Q3 2026 Howmet Aerospace Earnings Conference Call - HOWMET AEROSPACE INC

Good day and welcome to the Q3 2026 Hormat Aerospace Earning Conference Call. All participants will be in the 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. To ask a question, you may press star and one on a touchtone phone. To withdraw your question, please press star then two. Please note, this event is being recorded. I would now like to turn the conference over to Paul Luther, Vice President, Investor Relations. Thank you, and over to you, Paul. Thank you. Good morning, and welcome to the Hamad Aerospace Third Quarter 2026 Results Conference Call. I'm joined by John Plant, Executive Chairman and Chief Executive Officer, and Patrick Winterlich, Executive Vice President and Chief Financial Officer. After comments by John and Patrick, 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 the factors that could cause actual results to differ materially from these projections listed in today's presentation, in earnings press release, and in our most recent SEC filings. In today's presentations, references to EBITDA, operating income, and EPS mean adjusted EBITTA, adjusted operating income and adjusted EPS. These measures are among the non-GAAP financial measures that we've included in our discussion. Reconciliations to the most directly comparable GAAP measures can be found in today's press release and in the appendix in todays presentation. In addition, unless otherwise noted, all comparisons are on a year-over-year basis. With that, I'd like to turn the call over to John. Good morning, everybody, and welcome to HAMET's Q3 earnings call. Let's start with the highlights on slide four. AMET's performance in Q3 was solid in all dimensions. Revenues at $2.7 billion were up 29% year-over-year and up 25% through organic growth. EBITDA was $879 million and was up 43% with a margin rate of 32.5%. about 40 basis points from the second quarter and year over year incrementals were 43 percent after the dampening effect the cam acquisition pre-cash flow in the quarter was 562 million after capital expenditure of 147 million which was a quarterly record a strong cash flow supported by share buybacks of 500 million dollars and in addition gross debt was reduced by 60 million in the quarter and we ended with approximately 1.3 times net debt to EBITDA. We have repurchased $1.1 billion of shares to date of which it is $400 million more than the total repurchases in 2025. I would like to note that our dilated share count fell to just below 400 million outstanding shares at $399.5 million at the end of Q3. Over the last eight years, the share count has been reduced by in excess of 100 million shares. Earnings per share were $1.46, a 54% increase year over year, and this sets us up well to achieve the remainder of our 2026 objectives. Good progress was made on several fronts, with new business being booked in line with our outlook expectations in commercial aerospace, defense aerospace, and industrial gas turbines. Of particular note in the quarter was the 45% gas turbine revenue growth, which demonstrates both the extraordinary addition to output and even more importantly, the increased market share. Further commentary will be provided during the Outlook section of the call. I'll now turn the call over to Patrick, who will provide further commentary on end market growth and segment performance. Thank you, John. Good morning, everyone. Please move to slide five. HowMet delivered another strong quarter with all end markets growing. We are well positioned for the future and continue to invest for growth. Total revenue was up 29% in the third quarter, excluding the net impact of the three transactions we completed this year, revenue was at 25% year-over-year, an acceleration from the 21% organic growth rate in the second quarter and 19% in first quarter. Commercial aerospace growth was very healthy at 32%, with organic growth of 27%, driven by demand for both OE and spares. Commercial aerospace spares demand continues to increase significantly, driven by both legacy and next generation engine programs. Defense aerospace growth with 10%, with the organic growth at 3%, driven by spares demands, on legacy fighter platforms. Commercial transport revenue was up 28%, reflecting both volume increases as the North America market recovery continued and the pass-through of higher aluminum costs. Gas turbine growth was very strong at 45%, as end-market demand remains robust. Growth in other markets of 48% was largely driven by the Brunner Fastener acquisition completed in February. Spares growth remained robust across Howmets markets. Total spares revenue was up 30% to approximately $570 million and represented approximately 21% of total revenue in the quarter. In summary, continued strong performance in commercial aerospace, defense aerospace, gas turbines, and commercial transportation. Moving to slide six, starting with the P&L. Third quarter revenue, EBITDA, EBIDDA margin, and earnings per share all exceeded the high end of guidance. On a year-over-year basis, revenue was up 29% and 25% organically, the strongest quarterly growth rate on record for Halmet. EBITDA continued to outpace revenue growth up 43%. EBITda margin increased 310 basis points to 32.5%. Incremental flow-through of revenue to EBITDA was solid at 43% year-over-year. Earnings per share were $1.46, up 54% compared to Q3 2025. Now let's cover the balance sheet and cash flow. The balance sheet remains a source of strength for Halmet. The quarter-end cash balance was $508 million, with quarterly free cash flow