Scott Minder - Vice President of Investor Relations and Corporate Communications Richard Harshman - Chief Executive Officer Patrick DeCourcy - Chief Financial Officer John Sims - Executive Vice President, ATI High Performance Materials & Components Segment Robert Wetherbee - Executive Vice President, ATI Flat Rolled Products Group Kevin Kramer - Senior Vice President, Chief Commercial & Marketing Officer.

Josh Sullivan - Seaport Global Securities, LLC Chris Olin - Longbow Research LLC Gautam Khanna - Cowen and Company, LLC Richard Safran - The Buckingham Research Group Incorporated Timna Tanners - Bank of America Merrill Lynch.

Good morning and welcome to the Allegheny Technologies Incorporated Fourth Quarter and Full-Year 2017 Results Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator instructions] Please note this event is being recorded.

I would now like to turn the conference over to Scott Minder, Vice President of Investor Relations and Corporate Communications. Please go ahead, sir..

Thank you, Keith. Good morning and welcome to the Allegheny Technologies conference call for the fourth quarter and full-year 2017. This conference call is being broadcast on our website at atimetals.com.

Participating in the call today are Rich Harshman, Chairman, President and the Chief Executive Officer; Pat DeCourcy, Senior Vice President, Finance and Chief Financial Officer; John Sims, Executive Vice President, High Performance Materials & Components segment; Bob Wetherbee, Executive Vice President, Flat Rolled Products Group; and Kevin Kramer, Senior Vice President, Chief Commercial & Marketing Officer.

All references to net income, net loss, or earnings in this conference call, are mean net income, net loss or earnings attributable to ATI. If you've 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, atimetals.com.

After our prepared remarks, we will open the line for questions. During the question-and-answer session, please limit yourself to two questions to allow time for 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 shown on this slide. Actual results may differ materially. Here is Rich Harshman..

Thank you, Scott. Good morning to everyone on the call and to those listening on the Internet. The fourth quarter was a solid finish to a year that saw important progress on several strategic initiatives and showcased ATI’s longer-term financial potential.

The ATI team worked diligently to achieve our financial and operational goals to build a sustainably profitable business, which can consistently create value for our shareholders and customers, and opportunities for our employees.

We believe that we made substantial progress towards this objective in 2017 and we will remain focused on this objective in 2018 and beyond. On an adjusted basis, ATI earned $0.27 per share in the fourth quarter 2017, our best quarterly results since mid-2012.

Underlying this performance was ATI revenue growth of 14% versus the prior year’s fourth quarter and solid operational results in both segments. Segment operating profit in the High Performance Materials & Components segment reached 12.7% of sales, representing 140 basis point improvement versus the prior year.

This continues the improvement trend experienced throughout 2017, largely driven by the benefits from the ongoing jet engine production ramp at several of our large customers. The Flat Rolled Products segment achieved its strongest quarter in five years, with segment operating profit at 5.7% of sales.

The Flat Rolled Products segment benefited from improving conditions in several markets and increase in raw material based surcharges compared to the third quarter and continued improvement in the businesses costs structure. John Sims and Bob Wetherbee will provide more detail on their respective segments later in this call.

Turning to Slide 4, many of the fourth quarter’s positive results were parts of trends seen throughout 2017, resulting from strategic actions taken over the past several years.

Aerospace and defense growth continued to drive year-over-year revenue and operating profit increases in the High Performance Materials & Components segment, and the Flat Rolled Products segment benefited from its ongoing focus to increase high value product sales, improve overall product mix, and reduce the cost structure of the business.

Both segments tightly managed their costs and saw benefits from ongoing productivity improvement initiatives. Now, I'm going to have John Sims to discuss the High Performance Materials & Components segment.

John will be followed by Bob Wetherbee, who will discuss the Flat Rolled Products segment, and then Pat DeCourcy will comment in more detail about the fourth quarter results. I will then return to provide our 2018 outlook and to make some concluding remarks before we open up the call to Q&A. Here’s John Sims..

Thanks, Rich. Turning to Slide 5, the High Performance Materials & Components segment continues to benefit from the ongoing next-generation jet engine production ramps by all of the engine OEMs. These production ramps result in both sales and margin growth for ATI, due to improved product mix, volume growth, and increased asset utilization.

We are still in the early phases of this industry-wide production expansion and we expect the benefits to ATI to continue in 2018 and through the end of the decade.

Taking a deeper look at fourth quarter, you can see that segment revenues increased 9% overall versus 2016, including an 11% increase in aerospace and defense market sales, which represents 76% of total segment sales. Sales to non-aerospace and defense markets grew 2%.

We experienced year-over-year declines in electrical energy markets due to a continued lack of customer demand for large industrial gas turbines. And in the medical market, we are seeing heightened competition in products used for magnetic resonance imaging, or MRI machines. Once again the power of the mix was evident in our results.

In conjunction with a 9% revenue growth, segment operating profit increased 22% year-over-year, with sales of next-generation jet engine products up 26% compared to quarter four 2016.

