ATI Inc (ATI) 2007 Q1 法說會逐字稿

Good day, ladies and gentlemen. Welcome to the first quarter 2007 Allegheny Technologies earnings conference call. My name is Eric, and I'm your coordinator for today. At this time, all participants are in a listen-only mode. We will facilitate a question-and-answer session towards the end of the conference. (OPERATOR INSTRUCTIONS) As a reminder, the conference is being recorded for replay purposes. I would now like to turn our presentation over to Mr. Dan Greenfield, Director of Investor Relations and Corporate Communications. Please proceed, sir.

Thank you, Eric. Good afternoon, and welcome to Allegheny Technologies earnings conference call for the first quarter 2007. The conference call is being broadcast live on our Website at alleghenytechnologies.com and on CCBN.com. Members of the media have been invited to listen to this call. Participating in the conference call today are Pat Hassey, Chairman, President and Chief Executive Officer, and Rich Harshman, Executive Vice President, finance and Chief Financial Officer. After some initial comments, we will ask for questions. Please note that our forward-looking statements made this afternoon are subject to various assumptions and caveats as noted in the earnings release. Actual results may differ materially. Here is Pat Hassey.

Thanks, Dan, and thanks, everyone, for joining us today. We're off to a good start in 2007 with another quarter of double-digit sales and earnings growth. The first quarter sales increased 32% compared to the first quarter of 2006, and net income increased 86% to nearly $198 million or $1.92 per share. More importantly, ATI achieved record segment operating profit of nearly 25% of sales. I'm pleased to report that we are continuing to deliver on our goal to significantly grow the profitability of ATI. This is part of what we mean by building the world's best specialty metals company and it results from our ongoing focus on bringing our strategic capital investments online as planned, improving our product mix, becoming more global, reducing costs by improving productivity, and embracing the principles of lean manufacturing. Our employees connect this systemic improvement to the ATI business system. We remained focused on reducing costs, especially in the first quarter with gross cost reductions totaling nearly $28 million. That puts us on track to at least meet our full-year 2007 gross cost reduction goal of $100 million. Our financial metrics were solid. Return on capital employed was over 36%. Return on stockholders' equity, more than 51%. And net debt to total capitalization improved to 1.4%. Cash on hand reached $518 million.

Cash flow from operations during the first quarter was nearly $75 million, after we invested approximately $164 million additional in managed working capital, and we also invested nearly $58 million in new capital. We plan to spend $450 to $500 million in 2007 for capital projects that support our growth objectives, and/or reduce our costs. These investments include new titanium sponge capacity, new titanium and nickel-based alloy melt capacity, and new plate capacity. These capital projects are all self-funded. ATI's strategic capital projects remain on track and are expected to contribute significant growth with very good returns beginning in the second half of 2007 and beyond.

Some details. The tenth titanium sponge reduction furnace at our Albany, Oregon facility began production in mid April. This brings our current annual titanium sponge production capacity to approximately 13 million pounds. We are continuing to expand Albany in 2007, and now expect the facility to be capable of producing 22 million pounds annually of aerospace quality titanium sponge by the first half of 2008. We remain on schedule to begin production of premium grade titanium sponge at our Rowley, Utah facility by the end of the 2008. Grading and construction at the Utah site has begun. This facility is planned to give us an additional 24 million pounds of annual titanium sponge production capacity by mid-2009. Our total annual titanium sponge capacity after these projects are built is now projected to be 46 million pounds. In addition, the Utah facility will have the infrastructure in place to further expand by approximately 18 million pounds to a total of 42 million pounds annually if needed. So we have the potential to grow ATI's total titanium sponge production capacity to 64 million pounds annually, if we decide to further expand the Utah facility.

On the titanium melt side, two new vacuum arc furnaces are online. Our third plasma arc melt furnace is in start up. We expect PAM Three to be qualified and in commercial production in the third quarter of this year. On the melt products finishing side, the expansion of our titanium and specialty plate facility located in Washington, Pennsylvania, is progressing on schedule. The new building is taking shape, the completion of this project is expected in the second quarter 2008.

As you can see, we continue to build on a foundation for further profitable growth. In 2006, ATI shipped 31 million pounds of titanium mill products. This year, we expect titanium alloy shipments under long-term agreements to continue to increase over the course of the year. We are on track to achieve a growth of 25% in titanium mill product shipments in 2007 as compared to 2006.

Turning to our segment performance, in our High Performance Metals segment, most end markets were strong in the first quarter. Shipments of our titanium products grew by 11%, compared to the first quarter of 2006, but were down 7% compared to the robust fourth quarter of last year. However, first quarter 2007 shipments of our titanium mill products to the air frame customers far exceeded our original expectations while shipments of standard grade titanium bar products were lower in the first quarter, due to inventory corrections by distributors, especially for medical applications.

Comparing the first quarter 2007 to the first quarter of 2006, shipments of our nickel-based and specialty alloys declined 6%, due primarily to product mix and inventory management action at distributors. And shipments of our exotic alloys declined 16% due primarily to product mix in timing of deliveries. In short, we missed some shipments. We expect markets for our High Performance Metal segment to remain strong. Commercial aircraft build rates are planned to be higher in 2008 than in 2007. As a reminder, our titanium mill product shipments lead the build rate by approximately one year. Large new aircraft, such as Boeing's 777 and the new 787 and the Airbus 380 use considerably more titanium than the older models. We have not yet seen the impact of the coming ramp-up of the newest models, such as the Boeing 787 and Airbus 380. As an important point, our schedules begin to reflect increasing demand from these new aircraft beginning in the second half of 2007.

In addition, some of our jet engine customers discussed the strength of a spare parts business during their recent earnings conference calls. These jet engine customers have said they expect their spare parts demand to grow by over 30% this year. Of course, this is very good for ATI, as it results in increasing demand for our premium titanium alloys and our nickel-based superalloys.

Factors driving jet engine spare parts demand include, first, the global fleet is the largest it has ever been now with over 18,000 aircraft. The fleet is active. Revenue passenger miles are growing at over 5% per year. Planes are full with record load factors. Legacy airlines are utilizing their fleet to the fullest extent, currently bringing on new capacity slowly to control costs. So more engines from Boeing and Airbus build rates, higher utilization rates, and a growing global fleet, lead to greater demand for our premium alloys for new jet engines, as well as increasing demand for jet engine spare parts. With the improving aircraft build rates and greater demand for jet engine spare parts, we expect to see shipments, revenue and margin dollars grow in our titanium and nickel-based alloy businesses throughout the remainder of 2007 and forward.