of $562 million. Net debt to trailing EBITDA improved to 1.3 times. During the quarter, we paid down $60 million of commercial paper. Liquidity remained strong with an undrawn $1 billion revolver, complemented by a $1 billion commercial paper program, with $390 million outstanding from the $450 million that was drawn to support the CAM acquisition. Turning to capital deployment, CapEx was $147 million. The majority of our capital spend continues to be in the engine product segment as we continue to invest for growth in both aerospace and gas turbines markets. Investments are backed by long-term customer contracts. In the quarter, we repurchased $500 million of common stock at an average price of $265 per share. This brings year-to-date repurchases to $1.1 billion, an average cost of $1 billion. This brings an average purchase price of$251 per share, We continue to be confident in strong future free cash flow. we increased the quarterly stock dividend in Q3 by 17%, from $0.12 per share to $0,14 per share. Now let's move to slide 7 to cover the segment results for the third quarter. The engine products team delivered exceptional performance again across revenue, EBITDA, and EBITda margin. Revenue grew 33% to $1.45 billion. Commercial aerospace was up 39% and gas turbines was up 44%. Demand continues to be strong across both original equipment and spares. EBITDA outpaced revenue growth with an increase of 57% to US$567 million. dollars, EBITDA margin increased 580 basis points to 39.1 percent, while absorbing approximately 520 net new employees in the quarter, positioning us well for future growth. Please move to slide eight. Fastening systems delivered another solid quarter. Revenue increased 41% to $630 million, including the impact from the CAM and Brunner acquisitions. Commercial aerospace was up 42%, and defense aerospace was up 66%. Commercial transportation was up 6% year-over-year. Excluding the impact from acquisitions, total fastness growth was up 10%. EBITDA increased 34% to $185 million. EBITda margin declined 140 basis points year-over-year and 70 points sequentially, reflecting the increased revenues from CAM, which we acquired in April. Moving to slide 9, the engineered structures team continues to drive improvement in the business. Revenue declined 4% to $295 million due to the divestiture of the Savannah Disc Forging Facility. Excluding the impact of Savannah, revenue growth was 8%. We continued to focus on higher margin and stronger return opportunities in the business. Sequentially, revenue was up 10% from the second quarter, driven by increased commercial aerospace OE demand. EBITDA increased 9% year-over-year despite the revenue decline, and EBITDAR margin expanded 290 basis points to 23.7% as we continue to focus and optimize the structure segment to maximize profitability. Please turn to slide 10. Forged wheels delivered another solid quarter. Revenue was up 32%, driven by higher volumes, in addition to increased aluminum cost pass-through. Volumes also increased sequentially from Q2, as the North American market recovery continued. EBITDA was $86 million, an 18% increase year-over-year. EBITDA margins declined year-over-year and sequentially, reflecting the significant dilutive effect of sharply higher aluminum cost pass-through. We continue to outperform the market, driven by our premium products. Now let me turn the call back to John. Thanks, Patrick, and let's move to slide 11 and turn the – the call to the outlook. Firstly, of course, we provided guides for Q4. Our glide path continues towards the conclusion of another good year for Hamet. The specific numbers will be commented upon in a few moments, plus our initial sighting chart of 2027. Regarding commercial aerospace, the flight schedules and load factors held up well during the summer months, both for domestic and international travel. Naturally, the Middle East was lower given the Iran conflict and its fallout. Oil prices, notably jet fuel and diesel, are especially high, and with the resultant effect on ticket prices, overall travel will potentially impact some schedules as we go through the winter into 2027. Having said that, we do not expect there to be any impact on our spares deliveries during this period, and indeed throughout 2027, in fact we expect solid demand given the time monitoring issues experienced by the new generation of narrow body engines and also the backlog of aircraft engines which are scheduled for shop visits and the ongoing underbuild of aircraft compared to plans and also this means that spares demand will continue to be very robust the current extraordinary aircraft oe order backlog will ensure that new aircraft Production continues and increases throughout 2027 and beyond. We expect volume increases for the 737, the A320, the 787, and the A350 to be healthy, and they help to underpin our commercial aerospace business outlook. Defense sales continue to be strong, with further increases likely in legacy aircraft build and spares. Notably, F-35 spares continue to be healthy with an expanding fleet of aircraft. We have not yet assumed in our forward look the replenishment of inventories, which have been depleted as a result of the Iran conflict. The most important growth factor as a percent of sales of the one sector of defense sales is that of missile parts. We are being asked to increase production significantly, albeit final agreements have yet to be concluded. we believe that how much technological and operational leadership position in the industry coupled with our ability to develop the most sophisticated turbine