Fourth quarter operating and margins improved by 140 basis points versus fourth quarter 2016, marking the sixth consecutive quarter with an improvement of that magnitude or higher. The full year’s financial trends were consistent with those seen in fourth quarter.

Revenues increased 7% versus the full-year 2016 driven by commercial jet engine growth of 11% and double-digit increases in the defense, oil and gas, and construction, and mining markets. This robust growth was tempered by declines in electrical energy and medical markets.

Operating margin growth significantly outpaced the revenue growth, primarily due to product mix benefits associated with a commercial jet engine production expansion and the benefits of higher production volumes across our asset base. We achieved these results despite short-term financial headwinds in our titanium castings business.

We believe that 2017 was a strong representation of the business that we have built over the past several years and indicative of its growth potential moving forward. Today, we are focused on execution, meeting our commitments in existing long-term agreements and effectively and profitably supporting our customers’ growth plans.

This includes a significant year-over-year improvement in our titanium castings business for 2018. We are on track for this business to be near breakeven in 2018 and return to profitability in 2019.

Turning to Slide 6, as you can see from the pie chart and related table, we continue to grow our commercial jet engine business as the next-generation engines production rate ramps expand. In 2017, 44% of the High Performance Materials & Components segment revenues came from the commercial jet engine market.

And the aerospace and defense markets in total comprised 76% of segment sales.

Taking a deeper dive into the aerospace and defense markets, year-over-year growth continued in all three submarkets; jet engine growth as discussed earlier grew a double-digit percentage for both the fourth quarter and the full-year, underlying this growth were significant production rate ramps at many of our jet engine related customers.

As an example, GE Aviation cited in a recent investor presentation that they and their partner SAE will produce 473 LEAP engines in 2017, marking a substantial increase versus 2016. This expansion is expected to continue with 2018 production of between 1,150 and 1,200 LEAP engines.

Airframe growth rates remain strong, but well below jet engine growth rates. As a reminder, the airframe business is largely based on contractual demand requirements set forth in multi-year contracts. Product form mix can vary from quarter-to-quarter, resulting in some volatility in revenue and margins on a quarterly basis.

For the fourth quarter 2017, commercial airframe sales were 4% higher than the prior year. Sales to government and defense markets increased significantly both in the fourth quarter and for the full-year, for both aerospace and non-aerospace applications.

In government aerospace, military jet engines and rotorcraft products saw both substantial revenue increases versus the prior year period, while naval nuclear revenues grew significantly on the non-aerospace side.

In summary, the High Performance Materials & Components segment performed well in 2017 and we look forward to being a continued growth engine for ATI in 2018 and beyond. I will now turn the call over to Bob to talk about our performance in the Flat Rolled Products segment..

Thanks John. Turning to Slide 7, our performance in the Flat Rolled Products segment continues to gain traction as evidenced in the fourth quarter and full-year 2017 financial results. Although prior year comparisons are favorable in part due to a weak 2016 period that was impacted by the seven-month work stoppage.

Our 2017 financial results demonstrate the significant business improvement and cost reduction actions taken over the past few years. Emphasize this point fourth quarter Flat Rolled Products segment operating profit was the best in five years.

Looking at the fourth quarter 2017 in more detail, revenues and operating margins benefited from the improvement in raw material surcharges related to both ferrochrome and nickel versus prior year and sequential quarters. Fourth quarter revenues improved 23% versus the same quarter of 2016 across all significant markets.

The largest gains were in the oil and gas market, including chemical and hydrocarbon processing industries and the electronics market. Fourth quarter segment operating profit increased 600 basis points over the same period in 2016 due to several factors.

Most notably the improvement in product mix, lower cost due to the prior year restructuring activities, ongoing cost discipline and the benefit from increased volumes as well as the previously mentioned raw material surcharge increases.

Similar to the fourth quarter, full-year 2017 revenues and operating profit margins increased significantly year-over-year were largely driven by the same factors. Beyond financial results, 2017 was a year of significant milestones in our journey to sustainable profitability in the Flat Rolled Products segment.

First, we announced an innovative joint venture with the Tsingshan Group Company that will utilize our Hot-Rolling and Processing Facility or HRPF and our previously idled Direct Roll Anneal and Pickle line or DRAP line in Midland, Pennsylvania.

The joint venture will import stainless slabs from Tsingshan’s facilities in Indonesia, which bypassed steps in the traditional slab production process, significantly reducing raw material costs volatility, as Tsingshan is backward integrated and the key raw materials used to produce stainless steels.

Second, we signed two significant long-term agreements to supply high value titanium plate products to General Dynamics Land Systems, one in the United States and one in the UK. This is Flat Rolled Products’ first long-term agreement with this global customer and as a result of ATI's renewed strategic focus on the defense market.

And third, we signed a contract to supply high value nickel sheet products for use in a major pipeline repair project outside the United States. This business award was made possible by the world-class capabilities of our HRPF.

