Brad Edwards - Vice President, Brainerd Communicators, Inc. Tony R. Thene - President, Chief Executive Officer & Director Damon J. Audia - Chief Financial Officer & Senior Vice President.

Bill Ledley - Cowen & Co. LLC Philip N. Gibbs - KeyBanc Capital Markets, Inc. Andrew Lane - Morningstar Research Stephen E. Levenson - Stifel, Nicolaus & Co., Inc. Chris Olin - Rosenblatt Securities, Inc..

Good day, ladies and gentlemen, and welcome to the Second Quarter 2016 Carpenter Technology Earnings Conference Call. At this time, all participants are in listen-only mode. Later we will conduct a question-and-answer session. And I would now like to turn the call over to Brad Edwards, Investor relations..

Thank you, operator. Good morning, everyone, and welcome to Carpenter's earnings conference call for the second quarter ended December 31, 2015. This call is also being broadcast over the Internet along with presentation slides. Please note, for those of you listening by phone, you may experience a time delay in slide movement.

Speakers on the call today are Tony Thene, President and Chief Executive Officer; and Damon Audia, 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 those forward-looking statements can be found in Carpenter's most recent SEC filings, including the company's June 30, 2015 10-K, Form 10-Q for the quarter ended September 30, 2015, and the exhibits attached to that filing.

Please also note that in the following discussion, unless otherwise noted, when management discusses sales or revenue, that reference excludes surcharge. When discussing operating income, that reference excludes pension, earnings, interest and deferrals or EID.

When referring to operating margin, that is based on sales excluding surcharges and operating income excluding pension EID. I will now turn the call over to Tony..

Thank you, Brad, and good morning to everyone on the call. Let's begin on slide four with an update on our safety results. For the second quarter of fiscal 2016, our Total Case Incident Rate, or TCIR, was 1.9. This is good improvement from a disappointing first quarter fiscal 2016 of 2.3 TCIR. Year-to-date fiscal 2016, we stand at a 2.1 TCIR.

We continue to put safety first and we're working hard to reduce this rate by placing emphasis on employee engagement and human performance factors. During the first half of fiscal 2016, we achieved a significant increase in the number and quality of safety observations across our facilities.

During the first half of fiscal year 2016, we have conducted over 46,000 safety audits and observations across our facilities, which is approximately five times as many as we conducted in the first half of last year.

Moving forward, we will continue to legalize safety training, education, and increased audits to drive a reduction in our incident rate. A safe, injury-free workforce is a more engaged and productive workforce and one that benefits everyone involved with Carpenter. Now turning to a summary of the second quarter on slide five.

It should be no surprise that the size and speed of the pullback in energy, whether it's rig counts, crude prices or capital spending has been dramatic and a challenge for our performance in the quarter. However, we continue to benefit from our market and product diversity.

During the quarter, our year-over-year performance across the Aerospace and Defense, Transportation and Medical end-use markets helped offset the challenges related to our oil and gas exposure.

Our overall results for the second quarter of fiscal 2016 reflect our efforts to effectively manage our business despite the challenges facing some of our end-use markets, primarily the Energy and the Industrial & Consumer end-use markets.

More specifically, as a result of our ongoing focus on high-end premium alloys, disciplined approach to effective cost management, and aggressive rollout of the new operating system across our organization, we were able to generate stable gross profit margins during the quarter despite a 3% sequential decline in total volume.

We remain focused on driving operational excellence across our business. During the quarter, our team conducted several rapid improvement events. Let me give you a brief example. We are reducing our work-in-process inventory by connecting work centers in our finishing area via flow path and scheduling rules.

We're eliminating waste, such as waiting and correction by improving index time in constrained work centers and reducing scrap heaps via standardized work. We're using data management to make problems visual on the shop floor and in the office, so team members can identify the root cause and solve them rapidly.

We have deployed hourly visual tracking of operations on the shop floor, which is enabling us to identify issues faster and closer to the root cause. And we're streamlining our quote-to-cash administrative processes by reducing time to process a quote via standardized work.