In our exotic alloys business, demand is very strong. Schedules are extended and our order book is at an all-time high. The chemical process industry and aerospace and defense markets are strong. A new dynamic in the market, demand from nuclear electrical energy has picked up sooner and faster than expected. We are seeing considerable demand for our Zirconium and Hafnium alloys for nuclear energy refueling and refurbishment projects. We expect demand to get stronger in the future as new nuclear energy construction begins. Therefore, we are putting a new emphasis on operational execution along with planned capital expansion to increase available capacity for our Zirconium and Hafnium products.

Now turning to our Flat-Rolled Products segment. Our strategy of redirecting the business to high value and differentiated specialty metals is paying off. First quarter 2007 operating profit was a record $160 million, and a record 20.4% of sales. This was accomplished with shipments of our commodity stainless steel sheet at much lower levels as a result of inventory management actions at many of our U.S. service center customers. Key growth markets in our flat rolled products remain strong. Chemical process industry, oil and gas, is the segment's largest market and accounted for 28% of the segment's revenue in the first quarter. We are experiencing very good growth in the oil and gas market, particularly for our duplex and lean duplex alloys for offshore applications. In addition, demand from ethanol projects remains strong. In the electrical energy market, which was 13% of Flat-Rolled Products in the first quarter, demand for our grain oriented silicon electrical steel for the electrical transformer market continues to be very strong. Also, demand for specialty plate and specialty sheet products for flute gas desulfurization pollution control system remains strong. Another key growth market for our Flat-Rolled Products segment is aerospace and defense which was 6% of first quarter sales. Nickel-based alloy and titanium demand remain strong and continues to grow in flat-rolled applications.

Turning to the commodity stainless sheet, we believe our service center customers have made noticeable gains in reducing their levels of inventory. Most customers report that end user demand is strong, yet the service centers are ordering only what is needed due to record high raw material surcharges, primarily for nickel. Our customers experienced dramatically higher nickel surcharges during the first quarter of 2007. As a result, we continue to assist customers in switching to lower nickel-bearing alloys, a process that has changed our product mix and continues to gain momentum. First quarter shipments of AL201 high performance alloy, our substitute for the most common stainless steel grade, type 304, reached a significant level of our cold-rolled sheet shipments. Shipments of 201 high performance nearly doubled compared to the first quarter of 2006. Customers particularly in the food equipment and appliance market have switched and more customers in this market and other markets are switching every week.

While customers continue to switch to 201 high performance in the first quarter, the surcharge for type 304 will increase by more than 30% from the month of March to the month of June. So the value proposition of switching to lower nickel-bearing alloys continues to get better. In addition to our -- in addition, our AL2003 lean duplex alloy is rapidly being accepted as a substitute for type 316, the most common stainless alloy used in more corrosive environments. Type 316 contains 10% nickel, while AL2003 contains 3% nickel. Growth in the use of lean duplex alloys are being driven by the oil and gas market and in the construction market mainly for architectural applications. Another one of our duplex alloys, grade 2205, which contains approximately 5% nickel, grew significantly in the first quarter and the order backlog is strong for the second quarter. Growth is being driven by the oil and gas market and electrical energy markets. We have been offering lower nickel-bearing alloys to customers for many years. Historically, when the customer switches, that customer rarely switches back, so AL201 high performance alloys are gaining long-term and sustained market penetration.

Now moving to our Engineered Products segment. Most markets, again, remain strong for the first quarter. Operating performance in our Tungsten products segment was not where we expected it to be, primarily because of our APT raw material plant did not produce enough product to meet our needs. The ramp-up of our ATP plant continues, and we now project to be self-sufficient for this product by the end of the second quarter. Meanwhile our cutting tools business continues to pursue exciting new opportunities. Through technical knowledge, in machining difficult-to-machine materials, such as titanium, we're delivering new breakthrough technology in tool life and machining productivity. The forged products business saw strong demand from the construction and mining, and oil and gas markets in the first quarter. The wind energy market is driving further growth in our castings business. Demand remains robust for our titanium precision metal processing conversion services.

So, in summary, here are my key take aways for the quarter. Our key growth markets remain strong, and we are well-positioned to benefit from these strong markets. Our strategic capital projects are providing opportunities for further profitable growth. Titanium alloy shipments under long-term agreements are expected to increase from the first quarter 2000 levels over the course of the year. ATI's total titanium product shipments in the first quarter 2007 were 8.6 million pounds, compared to 7.4 million pounds in the first quarter 2006. That's a 16% growth before the full ramp-up in commercial aerospace begins. This includes shipments in both high performance and flat-rolled product segments.

We expect revenue and operating profit growth in the total High Performance Metals segment throughout the remainder of 2007. Sustained good performance is also expected from the Flat-Rolled Products business where strategic renewal is demonstrating significant results. Finally, improving performance is expected from Engineered Products businesses. I think with that overall summary, we'll open the -- we'll now open the meeting for questions. Operator, may we have the first question?

(OPERATOR INSTRUCTIONS) Your first question comes from the line of John Hill with Citigroup. Please proceed.

Thank you and congratulations on the strong result and the clear message. Just wondering if you could fill us in a little bit on the titanium projects. It looks like you've kind of inched up some of the production targets at Albany to 13 million from 12, also with the Oregon facility, I'm sorry, the Utah facility going to 22 million pounds instead of 20 and moved up by six months as well. What's changed?

John, the issues that we have there is that we're actually experiencing better performance in the initial 10 furnaces. And so we're getting more production and more output from the furnaces that we put in place. We're getting more turns, we're firing them more often and, therefore, the incremental improvements we're now announcing. So the Oregon facility we're going to add the fifth phase of production to that, beginning construction of that in the second half of this year, expect that to be operational before the first half of next year. That takes us up to the 20 million previously reported and there's now 10% more than that based on the performance that we're seeing at the plant.

Great.

On the Utah side, we would expect then that we can factor that same kind of performance on the furnaces, actually more improved furnaces that we're putting into that plant with the kind of processes and procedures that we're using in the Oregon plant. And that ups the capacity of that plant.

Great answer. Great answer. And then to what extent do you think that the commodity stainless destocking processes is complete and does the step-down in volumes and in the first quarter sequentially reflect another attempt to sacrifice volume to get pricing such as we saw a couple years ago?