Taken together, 2017 was a year of significant progress that we believe will provide a springboard for continued improvement in 2018 and beyond. This includes our ongoing efforts to increase utilization rates at our HRPF via third-party conversion agreements.

These potential agreements are progressing favorably with additional production trials underway and are continuing to demonstrate our ability to meet demanding customer specifications. Turning to Slide 8, 2017 saw significant market shifts in the Flat Rolled Products business portfolio.

Leading the year-over-year change was the rebound in the oil and gas market, including the hydrocarbon and chemical processing industries, where revenues were up over 50% versus the prior year’s low levels. Today, this market represents nearly 25% of total segment revenue, up from 19% in 2016.

Sales to the electronics market largely focused in Asia through our STAL joint venture also increased as a portion of our total revenue. Today, the STAL joint venture operates two facilities in the Shanghai, China area.

We're nearing completion of STAL 3, which is expected to begin initial production in the second quarter of 2018 and ramp up during the second half of 2018 and first half of 2019. We look forward to continuing the growth trajectory in this important business with this additional capacity.

Turning to 2017 revenue by product, our strategy to increase sales of high value products continues to bear fruit, with high value revenue up 20% versus the prior year.

Building our success in previous quarters nickel sheet shipments were at record levels in Q4 2017 and we expect to significantly increase titanium plate revenues over the next few years in support of the recently signed long-term agreements with General Dynamics Land Systems.

And finally, we expect sales of Precision and Engineered Strip products to continue to build on 2017s nearly 20% year-over-year growth with initial gains from the STAL capacity expansion expected in the second half of 2018. In summary, 2017 was a year of important strategic achievements and a return to profitability.

We believe that we're well positioned to build on 2017s foundation and to continue the financial improvement trends in 2018 and beyond in support of our longer-term objective of sustainable profitability and growth.

Now I'll hand the call over to Pat DeCourcy to talk about ATI’s fourth quarter and full-year 2017 financial performance and some comments about 2018 expectations..

Thanks Bob. Turning to Slide 9, the top section of this slide details our fourth quarter 2017 financial progress, cash on hand at the end of 2017 was $142 million, an increase of $17 million over the third quarter of 2017. This was after paying down $25 million of borrowings under our asset-based lending facility or ABL.

At year-end 2017, we had approximately $305 million of additional available liquidity to us under this credit facility. ATI generated $76 million of cash from operations in the quarter, after a growth in managed working capital of approximately $30 million.

This increase was primarily attributable to inventory builds in support of large pipeline project orders for Flat Rolled Products that will be completed in 2018, and the receipt of initial materials to be used by the Allegheny & Tsingshan Stainless joint venture in 2018.

Managed working capital declined as a percentage of sales, continuing the positive year-over-year trends throughout 2017. Aligned with the company full-year guidance, ATI had capital expenditures of $123 million in 2017, including $37 million in the fourth quarter.

This compares $202 million in 2016 and marks and end to the significant capital expenditure cycle to build out ATI's asset base needed to meet the anticipated jet engine production ramp and the completion of our HRPF. Consistent with our prior comments, ATI expects 2018 consolidated capital expenditures to be between $100 million and $125 million.

This includes the full amount of the expected $25 million capital expense required for the facility and equipment contemplated by the Next Gen Alloys joint venture of which GE will fund approximately 50%. In addition, the range includes $22 million earmarked for the completion of the previously mentioned STAL joint venture expansion in China.

The joint venture, which is 60% owned by ATI will fund this investment in its entirety through cash from operations. In total, these expenditures include strategic investments in capabilities to support our business growth and to maintain our existing asset base to ensure reliability and ongoing product quality.

Overall 2017 was a solid year for cash generation, even after considering the $135 million contribution to the ATI defined benefit pension plan made in the first half of the year. We believe ATI’s well-positioned to improve on 2017 cash flow generation performance in 2018. Slide 10, shows an important story for ATI.

We continue to focus on strengthening our balance sheet and we made significant progress in 2017. Some of the actions taken were continuation of ongoing initiatives and some were new ideas executed in a timely manner. All were clearly aimed at removing balance sheet risk and reducing financial leverage.

ATI has a long history of investment grade credit ratings and it is our goal to return to that level in the future.

First, we continue to work on reducing balance sheet risk by taking actions to decrease participation in our defined benefit pension plan with lump sum cash out of approximately 1,350 deferred vested participants in the fourth quarter of 2017.

Specific liability management actions such as lump sum cash outs and an annuity buyout to reduce the number of participants in the ATI defined benefit pension plan by over 20% since 2012. In addition, to these specific actions we have also taken steps to substantially limit future liability growth in the ATI pension plan.

These actions include hard freezes meaning no additional benefits for future service and soft freezes or closures to new entrants at nearly all of ATI’s U.S. operations. We have replaced the defined benefit pension with a market competitive defined contribution retirement plan.

