Okay, good morning. I'm Doug Harnett, Bernstein's Global Aerospace and Defense Analyst. I'm really happy to have with us today, Kim Fields, the President and CEO of ATI Materials, a very interesting company that fits into the commercial aerospace world quite well. We're gonna just go straight to a fireside chat unless you have any, anything you wanna say forward.
Sure. No, thanks, Doug, for having me, and thanks everybody for joining here and online. I just wanted to give a little background on ATI. If you do not know us, we produce advanced materials and components at scale for critical applications across a range of markets, including aerospace and defense. Our portfolio spans titanium, nickel, zirconium, hafnium, and I am happy to announce vanadium now as well. We melted our first vanadium billet yesterday for a fusion customer, and we also deliver that in isothermal forged parts, plate, sheet, and billet and rod. We have been transforming a bit since I joined the company in 2019. We have exited our low-margin businesses and commodity businesses. We have invested in forgings and advanced materials. We have doubled down on innovation to position ourselves in aerospace and defense, as well as advanced energy, as I just mentioned.
Today, that's about 65% of our revenue is A and D. And when you add in these other markets, energy, medical, and electronics, it's about 80% of our revenue.
Great. Kim, you've been CEO for roughly one year now. You know, as you look at that year, you know, how have you looked at the opportunities for ATI and what some of the challenges might be?
As you mentioned, ATI's a really unique company. Over the last year, we've continued some of the portfolio transformation, continued to focus in aerospace and defense. I was really excited that we were recognized last quarter with the Gix code change to A and D, which really just outlines the accomplishments of us growing our share in that space. You know, over the last year, we've really been focused on investing for growth so we can support this aerospace ramp. Defense is ramping, electronics, energy. There's tons of growth opportunities. In a lot of the markets, we are one of only two players that provide these materials. Huge amounts of demand for really unique materials and products. How do we get those investments in the ground and up and producing as quickly as possible?
Now, you know, jet engines is a key growth market for you. It's about 37% of revenues. Sales were up 35% in Q1. I mean, I think your guide is for 15%-20% top-line growth this year. Can you describe where you play in that engine space and how you're differentiated from other participants in that market?
Sure. We shared a little bit on the last earnings call, and we put a slide together to make it a little clearer. You know, we operate in the rotating parts of the engine, predominantly in the hottest section. We are making the disks, we are making the materials. There are seven proprietary alloys that go into that hottest section because they are really trying to drive that temperature up to get more efficiency and more lifing out of those parts. Of those seven materials, we are the sole supplier for five of those. Many of those we co-developed with, in conjunction with the customers. They are using them not just in this generation of engine, but also the next generation as well, as they are continuing to drive efficiency. Pretty unique position, difficult to replicate. You know, we are continuing to drive our technology advantage forward there.
We're investing, you know, some discrete investments we've talked about, others that we have not shared. You know, we have more nickel melt capacity coming online next year, about 8-10% increase in capacity, along with the work we're doing around debottlenecking and productivity that's allowing us to continue to participate not just in the jet engine, but also other transactional incremental business. I'm also really excited to share that we've developed and have a patent pending on a brand new nickel melting process that will eliminate defects, in particular, freckles, which have been very problematic and a challenge for the industry. There's been a lot of work done by the industry and the regulators and our customers to put in detection and inspection procedures. Now we have a process that will virtually eliminate those from occurring at all.
Very excited, hope to be able to talk more about that as we get towards the end of the year here and that patent progresses. Really, really great stuff to get us, again, keep that position and control and help support the jet engine guys that increasing their lifing issues. That's really what those freckles turn into, a lifing or a part-limiting issue. Being able to put in a process to control that'll allow them to keep those parts flying for longer.
Now, the Leaps are a very important engine for you, and it has been for some time. The GTF now, I know you're doing more and more work related to that. Can you compare your content on these new generation engines, the Leap and the GTF, and how that's gone relative to their predecessors, CFM56, V2500?
Sure, sure. If you think about this generation, those engines you just mentioned, again, with the hotter core trying to run more efficiently and longer, have more of those powder alloys, more of those proprietary alloys I just talked about. As I think about, you know, we think about the MRO opportunity of this generation versus the last, you can kinda think in the range of about 2X of the content because it's using more of those powder alloys, it's using more of those proprietary rot and cast alloys.
You know, you said, I think the aftermarket's about 40-50% of your jet engine revenues. And, you know, right now we're seeing a very high level of MRO activity on these new generation engines. How does that affect your business?
