Good day, and welcome to the Carpenter Technology Fiscal Fourth Quarter and Full Year 2024 Earnings Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to John Huyette, Vice President of Investor Relations. Please go ahead.

Thank you, operator. Good morning, everyone, and welcome to the Carpenter Technology Earnings Conference Call for the Fiscal 2024 fourth quarter ended June 30, 2024. This call is also being broadcast over the Internet along with presentation slides. For those of you listening by phone, you may experience a time delay and slide movement. Speakers on the call today are Tony Thene, President and Chief Executive Officer; and Tim Lain, Senior Vice President and Chief Financial Officer. Statements made by management during this earnings presentation that are forward-looking statements are based on current expectations. Risk factors that could cause actual results to differ materially from these forward-looking statements can be found in Carpenter Technology's most recent SEC filings, including the company's report on Form 10-K for the year ended June 30, 2023, Forms 10-Q for the quarters ended September 30, 2023, December 31st, 2023, and March 31st, 2024, and the exhibits attached to those filings. Please note that in the following discussion, unless otherwise noted, when management discuss the sales or revenue, that reference excludes surcharge. When referring to operating margins, that is based on adjusted operating income, excluding Special Items and sales excluding surcharge. I will now turn the call over to Tony.

Thank you, John, and good morning to everyone on the call today. I will begin on Slide 4 with a review of our safety performance. For fiscal year 2024, our total case incident rate was 1.8. Although a 1.8 injury rate was ranked as one of the safest metal manufacturing companies, it is not a rate we accept at Carpenter Technology. Our goal is to be a zero injury workplace. As we enter fiscal year 2025, we continue to believe our zero injury goal is possible and we will continue to invest and work tirelessly to achieve that goal. Now let's turn to Slide 5 for an overview of our fourth quarter performance. Carpenter Technology continues to exceed growth expectations. In the fourth quarter of fiscal year 2024, we generated $125 million in adjusted operating income, the most profitable quarter on record, beating our previous guidance by approximately 12%. To put this in perspective, it is a 39% increase over our then record sequential third quarter and double our fourth quarter a year-ago. Further, we generated $142.4 million of adjusted free-cash flow during the quarter. The strong fourth quarter performance is a result of continued improvement in productivity, product mix optimization, and pricing actions. The SAO segment exceeded expectations, delivering $140.9 million in operating income, well above the outlook we provided on last quarter's call, and 36% above the sequential third quarter performance. Notably, SAO achieved adjusted operating margin of 25.2%. This is a meaningful step-up from the 21.4% in the previous quarter and our pre-COVID best of approximately 20%. With this exceptional performance, we finished fiscal year 2024 with $354.1 million in adjusted operating income, an annual earnings record for Carpenter Technology. Let's turn to Slide 6 and take a closer look at our fourth quarter sales and market…

Thanks, Tony. Good morning, everyone. I'll start on Slide 8, the income statement summary. As Tony already covered in his remarks, this quarter's results exceeded our expectations and broke any previous records for quarterly profits. Starting at the top, sales excluding surcharge increased 15% sequentially on 13% higher volume. The growth in net sales was driven by increasing volumes primarily related to our improving productivity that we signaled two quarters ago, combined with the ongoing shift in product mix as we continue to focus our capacity on our most profitable products. The improving productivity and product mix is evident in our gross profit, which increased to $190.6 million in the current quarter, up 30% from our recent third quarter. SG&A expenses were $65.4 million in the fourth quarter, up roughly $8 million sequentially. The increase sequentially is primarily due to higher variable compensation accruals and the timing of certain expenses. Note the SG&A line includes corporate costs, which totaled $26.9 million in the recent fourth quarter when excluding the Special Item. As we look-ahead to the upcoming first quarter of fiscal year 2025, we expect corporate costs to return to a more normalized run-rate of approximately $23 million to $24 million. Operating income was $108.3 million in the current quarter, or $125.2 million of adjusted operating income, which is 39% higher than the $90 million in our recent third quarter of fiscal year 2024 and ahead of the expectations we set last quarter. We continue to build operating momentum and expand margins, delivering total company adjusted operating margin of 19.7% in the current quarter. Moving on to our effective tax rate, when excluding the net benefits associated with the Special Items, the effective tax rate for the quarter was 17%, which is slightly lower than our expectations due to benefits…

