Good day, and welcome to the Howmet Aerospace third quarter 2022 earnings conference call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions, and please note that this event is being recorded. I would now like to turn the call over to Paul Luther, Vice President of Investor Relations. Please go ahead. Thank you, Cole. Good morning and welcome to the Howmet Aerospace third quarter 2022 results conference call. I'm joined by John C. 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 and earnings press release and in our most recent SEC filings. In today's presentation, references to EBITDA and EPS mean Adjusted EBITDA excluding special items and adjusted EPS excluding special items. These measures are among the Non-GAAP financial measures that we've included 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 welcome everyone. Let's move to slide four. Howmet Aerospace continued to perform well in the third quarter. Earnings per share were in line with guidance midpoint and EBITDA margin was strong at 22.5%. Revenue, EBITDA, and earnings per share all grew for the fifth consecutive quarter. Q3 revenue was $1.433 billion and was fractionally lower compared to the midpoint of guidance of $1.44 billion. All aerospace segments showed strong performance with sequential growth in the third quarter. Commercial transportation was lower, reflecting normal seasonality and the effect of the wheels fire within cast house spill, which has now been resolved and production at the site brought back fully online as of the third week of October. In September, we saw commercial aerospace customers rebase their schedules, notably in Engine Products, reflecting two dynamics. Firstly, a lower narrow-body engine build over the summer and early fall than was originally envisaged and due partially to the availability of structural castings. Secondly, customers bringing airfoil inventory levels in line by year-end. I'll provide further commentary in the outlook section of my remarks. EBITDA was $323 million and further progression on Q1 and Q2 of the year. Free cash flow was positive as forecast, however impacted by carrying higher commercial aerospace inventory levels, again, due to the schedule rebalances of our customers. Q3 ending cash was a healthy $454 million after repurchasing approximately 2.8 million shares for $100 million at an average price of $36.17 per share, and also paying the quarterly dividend. Legacy pension and OPEB liabilities continue to be reduced, which result in a reduced year-to-date cash contributions of approximately 45%. I'll now pass the call to Ken for commentary by end markets and by each business segment. Thank you, John. Please move to slide five for an overview of the markets. Third quarter revenue was up 12% year-over-year. The commercial aerospace recovery continued in the third quarter, with commercial aerospace revenue up 23% year-over-year and 7% sequentially, driven by the Engine Products segment and the narrow-body recovery. Commercial aerospace has grown for six consecutive quarters and stands at 47% of total revenue, but continues to be far short of the pre-COVID level, which was 60% of total revenue. Defense aerospace was down 4% year-over-year, driven by continued customer inventory corrections for the F-35, which was in line with our expectations. Commercial transportation, which impacts both the Forged Wheels and Fastening Systems segments, was up 13% year-over-year, driven by higher aluminum prices and higher volumes, partially offset by foreign currency. Finally, the industrial and other markets, which is composed of IGT, oil and gas, and general industrial, was down 2% year-over-year. Within the industrial and other markets, oil and gas was up 11%, IGT was down 2%, and general industrial was down 9% on a year-over-year basis. Now let's move to slide 6. As usual, we'll start with the P&L and the focus on enhanced profitability. In the third quarter, revenue, EBITDA margin, and earnings per share were all in line with guidance. Revenue was up 12% year-over-year, including material pass-through of approximately $70 million. EBITDA was $323 million, and EBITDA margin was a healthy 22.5%. If we exclude the $70 million impact of higher material pass-through, EBITDA margin was 120 basis points higher to 23.7%. Adjusting for material pass-through, the flow-through of incremental revenue in the quarter to EBITDA was strong at 39%. During Q3, we continued the recruitment of headcount by approximately 350 employees, primarily in engines. Year-to-date, we have increased headcount by approximately 1,575 employees focused in engines and fasteners. In Q4, we do not expect significant headcount additions. Adjusted earnings per share was $0.36, up 33% year-over-year. For the quarter, the impact of foreign currency was minimal. Moving to the balance sheet, free cash flow year-to-date was $130 million, including inventory build of approximately $270 million, primarily for the commercial aerospace recovery. Cash on hand was healthy at $454 million after buying back $100 million of common stock and funding the quarterly dividend. The average diluted share count improved to a Q3 exit rate of 419 million shares. Year-to-date, net pension and OPEB liabilities were reduced by approximately $85 million, and cash contributions were reduced by approximately 45% or $35 million. Discount rates continue to be favorable and will be remeasured at the end of the year, which should further reduce net pension liabilities. We continue to expect annual cash contributions to be approximately $60 million versus expense of $20 million. Finally, net debt to EBITDA remains at 3x. All bond debt is unsecured and at fixed rates, which will provide stability of our interest rate expense. Our next bond maturity is in November 2024. Moving to capital allocation, we continue to be balanced in our approach. Capital expenditures continue to be less than depreciation at approximately 65% in the third quarter. Productivity