Kaiser Aluminum Corporation (KALU) Q3 2018 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and thank you for standing by. Welcome to the Third Quarter 2018 Earnings Conference Call. At this time participants are in a listen-only mode. [Operator Instructions] Later, we will have a question-and-answer session and the instructions will follow at that time. As a reminder, this conference is being recorded. Now, it’s my pleasure to turn the call to Melinda Ellsworth.

Thank you. Good afternoon, everyone, and welcome to Kaiser Aluminum’s third quarter and first nine 2018 earnings conference call. If you’ve not seen a copy of our earnings release, please visit the Investor Relations page on our website at kaiseraluminum.com. We have also posted a PDF version of the slide presentation for this call. Joining me on the call today are Chief Executive Officer and Chairman, Jack Hockema; President and Chief Operating Officer, Keith Harvey; Executive Vice President and Chief Financial Officer, Dan Rinkenberger; and Vice President and Chief Accounting Officer, Neal West. Before we begin, I’d like to refer you to the first two slides of our presentation and remind you that the statements made by management and the information contained in this presentation that constitute forward-looking statements are based on management’s current expectations. For a summary of specific risk factors that could cause results to differ materially from those expressed in the forward-looking statements, please refer to the Company’s earnings release and reports filed with the Securities and Exchange Commission, including the Company’s Annual Report on Form 10-K for the full-year ended December 31, 2017. The Company undertakes no duty to update any forward-looking statements to conform the statement to actual results or changes in the Company’s expectations. In addition, we have included non-GAAP financial information in our discussion. Reconciliations to the most comparable GAAP financial measures are included in the earnings release and in the appendix of the presentation. Any reference in our discussion today to EBITDA means adjusted EBITDA, which excludes non-run rate items for which we have provided reconciliations in the appendix. At the conclusion of the Company’s presentation, we will open the call for questions. I would now like to turn the call over to Jack Hockema. Jack?