These are just a few examples of the many improvement activities we're conducting across our organization. In addition, we continue to focus on strengthening and deepening our relationships with our customers while positioning our operations for growth and increased cash flow generation when the environment begins to improve.

Over the last few months, I have met with key customers across several of our end-use markets. While they all have different opportunities and challenges, there is one common theme. Each customer tells me they want to do more with Carpenter.

They see the real value we can bring to their business by leveraging our capabilities and expertise to help them execute on their growth opportunities as well as solve their complex challenges. These types of conversations give me confidence that we're making further progress, demonstrating our value proposition to our customers.

To complete the comments on the second quarter results summary, we generated positive $2 million of free cash flow in the second quarter, a $67 million improvement compared to the second quarter of last year, and we used $50 million to repurchase shares during the quarter. Now, let's turn to slide six and discuss our end-use markets in more detail.

The second quarter was the fifth consecutive quarter of year-over-year growth in our Aerospace and Defense end-use market. We delivered sequential and year-over-year growth, driven by a strong performance in engine materials.

We also delivered solid year-over-year sales for materials used in structural applications, which benefited from increased volume as well as improved mix. We also saw strength in our Defense-related sales with continued spending on supported programs.

Similar to the past few quarters, we experienced soft demand for titanium fasteners related to adjustments in the supply chain. While it's early, we did see indications of an improvement in the month of January as order rates increased. In Aerospace engines, we remain excited about our participation on the new platforms.

However, we do expect that there could be some choppiness as engine manufacturers and suppliers begin the ramp-up of these new engine platforms. Overall, we're pleased with our performance in Aerospace market and we remain well-positioned.

Our long-term growth prospects are solid, given that our high performance materials are utilized for critical applications in multiple aircraft components.

Turning to Energy, as I noted, the Energy end-use market has experienced a rapid and significant downturn, driven by overcapacity, the slowdown in China, and slowing demand, which has continued to put considerable pressure on drilling and exploration activity.

During our fiscal second quarter, North American directional and horizontal rig count declined 58% year-over-year and 12% sequentially. As I noted on our last call, we're focused on extending our service offerings and building market share, particularly in our Amega West business.

We believe our value proposition in the Energy end-use market is strong and that we will benefit from these actions when the industry ultimately improves. In the interim, we have taken steps to right-size our operations and reduce our cost in order to help dampen the volume impacts on our overall margins.

Moving to Transportation, which continues to be one of the most promising end-use markets, given the growing need for our premium products, the strong year-over-year growth was driven by a richer product mix on slightly lower volume.

Although there was a sequential decline of 5%, the decline was relative to Q1, which was a record quarter for us in this market. Looking ahead, North American light vehicle production is forecasted to be near record levels. In addition, regulations on fuel efficiency and emissions favor our technology and products.

Lighter, more durable products will continue to play a major role in helping the OEMs meet the new standards, giving us a path to grow our market share on engine related and safety critical component applications.

To give you one data point on this, we have been working with a Tier 1 heavy-duty engine component manufacturer to utilize a nickel-based Aerospace alloy that provides superior resistance to high temperature and corrosive environments in their design.

The alloy will enable more design flexibility and allow components to run at a higher temperature, thus reducing or eliminating maintenance teardowns over the life of the engine. Overall, we're spending additional Energy and commitment to grow our Transportation sales and remain optimistic about its long-term growth prospects.

Sales to our Medical end-use market increased sequentially and were flat year-over-year. We continue to experience pricing pressure on our transactional business pertaining to titanium and stainless materials given the amount of capacity in the industry.

At the same time, demand has remained steady for our premium titanium, nickel and cobalt materials in the U.S. and we continue to explore opportunities to grow sales further for these higher-end applications.

As anticipated, sales in the Industrial and Consumer end-use market were impacted by continued economic headwinds and lower crude oil prices, which has limited demand for components and processing equipment users in Energy related sectors. Now, let me turn the call over to Damon to cover the financial review..