The funded status of ATI pension plan continues to improve, increasing 6 percentage points at December 31, 2017 versus the prior year end as measured under generally accepted accounting standards. In an effort to improve ATI’s financial leverage ratios, we fully redeemed $350 million, 9.375% senior notes originally due in June 2019.

Using the vast majority of the proceeds received from the follow-on common equity offering made in November 2017. This transaction will significantly reduce interest expense in 2018 and ensures we have no significant debt maturities until 2021.

Given our expectations for improved earnings and cash flows in 2018 and beyond we expect our balance sheet and financial strength to continue to improve over the next several years.

Turning to Slide 11, looking at other important factors for 2018, we expect 2018 contributions to the ATI pension plan will be between $40 million and $50 million compared to $135 million in 2017.

As I previously indicated, we anticipate 2018 capital expenditures to be in the range of $100 million to $125 million including joint venture items previously discussed.

2018 retirement benefit expense, which includes both pension and OPEB expense is currently expected to be $52 million, approximately $19 million lower than the 2017 retirement benefit expense. Interest expense is expected to fall to a range of $100 million to $105 million for the full-year 2018.

This figure is lower than 2017s $134 million expense due to the redemption of the 2019 high coupon rate debt after our November 2017 common equity offering. The full-year 2018 tax rate is expected to be between 5% and 10%, similar to 2017s rate. We do not anticipate paying any significant U.S.

federal and state income taxes for the next several years due to our net operating loss carryforward position. Due to our November 2017 common equity offering, I thought it would be worthwhile to briefly discuss ongoing share count assumptions and the impact of 2022 convertible notes on earnings per share calculations.

In the first quarter 2018, we anticipate our average share count to be approximately $125 million, an increase over the recent quarters due to the 17 million shares issued in our November 2017 follow-on common equity offering. The 2022 convertible notes outstanding have a dilutive impact on quarterly earnings per share above certain earnings levels.

When considering this impact, it is important to note the both earnings and the dilutive shares need to be adjusted. Please feel free to give us a call if you have any questions. Now, I would turn the call back over to Rich..

Okay. Thanks Pat, Bob, and John. Turning to Slide 12, as you have heard from all of today's presenters, we are optimistic heading into 2018. The outlook for both segments is favorable due to market conditions, actions we have already taken, and long-term agreements with customers already in place.

We are focused on executing our business plan and our strategic initiatives. As a result, we believe that 2018 will be a year of continued revenue growth, operating margin improvement, and healthy cash flow generation for ATI.

Looking at our business by segments, we expect that the High Performance Materials & Components segment will continue to build on 2017s year-over-year growth trajectory in the first quarter of 2018, and throughout the year.

We anticipate that the next-generation jet engine production ramps will continue to drive overall segment growth, aided by the ongoing expansion in several other key markets.

For the full-year 2018, we anticipate segment revenues to increase by high single-digit percentage versus 2017, including double-digit growth in commercial jet engine revenues and expected continued demand improvement in the oil and gas, and construction and mining markets.

This growth rate will be tempered somewhat by continued strong demand, but slower growth in our airframe submarket and ongoing sluggishness in the electrical energy and medical markets. Additionally, we expect a modest decline in some of our defense market sales as certain programs reach the end of their production lifespans.

Full-year 2018 segment operating margins are expected to continue to expand, increasing by approximately 200 basis points versus the full-year 2017. We anticipate that ongoing growth in next-generation products sales to the jet engine market and the associated benefits from increased asset utilization will drive these improving margins.

Additionally, we expect to benefit from improving performance in our titanium castings business and reduce start-up expense for our new nickel alloy powder operation located in North Carolina. Similar to 2017, the rate of improvement in operating margins will likely vary by quarter based on timing of underlying customer demand and other factors.

Shifting to the Flat Rolled Products segment, we expect continued revenue and margin expansion for the full-year, but we expect some quarterly variability in earnings.

Although, our strategic actions including the proposed Allegheny & Tsingshan Stainless joint venture have and will continue to reduce the impact of raw material volatility on the segment, significantly increasing or decreasing raw material input cost over short-time periods can still have a temporary impact on quarterly financial results.

We anticipate first quarter 2018 demand in our Flat Rolled Products segment to continue to be relatively strong similar to the fourth quarter 2017 rates. Although, we do anticipate two non-recurring unfavorable items totaling about $10 million pre-tax to impact Flat Rolled Products segment financial results in the first quarter 2018.

First, ferrochrome prices have declined 15% from the fourth quarter 2017. Since ferrochrome prices are set quarterly, we can estimate the negative impact on the first quarter. Second, we expect a one-time negative impact related to the required accounting changes on retirement benefit expense, cost capitalization in inventory.

For the full-year 2018, we anticipate continued revenue growth in the Flat Rolled Products segment at a high single-digit percentage rate versus 2017, driven by growth in certain strategic markets. This assumption in the following operating margin, expectation assumes relatively stable raw material prices beyond the first quarter of 2018.

