Good morning, ladies and gentlemen, and welcome to Howmet Aerospace second quarter 2022 results conference call. My name is Ian, and I'll be your operator for today. As a reminder, today's conference is being recorded for replay purposes. I would now like to turn the conference over to your host for today, Mr. Paul Luther, Vice President of Investor Relations. Please go ahead. Thank you, Ian. Good morning, and welcome to the Howmet Aerospace second quarter 2022 results conference call. I'm joined by John Plant, Executive Chairman and Chief Executive Officer, and Ken Giacobbe, Executive Vice President and Chief Financial Officer. After comments by John and Ken, we will have a question and answer session. I would like to remind you that today's discussion will contain forward-looking statements relating to future events and expectations. You can find factors that could cause the company's actual results to differ materially from these projections listed in today's presentation, in earnings press release, and in our most recent SEC filings. In addition, we've included some non-GAAP financial measures in our discussion. Reconciliations to the most directly comparable GAAP financial measures can be found in today's press release and in the appendix in today's presentation. With that, I'd like to turn the call over to John. Thanks, PT, and good morning, everyone. Welcome to our Q2 call. Howmet's second quarter was another strong quarter and witnessed the continuing recovery in commercial aerospace, which was up 34% year-over-year and 7% sequentially. Total revenue was $1.393 billion and was up 17% year-over-year and 5% sequentially, which was at the top end of our guidance range. Revenue increased in each business segment, both year-over-year and sequentially. Similarly, Howmet's Q2 EBITDA grew year-over-year and sequentially to $360 million, including net headcount additions of approximately 740 employees. Moreover, we are particularly pleased with the continuing healthy EBITDA margin performance of 22.8%, which is also at the high end of guidance. Inflationary costs were either recovered from customers or offset with efficiency improvements. Finally, earnings per share were strong at $0.35, an increase of 59% year-over-year. Moving to the balance sheet and cash flow, free cash flow was a + $114 million in the quarter, including an inventory build of approximately $105 million, primarily to accommodate the commercial aerospace recovery. Free cash flow was positive for the first half, and we expect to have positive free cash flow in both Q3 and Q4. The cash balance at the end of Q2 increased to $538 million, including common stock repurchases of $60 million and bond repurchases of $60 million. Share and bond repurchases were with cash on hand and continue to reduce share count and interest expense drag, and hence improved free cash flow yield. Legacy pension and OPEB liabilities are trending favorably with a net liability improvement of $60 million year- to- date. Associated cash contributions are down 65% in the first half compared to last year. Lastly, net leverage improved to 3x and is expected to accelerate by year- end to move towards 2.5x EBITDA. Segment details will be covered by Ken. However, I would like to note the small continuing EBITDA margin increase in our engines business and an improvement in structures. This was commendable for structures in the light of both the inventory burn down of F-35 and the continuing low to zero build of the Boeing 787. Now over to Ken. Thank you, John. Please move to slide five for an overview of the markets. Second quarter revenue was up 17% year-over-year. The commercial aerospace recovery continued in the second quarter, with the commercial aerospace revenue up 34% year-over-year and 7% sequentially, driven by the Engine Products segments and the narrow- body recovery. Commercial aerospace was 45% of total revenue, and although an improvement from 2021, it continued to be far short of the pre-COVID level, which was 60% of total revenue. Defense aerospace was essentially flat year-over-year as well as sequentially, driven by continued customer inventory corrections for the F-35. Commercial transportation, which impacts both Forged Wheels and Fastening Systems segments, was up 19% year-over-year and 11% sequentially, driven by higher aluminum prices and higher volumes. Finally, the industrial and other markets, which is composed of IGT, oil and gas, and general industrial, was down 4% year-over-year. Going deeper into this market, IGT was essentially flat, oil and gas was up 24%, and general industrial was down 20% on a year-over-year basis. Now let's move to slide six. Let's start with the P&L with the focus on enhanced profitability. In the second quarter, revenue and adjusted EBITDA were at the high end of guidance as both metrics were up 17% year-over-year. Adjusted EBITDA was $317 million. Adjusted EBITDA margin was also at the high end of guidance, as it increased ten basis points sequentially to 22.8%. Excluding the $60 million year-over-year revenue impact of higher material pass-through, EBITDA margin was 100 basis points higher at 23.8%. Adjusting for material pass-through, the flow of the incremental revenue to EBITDA was in line with expectations at approximately 33%. We've been able to maintain our strong margins despite the impact of higher material pass-through and inflation, as well as headcount additions to support future growth. During the second quarter, we continued the recruitment of headcount by approximately 740 employees, including net additions of approximately 455 in engines and 245 in fasteners, as preparations are made for continued growth in the second half, adding to the growth already experienced in Q2. Year-to-date, we've increased headcount by more than 1,200 employees, and that's been