Scott Minder - VP, IR Rich Harshman - CEO Pat DeCourcy - CFO John Sims - EVP, ATI High Performance Materials & Components Segment Bob Wetherbee - EVP, ATI Flat Rolled Products Group Kevin Kramer - SVP, Chief Commercial & Marketing Officer

Richard Safran - Buckingham Research Josh Sullivan - Seaport Global Gautam Khanna - Cowen and Company Phil Gibbs - KeyBanc Chris Olin - Longbow Research Jorge Beristain - Deutsche Bank

Thank you, Andria. Good morning and welcome to the Allegheny Technologies third quarter 2017 conference call.

This conference call is being broadcast on our website at atimetals.com. Members of the media have been invited to listen to this call.

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

If you're connected to this call via the Internet, you should see slides on your screen. For those who have dialed in, slides are available on our website, atimetals.com.

After initial comments on third quarter earnings, we will open the line for questions. During the question-and-answer session, please limit yourself to two questions to be considerate of others on the line.

As always, we will make every attempt to reach all participants in the question-and-answer queue within the allotted conference call time. Please note that all forward-looking statements this morning are subject to various assumptions and caveats as noted in the earnings release and on this slide.

Actual results may differ materially. Lastly, all references to net income, net loss, or earnings in this conference call, mean net income, net loss or earnings attributable to the ATI.

Now, here is Rich Harshman.

Thank you, Scott, and welcome to ATI. It's great to have you on board.

Good morning to everyone on the call or listening via the internet. Third quarter 2017 operating results were consistent with the outlook provided during our second quarter earnings call in July.

The commercial aerospace ramp remains on track and ATI continues to expand revenues and operating margins as a result. Third quarter 2017 financial results were impacted by a non-cash goodwill impairment charge related to our cast products business.

This charge was required as part of adherence to accounting standards and was based on interim business testing completed in the third quarter. We continue to have a robust titanium investment castings demand pipeline, and we remain confident in our plans to materially improve the businesses financial performance in 2018 and over the next several years.

Excluding the goodwill impairment charge, ATI's operating results were as expected in the third quarter. Revenue grew by 13% compared to the third quarter 2016, operating profit of $54 million or 6.3% of sales more than double versus the prior year.

Net loss including goodwill impairment charge was a $121 million or a $1.12 a share, excluding goodwill impairment charge we recorded a net loss of about $8 million or $0.07 per share. Taking a quick look at our two business segments, High Performance Materials & Components or HPMC segment results were driven by continued strong sales of our next generation jet engine products.

The power of the mix is readily apparent as we're consistently generating double digit operating margins and strong year-over-year margin growth. As we've said, the long-term aerospace production ramp remains on track and should continue to provide a powerful tailwind over the next several years albeit with some quarter-to-quarter variation.

The Flat Rolled Products or FRP segment operating loss of $7 million was primarily due to out-of-phase raw material surcharges related directly to a steep decline in raw material prices, particularly ferrochrome and nickel experienced earlier in the year. The need to raw material cost variation impact, we continue to strengthen business results to increase sales of high value aerospace and oil and gas products, while continually improving and optimizing our processes.

In addition to stronger operating performance, we remain focused on identifying opportunities, to better utilize our world-class Flat Rolled Products asset to generate improved business results and ultimately sustainable profitability. Turning to Slide 4, this six quarter view of our HPMC segment results clearly demonstrates the impact of the jet engine ramp up on our business and its financial results.

Our commercial jet engine product sales increased 13% versus the prior year consistent with the second quarter's growth rate. While these increases have a positive impact across the HMPC segment, our forgings business benefited significantly as sales increased 26% in the third quarter compared to the prior year, consistent with the year-to-date growth rate in this business.

Aerospace growth also has a significant positive impact on segment margin. The product mix benefits our evidence in the segments year-over-year financial results as our 11% sales gain translated into a 31% improvement in operating profit.

In the third quarter, 39% of our jet engine products sales were related to next generation engine, helping to improve our operating margin by 180 basis points versus the prior year. This is due to the continuing growth and demand for our differentiated specially alloys, including powder alloys and for a high value forge parts and components, including our iso and hot-die forge parts.

This margin growth built on impressive year-over-year gains in the prior two quarters. Year-to-date, we have consistently delivered double-digit operating margins and have an increased HPMC segments margins by nearly 400 basis points when compared to the same 2016 period.