We are seeing a huge effect. You know, the first area we see it is in our ISO forging business. I think I mentioned on the earnings call, our lead times are out to 2027. We are seeing about 50%. Some of it is due to the GTF and the opportunity that we've had there to partner really closely. I know we've had a lot of questions around our long-term agreements, our LTAs that we have in place. Really, those become the foundation for us to work seamlessly with these customers. When an issue or an opportunity comes up, we're in the room.
In that case, with the GTF, we came together and the leadership at RTX said, "Hey, we're gonna treat ATI like we're all one company and we're gonna look at these assets holistically and work really transparently with no hidden information or proprietary information." We were able to ramp very quickly to help support that program. Those are the kinds of opportunities. We're seeing those, you know, not just from the GTF, but also, you know, any of the upgrade packages. We're seeing MRO continue to drive demand. We're expecting that to continue through the decade as more and more of these engines are coming in for shop visits.
Now, the GTF, you know, Clear has had some real challenges with, you know, powder metal parts and disks and fiber. It sounds like you're playing an important role in helping them on those components. You know, this is something that we would expect, you know, they're gonna work through this once you get to the other side. Do you look at the work you're doing there, is this sort of a surge and you'll come down on the other end, or do you see this as a long-term situation for ATI that will lead to growth there and elsewhere?
Sure. Yeah. As we're talking to them, you know, in the past, we've done a small % of their forgings. They do a lot of that in-house.
Yeah.
We're the only other supplier that they partner with for this. As we've talked to them, as they work through this particular issue and they shared their projections, they see an increase of shop visits and MRO needs as they're going into the future. They don't see that coming down, in fact, they're talking to us about doubling that or maybe even more in the next 10 years. We do see considerable growth even after this one issue is behind them.
When you look forward in general, do you expect this, that the aftermarket, what's your sense on the aftermarket in terms of the percentage it will occupy in your business? At the same time, we're seeing ramp-ups. We just heard, you know, Kelly talk about, you know, Boeing plants and how they're looking at production. You know, how do you sort of see this mix evolving over time?
Yeah. I mean, both of them are great for us. Obviously, the material goes in, it either goes into a new engine, it goes into a shop visit. I'm excited about Boeing and their recent successes at ramping. We shared, you know, a new contract we just signed with Airbus that, you know, for five years, $1 billion brings us into parity. Both of those are great for our business. A lot of the airframe is gonna use the titanium assets that we've been investing in over the last couple of years. On the engine side, it's gonna be using those proprietary nickels, those powder alloys, some of those very, very difficult, or in some cases, sole-source supply positions that we've got for the next decade or two.
As we think about MRO, we're anticipating that it's going to continue to rise and stay in this range of 30-40-50% through the rest of this decade into the next decade.
Now, when you look at this, this suggests your volumes are, they're growing rapidly right now. The volumes continue to grow. That should give you operating leverage. There should be, also some attractive mix shifts as you have more and more on these new engines. How does that set up for margin expansion opportunities in HPMC?
Yeah. You know, in the first quarter, we're at 22.4% from a margin standpoint. We're already starting to see some of those advantages that are coming through, the equipment reliability, the productivity, the debottlenecking. We're starting to see that capacity come online, and we're taking some more transactional business, which I think we'll be able to continue to operate in underserved markets like, you know, Arrow 100 and other alloys. From a mix standpoint, we are, as each of these contracts come open, we have an opportunity to renegotiate at market pricing that then locks that in for the next decade or two decades in some cases. I do think that, you know, it's still a seller's market for materials. You know, somebody said it's a material world. It's definitely still a material world.
I don't anticipate that changing any time in this decade, as, you know, demand continues to rise. I mean, I just heard Kelly talking about that huge order they just got over in the Middle East. You know, we just see demand continuing to come in. For us, you know, we're talking mainly aerospace here, but we're seeing similar kind of strong demand in defense. Energy is another great market that's continuing to grow. The executive orders this week around nuclear, we're one of only two suppliers that supplies zirconium and hafnium for the nuclear market in the US, for commercial applications. We're seeing demand kind of across the board, in all these markets.
Yeah. I wanted, yeah, to jump over to defense because, can you kind of take us through what some of the key programs are for you in the defense arena and how it, how that plays across? I know it applies to both your segments.