Thanks, Melinda. Welcome to everyone joining us on the call today. Despite a temporary a $2 million headwind from tariffs, we had significant year-over-year improvement in third quarter EBITDA, shipments and value added revenue driven by reduced headwinds from aerospace destocking, and full utilization of price increases initiated in the second quarter. While we normally don’t dwell on quarterly reported results, I’ll spend a little more time this quarter to review some concepts that we're repeating. We typically experienced significant differences between first half and second half because of seasonal demand and weakness in the second half, particularly in industrial and auto applications due to fewer working days in vacation shutdowns and typically higher planned major spending in the second half. We’ve also stated in the past that our quarterly results are lumpy and six month periods are much more meaningful than quarterly results. Why is that? Because generally accepted accounting principles for revenue recognition and capitalization of cost and inventory can cause short-term fluctuations in reported results. With that background, let me provide some detail on third quarter reported results compared to prior year third quarter and to the average in the first half of this year. Higher aerospace shipments and value-added revenue drove the year-over-year third quarter improvement in EBITDA. Third quarter shipments were down from the first half run rate because of normal seasonality in our industrial and automotive applications. Third quarter EBITDA margin improved approximately 10 basis points year-over-year, but was down approximately 180 basis points compared to the first half run rate. The year-over-year versus sequential comparisons are better understood by reviewing significant pieces driving the reported results. Temporary tariff costs were a headwind of approximately 70 basis points compared to both reference periods. I'll discuss that in more detail in a moment. Sales margins were a benefit compared to both reference periods as we fully realized price increases implemented in the second quarter. The year-over-year benefit was approximately 60 basis points as margins had begun to reflect rising contained metal costs in the prior year quarter. Compared to the first half run rate, sales margins improved approximately 250 basis points as first half results reflected the severe margin squeeze that we experienced earlier this year prior to implementing the price increases. The margin impact from scrap raw material prices and utilization was similar to the prior year third quarter what was approximately 80 basis points leaner than the strong first-half results. Manufacturing efficiency impacted by seasonally weaker volume in industrial and automotive applications and high planned major maintenance costs were also very similar to a typical third quarter and to last year's prior year third quarter, reflecting normal seasonal costs and performance. However, the impact was approximately 200 basis points worse than the first half run rate, again illustrating normal seasonality. So, what's the take away from the third quarter results? We had significantly improved third quarter results compared to prior year despite a $2 million headwind from temporary tariff costs. The linear margin compared to the first half is explained by tariff costs and normal seasonal cost impact from planned major maintenance and relative inefficiency related to weaker seasonal demand for auto and industrial applications. Turning more attention to tariffs. We're waiting final government approval for certain countermeasures that will eliminate approximately 40% of the tariff costs beginning in November, and additional requests are pending to eliminate nearly all of our tariff costs. In addition, approval of certain countermeasures will result in retroactive recovery of a significant portion of tariff costs incurred in the third and fourth quarters. While tariff costs negatively impacted our results in the quarter, we continue to anticipate the long-term impact to be neutral to positive as the tariffs on our internal cross-border transactions are mitigated, while imports from China and other foreign sources continue to be subject to tariffs. During the quarter, another significant portion of the Trentwood modernization project was completed with the installation of handling equipment at the light gauge plate furnace. Going forward, our focus will continue to be on implementing practice changes to extract the full benefit from the new equipment processes to drive continuing improvements in efficiency, capacity and product quality. Also, as previously announced in September, we invested approximately $43 million to acquire Imperial Machine and Tool company, a well managed 75 year old company and a leader in multi-material additive manufacturing and machining technologies for demanding aerospace and defense, automotive, high-tech and industrial applications. IMT's culture is consistent with Kaiser's focus on quality and customer satisfaction, and IMT has a strong customer base and well-established collaborative relationships to continue to drive innovation. The acquisition of IMT enables us to gain further insights into the potentially disruptive additive manufacturing technology and broadens our capability to provide innovative solutions to address customer needs. IMT has a steady underlying EBITDA stream from its machining business, and we expect to achieve a return in excess of our cost of capital with significant upside potential for growth and leadership in the emerging additive manufacturing technology. Before discussing our outlook in some detail, I'll turn to Dan for additional color regarding the third quarter results. Dan?