Our success in meeting increasing aerospace customer demand levels has not come without a significant amount of preparation and hard work. As I stated earlier, our castings business continues to face short-term headwinds, which in part led to the goodwill impairment charge in the quarter.

Despite the non-cash charge, the outlook for this business is strong as we move into 2018 and beyond. We remained very positive about the long-term opportunities to supply our aerospace customers with a broad range of specially materials, forged parts and finished components including titanium castings.

Outside of the aerospace market, we saw year-over-year demand increases in several other strategic markets including oil and gas, electrical energy, and construction and mining equipment. The construction and mining equipment industry has been challenged by lower overall global demand levels over the past few years and demand for ATI's forged parts has contracted as a result.

Beginning in the first half of 2017 and continuing in the third quarter, we've seen modest increases in demand for forged products as major construction and mining OEM customers begin to experience demand increase for their equipment. Turning to Slide 5, ATI is an industry leader in complex nickel, titanium and specialty alloy powders used in aerospace applications.

We continue to develop our capabilities and grow our capacity to meet our customers increasing needs for advanced powder materials with enhanced performance characteristics while making -- while maintaining desired strength in thermal properties. Today, we manufactured our powder alloys in two Pennsylvania facilities.

Both facilities, one producing nickel based powder alloys, and one producing, titanium based powder alloys are operating at full capacity. These advanced powder products are used within ATI's vertically integrated capabilities and by our aerospace customers to make rotating jet engine parts via the powder to isothermal forged processes, and by our customers for used in their added manufacturing processes.

Looking forward, we anticipate significant industry demand growth for advanced powder materials required to satisfy higher aircraft production and for emerging additive manufactured parts and components. To proactively meet this growing demand for complex powder products, ATI has recently taking several strategic actions.

We designed and built an all-new nickel and super alloy powder production facility on one of our existing manufacturing sites in North Carolina. This facility is currently in the final stages of the industry and customer qualifications.

We expect to complete important qualifications by the end of this year and early in 2018 and for this operation to begin contributing to ATI's profitable growth in the first half of 2018. In addition, ATI's Board of Directors recently approved an $11 million expansion of our titanium alloys powder capabilities.

This new standalone facility will primarily produce standard grade aerospace titanium alloy powders such as 6-4 titanium. When complete in early 2019, the facility will enable profitable growth supported by strong demand from the aerospace market.

Finally, this summer, we announced the joint venture with GE Aviation to further developing novel manufacturing process that eliminates the traditional melt step used prior to converting base material to powder form. This initial pilot scale R&D facility will be located on our existing Richburg, South Carolina site and will focus on scaling up production of the GE developed process over the next several years.

ATI's powder alloys especially those isothermally forged at ATI's forging operations are significant driver of ATI's current and future profitable growth opportunities. Individually, each of these facilities and technologies is meaningful for ATI and for the aerospace industry as a whole.

Taking together, we believe that these investments provide ATI with the best array of technical capabilities and manufacturing processes along with the capacity needed to serve the growing aerospace industry demand and in the future growing demand for other strategic and markets as well including ATI's additive manufacturing of parts and components on our own. Turning to Slide 6, third quarter 2017 FRP segment sales were relatively in line with the first two quarters at $356 million.

We achieved this consistency despite lower raw material surcharges in the second and third quarters versus the preceding quarters. Essentially, higher sales volume and product mix improvements were offset by raw material surcharge decreases in the quarter.

Looking at demand levels, we saw a growth in several of our major end used markets including an ongoing recovery in oil and gas and an increase in aerospace sales. We will touch on these in little more detail in a moment.

Our Flat Rolled Products segment operated at a loss of $7 million or 2% of segments sales in the third quarter. This segment is profitability for the year-to-date nine months period and will be profitability for the full year 2017, although great progress has been made in returning this business to profitability after several years of significant losses.

Work remains to achieve our objective of sustainable profitability in this segment regardless of raw material price fluctuations and trade policy. In the third quarter, falling raw material prices primarily for ferrochrome and nickel resulted in out-of-face surcharge conditions where higher cost materials sold at lower surcharge based selling prices due primarily to the length of the product manufacturing cycle.

A steep decline in raw material prices earlier in 2017 resulted in the loss in the third quarter. Looking ahead, raw material prices have improved and we expect fourth quarter results to benefit accordingly.

Flat Rolled segment results are continuing to show the benefits of our significant cost reduction efforts and operating improvement initiatives, including those enabled by the hot rolling and processing facility or HRPF. We believe that this trend will continue and we expect our Flat Rolled Product segment will be modestly profitability in the fourth quarter 2017.