CapEx continues to focus on automation projects in the engines and fasteners business to improve yields, enhance quality, reduce outsourcing, and mitigate labor risk. We purchased approximately 2.8 million shares of common stock in the quarter for $100 million. Year-to-date, we have repurchased approximately 9.7 million shares of common stock for $335 million, with an average acquisition price of $34.60 per share. Share buyback authority from the board of directors stands at $1 billion. Lastly, we continue to be confident in free cash flow. The quarterly dividend was doubled to $0.04 per share per quarter, with the first higher payment to be made in November 2022. Now let's move to slide seven to cover segment results. Q3 was another solid quarter for engines. Year-over-year revenue was 14% higher in the third quarter, with commercial aerospace up 30%, driven by the narrow body recovery. Defense aerospace was down 5%, IGT was down 2%, and oil and gas was up 11%. EBITDA increased 23% year over year, and margin improved 200 basis points to 22.7, 27.2%, despite adding approximately 260 employees in the third quarter. Year-to-date net headcount additions for the engine business was approximately 1,040 employees. While the headcount additions are preparing us for the future commercial aerospace growth, it does unfavorably impact near-term results due to the time and cost required to train new employees, which could take several months depending on the position. Now let's move to slide eight. Fastening Systems year-over-year revenue was 15% higher in the third quarter. Commercial aerospace was 24% higher, driven by the narrow body recovery, somewhat offset by continued production declines for the Boeing 787. Defense aerospace was up 16%. Year-over-year segment EBITDA increased 8% despite the addition of employees to support future growth. Year-to-date headcount additions for fasteners was approximately 410 employees. Sequentially, EBITDA margin improved 180 basis points to 22%. Now let's move to slide nine. Engineered Structures year-over-year revenue was down 3% in the quarter. Defense aerospace was down 14% year-over-year, driven by customer inventory corrections for the F-35 as expected. Commercial aerospace was 5% higher as the narrow body recovery offset the impact of production declines for the Boeing 787. Segment EBITDA increased 8% year-over-year. EBITDA margin improved 140 basis points to 14.5% despite the inventory burn down of the F-35, continued zero to low build on the 787, and inflationary cost pressures. Structures Q3 2022 EBITDA margin of 14.5% was greater than the 2019 annual rate of 14.2% when 2019 revenues were over $1.25 billion. Finally, let's move to slide 10. As expected, Forged Wheels year-over-year revenue was 15% higher in the third quarter. The $35 million increase in revenue year-over-year was almost entirely driven by higher aluminum prices. Commercial transportation demand remains strong, but volumes continue to be impacted by customer supply chain issues limiting commercial truck production. Segment EBITDA decreased 11% due to the impact of unfavorable foreign currency, primarily driven by the euro. While the pass-through of the higher aluminum prices did not impact EBITDA dollars, it did unfavorably impact margin by approximately 340 basis points. The impact on EBITDA margin increases to more than 550 basis points if you also include the unfavorable margin impact of passing through higher inflationary costs like the European energy cost and the unfavorable impact of foreign currency. Before turning it over to John Plant, I will remind you that the impact of foreign currency to Howmet Aerospace in total is minimal as the aerospace segments provide a natural foreign currency hedge against the Forged Wheels segment. Lastly, in the appendix, we've updated assumptions, including an improvement in the annual operational tax rate to approximately 23.5%, which translates into a Q4 operational tax rate of approximately 22%. Also, we have updated annual assumptions to reflect improvements in our cash tax rate, net pension liabilities, depreciation and amortization, CapEx, and diluted share count. Now let me turn that back over to John. Thanks, Ken. Let's move to slide number 11. First, let me comment on the wider picture in commercial aerospace. Recovery continues with increasing airline schedules and load factors, especially in Europe and North America. Airline profits are rebounding well, and new aircraft are being ordered, especially narrow-body aircraft. International travel has also rebounded during the year and is showing strength, which is leading to modest increased production as we move into 2023, notably for the Airbus A350 and the Boeing 787 after its recent recertification. Spares for the aftermarket also continue to increase. This trend provides optimism that aircraft build volume will continue to strengthen throughout 2023 and 2024. Recent aircraft build rate issues have been more the result of parts availability, especially, but not confined to engines. While we have to be cautious at this time, pending more visibility of unrestricted builds, allowing Airbus to reach their build levels of 55 per month for the A320 and Boeing to reach their build levels of 31 per month on the 737 MAX, we do envision that commercial aerospace revenue should be up around 20% in 2023. Consolidated Howmet Aerospace, including commercial aerospace and its other sectors of defense, industrial gas turbine, oil and gas, and commercial transportation, is expected to be up approximately 10% ±2% in revenue. Further refinement will be provided in February 2023 upon release of Q4 earnings. In the more immediate timeframe of Q4, we do envision further sequential growth. However, approximately $70 million of lower revenue compared to previously envisaged, primarily in Engine Products as a result of the lower engine build achieved and customer inventory drawdown for the end of year, per my earlier comments. This