Let me start with this. The really good news is that we made a lot of money and the other good news is it didn't take commodity stainless to do it. Let me repeat that, we made a lot of money and it didn't take commodity stainless to do it. We had considerable downturn in stainless cold-rolled sheet business. I think we're either at the bottom, John, or we're near, near the bottom. We're actually seeing improved bookings as we now move into the second quarter. I think if anything, it's going to help us. So, what's happened in the marketplace is with the price of nickel passing the $20 mark, we've had a lot of switching to 201.

We've had people that are using ready-coil inventories to replenish their stocks and taking their own inventory levels down to what I would call, very on the edge operating levels to avoid the risk of nickel when it hits $23 a pound. So, we are offering short lead times with the flexibility of our two melt shops. We're offering ready-coil to that market. The pricing for the conversion at $0.75, $0.78, is not the issue whatsoever when the surcharge is $2. So the issue is, do you have the product when it's needed, will you have it in ready-coil so I don't have to stock it, and do you have the ability to give me a short lead time? The answer from Allegheny is yes, yes and yes. So we see that business near the bottom or at the bottom and improving.

Great. Thank you and congratulations.

Thanks

Your next question comes from the line of Dave Martin with Deutsche Banc. Please proceed.

Thank you. I had a couple questions. First of all, on Rowley, Utah, I think you're pointing to facility start up sometime in late 2008. Can you communicate how confident you are that you can get that up and running by late next year?

We haven't missed any of our targets yet on the start ups, we've been a little bit ahead, we've also been even a little bit more conservative, of course, than the dates we would tell you that we're going to start these things. With that kind of an explanation, we have a high confidence level that we will be firing off the furnaces necessary to begin production in late 2008, meaning the fourth quarter, and that we will be ramping that up to the full capacity of the 24 million-pound rate, by the end of the second quarter of 2009.

Okay. I know the project was contingent on getting permits and some incentives from the state. Have those been received?

Yes. All those things are in place. In fact, we're going to be out there in the near future with the governor in a ground-breaking and the celebration on the plant.

Also has the magnesium and tickle supply been locked up for the operation?

Dave, I think that you know me well enough to know that I wouldn't even have started the construction of the plant without a locked in tickle supply exclusively, and the magnesium supply exclusively for the facility.

Okay. And then secondly on the stainless business, there's been a lot of talk in the industry about the U.S. being exporters of metal. Have you been able to take advantage of the export market in your commodity stainless business?

Absolutely. We are exporters of stainless steel cold-rolled sheet today and it's a business that's growing for us. We're introducing 201 into Europe with a high acceptance level. We're introducing 300 series into Europe and we're also making sure that the prices that we're getting are competitive, as the prices in Europe are still higher than they are in the U.S. So when you tap that particular situation, that the prices are higher and the U.S. dollar is at a one-third lesser value than the euro, we're quite attractive in commodity products in Europe.

And then the last thing is just on the 200 series, I saw some comments by a service center executive in the last day or two in which they were suggesting maybe the acceptance of the 200 series product was somewhat limited. Can you respond?

We've called the service center person in charge of light coils and asked them, they better check their inventories and check their customer base because they are selling it.

Yes, okay. Thank you.

Your next question comes from the line of Chen Kuni with Bank of America Securities. Please proceed.

Hi, good afternoon, it's Kuni Chen.

Hi, Kuni.

Just to start off, on some of the substitution that you're seeing in 200 series stainless alloys, what percent of your cold-rolled volumes would you say at this point are low nickel alloys, and where do you see the penetration potential going?

I would think that we're right now on the commodity side of the business, we're at least at 30%. And it's doing nothing but gaining traction and growing. So like I said in our opening statements, we more than doubled our shipments in the first quarter, and I would expect that to be the minimum result this year. We're probably going to more than double our shipments in 2007 versus 2006.

So 30% penetration so far on the commodity side?

From the products that we are selling, yes.

Okay. And just a question on titanium. You know, you seem to indicate that some of the destocking going on is in the medical and oil and gas markets, since that's only about 20% of your volume, it looks like maybe volumes have dropped off pretty sharply in those end markets. Just hoping you could clarify some of the end market shifts sequentially in titanium.

I think when we look at the titanium business, the difference between the fourth quarter and -- of 2006 and the first quarter of 2007 was 470,000 pounds down. 470,000 pounds, I have a couple explanations. One, is the fact that we shipped less bar basically. And when we look at inventories and some of the buying that was going on in the fourth quarter of 2006 and perhaps even pulling some production into 2006 from 2007 first quarter schedules, I would look at that and say let's look at the fourth quarter and the first quarter -- fourth quarter 2006 and the first quarter 2007, average those and you're going to get something in the range of about 7.8 million pounds of shipments average for the two quarters and compare that to the two previous quarters and you see a very nice growth rate.

What's happened is we have people that were worried about the aerospace side of the market pulling material that I think preordered or ordered heavily in the third and fourth quarters of 2006 and those inventories, through distribution and in the medical side, especially in the long links business, were being adjusted in the first quarter. I think we also actually experienced some turning of the inventory on hand and some of the engine makers that might have been bought for the 380 program earlier on, into different programs and adjusting their inventories to meet the new 380 engine delivery rates. So what I see in this is maybe a little lull in the first quarter, but if you add the six month period and look at the previous six months or the previous year-ago six months, nothing's really changed. We're still looking for 25% growth in our titanium shipments this year, and increasing quarter by quarter throughout the year as the air frame really starts to ramp.

Okay. And one final question. Despite higher capital spending plans for the year, you are still generating cash. What other opportunities do you see to invest in the business at this point? Maybe you could talk about that from a high level and also discuss how acquisitions may fit into the equation.

Well, we've got our plate is pretty full on the self-funded projects at the present time, but basically we have continued to invest in working capital. We have our capital plans. We think that we're going to see this, the spending level this year and it continues to ramp. So we're always on the look out for what we would consider strategic and cost-effective and accretive acquisitions. That isn't off the table for this company but we feel quite comfortable with our current cash position and the direction that we're going.

Okay, thanks a lot. Good luck.

Thank you.

Your next question comes from the line of Michael Gambardella with JPMorgan. Please proceed.

Hi, Pat, good afternoon .