blades at scale in both commercial and the defense aerospace sectors will ensure that hammett's market position and strong financial performance will continue well into the middle of the next decade and beyond industrial gas turbines growth and the growth we continue to look forward to with customers will strengthen, and we look forward to further increases in volumes into the future beyond the previous expectations. This impact is likely to be felt in the outer years beyond 2028, since the new capacity currently being installed is totally sold out. More recently, we've seen major gas turbine customers state that 2031 is now also sold out, and, indeed, 2032 will likely be sold out in the next one or two quarters. This growing level of demand continues into the 2030s, and combined with the need for significant increases in future gas turbine spares provides us with even greater confidence. Further capacity is likely to be considered for addition, albeit within the framework of maintaining a high level of free cash flow conversion. Most importantly, the whole of the IGT growth serving broad-based demand across the industrial, oil and gas, as well as data centers will be completed without adding any depth to the company. Indeed, this year we will have completed two acquisitions for approximately $2 billion, spent half a billion dollars on CapEx, and bought back shares in excess of a billion. And yet, our leverage level at the end of 2026 is expected to be similar to the exit level of 2025. The commercial transportation sector continues to experience North American market recovery. Production volumes continue to climb after the Q1 low point, with truck OEM belt slots largely falling in the second half and now into the first part of 2027. The more gradual phase-in of the 2027 NOx emissions regulations should also be supportive of industry volumes going into 2027. While I will comment on specific Q4 numbers in a moment, the new guide has been raised from the prior outlook, but perhaps the most important view is the initial growth outlook for 2027, which is seen at 12% plus or minus half a percent, resulting in revenues of approximately $11.5 billion. Further refinement and underlying aircraft volume build assumptions will be provided during our February 2027 earnings call. Finally, the share buyback authorization has also been addressed by the board and has been increased by a further $5 billion dollars. Now moving to specific numbers for Q4. We envisage revenues to be approximately 2.75 billion, plus or minus 10 million. EBITDA at 900 million, plus of minus 5 billion. Earnings per share at $1.50, plus a minus a penny. For the full year, the guide is increased, again, across the board to revenues of 10.3 billion, also minus 10 billion. EBITDA at $3.33 billion, plus or minus 5, and earnings per share $5.50, plus or minus a penny. And free cash flow has been increased to $2 billion, plus or, minus 50 million. In terms of the full-year commentary, we're pleased with our sales growth of 25%, including a 22% organic growth so far this year, year, and an earnings per share growth of over 45%. We know that pre-cash flow of around $2 billion represents a very healthy cash flow to revenue and a cash margin of over 19%, which is at a very high level. We can now move to Q&A. Thank you so much. ladies and gentlemen we will now begin with a question and answer session to ask a question you may press star then one on your touchstone phone if you're using a speakerphone please pick up your handset before pressing the keys if at any times your question has been addressed and you would like to withdraw your question please press star than two at this time we will pause momentarily to assemble our roster Our first question comes from Christine Livock with Morgan Stanley. Please go ahead. Christine Livocq, Morgan Stanley, Good morning, everyone. John, Patrick, P.T., you know, I guess blades and veins remain a critical bottleneck in aerospace supply chain, which seems to be driving OEMs to take greater control of their manufacturing capabilities. We saw this with Pratt when they invested in the Asheville facility. NGE announced its acquisition of CPP. You know, John, you've previously highlighted the difficulty of replicating HOMET's technology, your manufacturing yields, and scale, but how do you view these vertical integration initiatives reshaping the competitive dynamics in this aerospace blades and veins market, and what implications could they have for HOMEMET's future market share, and how do you think about pricing power? Thanks, Christine, and good morning. I think the first comment I would like to make is that we have excellent relationships with all of our engine customers, so namely GE, Safran, Bratton Whitney, Rolls-Royce, to name just a few. Our investments in technology, quality, and ability to invest in capacity have been fundamental to the increase in volume of modern jet engines and, indeed, support of the airline fleets worldwide. This capability has taken years, if not decades, to achieve. And right now, we're actually poised to further increase capacity for GE, which will take two years to install, and then there will be a multi-year runway after that. In fact, regarding this particular capacity for GE, I was reviewing it yesterday for one of our sites, and it is a significant investment. We're also in dialogue with what's been called the Blue First Blade and its future industrialization in the 2030s. I know that this audience, though, likes to have quantification in numbers rather than just words, and, of course, it's difficult