focused in engines and in fasteners. Adjusted earnings per share exceeded the high end of the guidance at $0.35 per share, up 59% year-over-year. For the quarter, the impact of foreign currency on earnings was minimal. Moving to the balance sheet. Free cash flow in the second quarter was a + $114 million, which excluded $44 million of proceeds generated from the sale and associated leaseback of our corporate headquarters in Pittsburgh. Cash on hand increased to $538 million after buying back $60 million of common stock, repurchasing $60 million of our 2024 bonds, and funding the quarterly dividend. The average diluted share count improved to a Q2 exit rate of 421 million shares. Net pension and OPEB liabilities were reduced by approximately $60 million in the first half of 2022, and cash contributions were reduced by approximately 65% to $13 million on a year-over-year basis. Discount rates continue to be favorable, and we will remeasure at the end of the year, which should further reduce the net pension liabilities. Annual cash contributions are estimated to be approximately $60 million versus expense of $20 million. Finally, net debt to EBITDA improved to 3x. As John mentioned earlier, we expect net debt to EBITDA to accelerate by year-end and move towards 2.5x. Moving to capital allocation. We continue to be balanced in our approach. Capital expenditures continue to be less than depreciation at approximately 67% in the second quarter. Productivity CapEx continues to be a focus on automation in both the engines and the fasteners business to improve yields, enhance quality, reduce outsourcing, and mitigate labor risk. We purchased approximately 1.8 million shares of common stock in the quarter for $60 million. In the first half of 2022, we repurchased approximately 6.9 million shares of common stock for $235 million. I would also note that we purchased 0.9 million shares of common stock in July, which increases the July year-to-date repurchases to $265 million or 7.8 million shares, with an average acquisition price of $33.76 per share. Board authorization for share repurchases is currently $1.082 billion. Moving to debt. We repurchased $60 million of our 2024 bonds in the quarter with cash on hand, and this will reduce our annualized interest cost by approximately $3 million. Lastly, we continue to be confident in free cash flow and paid the quarterly dividend of $0.02 per share of common stock. Now let's move to slide seven to cover the segments. Q2 was another solid quarter for the Engines Product segment. Year-over-year revenue was 20% higher in the second quarter, with commercial aerospace up 39%, driven by the narrow- body recovery. Both IGT and defense aerospace were essentially flat year- over- year, while oil and gas was up 24%. Adjusted EBITDA increased 38% year- over- year, and margin improved 360 basis points to a record 27.5%, despite adding approximately 455 employees in the second quarter. Year- to- date, net headcount additions for engines was approximately 780 employees. Please move to slide eight. Fastening Systems year-over-year revenue was 6% higher in the second quarter. Commercial aerospace was 20% higher, driven by the narrow- body recovery, but somewhat offset by continued production declines for the Boeing 787. Industrial was down 26%, driven by a strong Q2 last year. We expect growth in industrial in the second half. Segment adjusted EBITDA decreased 11% in the quarter and was impacted by inflationary costs and the addition of approximately 245 employees to support future growth. Year-to-date headcount additions for fasteners was approximately 380 employees. Now let's move to slide nine. Engineered Structures year-over-year revenue was 16% higher in the second quarter. Commercial aerospace was 37% higher as the narrow- body recovery more than offset the impact of production declines for the Boeing 787. Segment adjusted EBITDA increased 8% year-over-year despite the inventory burn down of the F-35 and continued zero to low builds on the Boeing 787 and inflationary cost pressures. The structures team delivered a Q2 EBITDA margin of 14.1%. I would note that the Q2 adjusted EBITDA margin was equal to the 2019 annual margin, despite revenue being down approximately 40% using this quarter's annualized revenue. This was solid performance by the structures team. Finally, let's move to slide 10. As expected, Forged Wheels year-over-year revenue was 22% higher in the second quarter. The $50 million increase in revenue year-over-year was driven by higher aluminum prices of $36 million and volume increases of $14 million or 7%. Commercial transportation demand remains strong, but volumes continue to be impacted by customer supply chain issues limiting commercial truck production. Segment adjusted EBITDA increased 7% despite the impact of unfavorable foreign currency, driven primarily by the euro. While the pass-through of higher aluminum prices did not impact adjusted EBITDA dollars, it did unfavorably impact EBITDA margins by approximately 400 basis points. Before I turn it back to John to discuss guidance, you will note that we called out unfavorable foreign currency in the wheel segment as a good portion of that segment's revenue has production costs and revenue in local currency. For Howmet in total, the Aerospace segments provide a natural foreign currency hedge. While the Aerospace segments also have a portion of their production cost in local currency, the majority of the revenue is in U.S. dollars. For the quarter, Howmet's overall foreign currency earnings impact was less than $1 million. Now let me turn it back over to John. Thanks, Ken, and let's move to the outlook. First, let me provide some commentary about the state of end markets and the customers that we serve. The narrow- body aircraft production increases will continue, and we expect Airbus to continue to lead with second half A320 production rates in the mid-50s per month. Boeing should lift the 737 MAX production to approximately 30 a month in the second half. Wide- body aircraft production is viewed as stable in the second half, and we are beginning to see spares demand increase due to improvements in international travel. Our view is that the build of wide- body aircraft improves as we move through into 2023, especially with the production of the Boeing 787 restarting and combine that with the increases at Airbus of the A330 and A350. The forecast for 787 production in 2022 is cut again from 25 aircraft I talked about in the last quarter's earnings call to 15 as our best estimate, although we are now optimistic about the future given the clearance by the FAA to restart deliveries. During the second half, we expect the F-35 inventory burn off to continue, albeit defense revenue should show a modest improvement compared to the first half of the year. IGT is expected to improve, and we are seeing improvements which have signaled in the oil and gas market for the second half. Commercial trucks production is expected to improve as supply chains improve component availability, albeit at a more muted level than we had previously expected. Regarding titanium orders, we expect to execute revenue opportunities as a result of the Ukraine situation, and we've added $20 million of revenue to our fourth quarter sales. Further updates for 2023 and beyond should become more clear and secure during the next quarter or so as we not only assess the order intake, but also customer inventory burn down, especially for wide- body aircraft production. Moving to guidance, the 2022 annual revenue midpoint is increased to $5.68 billion, which reflects the volume recovery commentary noted above, and material inflation, which is now expected to be in excess of $200 million. Other inflationary costs such as energy, electricity, transportation, services, and other production parts are additive to this number. For the third quarter, revenue is expected to be $1.44 billion ±$15 million. EBITDA, $326 million +$5 million -$4 million. EBITDA margin, 22.6% ±10 basis points. Earnings per share, $0.36 ±$0.01. For the year, we've also tightened our guidance range and called out revenue at $5.68 billion ±$35 million, which is an increase of $40 million from the prior midpoint guidance. EBITDA at $1.29 billion +$9 million -$14 million. EBITDA margin of 22.7%. Earnings per share of $1.41, ± $0.02, an increase of $0.02 from prior guidance at the midpoint. Free cash flow $650 million ±$25 million, an increase of $25 million from prior guidance. Free cash flow conversion of net income is expected to be approximately 110%. In summary, Howmet's Q2 year-over-year and sequential profit improvement continues, and we've demonstrated Howmet's unique and differentiated assets. We've been making strong and consistent progress against a choppy backlog. Liquidity continues to be strong, with Q2 free cash flow at $114 million, including an inventory build in excess of $100 million for the commercial aerospace recovery. In the first half, total inventory build is close to $200 million. Cash on hand has increased to $538 million, and that's after the common stock and bond repurchases. Through the first half and July, approximately $343 million has been deployed for common stock and bond repurchases as well as dividends. Capital allocation has been balanced, and we've also been improving net leverage, as we spoke about, and plan to do so again by the end of the year. Regarding guidance, revenue for the year is raised, reflecting the inflation recovery, but also modest net volume improvements. EBITDA margin continues to be healthy and reflects the benefits of strong cost control, efficiency, material pass-through, inflation recovery, and pricing, with timely headcount additions to prepare for the future and the future leading into 2023. In the second half, we expect to continue to add headcount in engines and begin recruitment in our structures business. Finally, the Howmet annual dividend of $0.08 per share or $0.02 per quarter is planned to be doubled to $0.04 per share per quarter, with the first higher payment made in November of this year. Before moving to your questions, I'd like to encourage you to visit our website at howmet.com to look at the Howmet's Technology Day slides. As a brief introduction, I'd like to highlight three slides, beginning with slide 14. What I want to note is that Howmet is a trusted brand with differentiated technologies and a rich IP portfolio with deep process know-how. We're mission-critical in growing markets with the ability to supply 90% of structural and rotating aero-engine parts. I'm sorry, componentry. Approximately 70% of aerospace revenue is under long-term contracts, which is complemented by strong spares demand. On slide 15, 85% of revenue is generated for markets where we hold either a number one or number two position, driven by our customer relationships and differentiated assets. Lastly, on slide 16, Howmet's strategy has four pillars to grow above market rates, the prioritization of differentiated products with the discerning allocation of capital and resources, commercial and operational discipline, and finally, a disciplined capital allocation strategy. Additional information is available in the full presentation, which is on our website in the investor section. Now we can move to questions. We will now begin the question and answer session. Management requests that you limit yourself to one question. To ask a question, you may press star then one on your telephone keypad. If you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster. Our first question comes from Kristine Liwag of Morgan Stanley. Please go ahead. John, maybe I could start with a question on production rates. I mean, Airbus deferred its step up of the A320neo production rate to 65 per month to early 2024 versus their previous expectation of second half of 2023. We're seeing Boeing face challenges to maintain 31 per month for the MAX as well. In a period where OEM production lines are changing and your business is in the longer- lead- time side of the supply chain, how do you balance investing to meet production rate increases and not be an industry bottleneck versus preserving the cost structure and maintaining margins? Well, certainly it's a tough balance at the moment. You know, so far we've tried to invest in adding people and training to get ready for the production increases. As you've seen from the last quarter, continued to do so in preparing for the second half. As I noted in my comments, the backlog is pretty choppy. You know, we saw in May, the 737 production halted for maybe 10 days or so. Then maybe 20 Airbuses cut from the second half. Now next year, maybe a delay in the ramp of the A320 to, as you say, 2024. We find ourselves constantly having to readdress the, I'll say, the slope of the recovery, albeit you've seen we've been pretty consistent in how we've been able to deliver against that backlog and hope to do so in the future. I still think it's important to consider the fundamental premise of where we are, which is we are in a period of recovery, particularly for commercial aerospace, and defense is solid, and hopefully improving for us. We're seeing the recent buoyancy in the oil and gas sector, plus the anticipated recovery, although I did say more muted in commercial trucks. What we're continually doing is balancing between how we see the addition of, in particular, headcount. It's not really affecting our fundamental capital expenditure plans at this point, given we have capacity, latent capacity from previous investments. You know, we adjust and trying not to get too far ahead, but trying to be in line for our requirements to customers. When I think about one of the fundamental questions in the sector, which is the availability of castings and forgings, which you didn't mention, but implied in your question, was that point. Again, if you think back to the investments we made in two new engine plants in the 2019 period, then that has largely solved, or if not completely solved, the issue, which was very significant and present in 2017, 2018, and 2019, which was the capacity available for airfoil castings. I think one thing we've heard, and increasingly heard, is that the focus is more on availability of structural castings rather than turbine airfoil castings. We've been able to step up to that. At the same time, as I've tried to say on previous calls, you know, we have tens of thousands of parts. Inevitably, we are tight on a few, and that would apply to also a few structural casting parts, but nothing that we are aware of that's fundamentally holding engine production or delivery of engines to an airframe manufacturer. We're trying to balance, be ahead of it, again, investing in people, equipment, training, to be ready. I recognize that we you know we do keep readdressing that labor intake as we see our customers' plans do change and then the anticipated slope of recovery. Importantly, you know, if I broaden it out one stage further is that, you know, we're clear that 2023 is gonna be another growth year for Howmet, and we look forward to that. I'll give more guidance on that towards the end of the year, if not in the early next year. Essentially, what we're playing for is the angle of the increase, not the fundamental principle. I hope that covers it, Kristine. Great. I'll stick to one question. Thank you, John. Thank you. Our next question comes from Noah Poponak of Goldman Sachs. Please go ahead. Hi, good morning, everyone. Hey, Noah. It looks like the updated guidance for the year implies that the EBITDA margins would be relatively flat in the back half versus the first, and I think the business segment margin actually down a little the way the corporate and D&A shake out, and that would be on higher revenue, and I assume, you know, you're passing through costs while pricing you keep. Maybe just if you could walk me through, you know, why that would be the case. Yeah. I mean, I think the major influence on it has been the fact we've kicked up our assumptions regarding the inflationary costs, and we said just for the metals element alone, if you remember, we started out at the beginning of the year calling it somewhere I think in the region of $150 million, and now we're saying, I just said on my remarks, is that we see it north of $200 million now. Mm-hmm. The significant inflation element. That's ignoring, of course, the inflationary elements of, let's say, utilities, I mean, natural gas in Europe in particular, where, you know, I think all of us are familiar with the energy crisis in Europe and the pricing points that energy has reached. There's a lot to play for in terms of recovery of that or offsetting it. As you know, if we cover a dollar for a dollar, which is where we believe we are, that has a dampening effect on margin. The more we kick up those inflation assumptions, then you see that, Noah. Fundamentally, I believe that if we were to adjust for that, you'll see growth of margin year-over-year. Again, that's like saying, you know, let's change the assumptions. I choose not to. I think the important thing is, you know, we're holding our margin rates through quite extraordinary times of inflationary pressures and also the choppiness that I referred to in answering to Kristine's question. Really, I think that delivery of consistent margins is really important. You know, I will say, you know, we, I'll say quietly are fairly pleased with it. Yeah. Noah, I'd add to that as well. You know, we did bring down the 787 guide as well. That's a very profitable program for us. Now, we did replace with some titanium, you know, that's at a lower margin. So you've got a bit of a mixed component there. Also, I just wanted to clarify as well. We said for Q3 EBITDA $326, it's -$6 on the downside to $320, up $5. For the high side in Q3. That's all on slide 11. The earnings per share, I just wanna clarify, we have it on the slide there. $1.41 is the mid. We're down $0.03 on the low and up 0.01 on the high. Just wanna clarify. Ken, how much titanium did you add into the back end? We added $20 million of titanium revenue for the fourth quarter. Yeah. I chose not to provide a guide for 2023 at this point because we're still in the process of order acquisition. Also, even upon acquisition and completion of contracts with customers, then the next part is to balance out the inventory against new titanium supplied as Yeah. on stream. We're trying to get a more accurate picture of what inventory is held at customers as they, you know, bank security stocks from, say, VSMPO-AVISMA. We've got to assess that and when we provide you with a 2023 number. If I gave you one today, I wouldn't feel confident in. Yeah. in doing so. We really shouldn't extrapolate anything from that 20, it sounds like. No. I mean, the important thing is the fact that we are gaining orders. You know. Yeah. We're well in the game and, you know, clearly it'll be more than that in 20- Mm-hmm. Three. Just wanna get all that sorted before we. Clearly it's more of a discussion to, you know, for the end of the year, early next year. Thank you. Thank you. Our next question comes from Gautam Khanna of Cowen. Please go ahead. Yeah, good morning. I have a multi-part question. You know, to your comments on- Those are tricky, those multi-part ones, Gautam. Yeah, I know. It's kind of unfair, but the question is on share gain broadly and the opportunity. On the forgings side, you guys don't seem to be a pinch point. Are you seeing emerging demand there? Did that benefit the quarter or just bookings given lead times? Secondly, on the titanium share opportunity, the $20 million you reference, is that just one OEM? Is it across several? Have you seen any change in urgency for Airbus and Safran to source given the EU sanction, you know, was taken off of VSMPO-AVISMA? Thank you. Okay, let me do the latter part first, while it's fresh in my mind. It is several OEMs, both engine manufacturers and also an airframe manufacturer. Even though let's say European sanctions are not placed upon VSMPO-AVISMA, then not surprisingly, Airbus are choosing to secure a long-term source and security. We've begun to book orders with them. You know, we're still working elsewhere with other manufacturers and so still, you know, a lot to play for. It's also, I'm gonna call it urgency of completion is also influenced by the inventories in the system. I think that disposes of the titanium commentary. In terms of spot, I did say that spot would be a feature, more of a feature in the second half. It's always difficult to call it by the fact it is spot or not on LTA. You know, we are seeing some spot business that's is available and coming to us and we have you know have and secured some of it. And some of it is already going in because of long lead times, particularly of metal availability into 2023, as metal lead times go out and I see those going out, you know, nine months, 12 months. Therefore for some input orders, it's getting towards 12 months already. In terms of say the pinch point in the industry, there's very little that can be done in the short term because, for example, on structural castings, it's all about the tooling and the assets that go with it. Really, there's limited ability to cross over on those sort of areas. We've got our hands full just dealing with the orders that we have currently for ourselves. I think at the same time, you know, I do believe that over the next two or three years, there will be opportunities to further balance that supply. I think that. Thank you. All the points you raised, I think, Gautam. Yes, I appreciate it. Thanks. Thank you. Our next question comes from Robert Stallard of Vertical Research Partners. Please go ahead. Thanks so much, and good afternoon. Rob. John, on the metal pass-through, we've started to see some of these industrial metal prices come down. How does that flow through to you in terms of timing? Is the mathematical calculation basically the other way around? You should have a margin expansion as the metal pass-through reduces. We would certainly like that to occur. I mean, you have seen some small improvements in metals and with the most notable of which has been aluminum. As that price has come down, let's say it peaked at about $4,500 a ton, including Midwest premiums in the U.S. It's probably fallen closer to, let's say, $3,100-$3,150 at the moment. A significant move down, albeit still significantly above where it started at less than $2,000 a ton, 18 months ago. Assuming it stays there, and of course, you know, none of us know exactly what's gonna happen, but if it stays there, then certainly when our price resets occur on the first of January, then if it stays where it is, then you will see, for example, our wheels business gain margin expansion as those prices are reset. If it comes down across the board elsewhere, where again, it's fairly small at this point, then there would be, I'll say other tailwinds to margin as well. We haven't really called those out on the way up, and so I doubt I'll call them on the way down. The most significant has been the aluminum move, which has impacted, as Ken talked about in our wheels business, by over 400 basis points from where we started. Clearly to go down the other side of that would be very welcome. That would impact Howmet overall, and you begin to see margin benefit if metals stay where they are or continue to further improve, which we obviously are hoping for, but you know, we don't know because it's a future event. Yeah, makes sense. Thanks, John. Thank you. Our next question comes from David Strauss with Barclays. Please go ahead. Thanks. Good afternoon. David. Hey, John. Just wanna get an update on, you know, the wheels business, how the inventory situation looks there, you know, in terms of the semiconductors and the inventory or the backlog starting to deliver out. How do you feel about the Class 8 truck business overall? You know, if we're headed into a macro slowdown recession, whatever you wanna call it, you know, obviously what we've seen in the past is that, you know, despite big backlogs on the Class 8 truck side, that business can shrink pretty dramatically. Thanks. I don't think we've been in normal times for Class 8 truck in either the U.S. or Europe now for, you know, certainly the last 18 months. I'm gonna say, and I think I'd like to believe that this time it is different, so we don't see the same cyclicality. Of course, that might ring hollow because we don't know. But my view is that the availability of trucks has been so restricted for so long, and there's fundamental demand for fleets. Despite low order intake because people have just given up putting orders into the system, but when those order books open for 2023 in September, that we're gonna see a significant spike in orders, particularly from the larger fleets where demand is clearly there because of the aging of the fleet and also to improve fuel efficiency with, say, regulations which are particularly onerous in Europe. My thought is that the supply chain problems, while they're easing, so a lot of the trucks that have been built, called red tags with not the complete part set, have been cleared to some degree. There are still significant shortages across a range of commodities which are restricting build in the second half of this year. We've trimmed our assumption by 5,000 or 10,000 trucks in North America, as an example, for this year because of a more conservative assumption regarding parts availability. It does mean, I think, that we'll see the same sort of percentage increase that I talked about before between 2022 and 2023. Given the fact that even if we're gonna build more next year, or the industry is gonna build more next year and we'll supply more wheels, there won't be the opportunity because again, because of parts availability to draw forward truck build out of 2024 when people have historically tried to build and buy ahead of the emissions changes that are coming. My thought is that those emissions changes will occur in 2024. Trucks will be built in the relevant calendar year and maybe even the people who are interested in taking the improved fuel emissions from the trucks anyway. I'm hoping that what we're gonna see is an improvement in overall revenues in our wheels business in 2023 and stability and maybe even improvement into 2024 as well. That's despite the challenging macroeconomic backdrop of rising interest rates that has fundamentally depleted supply and demand, the supply situation that we've had, which has been extreme. It's a long way of saying, I feel inherently optimistic about it, albeit I've calmed down a little bit of the assumptions in 2022. All right. Thanks very much. Thank you. Our next question comes from Matthew Akers of Wells Fargo. Please go ahead. Hi. Good morning. Thanks. I wanted to ask about F-35 and kind of the defense business more broadly. I guess, you know, with sort of the lower outlook from Lockheed, just kind of where you are on F-35 stock, maybe stocking and I guess, you know, any other big moving pieces within the defense business. I think you talked about second- half improvement over the first half. Yeah, just any thoughts there. Yeah. For us, defense is a little bit seasonal given the relatively large aftermarket component within it, and that's why it gives some confidence to second-half solidity. At the same time, talking about the F-35 as a single item, which is about 35%-40% of our defense sales, then we've been incurring the, I'll say, destocking by our customer in the first half, and that will continue in the second half. The whole of this year, you know, we are clear that we're under-supplying Lockheed's build of aircraft. You know, we do note they've cut that build assumption from 156 down to, I'd say, 147-149 or something as an assumption for this year and next. Therefore, again, it's, you know, it places a little bit more of a burden upon us for inventory takeout, which, again, may fall over into the early part of next year. The fundamental picture is one where, you know, our supply situation in 2023, we expect will be better and improved compared to 2022. What we're playing for is the angle of recovery, just as I commented about commercial aerospace earlier. I just wanna keep that big picture in mind, you know, the revenue increases, and we're just debating the angle at this point in time. All right. Thank you. Bye. See you, Matt. That's great. Thanks. Our next question comes from George Shapiro of Shapiro Research. Please go ahead. Yes. Good morning. George. John, of the $200 million for material pass-through, can you tell us how much of that goes to the wheels business? Then just for this quarter, of the $40 million increase in revenues, how much of that was from the increase in the material cost? I'm gonna say sequentially, this quarter was fairly minimal as a quarter-over-quarter. I'm gonna look to Kenny in a second to cover that. I don't think we've broken down the $200 million between segments. It's sufficient to say that the majority of that $200 million relates to aluminum. I'm gonna look to Ken to see whether he has that level of detail, George, to be able to respond to you. If you just hold for a second. Yeah. Sequentially, it's really not material impact, George. We haven't given that $200 million to your question, the breakdown of aluminum, but as you can imagine, aluminum is a big chunk of it, right? When you look at what we've talked about so far in this quarter, we said $60 million of material pass-through. Of that, we had about $36 million, I believe I called out in my prepared comments, was aluminum. I can kind of give you a guide. Okay. Just one quick one. Ken, can you break out the aerospace increase by how much was OE and how much was aftermarket? I'm gonna say aftermarket. We generally don't call the numbers out, but aftermarket was a small improvement in the first half. We are expecting a bigger improvement in the second half, but you can assume the first half was within a single-digit percentage of what we were supplying in the second half of last year, George. Expecting bigger things to achieve what we believe will be a 30%+ year-on-year improvement in the spares business for us. Okay. Thanks very much. Thank you. Our next question comes from Seth Seifman of JP Morgan. Please go ahead. Seth Seifman. Good morning, everyone. Yeah. Just looking at the fasteners business, we saw the revenues kind of bottom out in the second half of 2021 and start to inflect higher here in the first half. There's been some pressure on the EBITDA, I guess from the second half of last year to the first half of this year. Are some of these additional inflationary pressures outside of materials showing up more in the fasteners or does it have to do with bringing on people now that revenue is growing again? How do we think about the incrementals here going forward? Yeah. The inflation, certainly materials inflation is not the biggest part of it. It is present, of course, across, let's say, titanium and, some steel and aluminum, for sure. It's not the biggest part of it. When I, you know, stand back and say, you know, is our Fastener segment underperforming? Which is always a good question to ask yourself. I don't believe so. There are two significant factors which are going on, which go to that margin. One is the reduced build of composite aircraft. If you look in the sequential margins of the business, when 787 was basically taken down to, I'll say 10%-0%, then I think as we've explained before, the effect of a composite aircraft replacing a metallic aircraft is a significant value accretion for us. Therefore, you know, we always look forward to that, and that's why we were looking forward to the 777X and the composite wings there. Albeit obviously that's pushed a little bit now. Essentially, if you think about mix or because of 787, which hopefully as soon as we turn the year, because even though, let's say, I think Boeing will begin to deliver from inventory, and I think they may begin to build, at a little bit higher rate in the second half. I don't know. A lot of that build is gonna come from inventory and, you know, there are multiple tiers because of the distributed, I'll say, supply base around the world of many of the components. Trying to get an accurate picture of all that inventory is difficult. That's why we've taken the assumption of 787 down to the 15 for the year from the 25, and therefore that mix effect will continue to weigh on our fastener business in the second half. The second thing is, you know, we've taken on a significant amount of people in our fastener business during the last quarter and preparing for volume improvements as we go forward. You know, we did see volume pick up in Q2, and we're planning for further volume increases in Q3 and Q4, which basically is bedding in our guidance because we've also, as you know, seen lifted revenue guidance. You know, the rate of climb continues. When you look at it, you shouldn't look at it compared to whether we beat consensus or beat guide or not. You need to look at a more consistent track through the last year of consistent quarter-over-quarter. Like, you know, we put on $100 million in like Q3 of last year, then a slight pause and another $100 million in Q1. You know, we've just guided you to like another $100 million sort of, you know, average improvement. You know, it's coming, and we're recruiting. When you combine both the recruitment costs that we've incurred in fasteners in Q2, plus that mix effect, that really, you know, goes to the heart of the margin issues, or not an issue, but the margin change. Then clearly, as those employees become more productive, and it's also gonna be influenced by our rate of continued hiring as we prepare for next year. I'm hoping that begins to improve because of the, you know, the denominator will get bigger of the employee base. As 787 begins to start getting built in the first part of next year, I do see things beginning to improve for that segment. Great. Thank you very much. Just a reminder, if you have a question, please press star then one. Our next question comes from Phil Gibbs of KeyBanc Capital Markets. Please go ahead. Hey, good afternoon, John and team. How are you? All good. Thanks, Phil. Good. Within the guidance, are there any more buybacks implied in that? Meaning from what you've already announced through July. What I'd do is to guide you to what we've said by way of approaching 2.5x n et leverage by the end of the year. You can reverse engineer it from the cash flow that we've given you and an assumption around any balanced capital allocation between. I'll do them in maybe reverse order, the dividend increase, which I want you to note, and that shows confidence in our cash flows, and I think it's an important thing to do for our shareholders. At the same time, we will also be addressing hopefully some improvement in our debt structure, and also hopefully some continued say buyback of stock. You mustn't assume it's all of one or anything. It's a balanced approach in that second half, and you can get it as the, you know, whatever assumption you make in terms of whatever approaching 2.5 is, so clearly better than 3. I'm hopeful that that will also reflect into the credit ratings of the company, and also an approach which, I'll say, our shareholders are also pleased with that as well. Thanks, John. You guys have gotten to be a public company now for several quarters. We're clearly on the other side of the demand cycle here for your key markets. The balance sheet looks like it's in good shape. Is there any thoughts to doing, you know, M&A? Are there opportunities out there available and the things that you would like to do strategically? Okay. Just picking up on your theme is that, you know, post-separation, you know, we went immediately into the, I'll say, COVID pandemic, but within two quarters, we'd restored our margins. We've been consistent in performance and cash flow all the way since then. As you've seen, putting the balance sheet in really great shape, you know, approaching eventually probably more of our target leverage around that two times or better. You know, everything's progressing very satisfactorily. We are open to considering any M&A moves, but I've always said it's more in that bolt on, you know, scale, which we can do within a quarter or so of cash flow. No immediate thought to doing that. It's got a high hurdle to overcome, which is does it provide a good, you know, return on capital for any such investment? Can we gain not only cost synergy but revenue synergy? And therefore, does it go with the strategic intent of the company? You know, we've aimed it more if we said, if we're gonna do it's probably more likely in our engine or our fastener business rather than elsewhere. At the same time, again, try and be disciplined about it all. Nothing that immediately would pass any hurdles compared to the relative risk-free, I'll say, action of buying our own stock back, which we obviously know well, feel confident in, and have been consistent in buying back really on almost every quarter over the last couple of years. Only probably paused for a quarter or so in 2020 just after the, I'll say, the onslaught of the pandemic. Solid. Thanks, John. Our next question comes from Michael Ciarmoli of Truist Securities. Please go ahead. Hey, good afternoon, guys. Thanks for taking the questions here. Just, I guess, John or Ken, how should we think about inventory, you know, into the second half of 2022 and maybe overall working capital as we, you know, really think about 2023? I mean, it seems like there's a number of moving parts with the F-35 burn going on. It sounds like and it seems like 787's gonna be ramping. Not sure if you need much or need to plan much for some of the titanium. Then I guess the truck's a little bit slower than you initially planned. Can you just give us any color on where inventories might go? Yeah. I mean, I'll deal with our own inventory first before I comment on anything to do with our customer inventories. We built $200 million of inventory in the first half, and we've tried to aim the majority of that towards finished goods. So, but not exclusively, but a lot of it towards finished goods or certainly very advanced stage of work in progress, so that we can and have tried to keep pace and be able to satisfy our customers and have that ability to deliver out of stock to meet their needs. We only tied in one or two places. Now, having put that what I call the stock for hopefully improved supply security in the face of the lift in demand, that is, I doubt we'll try to replicate that again in the second half. You know, there may be some, but nothing at the scale of the first half. Trying to plan a steady level of production throughput improvements from the hiring we've done as we exit this year into 2023. Obviously, we'll make those judgments exactly how much inventory we'll carry into next year according to what the final shape of the increase in revenues for next year is. So I think all good on that front. So more of a, it's a less of a build and more of a pause, but maybe some selective improvements in inventory in the second half. In terms of our customer inventories, it's difficult to really comment. As I've said, 787, despite, you know, we could assume that, you know, there will be build of aircraft in the second half. I have a feeling that maybe we may see a higher increase in build than we thought because it may prove to be a good way of supplying those 787s into the clearly the airline demand, which is there compared to the inventory which they have. We don't know that. We've just said, you know, there's clearly inventory in the pipeline. There's inventory around whether it's sub-suppliers in Europe or in Japan or elsewhere in the world or in the U.S. Let's be relatively safe and therefore, you know, we chose to take down our view of 787 for the second half, you know, given the fact that, you know, it's been delayed, you know, from last year to Q1 to Q2. All seems to be set well now. As I've said in previous calls, the aircraft is a great aircraft. There's clearly demand and need for it there. International travel is coming back. I think that plus, you know, I've read that Airbus are considering even looking at possibly improving their wide-body rates as we go into next year and beyond, you know, more than they've already signaled in Skywise. You know, I have some optimism, but really choose to say, you know, the improvement, particularly for wide-body, will be more of a 2023 feature and also for our commercial truck business. Got anything else to add to that, Mike? Yep, got it. Thanks, guys. This concludes today's conference call. Thank you for participating. You may now disconnect.