Thanks Jack. Value added revenue for the third quarter of 2018 was $205 million, an increase of $19 million or 10% compared to the prior year quarter, reflecting improving demand for our service based applications and full realization of price increases that we implemented in the second quarter. Aerospace value-added revenue increased 14% on a 17% increase in shipments, compared to the prior year third quarter, reflecting solid underlying end used demand across all product categories continued moderation of aerospace supply chain destocking and the benefit of incremental capacity from recent investments that are currently rolling though. Automotive value-added revenue declined 5% compared to the prior year third quarter and 11% compared to the pace of the first half of this year. The year-over-year decline reflected to 2% lower shipments and a lower value-added product mix. While mobile seasonality drove the decline from the first half pace of 2018, we expect a relatively strong fourth quarter consistent with our full year automotive outlook. General engineering value-added revenue increased 11% on a 2% decline in shipments compared to the prior year third quarter, reflecting a higher value-added mix and improved year-over-year pricing. Sequentially, general engineering shipments declined 13% compared to the second quarter due to normal seasonality. For the first nine months of 2018, total value-added revenue increased $25 million compared to the prior year period driven by solid demand across all end markets. Aerospace value added revenue improved $12 million compared to the first nine months of 2017, both shipments and value-added revenue improved 4% year-over-year with virtually all aerospace product categories, benefiting from improving underlying demand and moderating supply chain destocking. Automotive value added revenue increased 1% compared to the prior year nine-month period while shipments increased 5% reflecting a lower value-added product mix weighted more towards crash management systems. General engineering value-added revenue improved 8% compared to the prior year on a 3% increase in shipments. EBITDA for the third quarter of 2018 was $47 million compared to $43 million in the prior year quarter. The increase of $4 million reflects a $10 million favorable sales impact driven by higher shipments and improved pricing partially offset by $2 million of temporary tariff expense on our internal cross-border shipments and higher major maintenance and other manufacturing and overhead costs. The third quarter EBITDA margin of 23.1% was comparable to the prior year quarter, despite the adverse margin impact related to the temporary tariff expense. For the first nine months of 2018, EBITDA was $150 million and EBITDA margin was 24.3% down $1 million and 1.2% respectively from the prior year period. The decline was largely due to a decline in our total sales margin. Turning to Slide 8, operating income as reported for the third quarter of 2018 was $35 million, adjusting for non run rate losses operating income for the third quarter of 2018 was $36 million compared to $33 million in the prior year quarter. The $3 million improvement reflected the year-over-year EBITDA improvement of $4 million partially offset by a $1 million increase in depreciation expense. Reported net income in the third quarter was $22 million or $1.29 per diluted share reflecting in effected tax rate of 27.3%. Adjusting for non-run rate items third quarter net income was $24 million compared to $16 million in the prior year quarter. The $8 million improvement reflected improved underwriting -- improved operating income and a lower corporate tax rate. Adjusted earnings per diluted share improved to $1.43 from $0.90 in the prior year third quarter. For the first nine months of 2018, operating income as reported was $107 million, adjusting for $11 million in net non run rate losses; however, the first nine months of 2018 operating income was $118 million down from $122 million in the prior year period. The $4 million decline reflected a $1 million reduction in EBITDA and a $3 million increase in depreciation expense. Reported net income for the first nine months was $68 million or $4.03 per diluted share. Adjusting for non run rate items, however, first nine months net income was $80 million compared to $68 million in the prior year period. The improvement primarily reflected the lower effective tax rate of 24.3%. Adjusted earnings per diluted share for the first nine months, was $4.72 compared to $3.89 for the first nine months of 2017. Our cash tax rate for the three quarter and nine month periods continues to be in the low single-digit, as we continue to apply net operating loss carry forwards to our pre-tax earnings. At September 30, cash in short-term investments totaled approximately $183 million and borrowing availability on our revolving credit facility was approximately $292 million. With strong liquidity and cash flow generation, we continue to adhere to our long held capital deployment priorities, which are organic investment to maintain and support our business, acquisition investment to enhance sustainable long-term growth, regular and increasing quarterly cash dividends and returning excess cash to shareholders. And keeping with those priorities during the first nine months of 2018, we invested approximately $53 million in our business and our facilities, and we expect the capital spending for the full year will total approximately $80 million. As Jack mentioned previously, we also acquired Imperial Machine and Tool company during the third quarter for $43 million of cash. Earlier this year, our Board of Directors approved a 10% increase in our regularly quarterly dividend resulting in $29 million of dividends being paid during the first three quarters of this year. And additionally, earlier this month we announced that our board authorized an incremental of $100 million for our ongoing discipline share repurchase program. Under this program we purchased 304,000 shares for $32 million during the first nine months of this year and at quarter end $178 million remains available for further share repurchases. And now, I’ll ask Jack to discuss our outlook. Jack?