Full-year 2018 operating margins are anticipated increase between 100 basis points and 300 basis points over 2017 significantly improved margin levels including the negative year-over-year results expected in the first quarter 2018.

Operating margin results are expected to improve in the second half of the year as compared to the first half due to increasing initial contributions from the joint venture and contributions from the STAL joint venture expansion.

Third-party conversion agreements with carbon steel customers, if finalized – would also potentially benefit the second half of the year. The timing and magnitude of these developments are difficult to predict resulting in the potential range of margin results.

Finally, we expect a modest manage working capital increase in 2018 to fund our growth in both operating segments. We anticipate the managed working capital growth will be greater in the first half of the year as we support the Allegheny & Tsingshan Stainless joint venture startup.

Turning to Slide 13; in summary, 2017 was the year of solid progress for ATI, one that we can continue to build on in 2018 and beyond. We made significant improvements in our year-over-year financial results in both segments and executed on our strategic priorities.

We continue to make progress on strengthening our balance sheet, which will enable sustainable long-term profitable growth and ensure that we have sufficient capital available for fund future strategic initiatives.

Recapping the year's most significant accomplishments, we increased ATI revenues by 13% versus the prior year, largely due to jet engine production related demand growth as well as recovery in some of Flat Rolled Products segments key markets. In conjunction with the revenue growth, our profitability continued to improve.

The benefits of higher volumes ongoing product mix improvements in both segments and our relentless focus on costs help ATI to achieve total segment operating profit margins of more than 8% compared to essentially breakeven results in the prior year.

These efforts combined to produce a significant improvement in earnings per share moving from a prior year loss to making nearly $0.50 per share in 2017 on an adjusted basis.

From a strategic standpoint, we were active in securing long-term agreements and developing new business opportunities that will contribute the ATI’s profitable growth for years to come. We continue to pursue strategic joint ventures that will enable ATI to further improve financial results with minimal capital investment required.

We created the Next Gen Alloys JV with GE Aviation to further developing novel meltless titanium alloy powder manufacturing process. This technology has the potential to meaningfully change the way the industry produces titanium powder materials.

We are in the early phases of developing our Richburg, South Carolina site, to house this entity and we expect continued progress in 2018. We announced the creation of the joint venture with the Tsingshan Group Company to produce 60 wide stainless steel sheet products. For the U.S.

market by leveraging our world-class assets and Tsingshan’s innovative and cost effective approach to slab casting. We believe that this joint venture will produce a high quality product at a competitive costs and offer much improved product lead times.

We signed several long-term agreements with large customers such as Pratt & Whitney to supply isothermal forgings and power, and general dynamics land systems to supply titanium plate, which are both expected to drive segment growth trajectory for the next several years as well as allow us to continue to expand our strategic relationships with these diverse global customers.

And we continue to develop our advance powder capabilities with the completion of our new nickel-based powder alloy facility in North Carolina and the announced investment in a new titanium powder facility to be located on the same site.

In addition to the improved financial results and strategic actions, we continue to strengthen the balance sheet and cash flow through purposeful actions and we expect to continue these efforts in 2018 to ensure that we maintain the ability to profitably grow our Company. Operator, may we have the first question please..

Yes, thank you. We will now begin the question-and-answer session. [Operator Instructions] And the first question comes from Josh Sullivan with Seaport Global..

Good morning, Rich and Pat..

Good morning, Josh..

Hey, Josh.

How are you?.

Good. Just thinking of the 2020 targets for High Performance.

Has anything changed with the new 2018 guidance? And then maybe can you help us with the buildup of the various verticals since the anticipated, I believe, $3 billion in sales? How much is aerospace, defense, energy, industrial, et cetera maybe rough estimates?.

Sure. No change in guidance for 2018, Josh. So we're sticking with the 200 basis point improvement year-over-year. If you look at the average for 2017, it was approximately 12% operating margin for the segment and we're looking at 200 basis points up on that for this year.

With respect to the growth to the $3 billion mark, obviously, aerospace is the largest percent – largest market for High Performance and that will dominate the growth over the next several years. But some of the other markets, we noted improvement in 2017.

We think strength could continue into 2018 and beyond that would specifically include oil and gas, which is rebounding from the low levels in the last three years, and the mining machinery and equipment sector as well has some additional strength that we think position us well.

On the aerospace, again, we shouldn't ignore defense for High Performance. So that will also drive growth over the next three to five years, but aerospace, obviously, commercial aerospace will be the largest piece..

Okay, great..

Yes. Josh, I agree with all of Pat’s comments. In addition, I really do think that there is growth opportunity, especially as you look between now and 2020, and 2021, on the electrical energy side. I think what we're seeing now in terms of the very large industrial gas turbines is a significant slowdown that the OEMs I’ve commented on.

I think we're pretty close to troughing at the bottom there. I think on some of the smaller turbines, you're seeing healthy growth in demand and healthy coating activity now. And I think when we're working with those OEMs and we look at the opportunities for R&D and development of unique alloys that create value in those particular applications.