Hi, Mike

I have a question on the remarkable results in flat-rolled on the quarter. You had volumes down on the commodity side about 26% sequentially going into 1Q, and profits on the whole segment up 50% from 4Q. It seems like the jump in profitability is more than just getting, good pricing on electrical steels on the high value-added side. Could you give more color to the big jump in profits?

Well, the big -- you know Mike you've probably followed this company longer than most people on this call, and we've restructured that business, I think, more than most people understand. You have to remember that with the J & L consolidation, that we picked up a very low-cost commodity path. We've been working on the cost structure of that business and working on the productivity of that business now for -- in conjunction with the great work force that we have and the United Steel Workers and the flexibility of jobs to keep this company a competitive company, and we've really made some milestones. We have a 40% increase in productivity in that business today.

We've taken costs out of that business that have averaged $60 million to $80 million a year for the last three years. We have developed schedules and developed product lines that give us under a strategic renewal-type process where we've really studied where we make money, where we don't make money, what we're good at, what we're not so good at and we've concentrated that now into five separate business units. And these business units run as independent market sectors. So we have a plate business, we have a precision strip business, we have a titanium and specialty alloys business, we have the electrical steel business and we have the commodity business. And we've decoupled those pricing levels. We've decoupled our schedules. We are a global player. We are selling globally, we're not selling just in the United States.

When we take all those factors together, the result has been that even with lowering of our commodity stainless business, as most producers in the stainless markets have seen on a global scale, we've been able to obtain the loads that we need for the utilization and efficiencies. We made money in common -- in the commodity products, and we made the right kind of margins that we think are appropriate for our specialty products business. So if I sound like I'm really pleased with the Flat-Rolled Products business and its transformation, it's still underway, the costs have come out, we've put some money in that business on equipment and quality items and in yield items, and it's performing very well. We're very satisfied with the quarter.

Just in terms, Pat, in terms of the change from 4Q to 1Q, what was the biggest driver of that profitability beyond a change in contract prices for electrical steels?

I would say there's two major factors. There's the one I just talked about for a long period of time, Mike, which is the mix change and our structure. The second thing is, is to go back and take a look at the charge that we had to catch up with in the fourth quarter for the surprising nickel run. We had large LIFO charges in the fourth quarter compared to the 16.5 million I think we took in the first quarter. 14 million, I'm sorry, Rich just corrected me, 14 million in the first quarter. So LIFO and mix, I think, would be the two, if you want to pinpoint items. But the overall strategic change is what I described earlier.

Okay. And then one last question, just in terms of the guidance that you gave for earnings going into the second quarter to be roughly in line with the first quarter, what are you assuming -- because the wording was a little bit difficult to understand -- what are you assuming on LIFO in the second quarter? Are you assuming a much bigger LIFO charge with that guidance? Or what are you assuming?

We're not assuming a much larger LIFO charge. There is some stretch room there, but it's a very interesting quarter because we're going to see improving performance on the high performance side of the company. We said somewhat offset by the Flat-Rolled Products. And, you know, when you look at the Flat-Rolled Products, it is a question of what the LIFO charges are going to be as we project forward, as you know, over the projection of what we think nickel will be by the end of the year we'd like some recommendations, if you have any. And when I say that, that's continuing good sustained performance out of that business unit and increasing performance on the high performance side. And remember, when we talk about this projected performance into the second quarter, it exceeds the current consensus for the second quarter estimate now.

Sure. No, I understand. All right, Pat, thank you very much.

Thanks, Mike.

From the line of Scott Blumenthal with Emerald Advisers, please proceed.

Good afternoon, Pat.

Hi, Scott.

Hey, continuing the discussion on LIFO charges, and we've seen the dramatic increase and the acceptance of 201 regardless of what the guys over at the service centers are saying, if that continues on, that's going -- I assume that that's going to help us with our LIFO issues, if acceptance and sales continue at the rate that they do; correct?

Scott, I've been doing all the talking, I want Rich to answer that question.

Well, I did, too.

Hi, Scott. I think what that would do is somewhat change the mix of inventory, which does have an impact on coming up with the LIFO index. So, if we end up consuming less nickel, you have a mix change if nickel ends up's being the real high cost element in coming up with your current-year index, that would be somewhat muted if you end up buying less nickel.

Okay, great. And since I don't leave Pat out, I know that he hasn't had a question for a while, what prevents some of your competitors from being able to compete in the 201 or 200 market, or developing such an alloy?

I think there's a couple things. First of all, just so that you know, North American Stainless has a 201 product now that they're introducing into the market. Thiessen Krupp is talking about a 201 introduction with some thousand-ton kind of entries into this market. So there's some credibility that things really are switching. The difference that we have is that we are a company that has in our melt shops been a producer of several different varieties of alloys, not just very long runs of a particular alloy like five different alloys. We've been producing many alloys, five and six times that number in quantity, over many, many, many years. So we are very good about how the facilities that we have are configured, our operating procedures for switching from one alloy to another alloy, the size of our furnaces, AOD and just how we're structured. And we have experience on this for many, many years. We introduced these kind of alloys, something like 50 years ago. And so our products are known.

We have technical people that go into the field and assist customers in how you would use this product, which gets into the tooling, getting into the radiuses, the forming speeds, the temperatures, all those things that assist people in using the alloy. And we have a reputation for good quality high performance 201. So we have basically have the approvals that we need in the marketplace, and when somebody else is coming into the business that's been used to just producing, say, five alloys and there are a few different grades, they're going to have some learning curves and it's something different on the rolling and the equipment and getting their practices tuned up, so we think we have a head start.

As you mentioned, you're offering a much broader offering, you have a much broader offering of alloys. That must require a certain amount of R&D, and can you give us an idea of how much is spent on the type of development and, what that would compare to maybe, you know, what you were doing a couple years ago? And if you have any idea, how much your competition is putting, how much effort your competition is putting into that?

Those are great questions, I wish I had all the answers. We continue to spend a reasonable amount of money, maybe 1% of our sales.

We have -- it depends on how you measure R&D, whether you're talking about the normal development work that's done in the process by the process engineers on the floor, some of that could be considered development work in R&D, we consider it process improvement under the ATI business system, other people include it in their R&D costs. We have an R&D center. The R&D center has never been closed, it's always been active. We have product engineers. We have process engineers. And so we are active in making sure that our products are accepted into the market and that we assist the customers when we make changes as part of our service and our offering. Obviously, not being the largest stainless steel producer in the world, even in many aspects in a particular segment of the market, then we have to be better.

Sure. And thank you for that, by the way. May I ask one more question on the APT?