Thanks, Dan. Turning to Slide 9 and a discussion of brand markets, our positive outlook for aerospace and high strength applications is unchanged. We expect strong demand in the fourth quarter and in 2019 as destocking for the moderates, and airframe manufacturers continue to ramp-up build rates in order to address both increasing demand and the nine-year order backlog. In addition, increased U.S. defense spending and higher demand from U.S. allies strengthens the outlook for the F-35 joint strike fighter, the FA-18 Super Hornet and other military applications. Overall, we continue to expect mid single-digit year-over-year growth in our 2018 shipments for these aerospace and high strength applications. Turning to Slide 10, our positive outlook for automotive extrusions is also unchanged. North American build rates in 2018 are expected to be similar to 2017 and we expect continued content growth to drive mid single-digit year-over-year growth in our shipments for these applications. As our mix continues to shift toward lower value-added automotive applications, our value-added growth rate is expected to be less than the overall growth in shipments. As we previously noted, 2019 is expected to be a transition year with many existing programs reaching the end of the product lifecycle and a large number of new crash management, break chassis and structures applications launching throughout the year. Turning to Slide 11, our shipments and value-added revenue for general engineering applications continue to grow, driven by strong demand and increased capacity facilitated by the recent investments at Trentwood. We continue to be cautiously optimistic regarding the demand outlook for these general engineering applications. Moving to Slide 12 and a summary of our outlook, in the fourth quarter, we expect continued underlying demand strength with moderating destocking in the aerospace supply chain and normal seasonality in industrial demand. Planned major maintenance expense in the fourth quarter is expected to be similar to the third quarter. The planned one week outage for maintenance on Trentwood hot line and large stretcher has been rescheduled from the fourth quarter to mid-2019 as fourth quarter demand is stronger than anticipated and we will have greater access to internal and external engineering and maintenance resources by scheduling outside the holiday period. Overall, our full year 2018 outlook remains unchanged with mid single-digit year-over-year growth in shipments and value-added revenue and EBITDA margins in the mid-20s. As we begin to look to 2019, we expect strong demand across our end markets. Although sales margins have improved, they remain at historical lows will continue to monitor market conditions to determine timing for further price increases to restore our sales margins to a level more reflective of the strong overall demand climate. Turning to Slide 13 and the summary of our comments today, despite the temporary short-term impact of internal cross-border tariff costs we had solid results in the third quarter, driven by strong demand the full realization of second quarter price increases and operating leverage from higher shipments facilitated by recent investments and capacity expansion. As we look longer term, we are well-positioned in our attractive serve markets to capitalize on the secular demand growth for our aerospace and automotive applications and growing demand for general engineering products. In addition, we expect to continue to achieve to achieve steady improvement in manufacturing cost efficiency to further drive value for all of our stakeholders. Our strong balance sheet and cash flow generation continue to support our priorities for growth and capital deployment and provide sustainability through industry cycles. We will now open the call for questions.

[Operator Instructions] First question is from Martin Englert from Jefferies. Your line is open.

On the fourth quarter maintenance, how much expense are you currently projecting in millions? And how much have you previously estimated for Trentwood that's now pushed into 2019? And I guess what I'm getting at, was there any other maintenance that was may be pulled forward given the Trentwood push?

We don't disclose the actual major maintenance dollars in any period of time. But as we just said in the report here, we expect fourth quarter to be similar to the third quarter.

And can you comment on, was there anything that was pulled forward or that's being done at Trentwood that was pushed into 2019?

There was a little bit that's pushed into 2019 related to the outage but we will still be doing some work in the fourth quarter as well.

And on the aerospace supply chain, any best guess of when we could see an end to the destocking and also any indications from commercial aero, consumers regarding materials requirements for 2019?

Well, we are beginning to get some of the outlook for 2019. We will give a lot more definition to that and what it means for us when we get to the February call but as we said here in our outlook, we are very optimistic about 2019 and we're optimistic about the fourth quarter. The third quarter with a really strong shipments and aerospace was further manifestation of the fact that destocking is moderating. We think there is still be some destocking in 2019, so the metal demand will actually be less than real demand in 2019. But still, we expect it to be strong and have a strong year-over-year growth opportunity.

Outside of your internal relationships that you are looking at the supply chain and within your discussion there, any other external indicators that you are looking at?

Well, we look at the external indicators. I mean the external indicators are that there is a nine year backlog orders continue to be extremely heavy. Boeing and Airbus continue to talk about doing everything they can to ramp up their single out build rates. I mean everything that we see externally conforms to what we see internally, and that is very strong real demand. The only fly in the ointment for us has been the destocking, and again, that's moderating as was evidenced by our really strong third quarter shipments, and we expect that to continue as we go forward into the fourth quarter and 2019.

But nothing specific to the inventory supply chain and where that stands from an external…

No, it's not transparent enough. There's a lot of anecdotal evidence. There is enough anecdotal evidence. We know that there still will be some destocking impact next year, but it's less than this year and certainly less than last year.