Turning to Slide 7, we continue to make progress on our journey to ensure that our Flat Rolled Products business achieved sustainable long-term profitability growth in operating earnings and cash flow. Net of the raw materials issue, the segment continues to make progress towards its goals by focusing on items within its control.

We spend time each day in our factories looking for specific improvement initiatives that will each move the productivity needle. I call out a couple of these initiatives on this slide as examples of our ongoing focus on continuous improvement and manufacturing cycle time reduction.

Each of these projects involves a team of ATI people focused on specific process issues that can generate significant improvement once completed. These teams take great pride in solving complex challenges and improving the operations in which they work.

In the interest of time, I won't cover the specific of each example, but you can be assured that we will maintain our laser focus on continuous improvement and on producing high quality products in the most efficient way possible. As we’ve previously discussed, our HRPF is a game changer for ATI.

This facility gives us the ability to produce a whole new range of high value products, such as 48-inch wide nickel sheet with coil-sized shape and consistency that is quickly being recognized as a benchmark in the market place for its superior quality attributes. Turning to two strategic markets for our Flat Rolled Products business, we continue to demonstrate our capabilities in the high value products to new and existing customers in the aerospace in oil and gas markets.

In aerospace, we have ongoing qualification efforts for our titanium and nickel business alloy products at several OEMs and tiered suppliers. In many cases, our innovative product solutions allow customers to reduce long-lead times on critical materials and lower their overall cost.

In oil and gas, Flat Rolled Products largest end market, we continue to experience a gradual recovery based on increased customer demand, related to higher and more stable oil prices. Additionally, we have enhanced our competitive position by leveraging the HRPF capabilities to produce new ATI products.

As an example, we've recently received a sizable order for nickel alloy products for use in a Middle Eastern project requiring extreme corrosion resistant material. The HRPF enabled the business when due to its ability to tightly control material tolerances, allowing the customer to generate a higher product yield from the same amount of ATI supplied material.

In addition, we continue to work with several potential customers on conversion opportunities that can meaningfully increase the utilization of our industry leading HRPF and generate significant cash flow. Since our second quarter update, two potential conversion projects have moved from the evaluation stage to the trial stage.

We expect to conduct several trials in the fourth quarter and we will communicate more information as soon as we are able. Here is Pat DeCourcy to comment further on our third quarter results.

Pat.

Thank you, Rich. Turning to Slide 8, as of September 30, 2017, cash on hand was 125 million and available additional liquidity under our asset based lending facility or ABL was approximately 280 million, with $25 million borrowed under the revolving credit portion.

Within the third quarter, we reduced revolver borrowings by $35 million and we intend to pay off the outstanding revolver balance before 2017 year end. We generated 32 million of cash flow from operations in the third quarter 2017, even with 19 million invested in additional managed working capital to support new business growth as we continue to ramp the higher production levels.

We expect managed working capital to be a significant source of cash in the fourth quarter. Consistent with our prior outlook, we estimate 2017 capital expenditures to be about 125 million, in total after spending 85 million in the first nine months of the year.

The fourth quarter is traditionally the highest capital expenditure quarter of the year as we work to close out various projects around the Company. Going forward, we anticipate capital expenditures to be approximately $100 million for year including the previously discussed $11 million titanium powder production expansion.

This ongoing annual reduction reflects an end to the extraordinary capital expenditure cycle that has transformed our company, and as evidenced throughout this presentation, we continue to utilize our industry leading assets to profitably grow the business. Generating cash continues to be a major focus.

In the first nine months of 2017, we achieved cash flow from operations of over 80 million, excluding the 135 million ATI pension plan contribution made in first quarter. This includes modest growth in managed working capital required to support our profitable business growth efforts.

We are focused on creating long-term shareholder value by returning ATI to sustainable profitability, generating consistent cash flow, strengthening our balance sheet, and restoring and maintaining financial flexibility and strong liquidity. Going forward, we will thoughtfully deploy our capital and evaluate our capital with structure to achieve these objectives.

Now, I’ll turn the call back over to Rich.

Thank you, Pat. Turning to Slide 9, for the first nine months of 2017, sales for the aerospace and defense market were 49% of total ATI sales.

Our second largest market oil and gas continues to recover gradually from a low base. Looking at the aerospace market in more detail, commercial jet engines accounted for 27% of total ATI sales.

Commercial airframe represented 14% of total sale, and sales to government aerospace and defense customers were 8% of total sales. ATI sales to the jet engine market continue to grow led by our differentiated specialty materials and forgings used in our customers next generation engine programs.

We expect this growth to continue over the next several years. We have long-term content agreements in place on each of the major new jet engine programs including the GE Safran LEAP, Pratt & Whitney PurePower Geared Turbofan and multiple variants of the Rolls-Royce Trent engine family.

We're working with our jet engine OEM customers to help develop future engines such as the GE9X platform. Today, our primary focus is on execution to ensure that our customers can build the world's best engines and aircraft on schedule.

In the airframe market, customer demand levels increase modestly in the third quarter, and we expect this trend to expand in the fourth quarter. As mentioned earlier, we're actively working on several new projects to continue to increase our Flat Rolled Products high value sales within this strategic and end use market.

We're optimistic that these efforts will bear fruit in the quarters and years to come and add to our existing titanium airframe sales. Our government and defense business posted year-over-year growth in the third quarter.

Growth in defense primarily from vehicle armor plate was countered by a decline in government aerospace sales. We continue to expect our future defense industry sales to increase overtime due in part to several naval and land systems applications.

We anticipate longer term growth in government aerospace applications and large parts based on our recent agreement with Pratt & Whitney the maker of the F135 engine for the F35 aircraft. Looking at our sales geographically, over 40% of our 2.6 billion year-to-date sales were made directly to customers located outside of the United States, consistent with results in the second quarter.

We continue to search for growth opportunities in each of our major and market sectors and geographies by leveraging our industry-leading technologies and capabilities. Moving to Slide 10, third quarter results from our High Performance Materials & Components segment demonstrate our ability to consistently generate higher year-over-year sales and operating margins as our aerospace customers continue to meet the increasing global demand for new commercial aircraft.

The long awaited next generation aerospace ramp is gearing up and ATI is well positioned for future growth based on existing long-term customer agreements. We’re focused on execution and on leveraging our assets in the most efficient way possible.

Our customer success will be our success. We anticipate growth in titanium airframe sales in the fourth quarter along with ongoing gradual recovery in other end user markets.

In total, we expect fourth quarter financial High Performance Materials & Components segments results to improve modestly versus the seasonally lower third quarter. Given the dynamics of the aerospace industry and the relatively early legacy to next generation transition, we're confident in our year-over-year growth outlook over the next three to five years, but we're also mindful that we could see quarter-to-quarter variations in revenue growth and operating margin expansion due to timing issues within the supply chain and occasional product mix variations.

Looking ahead to 2018, we expect 2017 positive aerospace growth drivers to continue as the production rate ramp for next generation products further accelerate. In addition, the industry growth, we anticipate certain 2017 headwinds to become tailwinds including a turnaround in our casting business and the elimination of 2017 start-up expenses for our new nickel alloy powder facility.

This new facility is a focal point for production of some of our most valuable products. Moving our Flat Rolled Product segment, we are continuing our journey to create a business that can sustainably generate profits and cash flow for ATI and our shareholders.

Despite the third quarter's raw material driven operating loss, the underlying business fundamentals have improved throughout 2017. We have strengthened our product mix to focus on more high value nickel based and titanium products, leveraging the capabilities of our HRPF to further penetrate the aerospace and oil and gas markets.

We anticipate improved financial results in the fourth quarter as raw materials prices and surcharges have increased versus the third quarter. We expect the Flat Rolled Products segment to return to profitability in the fourth quarter of '17 and to show a modest profit for the full year, a stated objective as we entered 2017, after several years of significant losses in this business.

2017 is a steppingstone for additional improvements in our Flat Rolled Products business and for further profitable growth in 2018 and beyond. While we cannot control raw material prices or trade policies, we continue to make good progress on the areas where we can have the most impact.

We will maintain our intense focus on continuous improvement and productivity improvements while enhancing our position in key end used markets. We expect to benefit from one or more the potential conversion agreements currently in the trial phase, and we will continue to evaluate creative ways that we can increase the utilization of our Flat Rolled Products assets and eliminate or at least reduce the negative impacts from raw material price volatility.

In short, while much progress has been made, we have more work to do to achieve sustainable profitability in our Flat Rolled Products business. In summary, the third quarter was a solid operating quarter for ATI consistent with the year-over-year improvements that we saw in the first two quarters of 2017.

Results were negatively impacted by non-cash goodwill impairment charge and a steep decline in raw material prices, which is already in the fourth quarter's rearview mirror. Based on our business fundamentals, we are optimistic about future revenue growth and margin expansion opportunities.

With that, I would like to ask the operator to open the lines for questions.

So, the first question I have -- John, this maybe a question for you. I wanted to dive a bit more into the issues affecting investment castings.

In 2Q, you said return to profitability in '18, in the 3Q release that was on October 12th, you said at or near breakeven in '18 and return to profitability in '19. So, I want to know if you could discuss the change that caused the move to the right, and maybe if you could go into a little bit, what gives you confidence in meeting your -- the new targets that you said here?

Sure, Rich. There are three issues that we're dealing with as we transition that business to sustainable profitability.

The first is working through the new part introduction. Many of the parts that are probably giving that business to greatest challenge from profitability standpoint represented significant mixed change from the historical business.

These are largely engine related parts and require significant amount of learn out to get the parts to the most optimal efficiency. Now, we're working our way through that.

The second is the significant amount of hiring and training associates with labor force we have in that business. We've hired probably 200 people in the last three years in that business.

So, as we're working through bringing those people up to their most peak operation capabilities as well as driving improvement in the business to get the labor productivity up and part quality up is significant. And finally, the third part is, as contract expire, we negotiate additional contracts and raise the prices according.

I guess this is an opportunity to increase the revenue potential well as profitability. So, as we look at that business from year-over-year standpoint probably the shift to right was more related to our projection of getting to learn out on these new parts.

And I think as we put in the earnings release that we expect to be at or near breakeven in 2018, that's consistent for right now. But significantly, achieving that level from a high performance standpoint represents a significant profit improvement year-over-year.

Okay. Rich, Pat, on the -- I wanted to ask you something on the conversion agreements that you spoke about on Slide 7 and we've been talking about.

Could you discuss a bit more about what you're expectations are there? I mean would you be able to give us for example, what you're thinking about how much capacity you expect to have under these agreements and by when?

I mean, do you have target out there? And also, could you discuss a little bit about the mechanics of them?

By that I mean, could you discuss how these things roll for P&L? What margins are typically like on these things?

And what impact might be on cash flows?

Yes, thanks Rich. I'm going to ask Bob Wetherbee to comment and then I'll add at the end.

Good morning, Rich. Four questions in there, I will try to get most of them and I'll let Rich Harshman to clean up here.

In terms of the target, we see the potential in probably the next 24 to 36 months to double that production volume at the HRPF through the conversion agreements. In terms of the financial impact we're seeing, the high automation or the HRPF really lends itself to add pretty significant incremental volume for very low incremental cost.

So one of the big benefits we see is lower unit costs for all of our products as they go through the HRPF. And the mechanics they were using with the customers as they basically come in kick the tires, make sure the process is what we say, it's going to be, and then they move to a quick evaluation with small volumes and then we move into the product trials.

And I think what's exciting for us about the product trials is it's actually tied to an end to customer application that the HRPF enables the value for. So they really -- that the people coming to see us, the companies coming to HRPF actually see the differentiation that they can get in their end product by using the HRPF.

So I think the next in the fourth quarter, we could see a couple of thousand tons rolling through then it’s a matter of the customer adoption into 2018 probably full production with some of these applications by 2019. So, that’s where we get the doubling of the throughputs for the HRPF and the next 18 to 24 months.

Yes, and Rich in addition I mean all -- I think we've been fairly consistent when asked the question either on calls or in meeting with investors. What our expectations are for Flat Rolled Products, right?

And the journey that we have been on is to really reposition that business from where it's been largely heavily reliant on commodities stainless products and when you have a higher cost structure primarily due to the movement of material across facilities since we're not a single site operation, and the fact that our labor and benefit costs on the production site are higher than our competitors, domestic competitors, and certainly higher than imports. That’s been a challenge in the commodity side.

So our emphasis going back over the last several years was, how do we refocus this business to be less reliant on the commodity side and more focused on the high value side? How do we begin the change the cost structure dynamics and the new collective bargaining arrangement with the United Steelworkers that was entered into 2016 pays the way for some of that, and then the greater utilization of the assets, more specifically the HRPF?

So, as we look at all that and the viewpoint that I have and I think we all have for that business, I mean we expect over the next several years for that business to generate an income before tax of $100 million or more, right. That’s our expectation.

There is not a single bullet that’s going to accomplish that. Some of that is due to the continued work on the cost reduction and productivity improvement, that we talked about.

Some of that is growing into the differentiated products. Some of that is focused on how do we begin the refocus and look for other opportunities for that important base load of commodity sheet product that will enhance the cost structure and the efficiency of the melt shop and the hot rolling and the finishing assets.

And with that comes a lower cost structure for everything that we make in that business. And then the fourth leg is really on, using the additional capabilities and capacities as the HRPF for conversion of products that we don’t make like primarily certain carbon steel products.

So, I think when you look at that particular leg and the capacity that’s available on the HRPF, as we grow the other aspects of the business and products that we do make, we have a view that the total benefit of that both from a pulling conversion margin standpoint and a cost structure enhancement is about $20 million to $25 million a year of enhanced IBT. That’s part of the $100 million plus target that we have.

So we see lines of sight at various points in times over the next couple of years to achieve that. These two parties and there is more that we are working with, it's not just the two.

The two have advanced into more of a very specific trial Phase. There are other opportunities out there that we continue to work on the conversion side.

But these two are part and parcels to that overall strategy.

Clearly, the aerospace OEMs are delivering on significant backlogs. UTX confirms engine delivery this morning, but can you just help us with ATI's cadence?

Whence the real tipping point here where inventories come down and margins accelerate and obviously casting systems resized here? But where do you see that, that kind of tipping point at this point?

Or how we frame that?

Yes, I mean, I don’t think we have a different view today than what we've talked about the first nine months of this year and going back to last year. I mean, we see growth over the next -- you think 2016 is the base line, we see growth over the next five years of a $1 billion plus in revenue and margin growth in the segment of going from where we're today, which is about 12% which is what we said heading into this year, by a couple of 100 basis points each year over that next several years to achieving.

My view of the technology and the capability is, we have in that business the high performance business, the positions we have in the market place, the fact that on the cost side, we have competitive cost structures in most of our operations, right. I mean you never completely satisfied with where you're on the cost side I mean never will be.

So we keep working on that. But the overall that business should be a 20% pretax margin business, given the value that we're earnings creating in the supply chain and the technology and the capability that we have.

And if we can get there faster than four or five years, we will, and I think there may be some opportunities for that. But it's somewhat of a journey because we're not just focused on commercial aerospace I mean that’s that largest end market for ATI in that segment.

But there are other end markets that are strategically important to us that have long-term attractive growth profiles and we're focused on that as well. So I think the cadence is what we have been saying for while, the cadence is continuing improvement.

I don't -- we all -- every quarter's performance is important, right. But business fundamentally and I've said this before this, right, the product mix and the supply chain isn't always in perfect cadence.

And there are changes and variations from quarter-to-quarter, so we look at it more of a period of trailing four quarters right. What’s the progress?

How are we making progress consistent with our overall objectives and the possibilities that we exit for that business? And I think we're.

I think we're on track so far through three quarters. I think we will be on track at the end of 2017.

I look at 2018 as further we're at top line growth as well as couple of 100 basis points improvement on the bottom line for the segment.

And then just this is a follow-up I guess. Do you see any choke points either to the supply chain or in the industry, which might be some headwinds for the OEMs to achieve the announced production rates on the narrow bodies at this point?

Yes, I mean that's a great question. So, the best people in the position to answer that question are really the OEMs, but since we deal with all of them and we deal with competitors in the supply chain.

I would answer it this way, I mean I think that the OEMs are very aware of the stresses in the supply chain, of where they exist, how they are being worked on, and we see that. In most cases where there is a stress that causes an emergent demand that can be a longer term demand, but also a short-term opportunity.

We see those and to the extent they were able to -- and how the capability and the capacity available to help the customer through that supply chain issue, we do. And that turns into a net positive for ATI.

So, I think those -- when you look at this kind of rate ramp at levels that have never been produced before in the supply chain, across multiple new engine platforms that has never existed before, and a more complicated supply chain that’s global, that's different in every single cycle that I have been through in 40 years, yes, it’s a challenge, right. It’s a different kind of challenge than I think the industry has ever faced.

I think OEMs and the supply chains are working diligently to address the issues, and I think for the most part, they are doing a great job. Where there's opportunities for improvement, I think everybody is aware of it and the communication within the supply chain and with the OEM is very strong and very good.

Maybe one for Pat, I was just wondering, if you could walk us through your free cash flow expectations in Q4? And maybe the follow up, and then 2018 just given the extreme ramp, how should we think about working capital as a percentage of sales?

Does that stay at this level? Does it drop?

Anything you can comment on free cash flow. And relatedly what's your best assessment today of the cash pension payment that you're going to make next year and in subsequent years?

Looking at managed working capital as a percent, we expect it to be consistent to slightly down. We do expect some free cash flow out of managed working capital in the fourth quarter, around $25 million.

We experienced higher nickel costs which were a big driver of the use of cash in managed working capital in Q3. Nickel has leveled out as well as chrome at this point and time.

So given stable raw materials, we expect to generate at least 25 million out of managed working capital in Q4. Looking ahead into next year up on the pension side, there are a lot of assumptions that go into this estimate, but we have very good performance on our return on assets year-to-date.

If we can hold that through year end, we would expect a pension contribution to be probably $50 million to $60 million in total for next year. So that would be down substantially from our earlier estimates and that’s being driven by superior asset returns that we have in place.

So if we hold through year end that’s a level that we would be looking for. It would step back up in the subsequent years to over $100 million based on our current assumptions for the next several years, but next year would be around $50 million to $60 million.

We do expect a very significant increase in free cash flow next year for the overall business. That’s going to be driven by as Rich mentioned earlier higher margins in the high performance segments as well as some nice revenue growth primarily driven by aerospace in the high performance segment, as well as improvement in cash flow in our Flat Rolled Products business.

That should be a nice bump for us for next year. We will provide more information and guidance on that in the fourth quarter call, but at this point that’s our estimates.

And one other one if I may, you have announced some agreements now with Pratt & Whitney on Geared Turbofan. And do you have assessment of what you're content is.

any sort of guess on revenue per engine on the GT?

Nothing that we -- we've a view but nothing that we made public at this point in time. So, we will take that question and think about it and see, see if what we do going forward.

I had a question on the Flat Rolled business in the third quarter and just by the way of magnitude if you could quantify the call to cost to cost to price mismatch there that you got to hit them with ferrochrome or nickel?

Good morning, Phil. It's Bob Wetherbee.

In terms of the mismatch, we came into Q3 we're at about $4.50 nickel probably down from closer to $5 in the Q2. And as in the $10 million range in terms of inventory lag effect, ferrochrome came further down from a $50 and Q2 down to a $1.10, but that’s all in that, that $10 million plus or minus.

Coming into the balance for the year, we see nickel come back to the $5 range and ferrochrome at $1.40. So pretty much the Q3 is kind of the aberration for the year and we're just trying to see the stabilization on ferrochrome for sure.

And nickel, how do we guess where nickel is going to go, but $5 nickel I think it closed yesterday at $5.30 or so. So a positive trend probably $5 in Q4 is the reasonable expectation.

Yes, Phil. The other impact in Q3 that will be better in Q4 is, we add seasonality in the performance of the STAL joint venture in China.

The third quarter is traditionally the lower quarter there so, and we did see that, and we expect that to improve in the fourth quarter which will help improve overall segments results as well.

Okay perfect. And it's my last question here.

Just on the very, very near-term outlook for aero. Did you say that you expected aerospace revenues to be largely stable quarter-on-quarter?

From Q3 to Q4, is that your question?

Yes.

Is that your question?

Yes.

I think overall they will probably be modestly improved and up and it's very dependent upon the pulls and the product mix and everything that typically happens, not only in every quarter, but seems to be exacerbated in the fourth quarter. So, there is a lot of things that happened towards the end of the fourth quarter specially in the last month of the quarter at year end that could result -- I think we're being realistic based upon history in terms of how we view the fourth quarter.

I think that if anything there maybe some upside opportunities in the fourth quarter, if certain pulls happen the way they have been happening here recently.

Rich, could you talk a little bit about contract environment perhaps what you're going to see over the next 6 to 12 months? Are there any other opportunities out there for perhaps new business?

For example, the material has that been set for the Boeing 777X or can you penetrate Airbus going forward?

Great questions. I think the Boeing contracts from the three major titanium mills launched through 2022 currently, but there has been a portion of their needs that have been withheld or not awarded, so that kind of turns into the emerging demand, that you hear us talking about periodically or maybe every quarter.

And from our contract standpoint, there is a growth in the volume from 2017 to 2018 under the Boeing agreement. So, you will see growth for us from '17 to '18.

In the situation with Airbus, we are not a significant supplier presently with Airbus, we do supply some important materials, and we are working on and we continue to work with both Boeing and Airbus on targeted application of ATI 425 for airframe application as a direct replacement for 6-4 sheet, which has a very long lead-time in excess of a year, and also it’s a high price and because of the high cost of producing that product. So I think there are -- we have been talking ATI 425 for a long-time, but there are real demand pulls this time as oppose to up pushing.

There're more demand pulls this time that I think you will see us -- seeing some opportunities as early as 2018 for ATI 425 and that’s a Flat Rolled Products. On the Airbus, there is a con bid, that is 2021 that would take effect, and I think that, that initial proposal on RFQ from Airbus to the industry is expected later in 2018 towards the end of the year and go through the process.

But that’s real opportunity for us to grow with Airbus is really a 2021 opportunity. And we expect that’s a target for us quite frankly because we think we should be a bigger supplier with Airbus than we are.

Just as a quick follow-up. Boeing typically sources a lot of its titanium airframe material in the first half.

And it looks like they're bit more aggressive here, third, fourth quarter. Does that suggest that perhaps the channel might be long inventory going into 2018 that could be a headwind?

I mean I don’t think so. I think that they've done some risk mitigation over a possible sanctions against Russia that might be driving that a little bit, but I think it will be our understanding that will be more of a risk managed, the buffer inventory just in case.

I mean I think the 787 build rate increases and that’s really reflected in the contractual increase and the volume, and then the minimum volumes that we have in our agreements, I don’t know what other suppliers have in their agreements, but I know what we have in our agreement. So I don’t see it that way.

I mean I think that we head into a year with good dialog and discussion of what the requirements are. We know what the contractual requirements are.

I mean that’s given, that’s stated. Releases happen really throughout the year, right.

So, we know how the quarters are being loaded and everything for 2018. And at this point in time, we don’t see anything dramatically different from what we've seen in the past, and we also know what the contractual quality requirements are.

Rich, I was wondering if you could provide some more color on what kind of clients or industries are trialing the material on your HRPF?

Bob, do you want to answer that?

Yes, I think, Jorge, to start with, they're predominantly carbon, and they're very interested in the higher property wide width-type applications that they traditionally make in pieces that now they can get it in a coil. And in many applications, they can get a double width off our facility up to 1 inch.

So, you will see structural applications. We're strategically located to support the shale gas areas of the U.S.

with our HRPF. So we're seeing a lot of interest from those markets that are going into that region.

But the real defining attribute people are after is the gauge control, heavy gauge, wide width with extreme property, so it's kind what we have designed to do and that’s what the markets rewarding us for.

And I agree with and also it's really -- you're looking at who has the capability of producing the slab, but doesn’t necessary have the capability of hot rolling it. And those entities exist, right.

Those are the ones that we're focused on and I think it’s a very capital efficient way for someone to take advantage of the very unique capabilities of the HRPF.

Okay, I'm not hearing automotive thrown out there, so at this point I'm assuming you're not doing something with any automotive in high-strength deal?

Yes, I don’t think that’s -- the current large players there are have the vertically integrated capabilities to supply that. There could be emerging opportunities with some one that develops the product to service that market, but at this point in time there real focus is primarily on the oil and gas and corrosion markets as opposed to automotive.

Okay, and then your strategy there to do more while move forward on the totaling. Does that in anyway preclude you guys from possibly doing an equity sale or bringing in joint venture partner down the road?

No.

Okay. And then just maybe on the aerospace side.

Could you comment if you are facing any -- we had a call yesterday with a competitor that was talking about some extraordinary one-off cost that seems to be in the titanium chain due to trialing a product and heat treat and sort of just ramping up this very high industry ramp rate that you guys being held you by your clients. Can you talk about are there any sort of extraordinary expenses that you guys are incurring that would dissipate as you ramp more fully?

No, I mean -- there was earlier this year, there was a heat treat capacity issue in Southern California primarily because on operation that had been shut down by the Southern California Air Quality Management District. But we had already started a capital project investing and expanding our own heat treat capability at our Irvine, California facility.

So, we were pretty -- John and his team were able to successfully navigate through that without really having any negative impact on operations or on cost. So, I think the only challenge we have in that front is really on the casting business, which we have talked about.

And there we have had to go outside for some support as we ramped up and brought the employees down on the learning curve, but that’s contributed to the financial performance of that business this year. But I think we are on the path to reversing that in 2018 and beyond.

Okay, thank you very much, and thank you all for joining us on the call today. And as always, thank you for your continuing interest in ATI.

Thank you, Rich. And thank you to all the listeners for joining us today.

That concludes our third quarter 2017 conference call.