to give dollar values since I also recognize that competitors are listening. So I thought I'd try to provide some views, some scales, some quantification of the central thrust of your question, which was the GE acquisition of CPP. And I think I was thinking about, so how do we move into the 2030s and beyond, especially given the investments I've talked about in commercial aerospace, but also you've seen us make a lot of investments in this year and already talked to the planned increase in investment in 2027 and beyond in the IGT space. And so I thought maybe I could give some quantification of this by just think about the fleet of turbines that we are enabling to be built from like 2025 through 2030, and the large increase in the fleet turbines, which will produce for us spares demand into the 2030s. Because when we have done our modeling, we think about that increase in spares demand. And just to pick, let's say, one year, so I just picked at random like 2031 and what our expectations are in our planning assumptions, is that we see the sales value increase in spares revenues from IGT in that one year. That would exceed the total value of the sales of the first blade of our largest narrow body engine blade to any of our customers so uh and if you think about it we don't expect to lose any of that business anyway but just to try to provide and put the context you know should we lose a first blade to a narrow body engine is that that would be more than compensated by just one thing which would be the spares increases in our igt segment in one year and then of course we're expecting similar values of increases in 2032, 2033, 2034, and beyond, given the continued build-out that we envisage. So let me just turn back from the quantification to back to some more, I'll say, thoughts around CPP. And when we consider their capabilities, we see them to be probably the higher order in structural castings and uh and that's probably augmented recently by the acquisition of presicast from switzerland that they closed in in the last month or so and i when i think about the industry we've heard a lot about uh forgings and castings which seems to be the uh the word that people reach for immediately and in fact structural cast things have probably been the main pain point of the industry that the in that commercial aerospace has suffered in recent years and therefore i consider the capabilities that maybe cpp has in structural castings to be uh possibly of any more important relevance and uh and when i think about it even though hamet has been increasing our market share and we're actually currently considering a further build out of another manufacturing plant in this area maybe it'll affect the scale of the plant that we we're considering and indeed where we'll place that investment but so we expect that we'll continue to grow even in this segment with the with the relative strength that cpp may have in the future and then i think just turning the call into a like a broader perspective for for what hammett's going to do over the next few years um i think i'd just like to return to that igt theme and and i think it's maybe worthy of updating our our guide regarding growth that i provided i think during during last year especially in the light of our growth in in 2026 And as you know, it's been above expectations. In fact, growth accelerated in the third quarter from the 30 percent plus revenue increases in the first and second quarters to a 45 percent level. And as I commented earlier, that level of growth is clearly well in excess of the land-based gas turbine industry, and a result of further market share increments that we've achieved during the course of the negotiations that I referred to in recent calls. So what I see now is that whereas our prior commentary had been around a doubling of IGT sales from 2025 as the base year within a three- to five-year period, we now see this as being achieved in three years, so two years right at the front end of that, And maybe we will rise to two and a half times inside five years, which would take those sales to about $2.5 billion by the end of the decade. So hopefully I've covered the perspective of the investments we're making, commercial aero, the investments that we're anticipating making right now for GE, and the way that those investments will bring additional capacities towards the end of this decade and into the 2030s. And also the impact should something like a first blade, you know, have a different destination, albeit we don't think it does. And we see growth in both commercial aero and IGT as we go into the next decade. Great. Super helpful, John. Thank you very much. Thank you. Thank you, Our next question comes from the line up. See, it's F. Manwich at the JP Market. Please go ahead. Hey, thanks very much, and good morning. Maybe just to round that out, and this might be kind of a quick one in light of your prior comments, but it might be a good time to round out. You kind of addressed fairly directly the potential impact from CPP and on your plans in Arrow. When you think about the IGT plans, how do you think about the role of potentially insourcing at SpaceX and what that might mean for the IGP market? Thanks, Seth, and good morning. First, maybe the comment I should make is that SpaceX is indeed an extraordinary company. which has almost limitless access to capital and I guess fundamental to their to their current plans as the company indeed is the built out of the data center business I think referred to as Colossus one and two and um and if you study that part of spacex in in detail then it's clear that they sold capacity of those uh of those they say ultra modern data centers with the latest say custom silicon in them to other frontier ai companies such as google and anthropic to name a couple um i think it's important again to note that for those cutting-edge data centers the gross margins on the tokens that you use like ai tokens is exceptional and i'm sure you're aware of how high those are and and hence the uptime and keeping those data centers going is fundamental and indeed you can't have interruption of service to that really important revenue stream with that level of margin and I'm sure it's in their contracts with those frontier AI companies specific to that is on their recent earnings call at SpaceX they talked about power and specifically behind the meter power and its acquisition, which is so fundamental to achieving that compute increase and switching the compute capabilities on. So to solve those power issues and to get to today's level of compute power, which is using about approximately one gigawatt, then SpaceX bought the APR company and its fleet of mobile gas turbines to solve the problem. And so these 69 mobile gas turbines were installed and are situated just across the state line to support Colossus. And that power is needed in addition to what power was available from the grid. And then I guess you know that by the middle of next year, those mobile turbines have to be relocated. And therefore, replacements are required. and I think currently to approximately 1.2 gigawatts of power level to support the Colossus Center. And so my understanding from scouring of the Internet and knowing a little bit about the inside of the industry, there are some 33, I'll say, fully-fledged Titan turbines from Solar or Caterpillar being installed and a further 10 ProEnergy 6000 series turbines. And you're probably not surprised when I say that Hamet does supply those turbine blades to both Titan and to the Elam 6000 series of aero derivative turbines. Getting a bit deeper into it, on the recent call, Elon Musk talked about his plans going forward for 2027. and he talked about the plans to get 20 gigawatts of power capabilities to provide the ability to turn on further compute capabilities. And this was by various means, obviously, IGT, wind, solar, the grid, etc., etc. So it's not coming from one singular source, but part of this was that gas turbines were fundamental to it. And if it's not 20 gigawatts, then maybe the thought was at least 10 gigawatths of power could be achieved on top of getting to a 3 gigawatt capability by the mid-year and to be able to turn on that additional compute capacity and then earn those high profits. And he did comment that to do this, new turbines were required. but he realized the problem is that the availability of those turbines was restricted in the industry by the availability of turbine blades and it was commented on the call by SpaceX that these might take another 18 months to two years to achieve and therefore maybe that SpaceX could accelerate the ability of power by providing the blades to those turbines which turbine could be built but the availability of the blades wasn't there. And my understanding is that one Asian turbine manufacturing company has agreed to supply turbines without the blades, and I assume that those are central to the capability of casting that SpaceX talks about with their special casting capabilities. So I think that SpaceX can take that step, And maybe even if those blades are not quite at the level that would have been for the original equipment, they can operate at a power rating maybe below the full power rating of the turbine, and it's called durability. But the important thing, it gets power. and if you think about this is all about our acquisition and what we see generally both for SpaceX and across the industry that data centers are and constructors are reaching out to get power from from any source and and whether it's buying prior generations of turbines I think going back to like an E-series turbine, not today's F-serie or a more modern H-serious. Just go to E-Series E. And in addition to that, you've probably read about several startups, venture companies. They're looking to get into this segment and launch new companies to provide power using aero derivative engines, which are really at the end of life, or aero engines and repurpose them off let's say all 737s as an example and our thought is that is that beneath power those companies will exist and they will start but maybe they'll become less necessary when additional turbine capacity is brought on stream towards the uh the end of the decade and into next decade so i'm trying to give a like a specific spacex answer to your question and then broad it out into the needs of uh power to to achieve the compute levels which are being planned and then i took notes and you probably took note from the g the nova call yesterday their earnings call which said that now they see that their 2032 order book is largely filled and uh and that obviously if you think about it we've talked about you know being good through 28 good through 2030 now it's looking at 2031 2032 looks to be pretty booked and so uh you know our views are now turning towards the middle of the next decade for this uh this level capacity and and my thought is as we see each of those then to today's level of investment that we're envisaging is uh is probably not enough so i don't know whether that covers uh your specific question uh seth and then you know broadened it out into a wider spectrum of what's going on for data centers. Excellent. Super helpful. Thank you. Thank you, ladies and gentlemen. In order to ensure that the management will be able to address all the questions from the participants, we request you to please limit your question to one question per participant. If you have a follow-up question, please rejoin the queue. Our next question comes from the line of Shalia Kayoglu with Jefferies. Please go ahead. Good morning, guys, and thank you so much. John, you mentioned the blue blade coming in the 2030s. That's the first time we've talked about that. Obviously, your technology edge is what provides you additional content on the LEAP and GTF, and I'm sure you're first in line for the next-gen LEAP blade. Maybe can you quantify for folks how much of your growth is coming from that technology edge, content increases versus just volume and price? And perhaps to that kind of question, you know, as you think about the industry players, perhaps starting from a more square one, you Know, how do you think about what supply demand looks like today versus 2030 and 2035 and 2040? Okay, so I guess thematically, what we've been trying to do is step up to the needs for fuel efficiency in the industry and providing a level of capability, particularly at the front end of the hot section of the turbine, which can achieve performances at considerably higher temperatures and, indeed, the pressure those turbine blades are under and, therefore, the structural integrity of them. And we've been doing that and increasing it with each generation or part generations and updates during the course of the life of the of the engines and everybody's familiar with the upgrades currently going on in the uh for the for the elite part of the uh hot section for uh for cfm uh you know led by ge and uh that's already been launched for the leap 1a engine for airbus last year, and we are currently now building in considerable volumes for the LEAP-1B, albeit those volumes are, I think, going through then all the normal processing, which will probably lead to a launch sometime during the first quarter of 2027. At the same time, we're also building and increasing our levels of production for the geared turbofan advantage. And again, with a similar theme of increasing the thermal performance capabilities for the turbine blades for that engine. And because that has to operate at even a higher temperature level. And I've already described on previous calls about how we're approaching that. And indeed, when you think about what's going to drive the economics of aircraft going over the next, let's say, decade, given the fact that inside the decade is probably unlikely that we're gonna see totally new aircraft from Boeing or Airbus, is that further improvements to fuel efficiency will be required, and hence the need to continue to upgrade those part of the turbines to provide that increased fuel efficiency, given the, especially today, given the cost of jet fuel and maybe what it will cost during that period of time. So, thematically, it's just the same. What we envisage is that further OE production will be required over the next few years with the increases envisaged by the airframe manufacturers and the engines to be supplied to them, whether it's for Boeing or indeed Airbus. And if you think about it, those things are not gonna stand still. There's gonna be further content increases. And so I expect that we'll see during the next decade, the further capacity that's been going to required for OE, further capacity, that's going to be required to service these new, I'll say new fleet of engines and their improvements. And I also think that fundamentally when you put higher temperatures, higher pressure into engines, is that the replacement cycles actually become more frequent. And so we do really envisage a very healthy spares demand over that same period of time. And you can see that by the build out of further MRO shop capabilities In fact, by all of the engine manufacturers, you can look at GE, Saffron in particular, and also Pratt & Whitney. Everybody is building that capacity for further MRO, you know, refurb capabilities. So, you Know, the broad view is we're going to increase capacity, increase revenues into the aero segment, you during the next five years and 10 years and just keep the same thing going and continue to develop our technology and and here we are again having already recruited in the last five years probably several hundred engineers we're going to increase our engineering staffing again in 2027 by a similar number that we did in 2025 and 2026 as an example to keep ourselves at the forefront of all the developments. Great, thank you. Thank you. Thank you, next question comes from the line of John Gordon with Citi, please go ahead. Follow-up on the outlook for the defense portfolio, John, you flagged that you don't have any replenishment of inventories kind of in your outlook, but the demand signals are very strong. It feels like not long ago we were talking about IGT in a similar way. Maybe you can talk about, you know, the scale of the opportunity there and just give us whatever color you're sort of willing to offer? Thank you. Yeah. Right now, defense is difficult to really give absolute clarity on in terms of expectation. Apart from thematically, what we're seeing is both a need for replenishment of inventories and parts. Of course, to some degree, we're not clear on the numbers of missions which have been flown over the last three months but I think you can assume that they've been extensive and are going to require us to provide and provision for a replenishment of spares during as we go through 2027 the degree to which will probably be also guided by the defense budget rather than the current situation where we have a continuing resolution of the existing level of expenditure. So I expect that sometime after the midterms that might become more clear. At the same time, there's a lot of other questions that have to be answered in terms of truly definitizing all of the missile work that's there. It's there before us. We've been spending a lot of time with the existing large primes and indeed some of the, I'll say, newer defense companies getting ready for really putting that into production, albeit, again, waiting for final definitization of every aspect of the contract as we do that. So, again, probably, you know, my thought is that given the situation regarding missiles is that at some point after the midterms, then that will get resolved as Congress comes back and the bipartisan agreement is achieved to give us a clarity regarding the defense budget for 2027. And indeed, going forward, given we're now talking about not individual lots, but multi-year contracts, which are also critical to investment in this area. So while I'm optimistic, I think it's going to be good for us in our planning rounds. We know we see the opportunity. It's difficult to be precise about it. But we do expect our defense sales to be up in 2027, for what we already know. But with an agreed budget, it may become more robust for us. Thank you. Thank you, sir. Thank you for your time. Thank you very much. Our next question comes from the line of Doug Hahn with Winston. Please go ahead. Doug, do you want to please proceed with the question? Can you hear me? Yes? Yeah, we can hear you. Thanks, Doug. Got you. Okay, good. So, John, when you talk about IGT demand, it seems like a pretty extraordinary profile going forward. You're up 45 percent in the quarter, which suggests you've already built ahead of some of this demand, a substantial amount of capacity, and yet I think these seven contracts that you've set with the one in Japan being first, that's not even kicked in yet. So I guess looking forward to this demand profile, can you give us a sense of sort of when these next tranches would come in? But I think more importantly, given your position and the supply-demand imbalance, how should we expect margins to trend on IGT going forward relative to the rest of the business and particularly the aero engine side? I've talked about margins in the past, I guess, seeing really that our IGT margins and aerospace margins are roughly similar. I mean, should the rate of growth continue in the IGT space, then we probably would have a little bit of leverage to that volume, just against the fixed cost associated with that segment. But I see it more as a continuing, I'll say, a continuum of development, looking for revenue growth with healthy profitability. because we really look to have long-term relationships with our customers, never seek to take advantage because there's always tomorrow to think about. And we try to be really good partners, not only with the aero engine customers I listed earlier in response to the first call, But also for our IGT customers, and that's whether it is, as you mentioned, Mitsubishi for Japan or whether it's G-Venova or Siemens or is it Solar, Baker Hughes and Doosan, we try to work with all of them in a very consistent way. And in terms of growth rates, it's also been trying to pin something on what's been a moving target. And in fact, we're already in discussions for the willingness to to capacitize for additional demand and indeed also introduce new new product developments for the industry as we go through the end of the decade into the early 2030s and so in fact this week it was you know looking at a new product introduction for a particularly sophisticated type of large ITT IGT blade for a customer that doesn't start until 2031 and so we're looking at all of that and trying to to empathize for it recognizing that no matter what we do it seems like we're not going to be able to totally satisfy uh or you know what the demands appear to be for 2027 as an example so you know we're going to be investing we've invested this year we're gonna invest again at a higher level in uh in in 2027 and and the way things are shaping is that i i i sense that we're going to have a a very continuing high level of capital expenditure into into 2028 um and you know we keep re-evaluating it but for uh for ourselves is that given we try to take a very clear-eyed view of capacitation is that uh for every year we see an elevated uh capex then give us a bit of confidence about that that future growth and its solidity uh going into the next decade and um and so clearly you know we're not going to invest at this sort of levels in 28 and 29 if we're sure about those revenue increases that are going to happen in the in the 2030s very good thank you thank you next question come from the line of ron epstein with bank of america please go ahead yeah hey john good morning john and pt hope you guys are doing well yeah um just a follow-up on on on doug's question how do you get comfortable i mean i think you've talked about this in the past with when you try to think about where the market could be in 2030 or whatever and you have to make investments up front here how do you get comfortable that it's still going to be there in 2030 you know what i mean when you actually execute a decision yeah i i i really do um i mean something that we've tried to think a lot and the security of that demand and uh think about it in relation to both what we see the fundamental demand in terms of construction of data centers permitting you know we we saw a few months ago the there's a lot of questions around data centers in space and what would that do and try to understand that part of the demand I'm also spending time thinking about the future generations of chips and for example the degree to which they'll require the same amount of cooling and therefore electricity consumption and the what's the growth rate that's anticipated by the likes of an anthropic or an open ai or or grok or any of the other uh i'll say frontier models and and it's it's obviously it's complicated in terms of kind of put it all together um and then you know we fall back on okay so given the needs for power um you know what other segments could be there for us if if it should stutter and then we go to look at uh for example uh liquefied natural gas and the us providing energy security to europe and all the shipping of gas across the ocean but of course it has to be liqueified and so compressors used for liquidation of gas then it's also you've got to get the liquefy gas you know for you know from the source through pipelines to uh to the to the the ports and terminals um and then indeed what's going to be the demand in europe as we see nothing likes of short-term el nino but also fundamental uh say changes that might be going on in climate and hotter experiences in the summer a need for air conditioning and therefore what does that do to electricity demand and therefore uh additional turbines which are the only realistic means of addressing them in the in the next decade um to any substantial degree and so it's a it's a very big picture involving many different aspects to try to bring together and then finally okay under what what are the customer contracts that we'd like to see to make sure that we have that feel you know secure in providing that capacity with underpins around corridors of volumes etc um while also being responsive to our customers needs so you know i'm trying to give you like all the things we think about uh without being like passed on about any one of them because you know the assumptions do move um and the uh i will say just the picture has been you know emerging for all of us uh over the for the last couple of years um but it's also something that we feel absolutely justified we should play in this sector and we have the capabilities in fact some quite unique capabilities to achieve uh the performance required of turbine blades of of this scale and the and this size and also as you can imagine you know what are the turbines being considered for the future even beyond the the current version of the current h-class turbines and and what you know how big do they become and you know are they all going air cord blades and and how sophisticated they are and, you know, the critical change of technology which needs to be brought to bear to achieve that. So there's a lot going on on this one, Ron. Yeah, yeah. And then maybe just one quick follow-on. When you look at the end markets that you're confronted with today, I mean, just at a very high level, how strong are they? Do you ever expect to have so much demand out of all the end-markets you're in between Aero, IGT, Defense? I mean, it seems like everything is just ripping right now. Yeah. No, we did not. I used to think to myself, well, we're sort of fortunate in one sense that airframe manufacturers weren't able to build everything because we were able to continue to drive our company forward and improve our level of earning capability when times were really tough and demand was going to be more robust in the future because of the lack of build of aircraft. So I used to turn that negative into a positive about where I thought. And so, you know, I'm always looking for, like, how can this be better for us in the feature and how do we maximize that technology build-out combined with the volume build-up. I never thought that IGT would look like it is. And so, you know, I think sometimes in life you get lucky. And this is one of the things where I feel as though we've had some good luck. But on the other hand, you Know, I temper that with, you Know, all of the Things that, you Know, go against you. And you have got to power through them. And so maybe I've got to take a bit of the smooth, a bit Of the rough. And so I quite like it. But I just don't, at the same time, I don't want to get giddy about it and certainly overcapacitized. And that's why I spent a long time talking about the factors that I need to think about in terms of that capacitization. And some of that was exactly the conversation that I led our board through, I'd say, 10 months ago. And try to say to them, you know, these are all the potentials, these Are the issues, these Are The risks. And this Is what I think we need to do. and uh you know we've all coalesced into this is something that we can do should do and it's good for us but you're right i never thought that we would be seeing i'll say defense gas land-based gas turbines and aerospace all moving in a positive way and it straining us i mean you think about hundreds of engineers thousands of you know production operatives we've probably now at seven and new manufacturing plants and considering three more. So there's a lot going on. I mean, you know, growth can be tough as well. Yeah, yeah. Well, thank you for that, John. Thank you. Thank you, ladies and gentlemen. That was the last question for today. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect. Goodbye.