I think that between now and 2020, 2021 you're going to see a return to a more normalized demand on the gas turbine side..

Okay, thanks for that. And then with castings, expected to be breakeven in 2018.

Is there any way to quantify what the headwind was in 2017 on the operating margin in the High Performance?.

So yes, when you look at the total loss for the year, it was in the high teens in terms of millions of dollars for the last – for the full-year of 2017, so between $15 million and $17 million, $18 million. So if you get close to breakeven that's the magnitude of the turnaround in Cast Products..

Okay, thanks. I’ll jump back in the queue here..

Okay, thanks..

Thank you. And the next question comes from Chris Olin with Longbow Research..

Hey, good morning..

Hi, Chris.

How are you?.

Hi, Chris..

Good. So Rich, there's been a lot of speculation out there, especially within the specialty materials channel about hidden value and whether companies like ATI are getting the appropriate values on High Performance Material type of segments out there.

I guess the question I had for you today is, how do you think about the portfolio going forward now that this FRP segment has better visibility, is there a way to potentially spin-off these assets or somehow unlock the value here?.

Yes. Well I think the – obviously, the value today is much better than it's been over the last three or four years, right. So we've had this question a lot on calls and meeting with investors.

And we challenge and continue ask ourselves the question in terms of, is the share price being rewarded for the strategic actions being taken? And I think in fairness, I mean we need to continue to demonstrate the earnings growth profile in both segments, and do that and continue to reward the shareholder with the growth in share value.

So I think that when you look at the two businesses, there are clearly synergies between the two businesses both on the technical side, on the market side, on the customer side, and on the operating asset side. A lot of what we do in High Performance is dependent upon the manufacturing capabilities of Flat Rolled Products segment and vice versa.

So we will – the primary emphasis in the last couple years has really been to change the fundamental focus of the business and Flat Rolled Products away from a more commodity driven focus into a higher value focus and at the same time significantly improve the cost structure and simplify that business by exiting products that really were not contributing and actually we’re taking away from the bottom line.

So we've done that to a large extent. I don't think you're ever done doing that. I mean I think that that process is a work in process all the time as we look at both of these businesses. I think there is a value creator for the shareholders of having the businesses together.

If we're not being rewarded appropriately for that value then I think you look at and consider other strategic actions and we will continue to do that..

Okay, that's fair. Just quickly, can you give us an update on the GE9X contract? Has happened decided yet, you still think that you could be position to win that as well? Thanks..

Hey, Chris, this is John Sims. The GE9X contract has not been let yet. Those negotiations haven’t started. We're still in kind of the development phase with GE on that program and that program is going well..

Okay..

Thank you. And the next question comes from Gautam Khanna with Cowen and Company..

Thanks. Good morning, guys..

Good morning, Gautam..

Good morning, Gautam..

I was hoping you could talk a little bit more about where you are in those partnership discussions with the two perspective folks at Flat Rolled.

I know you mentioned you're still doing some qualification testing, but just what are you anticipating and timing what sort of milestones are still out there that we should be following?.

Good morning, Gautam. It’s Bob Wetherbee. So I can give you a quick update. So I think the last time we talked about several trials going on and there are multiple.

What normally happens is they start with four slabs moved to 20 and then we move to 100, so that escalation is really driven by proven out the logistics, defining the physical properties, the strength of the end product, and then moving into supporting actual end customer orders.

So I think one of the key milestones that we see in the first half is that we will actually have several of those opportunities progress all the way to supporting actual end customer orders. We do have a dedicated team that's engaged in working with our customers actually for the services of the HRPF, we've moved beyond concerns about logistics.

We've proven with the logistics companies and partners that it's not a problem to brings slabs in from anywhere in the world and processed them on the HRPF.

And the really exciting part is that we actually through the HRPF can take one slab skew if you would and turn it into multiple different end products and grades as not something very many high rolling facilities around the world can do and that continues to excite the end user, but flexibility to lead time and certainly the expanded product offering.

So I think long winded answer to your question is that we believe during the first half, we'll see continued progress towards supporting end customer orders. And then once that happens, it's just a matter of scale up..

Okay. So we should not be anticipating that maybe in Q1, you guys sign an official agreement.

It’s maybe in Q2 kind of thing?.

Yes, I think the pace of the actual announcements on commercial agreements is driven as much by the end customer and when they're ready to go public and people do see the competitive advantage that comes from the HRPF and candidly like to keep it for themselves as long as humanly possible. So I think Q2 is probably more realistic..

Gautam, I also think we're seeing I mean if you look at the progress over the last six months in terms of the level of qualification work being done on a pure volume basis it is increasing dramatically.

And we would expect that that would continue through the first quarter and then some of these opportunities will become more crystallized as we get into the second quarter and most likely benefit the second half of the year.

But I think the excitement level on the part of our conversion customers continues to grow when they see what the – as Bob indicated, when they see what the capabilities of the HRPF are. So we think it's still real and it will generate a long-term not just in 2018, but a long-term opportunity for ATI..