Thank you, Tony and good morning, everyone. Before I cover our financial performance for the second quarter, I wanted to express my excitement about joining the Carpenter team.

In my three months here, I've been fortunate to meet many members of our talented and passionate team through visits at several of our facilities and I am excited to work with them. As the CFO, I hope to continue to build upon the foundation Tony has laid in helping Carpenter evolve into a preferred solutions provider.

Now let's start on slide 8 with the income statement summary. Net sales in the quarter were $444 million, or $379 million excluding surcharge. Sales excluding surcharge were down just over 1% sequentially on approximately 3% lower volume.

Gross profit margin excluding the impacts of the surcharge was 17.5% in the quarter compared to 17.8% in the first quarter.

The relatively stable sequential performance reflects the positive impact of our cost cutting initiatives and improved operating efficiencies against the backdrop of the decline in volumes, which was principally in our Energy and Industrial & Consumer end-use markets.

We also benefited from an improvement in our product mix in the quarter as we focus on our premium product offerings coupled with the decreased volumes associated with our lower margin products and transactional business.

Absent our operating cost reductions and improved product mix to reduce volume would have had a much larger impact on our gross margin.

With the completion of our restructuring program, we've achieved our $30 million annual savings run rate goal, where we're continuing to review our operations with the goal of seeking further efficiencies as we navigate this challenging environment.

During the quarter, selling, general and administrative expenses were $44.5 million, which is consistent with our normal run rate, up approximately $1 million sequentially and $5 million year-over-year.

The year-over-year increase was more a factor of an atypical lower second quarter 2015 spend that did not include the consulting cost we have identified as a special item in the current quarter. Operating income in the quarter was $21.8 million.

Excluding pension EID and special items, operating income was $29.2 million or 7.7% of net sales excluding surcharge. Our second quarter effective tax rate was 24%, which mainly reflects the increased R&D tax credits associated with the recent legislative actions. A portion of these benefits recorded in the current year related to our 2015 tax year.

As such, the benefit related to the 2015 tax year, which were about $800,000 were recorded as a discrete tax item in the quarter and called out as a special item. Excluding the impact of the discrete item, our tax rate would have been 29% for the second quarter. We now expect our tax rate to be in the range of 31% to 32% for fiscal year 2016.

Net income for the quarter was $11.5 million, or $0.23 per share. Adjusted for the special item related to our consulting cost and tax items, earnings per share would have been $0.24. Details of these special items are identified on page 18 in the appendix of the slide presentation. Slide 9 provides a review of our free cash flow and liquidity.

In the second quarter, we generated $2 million of free cash flow compared with the use of $66 million in the second quarter of 2015. The improvement was driven by lower capital expenditures as the prior year quarter had expenditures related to our Athens facility.

This year, we also saw lower sequential inventory build of $2 million versus the $31 million last year.

Given the operating environment coupled with our contractual minimum raw material purchase agreements, we expect inventory to decline in the second half of our fiscal year and to end fiscal year 2016 roughly in line with fiscal 2015 year end models.

Although this is a change from our previous expectation of a $50 million reduction in inventory year-over-year, we continue to be focused on driving continuous improvement across Carpenter, including in our manufacturing operations.

Even with overall inventory levels being flat year-over-year, we expect our work-in process inventory levels to decline as operational excellence initiatives allow us to improve efficiencies and flow through our facilities. We believe these improvements should allow us to lay the groundwork for further benefit when volume levels return.

Capital expenditures were $20 million in the quarter and $50 million year-to-date. Moving forward, we will continue to manage capital expenditures closely to balance the need for maintenance and infrastructure capital against investments to capitalize on growth opportunities.

Given the operating environment and our continued focus on cash flow, we're managing our capital expenditures for fiscal year 2016 to approximately $100 million versus the $120 million we had previously expected.

We continue to maintain solid liquidity with $474 million available at the end of the quarter, which includes $21 million of cash and $453 million of available borrowings under our credit facility with no major near term debt maturities.