Sure.

You know, when you have the plant expansion come online, are you going to have any excess production from that that you're not going to consume internally? And can you give us an idea of how much that might be and what the prospects are for what you're going to do with that?

This has been kind of an interesting thing with the setup we have out there. As I said in the first quarter, or excuse me the fourth quarter, we were about 70, 80% where we wanted to be. We thought we would get further there. We've done some work now in the front end of this plant and hopefully it's going to be at about 4200 tons. And if we can use it all ourselves, we'll use it all ourselves. And if we can't, we would -- we could sell maybe 20% of it, something like that. But basically, our goal is to continue to increase our tooling business and our heavy metals business to consume the products we're making. As an aside, it is very difficult to find APT in the United States. It's very difficult to get these products. And when you go on the outside market to do it, you're paying 35 and 40, 50% more than what it cost you to make it yourself. We're right now running at about 90% of our own internal needs and we expect that to be up to the full extent of what we need by the end of this quarter.

Okay, great. Thank you.

Thanks, Scott

Your next question comes from the line of Tony Rizzuto with Bear Stearns. Please proceed.

Hi, gentlemen. I've got questions regarding the HPM segment. We had expected margins to be a little bit higher during the quarter. I was wondering, Pat, maybe I missed this during your comments, is it your sense that there are some customers there that may have deferred some orders due to pricing and has there been a significant shift with an HPM that's gone on from, say, a little bit more air frame versus the aircraft engine? Could you just talk to that question a little bit?

I think we have to see where we are. I think that the first quarter, Tony, you said it, we had much more air frame than what we had thought. I think that's the really good news, is that we're penetrating into that air frame market faster and stronger than what we thought. When you look at the mix of those items, it isn't that the profitability is down, but you may have a little bit -- you may have some more volume of that, but at a different overall profitability level, depending on the mix. We did see on the bar business, which is a high profit business, we did see that inventory adjustments taking there. And I just said, I alluded to very quickly in my opening comments, but we missed our shipments in our exotic metals business, which are very high-priced items. So when you miss those kind of shipments that are in the exotic metals, and some of that was just simply timing. You know, we had the product, we couldn't get the export papers and the clearances on the ships. Much of that goes overseas. So I'm not worried at all that where our margins are or where our pricing levels are, we haven't seen any changes in the pricing levels of where we are except for maybe adjusting for some lesser price scrap but that keeps our margins on a uniform basis.

The prices overall did look to be fairly stable, I was wondering, though, is it also perhaps partly due to maybe some of the newer, some of the new long-term contracts kicking in, too?

Sure.

A little bit of mix there. I was wondering if you could give us a mix as we look at the company today, what percentage of the titanium would be for aircraft engine versus air frame and how's this going to change, Pat, over the next couple years?

I think today maybe it's still 60/40 for the long products but I think that the air frame is going to continue growing, it may just have an inverse relationship to 40/60.

With your sponge internal capabilities coming on, I would imagine you might be able to offset what might be somewhat lower margins because of shift in mix and realize better profitability, though?

Yes. When we looked at these long-term contracts where you're going into an air frame and you have fixed blocks of airplanes being sold at certain pricing levels, then you have to have a cost base and a projected margin that is going to go with that business. So we need the internal production online to meet our margins and target objectives of those long range contracts

All right. And then if I may ask also follow-up, if -- how concerned are your customers about the supply agreements with the Russian titanium supplier and could this also push more business your way?

I think it did in the first quarter, I think our performance in this market has been very good in terms of the reliability and quality of our products. We have had absolutely no issues on anything. And so I think that gives us a good position to grow from. And I don't know, I think us coming into the market, into the air frame as a new supplier for the air frame is somewhat assuring to the air frame business -- air frame OEMs, that there's options out there other than the Russians.

Right, Just a question of follow up on the FRP, a lot of questions obviously have been asked, but in the past, Pat, you've talked about this operating profit margin over the cycle, 8% to 12%, obviously in recent quarters you've blown that away, margins being the 13, 14.5, and then you've kind of gone to a new threshold. How do I think about this business, looking ahead? By your comments we shouldn't expect the first quarter margin to be sustained. But are we now looking at a new threshold, maybe 16, 18% on an ongoing basis?

I think 15 to 20% is where my head is, where I'm taking what I thought was the top of the business and now saying I think with the mix changes and the markets we're in, the global approach, the cost reductions, the mix in total, that I think we've got a 15, 20% business here.

I appreciated the color that you gave and how you've gotten there and congrats on that, that's significant and very, very excellent performance to see.

You can thank the guys out at Ludlum, we're real proud of them.

Thank you very much.

Derek, this is Dan, if I could just ask a favor, it's getting close to 1:00, we still have eight people in queue, which is a good thing. So if our questions could be limited to two questions, we'd appreciate it. And then of course if we have time, you can get back into queue. Thank you.

No problem, thank you. Your next question comes from the line of Chris Olin with Cleveland Research. Please proceed.

Good afternoon.

Hi, Chris.

Pat, could you talk a little bit about titanium scrap prices? They seem to be coming off considerably here in the first half of this year. I'm wondering if you see this as a supply-driven decrease or is there something going on with demand that we should look into further?

Which particular category are you talking about, Chris? Do you have a category of scrap?

I guess I'm looking at in general, but in terms of the some of the six-four -- aren't the six-four turnings coming up significantly?

I think six-four turnings are about $6 to $6.50, but let me just give everybody some facts here. Six-four premium bulk weldable is still running $17 to $17.25. This is premium bulk weldable for aerospace applications that we use in 70% of our products. Six-four premium feed stocks at $17, nonpremium six-four bulk weldable you could get as good as $10, and nonpremium six-four feed stock is pretty high priced at still $16.50 to $16.75. Now, if you get into six-four process turnings, you're down to $10 and the nonprocess turnings, grease and grime and all, about $6 to $6.50 and CP scrap around $10 to $11. The market, you have to be careful when somebody talks about or tells you that they can buy something out there for a particular price. You almost have to ask the same kind of questions as somebody says I just bought an automobile, did you buy a Mercedes or did you buy an Escort?

So you're saying you're not seeing weakness in pricing? I mean, in general, prices seem to be coming off.

These bulk weldables for aerospace quality could have been $19 last year now they're $17. So you can take that down, the two bucks over $19. Whatever percentage that is.