Okay, I appreciate that and one last one if I could please on the plate pricing trends. You did succeed with two price increases this year but what's changed in the market that’s preventing you from additional pricing to recoup the increased cost that you're seeing in the second half here?

Well, first of all, we’re not seeing any increased cost in the second half. They’re basically the same. The metal cost and the freight cost are similar to what we had in the first half of the year. We push through some healthy price increases in the second quarter, and I’ll go back to my comments earlier. If you look at our sales margins in the third quarter compared to the first half we were up 250 basis points, those are large price increases. So, we got significant price increases, we’ve gotten back up to what we referenced on prior calls as the 2014 and 2017 levels that are kind of historic lows. We continue to monitor the marketplace here, we think that as demands strengthens that we’ve got market dynamics that should support further price increases, but we’ll just continue to monitor that situation and determine if and when we will move to get further price increases.

Thank you. Our next question is from Edward Marshall with Sidoti. Your line is open.

So, I just wanted to ask an additional point on that last question about pricing. Is it easier for you guys midyear or the start of any given year, as you kind of -- your customers are setting quantity, volume quantities for the following year to kind of look at pricing and rationalize pricing according to kind of what the book might look like as you move into any given year, just curious?

Well, Keith and I tell our sales guys that it should be easy anytime, but they don’t tend to agree with us. So, there is no easy time to raise prices. We just have to recognize, what are the market conditions, what are the demand conditions and what are the supply demand dynamics and just look at the whole situation. And you just have to have the instinct in terms of when it’s right to go for a price increase and when it isn't, and sometimes it works and sometimes it doesn’t. But we can’t say that there is any time of year that’s better than any other time, it's really what are the market dynamics in total and will the market support the price increases.

You talked about leads times about 20 weeks in the last call. I’m curious you didn’t get that data today. Could you talk about maybe where the leads time are in your plate?

Yes, our lead times have come in a little bit, but that’s primarily because we move to fourth quarter outage into midyear next year. So, we opened up some capacity in the fourth quarter because our lead time to come in a couple of weeks. But there is no substantial change in dynamics, there's just a function of those shifting out the planned outage and that really was a function of really, really strong demand on Trentwood in the fourth quarter.

And it looks like it might be timing but the third quarter value added revenue in Aero looks relative -- looks weak on a sequential and year-over-year basis. Was there something specific that happened in the quarter, that's just the mix? Did you ship more kind of lower value mix that pushed that down or what I’m -- what’s happen?

Yes. That’s exactly, that’s what it is Ed. We did get price increases on our spot business in aerospace, but there is a lot of mix inside that big basket of aerospace and high strength. And so the value added revenue will bounce around.

So, we’ll see that recover yet, I assume not asking for guidance but as we move into the fourth quarter and into the next year?

It depends on what the mix is.

The last question from me and you talked about some procedures to offset or I guess recover some of tariff situation. I'm curious what're you waiting for? What government agencies or what other might you be waiting for or kind of what's the process there? And what we should expect from a timing perspective?

We're going through the normal government process where we put in our request for whatever the countermeasure is and then there is the opportunity for rebuttals to that and then for us to rebut the rebuttals and so on and so forth. So there is a process that takes two to three months typically for those requests for countermeasures to go through the whole approval process. We believe we have an exceptionally strong case should be a slam dunk case for getting the countermeasures that we propose, but against the government. So, we'll see what happens here but we’re very, very optimistic.

Are you going in as a solo or is as I say it's just an industry-wide kind of?

No, this is solo. These are very specific to us. As we characterize it is cross-border internal cross-border transactions and is basically using our own internal supply chain where we supply material from our Canadian plant to some of our automotive plants and that's the only qualified approved source by our automotive customers for that material. And so there's no US source approved to supply that material for us to supply our automotive supplier. That's why we think it's a slam dunk and is very clear, very specific to us just using our own internal supply chain.

You mentioned retroactive, is that from the time of the filing? Or is that from the time of the impact to you and ours? And are they relatively simultaneous?