Thanks, Tim. Now let's turn to the fiscal year 2025 outlook. For context, a little over a year ago, at our Investor Day in May of 2023, we laid out a path to double our fiscal year 2019 operating income by fiscal year 2027. That four-year goal represented a 40% operating income CAGR from our expected fiscal year 2023 performance. Even with such impressive growth, we acknowledged it was a conservative estimate. We further clarified that the earnings growth would be front end loaded. Through fiscal year 2024, we have accelerated our earnings growth, driven by multiple initiatives with a focus on improved productivity, product mix optimization, and pricing actions. Recognizing our accelerating performance in our last quarter earnings presentation, less than a year-after our Investor Day, we pulled our original fiscal year 2027 goal ahead at least one year into fiscal year 2026. And now after exceeding expectations with another record quarter, we are pulling our goal in another full year. We are projecting $460 million to $500 million of operating income for fiscal year 2025, at the high-end of the range. That's approximately a 41% increase over our record fiscal year 2024 performance. In addition, we are projecting approximately $250 million to $300 million in adjusted free cash flow during fiscal year 2025, which represents approximately 85% conversion rate and marks another step-up in our cash flow performance. Now shifting to the more near-term and our first quarter fiscal year 2025 outlook. As I communicated last quarter, we anticipate starting the year strong. For the first quarter of fiscal year 2025, we are projecting between $114 million and $120 million in operating income. This accounts for the impacts of preventive maintenance, offset by higher productivity, improving mix, and realized pricing. This target is approximately 70% higher than last…

[Operator Instructions] The first question comes from Gautam Khanna with TD Cowen. Please go ahead.

Hi Tony, Tim, and John. Great results. I wanted to ask a couple of questions. First, with respect to your prepared remarks, are you actually seeing a lot of perturbation in the order book? Are you seeing any increase in deferral requests? Just kind of given all the concern about lower 787 final assembly rates and 737 final assembly rates, I'm just wondering how that has been conveyed to you guys in terms of your engine lead times and maybe your airframe product lead times.

Yes, good morning, Gautam, hope you're doing well. As I said in the prepared remarks, overall, we had a very strong order intake in the fourth quarter. We were actually up sequentially and year-over-year. So that would be total Carpenter Technology, but I can also say that holds true for our aerospace end-use market as well. Also keep in mind that lead times have not come in. I think last quarter I said 65-plus weeks, they're there still, if not extended a little bit. Now, when you ask about specific customers, if there is a customer that is tied very closely to the 77th as you referenced, they could be in a different situation and they might be asking for some adjustments. But the important thing that I said in my remarks is that at this time, I mean, we're able to navigate any of those type of adjustments because we have an order book that's three times what it was prior to COVID, and our estimation is that three quarters of that are for customers that want product early. So we have an opportunity to pull-- to pull that -- to pull that in. I can, you know, take this opportunity also to kind of give you maybe a little bit more color as far as the customers we work with and we don't have anybody coming to us and saying that they want to -- they want to cancel or anybody that wants to give up production slots. In fact, we have OEMs saying, hi, they're going to use this opportunity to take up production. So we have people calling us saying, if anybody wants to, again not cancel but push out because they have a very strong connection to 737, we're interested, put us in there. So I think that's the takeaway. There's -- you've been around long enough to know, Gautam, there's going to always be some type of noise in the aerospace supply chain. There's multiple different types, thousands of different materials that go into making an airplane. And -- but for our specific piece of that, because of our breadth and because of the visibility we have, we feel very confident we can manage any of those build rate changes here in the near-term. The good news or the powerful piece after that is that everybody inside of the industry that I talk to, including us, believe that those build rates are going to increase significantly over the coming months. So we've taken all of that into consideration, all of that into consideration and still increased our earnings outlook significantly, pulling it forward a year. So I think that puts Carpenter Technology in a unique spot that says we can move through all this so much so that we're willing to increase our earnings outlook. And I hope that -- hope that helps out with the extra color.