And one follow-up on some of the pension remarks. It sounds like you've done a lot to kind of reduce the exposure there.

What else is out? I mean, a) could you give us a little color on what you think the 2019 cash contribution would be, assuming all your assumptions hold? And b) is there anything you can do to kind of reduce that liability that you haven't already done?.

Sure. So the expected cash contribution for this upcoming year is between $40 million and $50 million in total. So substantially down from the $135 million in 2017. There are additional actions that we can take with respect to the cash outs and annuity type options that we've already employed for the last several years.

So we'll be taking a close look at that as well. We also are focused on the asset returns. We had a very good year in 2017, maybe not quite that good in 2018, it remains to be seen, but we're focused on that asset performance side.

And we're looking forward to as well potential other actions to finally close, and this would be a soft freeze for the remaining operations that are still outstanding that that potential will exists here, this year in 2018. So then that would – all of our operations would now be closed either hard freeze or soft freeze to the pension.

So those are the actions that we have planned and that's the level of contributions we expect..

In 2019, I’m sorry, what do you anticipate and do nothing more….

2019, if all – if everything holds together, we would be back up around $100 million..

Okay..

Based on today's assumptions, but that's given the today's anticipated rates when you look at the interest rate environment as well. So there's upward bias there that could impact that a little bit as well, but that's what we're looking at for 2019 based on today's rate environment..

Yes. Gautam, I think in addition, I mean that that doesn't stay there for – we hope, for a prolonged time period, right.

The reason why it's slower this year is because the utilization or credit balance on the funding mechanism side, which will fully utilize and then 2019 goes up a little bit, and then it comes down assuming all the funding, all the assumptions hold true.

Having said that, I think we have been very proactive and looking at how do we – what actions can we take that are within our control that are permitted obviously by – under a – the qualified plan rules and the IRS rules to lower the participant – the number of participants in those plants, which include a significant number from closed or discontinued businesses, mainly from the Teledyne legacy side when – that goes back to when Teledyne and Allegheny level combined.

So I think Pat and his team have done really an outstanding job of being proactive in that. There are some other opportunities out there that we could further structure the plan in a way that could further reduce it and we'll look at that and are looking at that.

And then longer term, I mean, obviously, companies have done some work in terms of annuitizing larger pieces of the liability. And that's on the strategic drawing board as well, so that we continue to look for ways to get out of the defined planned benefit business. And the end result would be a continued further strengthening of the balance sheet..

Thanks a lot guys. Appreciate it..

Thank you. And the next question comes from Richard Safran with Buckingham Research Group..

Gentlemen, good morning.

How are you?.

Good morning, Rich. Good.

How are you?.

Very good, thanks. Rich, Pat after your comments about 2017 and balance sheet improvement, I just have to ask you about cash in 2018. You didn't issue a cash flow guide for this year, so I'm assuming you won't do that, but absolutely feel free to correct me if I'm wrong. So I'm going to ask you in a bit of a different way.

Could you talk about cash conversion in 2018 and maybe beyond that 2019 et cetera? And while we’re on the topic, maybe discuss capital deployment.

And specifically, I guess Pat, how much debt do you intend to retire this year and how much progress do you intend to make to get into your interest coverage target?.

So capital deployment, as we mentioned the guidance for CapEx is between $100 million and $125 million, we anticipate definitely being within that range for the full-year. There's a substantial improvement coming in cash flow in 2018.

As we go throughout the year that that will become more evident and we'll share more information about that cash flow generation. We did give some specific items in this earnings release that you can use to help construct the cash flow for the company. So we think we gave some very significant items out there that will help you in that guidance.

But we'll share more is the year unfold. And as far as capital deployment strategy, beyond the CapEx guidance that we gave and the pension contribution, we do not have plans to retire any debt in 2018. We think they'll be an opportunity to look at that in 2019 as we continue to expand our cash flow generation..

Okay. Thanks for that. Bob, I wanted to ask you something about Tsingshan and I want to know if you could maybe discuss a bit more about the ramp that you're expecting for Tsingshan. In your 2018 outlook, how much you factoring in? Now back in November, you expected a moderate or modest benefit.

I don't remember what you said exactly in 2018 and a full benefit in 2019.

So I just wanted to get an update there and get how quickly you think that JV will ramp up et cetera?.

Yes, Rich. Good morning. I am pleased to report that the initial start up of our facilities and our activity with Tsingshan as well underway. We announced in November. We actually have restarted the DRAP line. We have a full complement of our crewing and our solid organizations coming together.

We actually have initial metal in the market and are getting very positive responses from our customers in terms of meeting their needs and the expectations from the quality perspective, which we anticipated, but it was great to have customer confirmation of that.

In terms of the ramp up, we see the first half of the year being the ramp up period and expect to start to see benefit in the second half of 2018 both in the utilization of the HRPF as well as the manufacturing and sale of product through the joint venture.

We're still awaiting final regulatory clearance here, which we expect in the next few weeks and should be able to close during the first quarter. So it's really a second half 2018 impact..

