Don Newman: So just to make sure that we’re in sync back in my mind I saw — I’m recalling that nickel prices in the latter half of 2023 really saw their slide and first half relatively stable not massive changes to 2022 levels. But then when you get to Q4 2023, we really saw continued meaningful step down to like the $7 per pound range. So the way to think about that is in our business there’s a little bit of a lag in terms of the effective metal. And one area where I really focus the listeners is around our pass-through. So our team has done a really good job adding pass-through mechanisms to our various contracts. And so as a result as the metal prices and those material prices move around then we could see our pass-through revenues increase or decrease.
Case in point go back to 2022. I shared at the end of last year’s call that we saw our pass-through revenues increase in 2022 in the range of $300 million because metal prices went up and that inflated our revenues, okay? Now metal prices have kind of retraced to where they were before the — I’m talking nickel in this case retraced to where they were before the Ukraine invasion. And so a lot of that lift that we saw going into our pass-through revenues has begun to go the other direction. We saw about $15 million of negative impact on our revenues in Q4 and here’s what we’re thinking. If the metal prices remain at about the same level they are now plus or minus then as you think about that reversal of our pass-through revenues Timna, I would expect our pass-through revenues in 2024 will probably be, I don’t know $175 million, $200 million lower than we saw in 2023.
As you know there’s not a significant impact to our bottom line because of changes in pass-through. But as you’re trying to get a feel for our underlying growth rates for revenue, it’s an important thing to make sure that you have built in. Does that answer your question and help you?
Timna Tanners: Yeah, I think so. We can definitely follow-up, but that’s a helpful reminder. Thank you.
Operator: Thank you. The next question goes to Michael Leshock of KeyBanc Capital Markets. Michael, please go ahead. Your line is open.
Michael Leshock: Hey, good morning. I wanted to ask more broadly on the aftermarket side within commercial aerospace, obviously, seeing some strong demand there right now. But could you talk to some of the pockets or platforms within MRO that are maybe elevated right now? And then if there’s any way that you could frame the duration of that aftermarket strength that would be helpful.
Bob Wetherbee: All right. I’ll give it a try. And so our aftermarket is predominantly jet engine spares. And so we are seeing elevated spares demand. Historically it’s about 25% of our mix. I think today we’ve said it’s by closer to 40% and there’s a couple of different reasons for it. And you kind of have to go almost, I don’t want to say too much about each individual engine platform but you have to look at it from each individual engine platform. I think there’s some widely discussed issues with the GTF. And there are other issues in terms of just different versions and different kits that are being put in different engines. There’s also the extended use of narrow-bodies anytime you’re in a major airport and you see an MD-80, say, they’re all out of the desert.
Everybody is looking for narrow-bodies. And I think that’s the extended cycle from people are reaching the point where they have to make the commitment to major maintenance and engines and overhauls because it’s going to be a while before they get their next narrow-body plane. The wide-body side more and more planes are in the desert where there’s more sandy conditions that kind of thing. So I think all the trends for us, we do see that some engine programs will kind of revert back to the mean here in terms of spares, but for the foreseeable future. I think there’s enough drivers outside of the norm that’s going to keep that spares level elevated for, I would say, a couple of years I think it all gets sorted out. Hopefully that helps.
Tom Wright: We don’t really have much in MRO. Yes. I’m sorry. Go ahead.
Michael Leshock: No, that’s very helpful. I just wanted to ask lastly on inventory management. You had touched on that. How do you see your inventory progressing throughout 2024 just given some of the moving pieces with the outages and the underlying commercial aerospace ramp? Is there a level that you’re targeting or inventory turns? What way do you frame that? Thanks.
Bob Wetherbee: So let me frame it not just specifically for inventory but how we’re thinking about managed working capital in general. Understanding that inventory is the primary piece of management capital. So, we made some really good progress here at the end of the year getting our overall managed working capital down to much, much closer to our 30% target. As you think about 2024, the way you want to think about it is, we are working very hard to not build inventory as we have done historically during the year. Keep it really tapped down so that it’s not a drain on our cash. So that is a clear effort and you should expect to see improvement year-over-year in that area. In terms of the overall year and what are we expecting from managed working capital, we expect that we’re going to by the end of 2024 and at the 30% target and very possibly marginally below it. And so that’s how I would describe it. Does that help you?
Michael Leshock: Yes, it does. Thank you.
Operator: Thank you. The next question goes to Josh Sullivan of the Benchmark Company. Josh, please go ahead. Your line is open.
Josh Sullivan: Hey. Good morning.
Bob Wetherbee: Good morning.
Josh Sullivan: Just as a kind of follow-up to that inventory question. On the narrow-body customer developments you mentioned in the prepared remarks, what do you think your customers’ willingness to hold and build inventory looks like is these narrow-body developments are digested? One of the OEMs talked about the issue is actually an opportunity for the supply chain to catch up. But I’m curious what your thoughts are about customers and inventory levels.
Bob Wetherbee: Yes, fair question. I think there’s a lot of noise in the system at the moment, whether that’s in the US system or the European system, engine programs, airframes a lot of noise, right? But we’re not seeing any change in behavior in terms of buying patterns or on the airframe side, and certainly not on the engine side. I think the disruption in the spares or the need for more spares around the GTF is having a positive effect for those of us who supply materials. Certainly, engine guys don’t want to be the laggard, they don’t want to be the bottleneck either. I think they are working to get ahead. There’s also a tremendous influx of defense applications whether it’s rotorcraft engines or airframes, there’s a lot of activity there, helicopters in particular.
But we’re not seeing any let up from the engine producers. And for us, we’ve materially broadened our market position. So we’ve always said, we love every airliner that flies in every engine that powers it. And that’s more true today than ever before. So today I think — these companies are big companies. They have great capabilities. They’re going to sort themselves out. And I think when they do sort themselves out nobody wants to be the ultimate bottleneck in the supply chain.
Josh Sullivan : And then maybe just one on the nickel powder market. I think you mentioned isothermal forging was a highlight. I know titanium gives a lot of focus here, but how does the nickel powder market look like?
Bob Wetherbee: Yes. I mean, we feel good about it. Yes, normally, we’ve been talking all about nickel powder, but titanium has kind of been the topic of conversation in 2023, it’s strong. We’re on some really great programs that are really ramping up. I think, we’ve been focusing on yield, and obviously, in the short-term, we can get your yields up 40% that pretty much covers some of the capacity issues that we have in the short to medium-term. But it continues to be strong. I think when you look at some of these single points of failure that are occurring in the market, especially on the nickel alloy side, if there’s a single point of failure, and we’re not the supplier, it just opens the door for us, and gives us an opportunity to do more.