Yes, that's a great answer. And as a follow-up, I'm curious if you're -- you guys are obviously driving a lot of throughput gains, maybe you could just step back and give us some broader context on where you are with some of the productivity enhancements because obviously, that's going to be key to driving the higher throughput throughout fiscal '25. Maybe you can give us some examples on the furnaces or where you've had bottlenecks that you've alleviated. Any context would be helpful.

Well, Gautam, you and I have been talking about this for several years now, right? And it's a great -- it's a great point. I think you always, you know, zeroing in on what the SAO margins are, it's a primary leading indicator. And you know, we're always before COVID, very excited about getting to 20%. We just hit 25%, Gautam. And I mean, that's significant and our sights are on 30%. That's doable. If you take a step back to answer your question more specifically what's driving that, obviously, it has to be across the entire process because every work center is linked. But I will say the work that we've done on the front end of the process, on the melt side, that has been the biggest, you know, uplifting of our total output, right? I mean, I'm -- the workers that we have out on the shop floor Reading and Latrobe, what they've been able to do with the output from primary melting is, fantastic. And you know, as you talk to them, they're not done. They have an immense amount of pride into doing that safely and high-quality, and, you know, they're just big drivers behind where this productivity has been. And importantly, you know it's not the top for us. I mean, the next level is 30% and I believe that's doable.

Thanks, Tony. I'll get back in the queue. I appreciate it.

Thank you, sir.

The next question comes from Josh Sullivan with Benchmark. Please go ahead.

Hi, good morning. Congratulations on a great quarter here.

Good morning, Josh.

Just looking at inventory, you know, what are the metrics you're comfortable with at these operating levels or what are the channels that we should kind of think about going forward as you maybe are a little bit more level loaded?

Well, it's a big driver, obviously, of free cash flow. And the way we look at it now with significant increases in volume over FY '25, our goal is to keep inventory relatively flat, which means you'll have a significant improvement in days on-hand, or inventory turnover, whatever metric you use. Now, you know, you've been around long enough that that's going to fluctuate from quarter-to-quarter. So it's not going to be inventory is going to stay flat every quarter, but over that the next FY '25, that's our target, that's our goal. And we're going to do what's best to make sure we get as much product as we can to our customers. But at a high level, our overall goal for FY '25 is to stay in that flat area versus FY '24.

Got it. And then just on the comment on prioritizing defense orders, how much runway is there? Is this a short term immediate need on the defense side or is there a longer term dynamic there that will continue?

I think there's both. Certainly, I think longer term with the world environment that we're in, this is going to continue to stay strong. Short term, yes, with current world event, as you see our Department of Defense re-evaluate where they're at, what they wanted from a readiness standpoint. Our discussions with our Department of Defense has always been strong. I will say that it has amplified over the last several quarters, over the last year that we're working with them very closely on not only next-generation alloys or products, but near-term what can we do to help support, you know, their current goals. And we're proud to do that, we're happy to do that and we will pull them into the schedule as much as we can with any type of questions they have.

Great. Thank you for your time.

Thank you, sir.

Next question comes from Scott Deuschle with Deutsche Bank. Please go ahead.

Hi, good morning. Great results.

Good morning, Scott. Nice to have you on board.

Thank you. Tony, should we expect EBIT to grow sequentially throughout 2025 like it typically does?