results in an annual guide of $5.62 billion due to small offsets in other business areas beyond Engine Products. Earnings per share of $0.38 in the fourth quarter, which again is another sequential increase as we've shown in each quarter of 2022. Higher inventory will now be needed at year-end to accommodate the snapback and increasing build starting in the first quarter of next year once we've got through this inventory correction. More specifically, the guidance for Q4 is as follows. Revenue, $1.47 billion +$30 million - $20 million. EBITDA, $330 million +$6 million - $5 million. Earnings per share of $0.38 ± $0.01. For the full year, revenue of $5.62 billion +$30 million - $20 million. EBITDA of $1.27 billion +$6 million - $5 million. Earnings per share of $1.40 ± $0.01, as we've narrowed the range from previous guidance. Free cash flow of $560 million +$20 million - $40 million. This reduction compared to prior guidance is driven by the higher year-end inventory carried into 2023 for the continued commercial growth, aerospace growth in the first quarter. Let's move to slide 12 for the summary. 2022 is another solid year with increases of revenue and profit building in each quarter and sequentially into Q4. Momentum does continue into 2023, with commercial aerospace expected to perform above normal growth rates in 2023, 2024, and also 2025 before reverting to a more normal 4% per year growth for aerospace. We look forward to the future. Let's now take your questions. We will now begin the question-and-answer session. To ask a question, you may press star then one on your touchtone phone. If you're using a speaker phone, please pick up your handset before pressing the key. To withdraw your question, please press star then two. In the interest of time, we kindly ask that you please limit yourself to one question. You may re-queue for additional questions. At this time, we'll pause momentarily to assemble the line. Our first question today will come from Robert Spingarn with Melius Research. Please go ahead. Hi. Good morning. You're welcome. John. Good morning, everybody. John, there seems to be a bit of a disconnect in commercial aero and the messaging, you know, between Boeing and Airbus. Engine deliveries for Pratt & Whitney and CFM were up significantly, and Airbus says the OEMs, the engine OEMs are catching up, but Boeing talks about the bottleneck, which you referred to earlier. Are you seeing, you know, more volumes for LEAP-1A versus LEAP-1B? How do we make sense of this difference that we think is occurring on the LEAP? Okay. First of all, let me agree with you that it is confusing. I think it's confusing for everybody at the moment. Let's start off with the broad picture and then talk about Howmet before any commentary on a wider basis. I think the big picture is, you know, commercial aerospace continues to grind higher. Everybody's trying to do the right things, and airlines are improving. I think aerospace manufacturers are improving their throughput, and the engine manufacturers supporting those aircraft builds are also, you know, doing their part of the whole thing. I guess not everything is going perfectly as we've seen from some of the numbers and some of the disconnects apparent from commentary on calls last week. Let me deal with Howmet at first and say, you know, we've been really well prepared through the last year and beyond. As you would know, we started recruitment of labor in the second quarter of last year and hired almost 1,000 people last year. Through year-to-date, I think we're approaching now something like 1,500 people through the end of the third quarter. I think the most salient factor for ourselves was that during September is that compared to the schedules and delivery requirements that we thought we would see for both September and the fourth quarter, we saw a complete rebasing of those requirements where we'd had arrears which had been built up according to, I think, the anticipated engine builds in particular. As we know, the anticipated engine builds were not as high as the actuals, not as high as anticipated. You saw Airbus commenting on the fact that they had gliders in the, like, 70 at one point, then it was down to maybe 10 or 20. While I'll say deliveries of engines did improve, I don't think anybody believes that the quantity of engines that was originally envisaged to be built were built. In terms of the splits of whatever was delivered on LEAP between one A, one B, one C, we don't have any visibility into that. I mean, we do note that from the call last week, from GE Aerospace, which provides a lot of those engines, is that they were significantly up with an improved deliveries, I think, in the near 350 engines. How many went to Airbus? How many went to Boeing, COMAC? And indeed, how many of those engines, which we also, you know, sometimes forget they go to airlines or spares and also aircraft leasing companies or spares, I don't really know. It's difficult to judge. Certainly you feel as though there was enough engines in the whole system, but maybe they were out of bounds somewhere. Difficult to really know. Nevertheless, the big picture is those actual builds, both by CFM engines and LEAP engines, were less than had been envisaged. I think we've heard in the past about restrictions around structural castings in particular, which is probably not confined just to that. Therefore, when customers looked at where they were and what they expected to finish the year with, and also where they had received from ourselves, for example, all of the airfoils they required, and more maybe, is that to balance their own inventories for the end of the year, is that they were cut back. Despite still sequential growth quarter-over-quarter, that growth is not as high as we had envisaged. Right now we've drawn our labor recruitment down significantly. We'll be probably recruit selectively in a few areas in the fourth quarter. Essentially, the rest will go to zero. Though, because