And Chris, we've talked about this before in terms of not all scrap being created equal. I think you also, when you look at the supply and demand, obviously as more scrap today is available today than there was a year ago. But conversely, on the mill products side, you still haven't seen anywhere near the kind of ramp-up that we're expecting on the air frame and even on the aero engine side. And when that happens, I mean, I think that I've seen some things that you've written as well as others, that when that demand comes on stream to the extent that there may be some scrap availability today, that availability will be even tighter in the second half of the year.

So we look at, as all of the markets for scrap, we're a large buyer of scrap, not only on the premium side, but also on the CP side through our Unity joint venture. And we think we have a pretty good handle and idea of where scrap prices are for the things that we are buying in our business, and it's a pretty complete picture of the market as opposed to maybe one or two rather small scrap dealers out there who are willing to sell something at a price that doesn't establish the market.

Okay. I understand. Thanks.

Your next question comes from the line of Robert LaGaipa with CIBC World Markets. Please proceed.

Thank you. Good afternoon.

Hi Robert.

Just a couple questions, one on Flat-Rolled Products. The question I have is with regard to pricing. The 65% increase year-over-year, what was the actual base price increase year-over-year?

About a third, about 33%, I think year-over-year. We're in the mid to upper 70s.

Okay. And a related question just with regard to the margin difference between the commodities and the value-added products, can you give us some color there? How dramatic the margin difference might be between the two areas?

I'd rather not comment on that, other than to say that we have different kinds of sweet spots in our production, and in the kind of products that we make, and so we've done a very careful study about what our costs are and what our pricing are, and -- is, and the availability of these kind of products to the market. So where we have the ability to demand a premium, we do, and when we have the ability to make a good margin only, that's what we make.

Let me ask it this way, then. Has the difference grown or shrunk over the course of the last few quarters?

I would just say that margins have been expanding in specialty products and are still lower in the U.S. for commodity products than Europe.

Last question, just in the High Performance Metals business, the 25% increase, or actually just titanium specifically, the 25% increase in volume that you're expecting in '07 versus '06, obviously you're combining both the High Performance Metals and the titanium located in the flat rolled products business. How should I think about that 25% just in High Performance Metals? Is it a bit less?

The High Performance Metals that we're talking about is strictly titanium. We said a 25% improvement in titanium both in high performance products and in what we consider products in the flat-rolled side. So today the majority of 85% or 80% to 85% of that is in high performance and 20% in flat-rolled with flat-rolled growing.

Okay. Terrific, thanks very much.

Thank you.

Your next question comes from the line of David MacGregor with Longbow Research. Please proceed.

Congratulations, gentlemen, great quarter.

Hi, Dave, thank you.

Hi. Let me pick up where I think Chris was trying to go with the titanium scrap question, and that is that to early in the cycle, of course, there's nothing in the channels, there's no scrap, no finished product, we get some orders, suddenly everybody's excited, prices move out to the very pin and we get this sort of run-up. But as the cycle progresses, we start to see scrap, for instance, become a little more abundant, the supply begins to catch up with demand, there's more capacity additions. And we start to transition into what has historically been characterized as more mid cycle types of pricing, both in scrap and Ingot and mill products and so on. Do you sense we're approaching that point? Do you sense that we're getting to the point here where we may see a pull back, obviously in the cyclical low pricing, obviously very strong levels of demand going forward, but do you sense we're getting to a point here where we might start to see a little bit of pull back, a little bit of relief on the pricing levels across the entire matrix?

I think if we have had any kind of a pullback we're in it, and I think Rich's point that when the ramp up begins in the second half of the year, these could do anything but move in the other direction again. So when I look at six-four premium weldable for aerospace at $17 to $17.25, those are pretty high prices to be in the mid cycle. So I think --

I'm not suggesting we're in the mid cycle now, I'm wondering what your thoughts are us getting back to mid cycle types of pricing anytime soon.

I think as long as this market is expanding at the rates it's expanding in double digits and the carbon steel industry is where it is over the long haul in terms of its expansion and millions of tons of carbon steel, I don't think scrap is going to be readily available for long periods of time. You may have some periods where you start to see some things or as Rich points out, you might have some particular yards that get in an oversupplied condition. But we continue to operate with revert programs with our long range customers as much as we can and tie those scrap loops back to our own production so we know what we're getting. And we're just going to have to see how the world market shakes out. But when you look at the industrial applications for titanium mill products in total, it's still growing and it's growing rapidly, and, therefore, the scrap is being used.

Pat, if I could just add, David, we spent a lot of time talking about questions about scrap costs, and understandably so. But scrap costs really aren't the real driver of mill products margin, right. And that's really what we're focused on, since we don't sell scrap. We buy scrap.

Just historically, there's been a positive correlation.

Well, you know, but not -- maybe, but we've also never been in a cycle like this before either. And I think that what we have said, what Pat said, and what we have said before is that we believe that in 2007 and 2008, just looking out over that time period, the High Performance Metals segment, operating profit, percentage of sales, we believe will be consistent with what it was in 2006, which is in the 35% to 36% range. And that's essentially where it was in the first quarter. Where the opportunity is for ATI and ATI's shareholders, is through a significant growth in volume and revenue in that segment at those margins that results in a growth in earnings per share. And we don't see the world any differently today from when we said that a year ago.

Okay. Good, I appreciate that. Thank you. The other question I had was just more with respect to the 201 as a substitute for 304. Obviously there's a different nickel content, so that's going to come into play in terms of cost. But other than the nickel, how should we think about the difference in profitability of a ton sold of 201 versus a ton sold of 304?

For us it's basically the same profitability, either one.

Okay. So they're identical profitability?

In our conversion they're identical profitability.

Okay. Thanks very much, gentlemen, and again congratulations on a great quarter.

Thank you.

Your next question comes from the line of John Tumazos with Prudential. Please proceed

Congratulations on all the great earnings, the earnings are almost bigger each quarter than the market cap used to be.

Great comment.

Could you educate us as to the whatever it is, 100,000 tons, plus, of 201 you might sell this year into the particular applications? And given that it's a slightly different recipe with some other elements in it, if the -- if it's actually better in those applications than 304. And then could you mention if the high titanium is causing discretionary things like golf clubs, tennis rackets, bicycles, et cetera, to use other materials?