It's a good question. And at a high-level, the answer is yes. But there is a dynamic that we're in right now, Scott, and that is we're effectively sold-out. So everything we produce, we can ship. So this idea of seasonality has been more offset than by this elevated demand. So the only real difference between quarters is the number of days you have to operate. And that's why it's really important to understand planned maintenance and what we're doing, as we've just guided our first quarter to be slightly down from fourth quarter, why is that? It's almost 100% due to the fact that we took some primary melt preventive or planned maintenance outages in the fourth quarter and it takes about a quarter for that to flow through. That's why you see a little bit down in the first quarter. Has nothing to do with the market, no red flags. The market isn't getting weaker, it's getting stronger, but we must protect our assets and we must take that planned maintenance. So could there be a quarter, Scott, in the future that EBITDA or earnings or whatever your metric is down slightly? It could, but that will be 100% related to how we take our planned maintenance. I hope that answered your question.

Yes, no, that's great. And then, Tony, can you characterize the current pricing environment? Has that deteriorated at all recently or is the pricing power you've been exercising the last two years still holding in really well?

Yes. I don't want to talk too in depth about specifics on pricing, but I think as you can see from our results that continues to increase quarter-over-quarter. And I think the big driver there, Scott, is the market from what we see it, even with these small little blips here in front of us, which in the whole scheme of things aren't going to be relevant long-term, right? I mean, we've shown you that we're able to offset that. That doesn't impact us right now. Now it can't last three or four years, but nobody believes that that's going to be the case. In fact, this will just put even a steeper, you know, trend-line up over the next year, I believe. So with that type of demand environment, you should assume that pricing would remain -- would remain strong just because of supply-demand, just because of supply-demand dynamic. And if I could, Scott, I'd like to -- it brings me to another point. I hope -- I don't want to take your time, but it brings to this other point around this whole supply-and-demand and when we talked about our capital allocation and the fact that we're going to be balanced. We're look -- we've signaled before that we are intent to return capital to shareholders. Obviously, we just announced the buyback program that's evidence of that. And we talked about these potential incremental growth projects. I wanted to be clear, it says there is -- or there are no projects that we are currently contemplating that would come anywhere close to pushing supply above demand in the products that we supply into aerospace. So the-- those incremental growth projects that we look at is where can we find that next, you know, notch of capability, that next notch of incremental capacity that can accelerate an already-- a very impressive earnings over the next several years. Those are the things we're talking about. When you start talking about large projects that would try to close that gap, they're just not doable. So I think that's important to say that we're looking at would not -- would not -- would not solve the equation. The gap is that significant. And we don't have anything on our plates that would do that. So thanks for the time. So let me jump in there and say that.

Yes. Thank you. One last question for now, you know, Tony, it sounds like there's a pretty big issue with yields at the forgings and castings houses and I apologize for the ignorant question here. But when those companies experience issues with yields, does that generally drive more demand for CRS products or do those firms typically have their own revert loop that allows them to just reprocess what falls out as a result of those defects? Thanks.

Well, I want to be careful with this, Scott, because I'm not -- when you say the forging houses, I'm not 100% -- I don't want to assume who you're -- who you're speaking with, right? So I don't want to answer something with not having enough knowledge, I mean, obviously. I'll answer it this way. We work very closely with those large forgers, if it's who I think you're talking about, obviously. And again, it's much like the build rates at the final-- similar level. There's always going to be some little noise here and there. The market is so strong right now and more importantly, Carpenter Technology with the ability we have to move some things around, it more than offsets that. I mean, another good example, we talked about aerospace a lot, but you've heard all in the news around you know power generation or land based turbines and the need for more power and artificial intelligence. And that's a different alloy for us, but it runs across similar assets. So again, that's another alloy that wants to jump into the production flow and we're able to get margins for those products even to aerospace margins. So it's just another tool that we have to offset any of that type of near-term noise. I'm confident that those people you talk to, they're very, very well-run and any short-term noise will be behind us soon, I'm sure.

Thank you.

Thank you, Sir.

[Operator Instructions] The next question will come from Andre Madrid with BTIG. Please go ahead.

Hi, all, thanks for taking my question. So, I mean looking ahead-- so obviously, FY '27 guide got pulled in into '25. So with that said, I mean, how should we be looking at '27 and beyond now? I mean, do we expect the same kind of pace of growth-- of expansion, a plateauing of sorts? I mean, how should we think about, you know, looking at the performance here on out?

Yes, Andre, welcome as well. I mean, it's one of those no good deal goes unpunished, right. I mean, we just pulled FY '27 last quarter up one year, now two years. So the question is, what are you going to do in FY '26, right? And as I said on my prepared remarks, we think this is just the beginning. So FY '25 is not -- is not the peak for us. We do plan on giving updated '26 and '27 guidance in the future in this fiscal year. I mean, we have a practice in the fall of every year where we update our long-term outlook. It's a very detailed market-by-market, product-by-product, customer-by-customer bottoms-up projection. We're getting ready to kick that off. I'd like to let that run its course. On our current look that we have, certainly FY '26 and '27 are another steps up from FY '25. But I want to let that run the course. As I've said before, we don't take lightly the guidance that we give. We want to have line of sight to it. We want to have confidence that we can hit it. So we're going to let the process play out. We're going to do that detailed workup and get a refresh '26 and '27. And our plan would be to communicate that. But make no mistake that '26 and '27 would be nice steps up from FY '25.

Appreciate it. Thank you. That was helpful. If I can tackle on other there. I mean, looking at the outlook, I know that previously you had said $500 million CapEx through 2027. But seeing as though the guide has kind of remained intact to be about $125 million for FY '25, I mean, are you guys able to hit these increases without having to expand CapEx beyond the, kind of the going levels? I mean, is it -- I would have -- or is that just, you know, going to be all done through pricing? I mean the operating income increases?

Yes, it's a good question. Thank you for that. All of our targets that we have communicated externally are based on our current capabilities and capacity. We do not assume any new capacity coming on to hit those targets. None. So that's a very, very important point. So every target that earnings target that we've given you only takes into account our current capabilities and our current capacity. The $125 million a year is primarily sustaining capital, right? So which is a, you know, roughly equal to our depreciation. You need to always be refreshing your assets. So those are, you know, taking care of the current assets. Those aren't adding any really new capacity. Now inside of that $125 million, I will say there are at times smaller debottlenecking projects that can improve productivity that's inside that $125 million. I would assume over the next several years, that $125-ish million range is going to be pretty consistent. And then anything above that would be any type of growth type capacity capabilities adding CapEx. And if we did that, that would add to the earnings growth on-top of what already is a really impressive number. So I appreciate the question because that's an important distinction to make that there's no CapEx we need to spend to hit our current guidance. Above the $125 million.

Thank you. Thank you.

Yes.

The next question comes from Phil Gibbs with KeyBanc Capital Markets. Please go ahead.

Hi, Tony, good morning. Congrats on the strong results.

Yes, good morning. Good to hear from you.

The engine revenues in your last quarter, can you give us a texture in terms of how much that grew sequentially or year-over-year?

Yes, sure. Aerospace engine sales were up 22% year-over-year and 17% sequentially. So very strong quarter for aerospace. That's the industry. Just to be specific, that's aerospace engines.

Okay. Thank you. And can you give us an idea of how much defense right now is in your A&D mix as a percentage? I'm just trying to read the tea leaves given you've said it's been strong and you pulled some stuff in for the government and obviously defense spending has been strong last couple of years.

I think roughly, you know, defense is about 10% of the -- maybe a little higher of the total aerospace and defense end-use market.

And then lastly for me, can you give us any color on the long-term contracts within SAO? Obviously, you've achieved higher pricing on anything you've renewed. Have you put more pass through clauses in some of your new contracts or altered the duration of some of the contracts that you've re-signed?

Yes, for sure that over the last year, maybe longer and going into the future, there are more of those types of, you know, clauses, as you said, some type of accelerator if energy moves to this point, if inflation moves. So there's much more of those in the contract to try to, you know, project if there's any large move-in some of those items that we don't get burned by that. So that is true that that's a part of all of our contracts going-forward. On the second part of your question, I would say that contracts are for a shorter-duration now than what they were, you know, prior to COVID.

I appreciate that. And then lastly for me on labor. How do you -- how do you all feel on that side of the equation and to the extent that you debottleneck further, unlock more capability, is there a more training or more hiring that you need to do? Or you feel like you're pretty equipped on the hiring front at this point. Thank you.

Yes. We have a couple of areas that we want to increase staffing, nowhere near the extent that it was three or four quarters ago, maybe a year ago when it was a real issue for us. We've passed that. But there are a couple of areas that we want to add some staffing. From a training standpoint, yes, that's going to continue for quite some time. I mean, you're replacing people with 35, 40 years with newer people and we're very happy with the progress that we've made, but there's always room for improvement there. As you know, these are very complex pieces of equipment. It takes a very skilled operator to run those. So, you know, you can't buy experience, right? You just got to put the time into the job. And we're pleased with the progress that our operators are making.

Thank you so much.

Yes, thank you, sir.

Our next question is a follow up from Gautam Khanna with TD Cowen. Please go ahead.

Hi, thanks for the follow-up. Curious, Tony, just to get your impressions or your opinion on-- you've heard like GE talk about five troubled supplier sites and I-- to an earlier question, I presume it's the forgings and castings houses. But I'm just curious, like do you have a view that maybe the buy-to-fly ratio is particularly sloppy right now? Pretty low right now and therefore, you're having the opportunity to, kind of, sell products more than once, if you will, just because their yields downstream are much worse than what was anticipated and what they might be a couple of years from now. And if that's the case, is there any negative implications of that longer term, as the buy-to-fly starts to may revert back to a better level?

You know, to be 100% honest, I mean there could be some of that. I mean you have some great insights into that side. That's not something that dominates the discussions I have with our commercial team and says, hi, we need to sell so much more, the demand is so much greater because of that. It just -- that hasn't come up with us. So we don't see that as a major driver, which means there's not a hole in the future when that gets better. And as you well know too, Gautam, right now, I mean the gap between a supply of our specialty materials and the demand for them is pretty wide and I don't see that changing much. And I get where you're coming from, right? Because everybody is looking for that, hi, here's a move over here. How does that impact you? And you know, we're just -- we're able -- we're in a very unique position where we're able to navigate all those. And to summarize, I mean, I have not seen that be a high, you know, discussion point between myself and our commercial team.

Yes. And I almost wonder like how it would be discernible. I guess it would just be if some of those customers that are having yield challenges are asking you to expedite shipments or asking for more than what you expected them to ask for as you move through a quarter or whatever.

It's hard to say like what was the driver. I mean, we're getting -- we get those types of expedite requests across the board, right? And it could be many things. It could be this, there's a bunch of other things going on. So it's pick one -- pick which one you want, but expedites and the desire of customers to move forward is real. And that's one of the things we talked about earlier, Gautam, which is a really important point, because we can get very singular and hear a data point and say, hi, I heard from this entity that they're really pulling back on their orders. And if you dig deep, you'll say, well, yes, but that entity 90% -- I'm making this up a little bit, 99% of their businesses to the 737, of course, they're going to make adjustments. Across the whole industry though, that's small and many other people then you move-in to take advantage of that. So that's why we're -- Gautam, that's why we were able with all of this noise, we just pulled our guidance -- our earnings guidance in another year, right? We took all that into consideration. And I think that's -- to me, that's extremely strong outlook for us over the next several years.

I appreciate that. And one last follow-up. I did hear you say 30% is possible at SAO, I'm not holding you to that obviously, but I am curious about pricing and your expectations longer-term for it. As the contracts that you've renewed with the shorter duration come up for renewal again in the next two or three years, presumably the price resets aren't going to be as great as they were, just given inflation is not going to be as high. But do you have an-- do you have like a ballpark-- I mean, are we thinking you're still going to get net price as you move out and renew? Is that still part of your base case when you look out beyond 2026?

Yes, I want to be careful there. I don't want to signal anything to the market what we may or may not do on the pricing side, right, because I don't think that's appropriate. But I will say that we believe that going-forward that the imbalance that we have where demand is going to exceed supply is going to continue for our products, right? I don't see anything that's going to solve that. And you know that's going to make that a, you know, a-- an advantageous market for us going forward. And I'll leave it at that.

Okay. And you may have said it, but what was the fastener sequentially year-over-year?

Yes, I did not. So thanks for bringing that up. Fastener sales up 11% year-over-year and 8% sequentially.

Great. Thanks a lot, guys. Appreciate it.

Yes. Thank you, Gautam.

Next question comes from Scott Deuschle with Deutsche Bank with a follow up. Please go ahead.

Hi, thanks. Tony, you made the point that Carpenter won't be making any big investments in capacity to rock the boat on supply-demand, but just theoretically, if another industry participant were to make a meaningful investment to expand capacity, do you have a sense for how long it would take for that to come online in a meaningful way? Is it like seven to eight years a reasonable framework for that duration?

Yes, I think it's seven to 10 years. And I think it's important to take a step back. If that happened, right, that's still not going to really, as you say, rock the boat, right? The gap is pretty small. The second piece that I said, I mean, we'll look at ways where we can increase capabilities and capacity. Like we're going to look at ways we can do that. There's not some big bang out there. You know, let's build a new plant, so to speak. And then -- but back to your original question, you know, it's going to take several years to design. Even if it was someone like us that's been around for 140 years, it's going to take several years to design. It's going to take several years, 18 months to 24 months to build the equipment. It's very specialized equipment, and then pick your number, five years or-- to qualify. There's nobody going to ease the qualification requirements. So yes, it's a very long runway to get to that. And you'd be -- when you talk about is there someone else, you'd be talking about someone that has never done it before. So the, you know, the knowledge that's required to run these types of facilities is massive. So you don't just do that and learn how to do that in a couple of years. It's just not doable.

Got it. Do you think those qualification requirements are even tougher now given the powder metal contamination issue that Pratt had?

There's no doubt. There's no doubt that their qualifications are tougher, not just because of that example that you gave, but other examples, over the past any type of failures that you've had, they are more stringent. And rightly so, right? I mean, we want this industry to be as safe as possible. That just makes it more and more difficult for other people to say, I'm going to go out and put in this capacity. It just -- it's not a lemonade stand. It's much more than that. So there's no doubt that the qualification process is more difficult than it was five or six years ago.

Yes. Got it. And then, Tony, it looks like a pretty good amount of cash on the balance sheet exiting the year. Is it fair to think you might get started on this buyback sooner rather than later given that you've got the ability to do so? And it sounds like really high confidence in this outlook?

Well, I think we're in good place, right, Scott. I don't want to signal when or what levels it would be that we'd be in the market. But I think we're sitting at a very good place coming out of the year with about $200 million of cash on the balance sheet, a nice forecast going forward. I just believe it's all about execution for us now and it's a good time to be a shareholder, right? Because we've got a great earnings growth, we got great free-cash flow. We just put out a repurchase program that says that's going to be a meaningful use of our cash going forward. I've just said from a -- we're going to look at growth CapEx that can be incremental to us. There's not that big thing that's going to flip the supply-and-demand and we look out over the next several years and see a very strong demand environment. So-- but we're in a good spot right now, but we know we have to earn it every day and that's what that's what our team is focused on.

Fantastic. And Tim, one question for you. Just anything on free cash flow for the first quarter worth calling out? Should we expect a typical seasonal outflow there or can the EBIT strength you're guiding to allow first cat -- first quarter free cash flow to be closer to breakeven or maybe even positive? Thanks.

Yes, Scott, good morning. Like Tony said, the biggest driver for free cash flow is working capital, specifically inventory. That inventory is going to fluctuate seasonally, as you mentioned. So we're going to manage that as best we can and make good decisions. But our goal for the-- overall for the year is to keep inventory relatively flat.

Thank you.

This concludes our question-and-answer session. I would like to turn the conference back over to John Huyette for any closing remarks.

Thank you, Operator. And thank you, everyone, for joining us today for our conference call. Have a great rest of your day.

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