We will continue to focus on cash flow generation and being prudent with its allocation as we're focused on maintaining our investment grade ratings. Moving to slide 10, which is an update on our share repurchase program that was authorized in October of 2014.

Through December 31, we have spent about $221 million to purchase 5.7 million shares since inception. During the second quarter, we used $50 million and purchased approximately 1.5 million shares. We remain focused on returning capital to shareholders in an effective way. As we have said previously, our share repurchase activity will not be linear.

We will continue to be opportunistic in our approach as we balance future share repurchases with general business needs, market conditions, and our commitment to retaining investment grade credit ratings. With that, let me turn the call back to Tony..

Thank you, Damon. Let's turn to slide 12 to cover the reporting segments starting with SAO. As I noted at the beginning of the call, we experienced a significant volume drop in our Energy and Industrial & Consumer end-use markets during the second quarter, both year-over-year and sequentially.

This pullback accounted for the majority of the sequential and year-over-year sales decrease in our SAO segment.

The positive impact of the restructuring program we initiated almost a year ago and our deployment of a disciplined operating system allowed us to deliver the 13.9% operating income margin despite the reduced volume, both year-over-year and sequentially.

We are also benefiting from our new commercial leadership and our approach to actively expand our customer base in each end-use market by identifying opportunities while our products will solve customer challenges. This approach has already delivered results, including the identification of more than 100 potential new customers.

As we look ahead to the third quarter, we project overall volumes to be up modestly and sales mix to be similar to the first half due to the continued weakness in oil and gas and the overall macroeconomic conditions. Now let's turn to slide 13 and the PEP segment overview.

As anticipated, our PEP segment continued to feel the brunt of the decline in the oil and gas market during the quarter, as demand for drilling equipment continued to weaken. Of the $15.5 million year-over-year operating income decline, the vast majority is due to the downturn in the oil and gas business.

In addition, during the quarter, we continued to experience lower demand for titanium products from our Aerospace customers. As I noted earlier, while it's still early, we did see increased orders in the month of January.

For the third quarter of fiscal year 2016, we expect operating income to be flat sequentially as increased Aerospace demand for our titanium products is offset by continued lower demand in our oil and gas businesses.

As I noted earlier in the call, we will continue to manage our cost structure and navigate the oil and gas downturn by focusing on providing a high quality service to our customers with the goal of strengthening our relationships and gaining market share so that we are well positioned for the future. Moving to slide 14.

In assessing the current environment and our growth potential, it's important to consider the markets we play in. As we previously highlighted, Carpenter is a leader in the development and production of high-value specialty alloys used in demanding applications. We serve highly attractive end-use markets with strong long-term growth outlooks.

Our aim is to further strengthen and capitalize on our position as a preferred solutions provider of mission-critical materials to broad range of strategic manufacturers.

Looking to the future, we are executing on our plan to better leverage our technology and resources to deepen our presence and expand our revenue base across several attractive end-use markets.

We see a number of growth opportunities in front of us, including further growth in Aerospace where our revenue per engine is increasing on next generation engine platforms versus the engines that they are replacing; increased penetration of the Transportation market, including sub-segments such as heavy duty truck, rail and marine, where we believe our offerings allow OEMs to address a rapidly changing environment; and enhance product capabilities, including investment in new technologies such as superalloy and titanium powder.

Turning to slide 15 where I'd like to give an update on Athens and our powder business. Let's start with our Athens facility. We have achieved 89% of the planned non-VAP product approvals for various end-use market applications.

Within Aerospace, this includes alloys for fasteners, standard grade engine rings and structural nickel alloys and stainless steels for airframe applications. This also includes premium alloy steels for various Aerospace and Defense applications.

Within oil and gas, the facility is also qualified to make nonmagnetic drill collars and within Transportation, materials used for engine components. As I noted last quarter, we have been making progress toward obtaining site qualification for our nickel-based superalloy materials used in oil and gas completion applications.