Those are insightful questions, John, as usual. First of all, I think your numbers are probably pretty close on the 100,000 tons from us. I think that as we look at the particular applications, it's mostly appliance and consumer-type products on the 201 so far. I think there's applications coming in ornamental, I think there could be applications coming in some tubing that look at 201 and we do send our application product engineers to the customers. So if you have a front face of a particular appliance or a flat surface that's in the back panel, or you're doing some forming that is under a particular draw, there is absolutely with some tool modifications, no difference. In fact, 201 with the lower nickel and manganese is actually stronger.

If you're looking for something that needs total dent resistance or total corrosion, maybe we would not recommend it on a particular drawing application, but that's done on a spec by spec basis. So things like coffee makers, and commercial soft drink appliances, fronts of ranges, backs of ranges, 201 is performing extremely well. When we look at the overall application on the titanium pricing, I think there's still, as we have heard today on some of these lower priced scrap items, there's ways to get to lower cost titanium if it's not for a critical application. I think people are seeing some pricing increases that may drive a little bit of those commodity applications up, but I don't think it's causing a lot of substitution as long as they can get the material to use.

So the golfers don't care?

I don't make golf clubs so I really don't know if -- what's going on there. But some of them, maybe some of the sponge coming out of Asia or some applications like that for consumer products would be just fine for those applications. But overall, pricing is up.

Thank you.

Your next question comes from the line of SanilDaptardar with Sentinel Asset Management. Please proceed.

You talk about including titanium shipments in the second half. Now, given this kind of phenomenon, is it reasonable to assume that your overall result in the second half should be better than the first half?

Yes.

And my second question is, in terms of other market end markets, you talk to markets which are very strong, do you see any other markets other than the ones you talk which are strong that could impact your results adversely?

I don't know what markets that we're keying on right now that could impact us in an adverse way, other than once we look at commodity products and we talked about that for the first quarter. I think the comments that we've made about early ramping up on the nuclear side of the business and exotic metals of Zirconium and Hafnium on refueling projects and rebuilds are a little bit surprising to us at the quantities and volumes of that. And I think that's actually helpful. So, you know, we're -- we've turned away from many automotive applications of the commodity style that might have hurt us. They were low profitability and we intentionally moved away from those. Other things that we participate in in the building industry, I think, are reflective of the current conditions which would be window channels and chimney liners and these kind of things, flexible gas hoses that go into building and construction. But with the durable goods strength in the U.S. market, we seem to offset that.

So if I can -- if I understand correctly, what you are seeing in those markets is basically just an inventory correction, not a slowdown in those markets that could really deter you?

I think that's right, I think that's a good way to say it.

Thank you.

Your next question comes from the line of David Campbell with Owl Creek, please proceed.

Thanks, could you just clarify the guidance with respect to capital expenditures for '07? You characterized it as spending on positional capacity and projects to improve efficiency. Does that mean that substantially all of the 450 to 500, I think it is, can be characterized as capital expenditures in excess of maintenance requirements?

Well, there's always some level of sustaining monies, but as you concentrate on major projects for either cost reduction or capacity expansions, then most of your budget moves that direction. So obviously, we have some sustaining projects that are always a part of our normal capital budgets, but those projects, if you go back and look at some of our leaner years, those capital expenditures were something less than 50% of our, at that time, depreciation. So $30 to $40 million. And I think we're probably in that, between $30 and $50 million in sustaining, and the other 400 to 450 in cost reduction capital and efficiencies.

I think you said in the release that you're expecting a return on invested capital in the order of 36% on that sort of growth in efficiency CapEx. Is that the right way to think about it?

That's -- well if you look at where we operated in the quarter, that's where we were and I think the projects in the high performance segment of the company especially the titanium and nickel-driven projects in the melting furnaces and in the titanium sponge facilities are giving us very, very fast paybacks and very good returns. So I wouldn't object to your analysis or number.

Were you generally like based on kind of this call and the conversations you have with investors, do you think there's an excessive focus on the percent margins in each division in sort of a lack of appreciation for, the degree or the speed of volume ramp, perhaps the trade-off between volume and margin percentages?

We look at it this way, David. We look at top-line and bottom-line growth and we're concentrating on earnings per share. So we believe for profitable growth you have to have a company that's growing its revenues and its access to the markets, whether it's new market segments or whether it's penetrating its existing segments, and taking the costs out to deliver those new revenues to the bottom line. And that's really where we are. If you go back and look at this company's rate of change, rate of change in revenue growth and the restructuring of the company to specialty metals from a more commodity products and stainless, I think that could be a story all by itself. We've been fortunate in the aerospace business. What is clear to us, which maybe we haven't made as clear as we should have made is that the air frame market is a whole new market to us, and it's a market that is much larger than our existing market for those products were when we entered it. So that is upside and all new business to this company. We look at such things as reactive armor, we look at the new Lightning II Joint Strike Fighter, we look at the tanker programs that are coming both -- on both sides of the ocean. We look at the wide body 350, we anticipate and look forward to a single aisle airplane redesigned at some time in the future and we're pretty excited about top line growth as well as the margins.

If the titanium shipments across all the divisions increase by 25% from '06/'07, what range of -- what possible range of increase do you expect from '07 to '08?

I think we'll have another 25% again.

And just I know this is way off in the future, but what about '08 to '09?

It really depends on how fast that these programs ramp in the commercial air frame and engine programs. But when you look at 1,000 new large airplanes a year that will be entering the market and you look at those new engines and spare parts for this increasing fleet, plus the air frame and the size of the aircraft, you could see this 25% a year moving for several years.

Thank you, guys.

Thank you.

Your next question comes from the line of Lloyd O'Carroll with Davenport & Company. Please proceed.

Good afternoon. One quick clarification. The 5.9 million in flat-rolled in the quarter with your labor agreement, is that one time?

Yes. That's, Lloyd, that's a one-time charge and we're happy to have paid it.

Okay. And so you earned all your money in spite of the 5.9 million that goes away?

We earned all the money in spite of it and we were happy to pay it to get an early agreement and a good agreement with the United Steel Workers. We feel very confident in the people that are out there and that strong work ethic and the agreement that they've given us.

And more importantly, there seems to be a lot of concern in the marketplace among investors about titanium supply/demand not necessarily immediately but looking out with all the new capacity coming, announce and discussions maybe coming of, who knows about China, how would you look sort of over the horizon into '09, '10 and beyond and should people have some concern over general titanium supply and demand?