we don't want to suddenly stop production, we're gonna carry about $70 million of additional inventory, which will hit our cash balance at the end of the year. Then, of course, we need that inventory to carry us through into the first quarter, where we do expect those requirements will be placed back on us significantly. Engine build will improve and hopefully aircraft production will improve. We're trying to smooth ourselves out. We'll utilize all of the labor that we've recruited, carry on with production, put it into inventory so we have a smooth start up into the start of next year, so we keep all of our customers happy. It does enable us to stop ourselves hiring a lot of people. We'll eliminate some of that cost, albeit, as you can imagine, we were holding that cost in the month of September, and we are, you know, into the balance of year. That's the big picture. In terms of exactly what the rate of production of the 737 is, and the A320, I don't think we're best placed for that. I believe that most people are heading off on the sell side to Seattle this week, so you'll probably get a clearer picture during those visits. I don't know whether that covers it out for you, Rob, but it's trying to give you a sweep through the whole situation. No, that's really helpful, John. Even with what you just said, and I am heading out there with the others, just on the 787, are you still looking for 15 ship sets for this year? Do you have any insight into next year? We have a revised skyline for next year. We don't have much for this year. I think it's going to be de minimis of any production on the 787. My guess is it's probably just the 1 a month that we've seen previously. I don't really know. It's pretty opaque to us, and I'm assuming there's inventory in the system for that. We do have skylines showing, you know, clear improvements on the 787 build during the course of next year. I think from memory it's probably the back end of the year at around about five aircraft per month. I do have confidence that there is a market requirement for that because when I look at the return of international demand for travel, just look at, I'll say, the cutbacks that were made in wide body during the last few years. If anything, my guess is that there's gonna be a higher demand on wide body, which will support a rate for both Airbus and for Boeing for their A350s and 787s above that rate. I'm actually tending towards the optimistic side of fundamental demand. The only question that we have is in terms of our own guidance is, you know, to how conservative should we be because we, you know, we do hear this noise that you referred to about exactly how many were made and where the parts are and what are the constraints and so. You know, that also causes us to be just a little bit cautious, given the factors that we've encountered in the last month or two in rolling into the end of the year, albeit against, you know, we see that spiking up in the first quarter. Thank you, John. I appreciate all the detail. Thank you. Our next question will come from Gautam Khanna with Cowen. Please go ahead. Good morning. Can you hear me, guys? can hear you clearly, Gautam. All good. Terrific. Hey, I wanted to ask if you could talk about share gain opportunity, so anything incremental on titanium and are any of these pinch points on engines accruing to your benefit where customers are engaging you on castings or forging? If you could just speak to that. The biggest pinch points for engines, I think, has been around the structural castings. There's probably some engine controllers as well, but I don't really know that. There's probably lots of other things which I'm not fully aware of. I think the commentary around structural castings is pretty widely publicized. In the short term, it doesn't really present an opportunity to us because, you know, there is specific tooling and certification procedures which are required, and so it really is a case of getting those structural castings from the relevant supplier. In terms of ourselves, you know, while we have been tighter than we'd like on structural castings is that we don't believe that we've caused any engine build issues and indeed are beginning to see in that segment significant improvements in our throughput and abilities. It's not quite as good as the flow of airfoils that we've been seeing because that's been a really, I'll say a high class output for us during the year. Short term, nothing we can point to. I think in the medium to longer term, you know, we will see benefits on the structural casting side across the various sectors of the industry, but nothing for us to put into our, let's say, 2023 planning at all. On titanium, which was your other question, those orders continue to improve. We've booked additional orders during, you know, the third and fourth quarter, and that's looking, you know, better for us. Albeit there's still, you know, significant areas to go because we still have, in particular, one of the airframe manufacturers which has got a lot of inventory, and hasn't really yet moved to cut the orders loose on the supply base. More to come on that subject as we move into next year. Thank you. Our next question will come from David Strauss with Barclays. Please go ahead. Thanks. Good morning. Hi, David. John, to try to simplify this, are you at, you know, 31 a month on the max on the engine side? Are you at 45-50 on the engine side for Airbus, and it just really has to do with shortage of other parts, and as a result, the manufacturers kind of slowed down things to get everything aligned, given that they're building below the rate that you are currently producing at? Yeah, we've been building at rate. We've taken the requirements from our engine customers and the airframe manufacturers, and we've just been more or less in line with that. I'll say 50+ for A320 as an example, probably with some attempted inventory fill in for rate build increases next year. In the case of