Today, we have achieved approximately 75% of those qualifications. Of course, the most important are the VAP Aerospace product qualifications. Achieving such qualifications remains a lengthy and complex process. We continue to make good progress finalizing our internal processes and developing the data to support the customer approvals.

Our projected timeline to completion remains the same as it has for the last year and that is by the end of calendar year 2017. We remain extremely focused on these approvals as a critical priority of our business.

It is important to remember that although the facility is currently running at low utilization levels, our financial results reflect the full operational cost of this facility.

Therefore, as the Aerospace market grows and when the Energy market shows even modest improvement, we believe the operating margin benefit to the bottom line will be meaningful. Now let's talk about Carpenter Powder Products and an exciting growth business for us.

We are one of the world's most diverse producers of spherical gas atomized specialty alloys from tool steels and stainless steels to nickel and cobalt based superalloys.

Carpenter Powder Products leads the way as a powder supplier for such areas as additive manufacturing, metal injection molding, coatings and in the future, a powder supplier for consolidated parts produced by hot isostatic pressing.

For example, Carpenter is associated with more than 10 academic, government and industrial partnerships aimed at providing solutions for the additive manufacturing market.

Support from a strong research and development team has allowed our products to be mainstays, used in cell phones, subsea oil and gas systems, automotive fuel systems and aircraft engines. As previously communicated, we are moving forward with plans to build a titanium powder operation adjacent to our superalloy powder facility in Athens, Alabama.

This titanium powder product offering will increase our reach into Aerospace and Medical markets and offer growth opportunities in Transportation. We will be able to supply a complete sales offering to additive manufacturing OEMs, service providers and machine suppliers.

We are excited about the powder products opportunity and believe it represents a solid growth potential across our end-use markets. Let's turn to slide 16 and my closing comments.

Looking ahead, we are actively managing our business to maximize our results as we navigate some challenging end markets, while continuing to invest in new technologies to position our company for growth over the longer term.

In the second half of fiscal 2016, we currently expect overall volume to be up modestly compared to the first half, due primarily to further weakening of the oil and gas market and its impact on our Energy as well as Industrial & Consumer end-use markets. We have demonstrated the positive impact of our cost reduction program and new operating model.

These efforts have allowed us to dampen the overall impact associated with the volume decline driven by oil and gas. We remain committed to operating in a highly disciplined manner and will seek cost reductions where appropriate, while also taking steps to continually optimize our product mix.

We will also continue our efforts to improve working capital efficiency and maintain capital spending discipline and we will continue to use our positive cash flows as we feel appropriate to execute against our share repurchase program while prudently balancing it with our focus on maintaining our liquidity and investment grade credit ratings.

We believe the combination of our product focus, which is aimed at the high end of the market and the steps we are taking to build efficiencies across our organization are allowing us to weather the ongoing storm.

Further, we believe the actions we have taken to invest in new technologies and strengthen our customer relationships will position us very well as the operating environment begins to improve and volumes recover.

I am proud of the Carpenter team and their willingness to confront the challenging market conditions and embrace the necessary changes that will solidify our position as the preferred solutions provider. Thank you for your attention and I will turn it back to the operator to open the line up for your questions..

Our first question comes from Gautam Khanna from Cowen and Company..

Yes. Thank you. This is Bill Ledley on for Gautam as he is at our Aerospace Conference today. I had a question on the comment of H2 sequential growth. Normally you guys have a seasonal pickup in H2. However, you guys are only guiding modestly.

Just wondering if you could comment on that and if that is meant to imply that the EPS won't rise much on a sequential basis and then I have a follow-up?.

Yeah. Usually if you look at first half versus second half, we're probably in that range of 45%, 46% in the first half to 54%, 55% in the second half. I don't think you'll see a much different, maybe 2 or 3 percentage points different and it's going to be primarily driven by oil and gas on the Industrial side..

Okay. Thanks.

And then on the share repurchase, do you think you will complete the full authorization by the time it expires just on the comment that they can be discontinued? And then also on the various aero end markets, can you just talk about fastener demand and how long you think it takes for the supply chain adjustments to finish up? Thank you very much..

Okay. Thank you. I'll take the second part of the question, and then I'll -- the share repurchase, I'll give it to Damon. We believe as I've heard several others say that on the titanium fastener demand that that is a supply chain adjustment that's cycling its way through. We've seen that over the last couple of quarters.

As I've mentioned, we did see a pickup in orders in January. Now, that's fairly early, but we see ourselves coming out of that right now..

And in regard to the share repurchase program, as we've said, it's up to $500 million. I think through December we have done $221 million, so just a little bit less than half. We will be prudent depending on the outlook for the second half of the year here as you heard us talk about our outlook for the volumes. So, we will continue to be opportunistic.

We have said it's not linear, so again, we may be in the market, but to the extent, we're not committing to doing the full $500 million anything beyond what we've done here through the end of the second quarter..

Okay, great. Thanks so much. I'll jump back in..

Next question comes from Phil Gibbs from KeyBanc Capital Markets..

Morning..

Good morning, Phil..

Good morning..

Hey, Tony, I just had a question on the guidance for the second half pointing to modest improvement.

Typically you have a nice pickup in 3Q if anything for seasonality and I wouldn't think ex-seasonality the outlook for Energy here, given the fact that it has already been down in some of the Industrial applications, probably should have changed all that much.

So, is there anything really from a seasonality perspective that's weaker than normal than what you're seeing? And any color you could provide us on your Aerospace backlog and your visibility there into the second half?.

It really isn't a seasonality issue for us, Phil, and it is driven by oil and gas. If you look at first half versus second half, we still see some improvements in Transportation.

We still see a consistent and strong flow for Aerospace, but we are seeing, especially in our SAO business, some further deterioration in the oil and gas as evidenced by some of the announcements that you've seen here in the news lately.

In terms of the backlog, if you look year-over-year, I would say it is probably from a tons basis about down 25%, 30% and it is predominantly driven by oil and gas and Industrial, and that Industrial piece is what's directly connected with the Energy markets..

Okay. That's helpful.

And on the CapEx piece, is there any deferral in spending that you're doing there for some of your powder projects because maintenance CapEx is basically that $100 million level, anything from a growth project timing standpoint that's pushed out of it or have you been able to reduce the maintenance level of spend?.

Yeah. I would say roughly that if we moved down to $100 million, you're looking at somewhere around 70%, 75% of that is on a sustaining level. So we're trying to be as efficient as possible there, not making any inappropriate decisions that would hurt us long term.

We're not pushing out any spending on the powder projects, but there are some other projects as we look at our volumes that we adjust and that's how we are able to pull the guidance down from the $120 million to roughly $100 million..

Okay.

And then lastly here on the Aerospace qualification process at Athens, can you elaborate on that a little bit in terms of what steps that we need to see? What we're looking for in terms of milestones and when we should expect some of the volume to come off that facility and be in the commercial spectrum just in terms of what we should be looking for here? Thanks..

All right. Yeah, Phil, thank you. We're running all those products in areas that I mentioned just recently. We're running those through Athens today, now albeit the market is depressed, especially on the Energy side. On the Aerospace side and the VAP, obviously, that's the most important from a volume standpoint and we've been very consistent.

Even I think the first time we started mentioning targets for VAP Aerospace qualifications was back in December of calendar year 2014 and we've always said that that would come by the end of calendar year 2017. The team is working hard at that. We're focused really now on validating our internal process and achieving those technical targets.

And once we can do that, we think we are very close now then we will continue to share data with the OEMs and move the process along..

We'll move on to our next question coming from Andrew Lane from Morningstar..

Hi. Good morning..

Hello, Andrew.

How are you?.

Very well. Thanks.

Could you comment on what the product mix of your Aerospace and Defense backlog looks like? Is it pretty consistent with the volume mix delivered this quarter or has it evolved?.

I would say that going forward, as we look at our backlog, it's pretty similar. I mean, there are some changes, obviously, and we had, in certain sub-segments, a bit richer mix than we've had in the past and you might see that evidenced in the backlog, but I wouldn't say that you've seen significant shifts there..

Okay, great.

And then could you provide some additional color as to your timeline for the construction of the new titanium powder operation and then when will the majority of the associated CapEx be spent?.

We'll spend the majority of that CapEx in fiscal year 2017. We won't spend a whole lot of it quite frankly this year, we're going through the engineering studies now and doing the request for bids for the equipment. So you'll see the majority of that next fiscal year.

And then as you look towards the end of fiscal year 2017, early 2018 is when we bring that online..

Okay. Thank you very much..

Next question comes from Steve Levenson from Stifel..

Thank you. Good morning, everybody..

Good morning, Steve..

Good morning..

With Boeing and Airbus both announcing additional rate increases for single-aisle planes going into 2019, can you comment on your current spending on the powder capacity? Will that be sufficient for everything you need then or do you think you have to plan now for some additional spending?.

Well, it's early days right now. I don't think so on the powder side, right, which we have to, obviously, go through the qualifications on that. But I don't see – I think we'll wait to get this one up and running before we start looking at the next tranche. We do have the ability there to add on incremental capacity, if needed..

Okey doke. Thanks.

And then in terms of figures for a reversal in the PEP volumes, is there a particular oil price or demand figure you are looking for? Is there something you can tell us about what to watch for and do you think that your reversal will lead or lag improvement in the Energy markets?.

Right. I think whenever the recovery comes that it's going to be a very abrupt recovery, right, and that's why we're trying to maintain our relationships not only with our customers but in those locations, right, and make sure we have a presence there. Because, as I say, when the recovery comes, we think it will be quick.

I don't know if there is a certain oil price that's going to require that type of uptick. As you talk to the service providers now, calendar year 2016, at best, capital spending is going to be flat, if not down slightly. So I think you're probably looking at 2017 to see any type of improvement..

Got it. Thank you very much..

Next question comes from Chris Olin from Rosenblatt Securities..

Hi. Thanks.

Could you help us with modeling the positive or the potential upside for Aerospace, maybe what jets or engine programs you have greater leverage to, have you ever kind of looked at a revenue content per aircraft type of number that you would be willing to share?.

Well, I would say this that we have content on all of the new platforms. The content for us on all of those is greater than it is today. So as we see the new engine platforms come online, we'll see greater content and an increased revenue..

Does it matter between Airbus or Boeing in terms of overall build rates?.

I hate to call that out. I mean, we have – I'll say this, we have content on all of them. Obviously, there's some differences there, but we have strong relationships with both of those manufacturers..

Okay.

Just lastly to – anything change on the aftermarket for engine or some of the Aerospace programs, have you seen that pickup at all?.

We've not really seen a change, Chris. I think maybe you'd asked that question last quarter or somebody did. And we haven't seen any real drastic changes there quarter-over-quarter..

Okay. Thanks..

Next question comes from Gautam Khanna from Cowen and Company..

Yes. Thanks. Just had a couple of follow-ups.

One, you mentioned that you have reached the $30 million in run rate saving, I was just wondering if you had plans for more restructuring and where those savings can go? And then also on the Energy revenue, is the $24 million in the quarter sort of a bottom, or is it possible to get sequentially worse in Q3 and kind of continue on at that level? Thanks..

On the restructuring standpoint, I believe we were very successful there. I think we were out in front of the downturn and that's been a big benefit for us. I don't have a program that we are working currently on, but we are certainly – we certainly review that from time to time.

And if that's something we have to do based on the markets, we will do that. In terms of Energy, as we look to the third quarter, I think, as we said, we believe it could be slightly lower and hoping that that's the bottom then..

Thank you very much..

Thanks..

I would now like to turn the call back over to Brad Edwards for closing remarks..

Thank you, operator. Thanks, everyone, for joining the conference call today. Have a great day..

Ladies and gentlemen, again, thank you so much for your participation in today's conference. This concludes the presentation. And you may now disconnect. Have a great day..