No, it's from the time of filing. And so, that is why we indicated, it will go back retroactively into the third quarter. We could recover 50% or more of the third quarter tariffs.

And that's that you're indicating the 50% of the 2 million I guess.

Yes.

Got it, thanks guys, appreciate it.

Thank you. Our next question comes from the line of Jeremy Kliewer with Deutsche Bank. Your line is open.

Just on your EBITDA margin guidance, you guys are reiterating it. However, you've now opened up another week of shipments out of Trentwood. So is this more of just you actually weakening guidance or what’s going on there can you give me some puts and takes?

Well, the impact of opening up another week at Trentwood gives us capacity for more sales of aerospace and high-strength in the fourth quarter. So, we would expect that gives us a little bit more operating leverage as we go in the fourth quarter. When you look at the margin impact of it but the outage itself doesn't have that much impact on margin itself.

Following up to that as well as made Martin's earlier point, last year you guys gave some good color on your outage of the light gage treat furnace, I was just wondering. Is this one that you’re waiting one that you pushed back? Is it going to be more or less and how do you think?

More or less in terms of..

Of absolute EBITDA impact.

The one that we push back really doesn’t have any EBITDA impact. That’s, its major maintenance activity. So, it's doing major rebuild work on our stretcher, and in doing major maintenance work just repairing wear and tear on the equipment on the hotline. So it doesn’t have a big impact on capacity or anything else. It's just routine maintenance to address normal wear and tear.

And then lastly, your acquisition of IMT, where should we kind of see those revenues and/or volume and EBITDA impact kind of hit? Is it going to fall in the other section? Or is it going to be spread between all four of your kind of sub segments? Or what's going on there?

I think we have decided to put it in general engineering in terms of where it will fall but it's infinitesimal in terms of the whole scheme of things.

And we -- actually, it’s a practical matter, we still have 11 days between the day we bought it and the day we're filing as of. So, we don't have any IMT income impact in the third quarter. It will be effectively reflected starting in the fourth quarter.

Thank you. Our next question comes from Matthew Korn with Goldman Sachs. Your line is open.

This is Azhar Ali on for Matthew Korn. Just wanted get your views on the new USMCA trade agreement and any benefits that you are thinking to potentially see from that particularly related to the new automotive content rules?

I'm not sure that it will have a big impact that the auto content rules will have a big impact on us other than potentially causing more of the foreign suppliers to reduce the imports and build on shore here. So, potentially, that’s a long-term benefit but nothing we baked in as a significant plus for ourselves.

And our next question is from Piyush Sood with Morgan Stanley. Your line is open.

Couple of questions from me. First one just wanted to understand the accounting treatment of the tariff cost. So, there was a $2 million headwind this time and seems like the headwind continues for now. But eventually when you recover them retroactively, will we see the offset flow through EBITDA?

Yes, you would.

And second one, so it's encouraging to hear that there is a continued moderation in the supply chain destocking, but we recently heard that a Middle East based airline reduced some orders from Airbus. Do you see any broader impact from that if it could become a trend or start more around destocking at some point?

There may be some individual plusses and minuses in orders. The order book is extremely strong and nine-year order backlog. Order rates this year are extremely strong. Every public release of information from Boeing and Airbus is, how can we ramp up our build rates more aggressively than we already have. The biggest problem is the supply chain inhibiting them from building more planes. So, it's hard for me to find any bad news out there in terms of the outlook for aerospace demand growth.

That’s good to know. And let me take a little step further that, if Boeing and Airbus are trying to increase their order rates, and let's say that translates into direct demand for you guys and maybe at some point if you are running towards the high end of your nomination or something like that. Should we expect some kind of an expansion in value added revenue per bond just in case the demand is so strong that buyers are willing to pay that price to you?