Sure, sure it does. Yeah. The AANS, the AANS segment, is the nuclear naval program. And so, you know, we're providing materials for that. Obviously, with a lot of the discussion around focusing in the Indo-Pacific, that plays very well to those strengths. We anticipate, at least with some of the bills that have been discussed, that increased spending will continue to bring some growth and some demand there. We also in AANS, we have the tank, the armor for the tank programs. Even, you know, there's still very strong FMS sales for the Abrams and other tank programs that we provide material into. We also have relationships with the Europeans who are gonna be reinvesting in their defense. You've got Rheinmetall and BAE and General Dynamics UK.
We've got lots of opportunities there on the titanium plate side as well. On the HPMC side, as we've been talking about, is the jet engines and the things that are going on with the F-35 and the F-18. We're already seeing inquiries for material for the F-347 that's just been announced. Many of the forgers and producers have started to reach out to partner with us, to work with us, to get materials onto that platform. Kind of across both groups and all three branches of the military, we see demand coming from different parts, either US or foreign.
In 2024, you had double-digit growth in defense in both your segments. I mean, that's pretty good. I mean, that's better than most defense businesses are performing. What should we be expecting there going forward?
I think we've been talking about kind of mid to upper single digits as we go forward for defense. We do see strong growth. The programs that we participate in are established and mature programs, and they're getting funding and getting support. We anticipate to see continued growth there, both on those current programs as well as things like hypersonics and drones. We make material for that. One of the materials, C-103, that we make for the commercial space industry, which again is another really growing area for us as well. You know, we're expecting strong growth, obviously off smaller numbers than our aerospace and defense business, but we expect to continue to see strong growth there.
How important is aftermarket there? I would expect on the engine side that would also be a very important piece of this.
On the engine side, for sure. On some of the others, it's more for the original builds. You know, but we're seeing, and I can't talk about all the new developments, but we're doing a lot of new materials development where we're looking at materials and maybe not just one material, but a system of materials that increase protection for the occupants, increase the strength-to-weight ratios, to get better fuel efficiency. We're working on some materials, you know, for some hypersonics applications. We've opened up our new classified additive facility down in Florida that's doing some interesting things. There is a lot of opportunities for continued growth for the original build more than MRO, but the engines for sure. There's a lot of MRO for engines.
I wanna switch over to your airframe work. Now, you know, traditionally you've done a lot of work with Boeing, but I know you've got new, new agreements with Airbus. Can you talk about, first, the kinds of products that you're focused on, on the airframe side, and then maybe help us understand a little bit about what you're gonna be doing with Airbus?
Sure, sure. Yeah, I'd say, you know, just going back for a minute, 2019, we were only a Boeing supplier. We didn't have any business with Airbus. In fact, most of the time back then, we were a Boeing and GE supplier. Through the last five years, we've really diversified that on both airframe and the jet engine side. We talked a little bit about that. Really, you know, 2019 was the first contract we had with Airbus, very small percentage. We were just getting started with them. COVID hit. We weren't really supplying anything. Then Russia invaded Ukraine, and they called and said, "Look, how do we rapidly ramp? And we really wanna get your material." We went through kind of a very concentrated qualification process. In the last contract, it was mainly plate that we were providing to them.
It went into cut pieces for parts on the airframe, landing gear, other things like that. This contract, as I mentioned, brings us into parity with where we've been with Boeing. It's not just plate, it's also long products that go into forging, as I said, for landing gear and other things, but also Pack Rolled Sheet, which is a brand new product that we've just offered. They've contracted for about half of that facility now. We have kind of a wide range of materials that we're gonna supply to them. Again, we're really excited about that relationship.
Sorry. It's okay. Yeah. You know, one of the things, maybe you can help me understand a little more. When Russia invaded Ukraine, you basically very quickly had shut down in terms of all titanium products coming out of Russia into US companies. Although the European companies continued to source in one way or another, some from Russia, go to Airbus, to Safran. I mean, is that, does some of the share that you've gained represent, you know, sort of the eventual shift out of that Russian supply of titanium products?
In general, yes, I'd say a big portion of it is people shifting away from VSMPO and what they were buying there, but not completely. You know, we're continuing to see, even just recently, as a couple of weeks ago, where some of our competitors maybe aren't performing to the level that they need to be. Customers are calling and saying, "Hey, we have you at 80% share. We wanna take you to 100% because we can't get the materials we need in the timeframe we need." To your point, VSMPO didn't go away completely. I think they're coming in through brokers and other sources still.
Yeah.
For the most part, you know, that share we've been able to pick up and put into long-term contracts. So that allows us some stability.
All right.
Some stability as we go forward and maybe VSMPO, you know, we'll see what happens with Russia.