I think the supply that's coming online is absolutely needed and consumed. If you look at just the growth rates in the mill product shipments for titanium products, and again, you remember this company is really concentrating on certain segments of that titanium market overall, but that market is moving up dramatically on a year-on-year basis and our projections would say that basically every bit of the announcements are going to be needed and these bottlenecks continue to move from sponge to melting to mill products. So concurrent expansions that you've seen announced and in some of the things that we're doing and others, I think are in good form to what the projected market is. I don't think we're going to have a real problem in the next five years whatsoever.

Okay. I appreciate that. Thanks.

Thanks, Lloyd.

Your next question comes from the line of Mark Parr with KeyBanc Capital Markets. Please proceed.

Thanks very much. Good afternoon.

Good afternoon, Mark.

I have one question I had just for some more color on titanium, as if we haven't talked about it enough already. But Pat could you give us some sense of what's the mix between OE and aftermarket metal that you're moving into the market right now?

I think we're heavily oriented to the OEM right now, maybe what the spare parts business for our jet engine side is really going to take -- I'll use the pun, take off, but when you start to look at the utilization rates of these 18,000 aircraft and the fleet's growing at 1000 new aircraft a year, I think you're going to find out that the spare markets business continues to become a larger percent. So right now, our jet engines in total are about 40% of the market and air frame about 25% for us. I think as I said earlier that over time that may be switching to more on the air frame and less on the jet engine side. But about half of that jet engine market is spare parts. So maybe it's going to be 50/50.

Okay. All right, that's helpful. I had another question if I could on inventories. It seems as if inventories in the first quarter bumped up a little more in relation to sales than they have in the last couple of first quarters.

Up a percentage.

I was curious if -- you said you had missed some of your shipment targets. I was curious if that indicates perhaps some pent up demand or some extended backlogs and if you could talk a little bit about backlogs at the end of March compared to where they were at the end of December?

Well, it depends on each of the businesses. On the exotic metals side, obviously we didn't get as many shipments out as we had tried to, and some of it was just simply timing around some of the export kind of things that we'll catch up with. On the Flat-Rolled Products side of the company with the issue of nickel being well over $20, $22 to $23, it forces the mills to compete on the basis of having a lot more ready-coil on hand to supply the distribution business. If you don't have the delivery time, you're not going to have a production sequence to go through, since the distributors are trying to hold minimum amount of inventory as possible because of the high nickel costs and the potential changes that that forces the mills that want to participate in that business to hold more finished product or semifinished product, that's where I think you saw our inventories creep up.

Okay, terrific. Thanks and congratulations on all the progress.

Thank you.

Your next question comes from the line of Greg [Colles] with Brencourt Advisers, please proceed.

Hi guys, I just had two questions. One of which concerns Rowley and Albany, namely, with the sponge capacity expansions that you have planned. Are both plants, because one of them is referred to as aerospace quality titanium, the other is premium grade, and I'm wondering if one or both will be able to fulfill both the specialized engine parts and the air frame titanium needs for commercial aircraft? Because I'm just better trying to discern, Pat, the degree to which all of that excess capacity, which sounds awesome and is huge obviously, but will that be able to be utilized for likely the biggest demand driver of the next probably, depending on who you talk to, 10 years or so? Thank you.

The Rowley plant, the new plant in Utah is premium grade meaning that it can be used for anything in the business, including the very, very high quality rotating quality jet engine parts, drive shafts and -- not drive shafts but rotating parts in the titanium section of the jet engine. All the production at the Oregon plant is aerospace quality so it can be used for the air frame. And we can use everything being produced in Utah for the air frame also or military and defense of any of those products. So we'll have plenty of capacity for jet engines and we'll have lots of growth capacity for air frame.

Okay. And then my second question deals with, you had mentioned and which sounds certainly interesting, uses for your Hafnium and other specialty alloys for the nuclear industry. The question I have is how big of an opportunity could that be if let's say demand really picked up with respect to your available capacity? Because I mean, you've got aerospace, you've got commercial defense and also potentially nuclear. Would that entail another very large capital, either Greenfield or Brownfield capacity expansion to deal with that? Just wondering what sort of bottleneck exists along the chain. And related to that, also if you expand plate capacity and engine-type titanium capacity will you need to sort of look more towards downstream capacity expansions for these needs?

Okay. Starting with the first part of your multi-part question there, we are in the early throes, it appears, of refueling and retooling the existing nuclear plants with increased orders for the Zirconium Hafnium products. Now, remember, that's for existing plants and so that opportunity is there, and I think there's another million pounds or so that we're talking about open capacity with incremental -- incremental capital, not major capital -- at our exotic metals company out in Oregon. So I don't consider that any kind of capital that we would be announcing as a major capital program but it's operational, expertise and execution yields and getting the plant to its maximum capabilities.

On the other sides of the business, we have been increasing our capacities for plate finishing over the last three years. And basically by the end of this year, we will have tripled our finishing capacities for what I'll call the last final operations, not the thermal operations but the last final operations in making aerospace quality plate. That would be grinding the surface, cutting, sawing, flattening, ultrasonically inspecting. We haven't gone out in great detail and given you every piece of equipment, every water jet saw, every ultrasonic tank going in, but we've been actively doing that to make sure our operations stay balanced. The biggest expansion which we did announce is the thermal treatments for our plate products, which is, I think, was an $80 million -- $60 million expansion that's underway now, and that building is almost up and the equipment will be in and running the middle of next year. So, yes, that money is being spent, we've already been spending the incremental money on the other side of the company, we've been very careful about our sponge melting and mill product in capacity balance. That's why in addition to everything we've said we announced earlier the expansion of our forging capacity with 10,000 ton open die forging press and the largest rotary forging press that will be in the industry. Those are all balanced kind of things to make sure that we can meet the mill products needs. As you know you don't make airplanes or engines out of sponge or even Ingots, you've got to make it out of semifabricated or fabricated mill products, and that's our end goal, because that's what we want to sell.

Great. Excellent, thank you for your time, I'm sorry for the multi-part question, that's very helpful.

Thank you.

Well, let me just say thanks to everybody for joining us today, we appreciate the conversation, we appreciate your continuing interest in ATI.

And thank you, Pat and thanks to all of our listeners, thank you, Eric, thanks everybody for joining us today. As always, news releases may be obtained by e-mail and are available on our Website. Also, a rebroadcast of this conference call is available on our Website. That concludes our conference call.

Ladies and gentlemen, thank you for your participation in today's conference. That concludes our presentation, you may now disconnect. Have a good day.