And that's regulatory approval from the Chinese government?.

There's actually two. We have one of them. The Chinese government has approved and so it's just one other one that were awaiting it's more of – we've been through this before with this particular government. So it's just a matter of following the process, but we don't anticipate any problems with regulatory clearance..

Great, thanks for the help..

Thank you. And the next question comes from Timna Tanners with Bank of America Merrill Lynch..

Hi, good morning, everyone..

Good morning, Timna..

Good morning, Timna..

So fully aware that you are not a nickel company, but nickel have rallied second half of the year by about a third and so huge moves in nickel and historically nickel-based alloys and stainless have seen both the volume and margin benefit on that kind of move? Is that's something you can quantified at all for us? Can you give us any thoughts on, in a normalized nickel price, how should we think of the delta from some of the strong move in the second half of the year to normalize 2018 assumingly?.

So we're not going to specifically disclose the impact of the nickel change and it's really because of the quarterly fluctuations. There were some impacts on a quarter-over-quarter basis, but it's more about the moves in a short timeframe.

So there was some gradual movement in the back half of the year, but we did have some pretty aggressive moves up and down during the course of the year. So we're not going to be specific with respect to the impact on 2018..

Hi, Timna, I think that we’re aware obviously because we buy a lot of nickel. We are a nickel alloy company and we’re a stainless company that consumes nickel. So it's an important cost element. As you know, we've said for a long time, whatever the level is, the level is going to be, we really don't have any control over that, the market forces.

So our preference would be for more stability right, whatever the cost or price of nickel is.

So I think we use a lot of input from the standpoint of the producers, from the standpoint of the traders, from the standpoint of investment firms such as yourself and others that look at the underlying dynamics and fundamentals of the nickel market in terms of how we construct our plan.

I think that we view over a longer term standpoint, relative stability when you look at fundamentals of nickel in the $5.50 to $6.50 a pound range, I think would be. So we're not all that far away from that now. I think that typically speaking in the short-term, a rising LME price generates more favorable short-term results than a falling one does.

But in the great scheme of things, our strategy is really to try everything we can to mitigate that impact of the volatility in terms of how we buy, how we produce, how we turn our inventories.

And the better we are at that the more – and the joint venture with Tsingshan is really a very important component of that because for the first time ever on the stainless side, which is really the largest volume of nickel units that we buy. We have the ability to be less volatile on those particular commodity products than ever before, so..

Fully appreciate that.

Just trying to figure out since you did call it out as an item that contributed to strong FRP results in Q4, if we could get any handle on that?.

Yes. I actually think that – yes, I actually think that the impact on Q4 was more of the absence of the out-of-phase surcharge on chrome that we experienced in Q3. That was the real negative impact that we had.

If you look at the full-year of 2017 on the Flat Rolled side, I think the impact of the surcharge fluctuation was really minimal in the full-year..

Right..

We had the benefit in the early part of 2017 in a favorable side of chrome and then we had the real negative impact in Q3. I think Q4 was more normalized and I would not attribute a lot of the Q4 performance to favorable benefits on the raw material cost side..

Even on nickel, we had some hits early in the year and then some stability and price ups in the second half, but for the full-year it was….

And as evidence of that, I mean, the first quarter of 2018, some of the guidance we gave were being hit on the other side of that because in a short-term period we had a significant downward fluctuation in chrome that is going to negatively impact the first quarter of 2018 with out-of-phase surcharges.

So when I say we would prefer stability in a perfect world that's because there you're not impacted by these out-of-phase surcharge issues..

Okay. That's helpful. I wanted to just ask outright. I know some people were surprised by the share issuance in the quarter and you talked again about wanting to achieve investment grade.

Do you think you need to issue any more shares? Do you think given your current forecast that will not be necessary?.

Yes. We don't think that will be necessary. We substantially reduced our leverage through that transaction. And as we look forward with the building cash flow, we don't see any needs to issue any additional shares..

Okay. Great. And wondered if I could squeeze one more in.

I know you talked about NOLs extending for several years have no impact to lower taxes in the U.S., but can you help remind us what the NOL levels are just so we can run our numbers on that?.

We don't disclose the total amount of the NOLs that are outstanding, but we're covered through the end of the decade, basically, at what we believe our projections to be at. And look at the footnote in the disclosure in the 10-K..

Yes. It will be in the footnote in the 10-K, but I think it's safe to assume, when we look at our long range financial forecasts, we don't expect to be a significant taxpayer at the federal level through 2020..

Okay. All right. Thank you..

All right. Thanks. End of Q&A.

Thank you..

Okay. Yes, thank you very much for joining us on the call today. As always thank you for your continuing interest in ATI.

Scott?.

Thank you, Rich. And thank you all for the listeners who are joining us today. That concludes our fourth quarter and full-year 2017 conference call..

Thank you. As mentioned, the conference has now concluded. Thank you for attending today's presentation. You may now disconnect..