Yeah. It doesn't appear VSMPO's coming back anytime soon.
No, not recently based on the current tweets.
Yeah.
Yeah. Like I said, I think, you know, over time at some point that, you know, we've always planned as we put in capacity that at some point that they might be back in. Again, the positions, the qualifications that we're getting and the capacity we're putting in is positioning us long-term, along with those long-term agreements so that we've got some stability as we go forward. You know, the titanium capacity, we've got our new EB melter that's up and in qualification right now, just started. These assets were planned back in 2019 before, you know, COVID, before Ukraine. We were anticipating based on the build rates and what we were seeing already from the industry that there was gonna need for increased capacity.
We're feeling pretty confident that, you know, especially given the build rates that we heard here today from, you know, from Boeing and from Airbus, that there's gonna be continued need for all the assets that are getting put in.
If we look to your, to kind of modeling your airframe business, which is really an OE business, should we consider that to move pretty much in line with where production heads at Airbus and with, and Boeing? Is that a reasonable proxy?
Yeah. I think in the long term, that's a reasonable way to think about it. That's how we use the build rates as we think about what is our capacity, what are our commitments, where do we wanna be positioned as far as transactional versus contractual. We build our capital plans off of that. In the short term, and short term for us is kind of two years, we have really, really transparent dialogues with the airframe as well as with the engine guys around what are their plans, what are they seeing from their demand signals. You know, it's an interesting position to be in because I'm able to talk to the Boeings of the world as well as the GEs of the world and get two different perspectives to triangulate exactly what's happening and what's gonna be driving demand.
That's what we're using to set our guidance and to share, you know, the targets that we share with the investors.
Can you describe what your mix is between wide body and narrow body in the terms of their relative importance for you?
Sure. Yeah. When we think about, from a wide body to a single aisle, a wide body has about five times more titanium in it, or content. Sorry, not just titanium, but titanium and nickel content versus a single aisle. It is both the engine and the airframe. Obviously, those airframes are just a lot larger, so they use a lot more titanium. The engines are a lot larger as well. They are the ones that are using a lot of those powder alloys and a lot of those proprietary alloys to power and get the temperature and thrust that they are looking for.
Is it also related to the composite structures and the 787 and A350?
Exactly. I mean, yeah, we've been supporting, you know, since the introduction of the 787 with Boeing. That relationship's only grown. You know, I think that as that continues and the use of composites, titanium's need will continue to grow as well.
Now, one of the things you've really stressed is the importance of long-term agreements. I think you commented some stretch to 2040. The question is, how does that work? 2040 is a long way away. There are all kinds of things that can happen in the market, in inflation, changes in materials. How do you think about these very long-term contracts?
Sure. Yeah. Two ways. One, they have to be flexible, right? Because you've gotta contemplate a lot of different scenarios. Two, you've gotta have a really close relationship with your customers so that when you run into scenarios that haven't been contemplated, you're able to open that up and renegotiate it. You know, a couple of things. One, our contracts, you know, all our contracts have surcharges to pass through material fluctuations. They have a whole host of different inflation indexes that are built in so that we try to pass through and cover any kind of cost.
A lot of times, especially over the last five years, when circumstances change so dramatically or demand needs either up or down change so dramatically, it provides us an opportunity to reopen that contract and renegotiate pricing terms and other things that are more appropriate for that situation. You know, one we've talked a lot about is some of our titanium contracts. You know, titanium used to be from fixed material. That's changed since COVID. We've been putting in titanium surcharges and pass-throughs into all of our contracts. We just finalized the last one last week. Now all of those have those.
Again, yes, 2040 seems like a long time or 2045 in this case seems like a long time, but it's what's necessary for us to have the confidence from the customer that when they tell us we're gonna be their sole supplier, not just, you know, for their current fleet of engines, but their next fleet and next designs, that they know that they've got our commitment and we're gonna work together transparently around not just what capacity do you need, but what are these new melting technologies? What do we need to do from inspection? How do we continue to help you with life?
In one case, you know, we just negotiate, we just developed the next generation powder alloy with one of them that they're using and they're putting into their current engine programs that give much better life that work, much at a much higher temperature, much lower cost for them. It becomes kind of a flexible foundation that yes, we renegotiate and we capture and make sure we pass through any costs, but it also becomes the fabric of all of the other relationships and transactions that we do on top of that.