Boeing, we were, you know, fully planning on the 31 a month, and, you know, had anticipated that those, according to, let's say, verbal communication, not any scheduled commitments, you know, originally were planned to rise during the first quarter of 2023. As we all know that those production levels probably have not been achieved, and, you know, both at the airframe manufacturers and certainly on the engine side. Where we've been in line at or even, I'll say, you know, meeting for rate increases next year is that that inventory is being taken back out of the system to bring it down to what actually has been produced and, you know, the requirements seen for is, I think, in particular, the engine manufacturers, you know, look towards their own year-end and the inventory that they're carrying. So there's not much point in carrying, let's say, additional airfoils when you don't have some of the other parts to go, you know, with the engine. It's pretty' s Got it. That's, you know, simple, David. John, do you see, at least from your side where you sit, any constraints, you know, whether it be, you know, hiring additional headcount, training headcount, raw material, anything? Do you see constraints to go up to, you know, the mid-50s to 60 that Airbus is talking about on narrow-body and Boeing going up to, let's say, you know, low 40s? Do you see a constraint from your side of things? Not from our side. You know, we think our tight points, which are in structural castings, have been or are being addressed, and so that's in good shape. We, you know, are going to pull back on our hiring, as I said, again, selectively. We will continue, for example, hiring and training in our structural casting plants. You know, at the moment, if you take our airfoils, you know, we will just stay with the labor we had at the end of the third quarter and pause it to balance our own requirements. So far we've been able to increase our quantity of people, and it hasn't really presented a great impediment to us. Sometimes the turnover of those people has been higher than we'd like, but the quantity of labor has not been an issue for us so far. Thanks very much. Our next question will come from Myles Walton with Wolfe. Please go ahead. Thanks. Good morning. Looking sequentially into 4Q, it looks like you're looking for a $4 million EBITDA growth on the $40 million of sales growth. I'm just curious, is that lower incremental driven by something like FX or mix? Sounds like labor is probably a help and raw material pass-through might be a push. Can you start the first sentence again, if you wouldn't mind? Yeah, sure thing, John. If I just look sequentially from 3Q to 4Q, you've got pretty minimal EBITDA growth, about $4 million on the $40 million sales growth. I'm just curious. Right. The- Okay. What's holding you back if labor and raw materials are, and pass-through aren't the issue? Let me start with commentary, regarding the third quarter first. I mean, adjusted for the material pass-through, incrementals were really strong, at 39%, which was above the, I'll say, the midpoint of where we talked previously, said it's, you know, 35% ± 5. I think that was a really strong quarter. The reason why we are being cautious about our fourth quarter is that, we're carrying that labor into the fourth quarter that, we probably don't need now for that reduced level of build. There's a labor drag, plus also the preparation of, I'll say a lot of other production parts and facilities that go along with that. That's the reason why you're not seeing the same level of incremental pull-through in the fourth quarter. I think you should look at that. That's just a rebalancing of ourselves as we have drawn down that $70 million plus of Engine Products, which is a you know a high margin business for us. I think it's you know completely in line with you know with the commentary I've given. Fair enough. In that 10% growth sales in 2023, do you have a flavor for what we should think about from incremental margins there? I think we'll talk more about that in the February call. You know, I know that last year I gave a revenue guide because I thought it was important for 2022. I think the same is important, so we really understand the wider picture around the company. You know, having the confidence that we should be anywhere from, I would say, you know, 10 ±2 or 8-12% is a statement of confidence in that we're on trajectory and we're only just debating the angle of the recovery. You know, either which way, it's above the normal for aerospace. You know, say aerospace is normally 4 or 5%. It's more than double that rate. It's pretty healthy. We're not ready to give any margin guidance at this point. Okay. Fair enough. Thank you. Thank you. Our next question will come from Seth Seifman with JPMorgan. Please go ahead. Hey. Thanks very much. Good morning, everyone. Morning, Seth. John, I wonder, so the 10% growth outlook for next year, if aerospace is growing 20 and that's, let's say, 45% of the sales base this year, you know, it implies really minimal growth in the rest of the portfolio. If you could just talk about the, you know, what's happening in the other end markets. Then specifically, maybe help us around Forged Wheels. I mean, between the currency and energy pass-throughs and aluminum pass-throughs, there's, you know, a lot of ups and downs, especially in terms of the revenue numbers and the margin rate. If we think about the, you know, the baseline of EBITDA dollars there, you know, and what this quarter says about what that might be going forward, any help there would be appreciated as well. Okay. In terms of the defense business and oil and gas and industrial gas turbine, I think all of those will see, at this point, a low single digit growth. And my guess is that maybe oil and gas will be higher, maybe defense will be lower, but still expecting some growth in those. If you plan for that and lay it across the with the commercial aero, then the one segment where I think we're gonna see a revenue decrease will be in the Forged Wheels business for the commercial transportation segment. Let me try to explain what we see there. I mean, the first thing is, of course, the headline number is affected by the price of aluminum because as aluminum has fallen during the course of this year from its peak of $4,500 a ton, including Midwest premiums or Rotterdam premiums, it's more like probably $2,800 now. As we rebalance the pricing, 'cause we will pass that back, then you get a couple of effects of those new prices going into effect on the first of January, you know, there is a revenue decline which doesn't affect the EBITDA dollars, and therefore, you know, there is a margin rate improvement from that. At the same time, let me think about what do we expect by way of volumes. You know, we do note that the order intake, for example, for Class 8 truck was the highest it's ever been in September. I think 53,000+ trucks, which is, you know, really, I would say, great number. Probably inflated by the fact that many, I'll say the truck manufacturers hadn't been willing to take orders for next year until they were clearer regarding the input prices of their materials. That is difficult to separate out what's really going on, except that the fourth quarter should see solid production improve compared to where we've been, and I think that will continue in the first and second quarters next year. My caution at the moment is in the second half of next year when I think we'll see the effect of the higher interest rates bear on the economies, in particular in Europe, which is, you know, overlaid with energy prices. I think there'll be a dampening of demand, and it's probably around more the distribution and the trader segment of the business. My anticipation is that that second half of next year will be a tougher comparison to the second half of this year. I mean, obviously, it's only speculative stage, so I want to be cautious about it. I think the correct planning assumption is solid performance through the next three quarters, then anticipate a bit of a drawdown, depending on how the economy is really doing, and does it go into a recession or not? Try to make the assessment. The best I can do at this stage is that when I look at it, my guesstimate has been something like, on a volume basis that we could be, let's say I'll just give you an example of a thought at the moment is on the year, maybe 300,000 or 400,000 wheels down in volume. We'll probably pull half of that back by additional penetration of aluminum versus steel. I'll say programs we have to increase our share. Net, I'm thinking that a little bit of volume caution in the second half, plus with the effect of the aluminum reduction, will produce a drawdown of revenue, albeit the only effect on EBITDA will be that net drawdown of volume should it occur. I don't think there's, you know, a reason to be optimistic and say, you know, all is great and it'll continue. I don't think we're going to be affected by the emissions legislation for 2024 because there's an inability to build ahead. It's all down to that second half assumption of next year, Seth, which is just a guess on commercial wheels at this stage. Nobody knows. You know, why put it out there? It's gonna be good. Great. That's very helpful. Thank you. If you put that wheel thing as a down, add the other single digit and commercial, I think you can get to the guidance range of that 8-12 I've given you. Great. Thank you. Our next question will come from Kristine Liwag with Morgan Stanley. Please go ahead. Thanks. John, you've been clear that you now have the labor in place to ramp up next year. When you think about their training, you said six months or so, how much have they pressured margins to have labor this early? How should we think about incremental margins next year when we actually get the benefit of volume coming through? Okay. Well, we're gonna pause the remaining in Q4 for recruitment. Not totally. It'll be two or three or four plants that will continue. Of our complete network, you know, we are choosing to pause that at this stage until we know more and let the additional people that we've already recruited during this recovery, which is some, I'll say, 2,500, you know, come up to rate and let that, hopefully, productivity improve. Depending on the job, it can take anywhere from, I'm gonna say, three months to bring in, you know, somebody into the plant and to be, I'll say, reasonably effective, all the way up to two years or and beyond for some of the very skilled areas. You know, we have to move people around to try to balance all of that out. I think there will be a benefit for that stabilization. How much is difficult to say at this stage, and it obviously depends on the growth next year. We will commence recruitment again in larger numbers in January, as we expect the build rate to increase in January. We'll go for the first quarter, taking some of it out of inventory from the fourth quarter, but we'll continue then and hire up to recruit people again. That's, I'll say, countervailing. I'm not yet ready to give any commentary about margins for 2023 at this point. Thanks, John. Maybe following up on the inventory build. I mean, the shortage in castings and forgings have been well-publicized, and, you know, the OEMs have been very clear that there's strong demand for aircraft out there. I guess I would have thought that we'd be in an environment of full steam ahead for demand for your product. What's causing the uncertainty? Also, with the $80 million inventory headwind that you highlighted in this quarter, when does this unwind? You know, where could peak balance be? Okay. I think everybody expected continued buoyancy, as we did, for increases in build. I think they are occurring. It's only a question of degree. As I said, if we haven't built as many aircraft as had been thought, and there seems to be a case where that's correct, you're just going off the earnings calls last year from the airframe manufacturers. While, you know, there's a notable and real improvement in engine build, you know, it still is in aggregate, I think a little bit lower than people had probably planned for. I mean, everybody's trying really hard throughout the whole system. You know, airlines are, you know, doing well and improving. They're trying hard and getting people and bringing aircraft back into service. I think the engine manufacturer's trying really hard. I think the airframe manufacturers, everybody's trying really hard to get up this ramp and deal with all the factors that they've had to cope with in terms of which starts with COVID, and then supply shortages and freight rates and just training of labor and availability, and then other, I'll say impediments in other materials in the supply chain. There's been a lot going on. I think everybody's trying to do the right thing. I think all we're talking about here for Howmet is that where some of our parts are being brought into line with what they have for elsewhere, and maybe just a little bit of a less ambitious plan in terms of build rates, just because, I mean, I think you can see that probably we haven't built or there has not been as many MAXes built or, maybe as many, you know, narrow-body Airbuses built as originally envisaged. Is my guesstimate from trying to assess the information available. From, from either, you know, from what's been said publicly on the earnings calls of other companies. Thank you for the color, John. Thank you. Our next question will come from Elizabeth with Bank of America. Please go ahead. Hi. Good morning. Hi, Elizabeth. How are the different customers prioritized in your queue? Are more profitable customers prioritized first? Start with that. Okay. No. We treat every customer their requirements with equal respect. There's no prioritization. I don't think that would be appropriate. You're either a customer, and we make a commitment, and when we do that, you know, we deliver to you to the very best of our abilities. Okay. If you had a certain number to ship out and the demand was mismatched, there would be no prioritization of, in terms of who got what? No, I don't think so. I think we should, again, respect that there's a requirement our customers have placed on us. I don't think that we have a policy nor a plan, nor even the ability. If you think about our shipping docks, you know, they operate to the MRP schedule, the customer demand, and they ship. They don't say, "I'll stick a few extra boxes of parts to some because they're more profitable." You know, the people who do that, they don't have that information. No, we supply to that which we've committed and with no instruction to say, "Please send to this customer because they're more profitable now. Okay. Thank you very much. Thank you. Our next question will come from Noah Poponak with Goldman Sachs. Please go ahead. Hi. Good morning, everybody. Hey, Noah. John, could you maybe just give us a broader update on where your market share gain efforts stand? Seems like that's maybe happening in part related to these supply chain challenges across the engine supply chain and then also, you know, titanium sourcing. I know you've talked about sort of being in different RFP processes and trying to write long-term contracts, and I'm curious how that's going. Yeah. As a more general note, we go through our own planning routines during the course of the year, and we try to run through in terms of review each of our customers and where those opportunities may lie. Then we have our planning rounds where we look at where the best place is to place our resources, both engineering and capital deployment, and with a view that our job as a set of executives is to basically grow above the market rate. You know, my view is that if we only grow at market rate, then we're not adding the value that we should be, because we should be seeking to do more than that. More than that, just not in terms of margin performance, but in particular, the opportunity to grow our share or take content into Howmet. That's the basic stance that we have, Noah. Once we've got that and see before us all of the opportunities, then at that point, we can make our own resource decisions, whether we allocate more capital to this area or that area according to the prospect of returns for it. Clearly at that point, then we resource allocate. It isn't a matter of just bottoms up. We just, you know, there's a process where everybody wants more capital or more resources, and, you know, everybody gets a fair, you know, shake on it. It's not that at all. It's more, these are all the opportunities. Our job as the leadership of the company is to then determine how we allocate. Whereas on the last question from Sheila Kahyaoglu, she was asking, do we prioritize in the short term and the immediacy of deliveries? No, we don't. In the long term, absolutely we do. We reallocate to those different areas and have a clear process for doing so, and with the objective of meeting the target to be above the rate of normal increase for those end markets we serve. Okay. Last quarter, I think you specified adding $20 million of revenue to the fourth quarter, you know, fairly specifically related to titanium sourcing. Any update on that specifically and how that looks beyond this year? It clearly continues to improve. We've booked more orders in the as we ended the third quarter into the fourth quarter, and that continues to be a positive for us. It's still continuing and we have one major manufacturer where we've engaged but still yet to really move in in terms of any significant orders. Essentially because there's a lot of inventory of titanium in the system at the moment with that reduced wide body build or we talked about. More to come. I'm hopeful that we'll give you some improved assessment in February. At the moment, if you just assume that we're on track to achieve that $20 million, or slightly better for the fourth quarter, and it'll continue to improve in 2023 and 2024. Okay. Thank you. Thank you. Our next question will come from Matthew Akers with Wells Fargo. Please go ahead. Yeah. Hey, good morning. Thanks for the question. Could you touch on the defense decline in the quarter and specifically, I guess, the F-35, some of the inventory corrections you saw and how much longer does that still have to go on? Yeah. Our assumption is that Lockheed Martin will produce somewhere in that 145-155 range this year. If anything, probably, let's say, just take the 150 or a little bit less, is probably our assumption. Which will be, you know, an increase on the production in last year. We do note that the order intake for F-35 seems particularly strong. That 150+ rate should continue, we think, probably for the rest of the decade, and so that's all good news. For us specifically, because for the last two years, in 2020 and 2021, we did produce at a higher rate per the customer, their sort of schedule requirements, anticipating as they did. I think they would make, you know, closer to the 150 aircraft. As we know, they produced probably in that 130-140 range, and therefore they carry the inventory into this year, which we said we would correct for the most part during 2022. In particular for the airframe and bulkheads part of the aircraft is that we've seen that downdraft, and we've commented on that affecting our structures business. Ken called it out again in Q3 as the major factor on our impact on defense sales, that continued inventory correction. Our view is that that will continue in Q4 and into Q1 next year. We're hopeful that by the second half of next year, the latest, is that we're in balance. Our production will be coming up on the F-35 to match rate, which will obviously be a significant improvement for us. If that's combined with the increase in rate for the 787, then we should see some very positive demand requirements for our structures business in particular. That's also part of my expectation within that range of guidance given to you for 2023. Thanks. That's helpful. Then if I could do one more on pension. I guess I know you mentioned, with the higher rates, the liability, it's a little bit better. You know, I guess when you factor in asset returns year to date, you know, is it meaningfully different kind of next year versus 2022? Yeah. I'll pass that across to Ken to give you a little bit more color on that. Essentially, as interest rates have moved up, then that provides a significant downdraft on the liability side. Asset returns this year are lighter and lower than last year. In fact, I don't have the exact numbers to hand, but it'll be a negative for that situation. Then when you put the two together, that, along with the cash contributions we have made, we have a net liability reduction. My anticipation is that we'll show further reduction of liability in the fourth quarter to make a meaningful change in the reduction of those legacy liabilities. I think on a net basis, you know, we're probably down to, I'm gonna guess, around $700 million-ish plus or minus. It's a pretty de minimis number for the company now, you know, very different than it was two or three years ago. Let me pass you across to Ken to comment specifically on the effect of liabilities and assets. Yeah. Matt, you know, we've been doing a lot of work on the pension and OPEB program. To compare to where we are today, we've improved around $85 million in terms of net liability. A lot of that's driven by actions we started taking to clip off gross liabilities going back to Q2 of 2020, believe it or not, when we took out some U.K. new buyout programs. From Q2 of 2020 to current, we've taken off about $600 million of actions, right? That's helping drive the net liability down. As John mentioned, at the end of the year, we'll snap the line again in terms of where we're at. We get a nice favorability around discount rates because discount rates have moved from around 2.7% at the end of last year to mid-5%, right now. You're gonna get a nice good guy on the liability side. To your point, the assets, if you even just track the S&P 500, they will be negative. You push the two of them together, though, you're gonna get a nice reduction in terms of net liability. Also, you know, we've gotta get to the end of the year, but we anticipate cash contributions next year will probably be the same, if not less, based on all the work that we've done over the years. Maybe I'll just add. That's really helpful. to give you a bit of a broader perspective. When I think about the environment we're in, where interest rates are going up rapidly, and it's possible this week we'll see a further 75 basis points increase in federal funds rate. I mean, that generally is bad news for most companies. In the case of ourselves on a net basis, is that if I look at our debt, then essentially all of our debt is fixed rate. It only can impact us at the refinancing of a next tranche of bonds, depending on what we've paid down of those bonds as well. I'm not anticipating that our interest rate costs go up at all in the next two or three years. That's good. Our pension liabilities will go down, and that's good. When I think about the markets we serve, I think we've already had our recession in the time of 2020, 2021, and the effects of COVID. Then overlay that with the specific issues that Boeing had regarding production of the 737 and 787. We should be set for, and maybe uniquely as a sector, set for growth for the next two or three years. That growth should come through, and our balance sheet should improve as a result of the interest rate movement. It's a pretty unique and good set of circumstances. This will conclude our. That's my optimism coming through. Sorry, carry on. This will conclude our question and answer session, and also concluding today's call. We'd like to thank you for attending today's presentation. At this time, you may now disconnect your lines.