Yes, the short answer is yes. We continue to manage long-term demand dynamics. We know what the next tranche of capacity is. As we said, we’re just in the process of wrapping up Phase 6 of our expansion, we know Phase 7, but each one of those expansions has become less capital efficient. So, each new tranche requires more and more capital. But the answer is yes, we know what it is, we’re watching it closely, we think we’ve got a few more years of runway here before we need to pull the trigger on another expansion. But if and when it’s time we know where we will go to get the next tranche of capacity.

Thank you. And our next question comes from Josh Sullivan with Seaport Global. Your line is open.

Just given some investor concerns around automotive North American SAAR rate going forward, how can you frame the risk, if SAAR would go down by say 5%? What is the aluminum penetration story from your view at this point?

Well, from a penetration standpoint, there wouldn’t be any impact and it frankly could be positive if the SAAR that goes down is small cars rather than large vehicles. So, because we’re much more, our product has much more intensive on the larger vehicles and most of the fluctuations up and down over the past couple of years have been in the smaller vehicles. So, but from a SAAR standpoint, we continue to see strong demand here, we’re still forecasting high 16s, low 17s here for the next few years. So, there may be a little bit of bumpiness, but we don’t see anything significant that will have a dramatic impact on us. And it certainly won’t affect the penetration, we have a whole bunch of new programs that will be launching next year, we’ll talk in February, about what that means to 2019 and total to the programs that are coming off, but as we look at three or four years we’re continuing to see a strong 5% plus CAGR in terms of penetration of Aluminum extrusions and we’ll get at least our share of that growth.

And then just a follow-up on that next phase of Trentwood, I mean if Boeing were to announce to go above 57 on the 737. Would that trigger Phase 7 at Trentwood at this point?

Not necessarily, we have to look at the whole landscape in terms of what’s total demand, what’s total industry supply and what’s that all mean to Kaiser.

And then just one last one on the Imperial acquisition, could you just go a little more into why now, what products or end markets are you most interested in? And then, maybe which one of those are near term?

Well, yes, I’m glad you asked that question. So, if you take a step back our primary interest in this is or was R&D, our customers have been pushing us, telling us that this is a potentially disruptive technology. They don’t believe, we don’t believe that it will be disruptive on the preponderance of the kind of applications that we supply in aerospace, but it is beginning to replace some of the static loading type of items. And because of the kind of supplier we are, highly regarded in aerospace, they see this is a growing portion of their supply chain going forward and they’ve encouraged us to enter into that supply chain. So, we began looking at these kind of companies additive manufacturing companies over the past 12 months when this one came along, we were interested and as we went in to look at it, we became more and more interested because besides them being a leader in additive manufacturing, which was our primary concern was to gain more knowledge on additive manufacturing. It's a 75-year-old company with a long track record of supplying or addressing demanding applications in similar markets to what were involved in with very sophisticated customers. So it's a really good company, well-managed company with culturally compatible with Kaiser that has a good solid underlying EBITDA strength from its historic business as well as the foresight to really have assumed a leadership position in this new evolving technology. So it really was a very attractive asset to us for those reasons we said we have a high degree of confidence and we're going to get better than cost of capital returns here and at this disruptive technology emerging technology has the kind of growth potential that most people think it will have, it could really have a significant upside about cost to capital returns. So there's a lot of factors we get a lot of R&D out of this, it’s a well-managed company with the with the strong long-term performance record, strong customer relationships. Strong collaborative relationships with a lot of R&D facilities and well positioned to grow in this market and culturally compatible with us. It was it came down to a real no-brainer for us.

Just one last one, given the merger activity across the industry, do you think scale is a critical element to compete going forward? Are there any assets you don't have now that you feel you really need to either inorganically organically?

No, we don't think scale beyond what we have a significant issue. Are there assets that would be attractive, if they became available at a reasonable price? The answer is yes. But we believe we're very, very well positioned as the past 10 to 15 years have demonstrated. We're very well positioned as a leader in these markets, and we can go toe-to-toe with anybody in these markets.

Call back to Jack Hockema for his final remarks.

Okay, thanks everyone for joining us on the call today, and we look forward to updating you during our fourth quarter call in February. Thank you.