Is it possible? I mean, you've talked about things that are, that are in some cases sole source and then, other ones where you have sort of very large market share. I mean, it seems like you have some pretty unique capabilities here. If you look across the product set sort of in the aerospace and defense side, where are the places where that are competitive? And, and where is it where it's less so that you can really get into these sole source positions?
Yeah. I'd say, you know, many of our products, so, you know, we talked about the hot section or the five of the seven where we're the sole supplier. One of them is the OEM supplies themselves. And the other one is one that we're qualified on and it's supplied by a competitor today. On the ISO forging side, there's only two suppliers in that process at all. You know, we kind of share and we compete for that business. You know, as you think about the hot section, you think about rotating parts, there's very few players that can produce at scale consistently the quality needed to meet the demands of those applications. Outside of that, you get into some more, I'd say, more commodity type products, you know, maybe a 718 or things that are maybe on the old, the last generation.
You talked about the CFM, you know, so CFM56, some of those materials that have been around for a while. Not so much on rotating parts though. I tell you, rotating parts, everything from where we source the raw materials to who, how it's melted to how it's maintained has very limited competition mainly because of the stringent requirements. It's when you start getting into more of the static parts, you could maybe see, or the airframes.
Yeah, can you characterize sort of what fraction of your business would fall into the pretty non-competitive that you pretty much control that market?
Probably close to 40%. Yeah. Just to put a number on it. Sorry. Probably 40% because a lot of it is jet engines. Two-thirds of our A&D is jet engines. That's 20% of our business right there.
Yeah.
You know, there are some other things outside of aerospace and defense that is non-competitive. The commercial nuclear, the products we make there, again, there's only one other player in the US and, you know, there that there's participating in that space, Hafnium for C-103. We're the only provider of that in the US today, which goes into space and, and missiles and other things. 40-45% is probably a good number.
When you think about that, you know, going forward, you, it gives you, you know, very strong pricing power and, but if you're looking forward and you look at how you think about capital investments, some of these take some time to get in place. How do you plan for that and really understand what the capacity needs are going to be, you know, five years from now, 10 years from now? Because I imagine that's pretty important given, given the capital costs of some of these new facilities you're describing.
Yeah. Typically I do, we do like a five-year capital plan. We are talking with them, all our customers around, well, what do you see as your demand? What are you seeing as your signals? MRO versus OE. Then we start to line it up. We tend, you know, for our capital, it takes about two to two and a half, maybe three years at the most from start to finish, from approval to having it installed and it's up and qualifying. Five years is about the right timeframe. Longer term, I'm looking at, okay, where's the industry going? Where do we need, how are we investing in new technologies, like this melting technology or new alloys, like the vanadium that we're developing.
In a lot of cases, you know, we're using our resources and our capital is focused on investing in those core products and those markets where our strength and differentiation are valued. Where there's additional investment or in some cases, customers would like us to invest early before they need it, just in case, right? That's where customer capital comes in. There's been a big appetite with our customer base kind of across the markets, saying, hey, it went, you know, somebody used the phrase, it went from just in time production to just in case production. People are really wanting to make sure their supply chains are robust and are firm. I heard Kelly talk a little bit about the steps they're taking to make sure that they're ready for their step rate changes.
That's where customer capital comes in as well. If they'd like to do something, you know, that's earlier than what we anticipate is needed, then, you know, then something we partner to do that as well.
Now, when you go outside of, of aerospace and defense, you've got about 35% of your revenues in other areas, which can be energy, medical. Can you talk about what the most important parts of that group of businesses is?
Sure. Yeah. So of that 35%, 15 would be in what we call aero-like, primarily because it utilizes equipment and strengths that we already have and then we've invested for aerospace and defense, really challenging environments like space and the human body and nuclear reactors. As I think about those markets, the one area that we are focused on is energy. I think there's, you know, a tremendous, obviously amount of growth from data centers and needs here in the US. You know, we have contracts with OEMs for land-based gas turbines and we're continuing to support that. I think there's a huge amount of growth right here in the near term for that. I think in the medium term, as we've talked about, you know, with these executive orders, nuclear, commercial nuclear and SMRs are gonna take a much higher position.
The zirconium and hafnium that we produce out in AANS in the segment there is, is gonna be, is participates and is gonna be an important part of that. Then longer term is gonna be some of these really unique alloys around fusion. You know, we've got two fusion companies that are building reactors right now. One of 'em I think is in Virginia is gonna go in. That's what these vanadium and other alloys are, are gonna be used for, as a consumable, if you can believe it, in these reactors. Again, could be huge upside in the long term. