership of the USW and the support of appropriate trade cases and it's a very facts specific situation, when you look at the trade laws in terms of will a trade case be successful. We think a trade case is required and necessary based upon the behavior of certain importers into the U.S., mainly from China and that data is being collected and I would think the path that we're on, we would expect the trade case to be brought.

This concludes our question-and-answer session. I'd like to turn the conference back over to Rich Harshman for any closing remarks. Richard J. Harshman - Chairman, President & Chief Executive Officer: Okay. Thank you everybody for joining us on the call today, and thank those who asked us questions, they are great questions. And we appreciate your continuing interest in ATI. Danny L. Greenfield - VP-Investor Relations & Corporate Communications: Thank you, Rich, and thanks to all of our listeners for joining us today. That concludes our conference call.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.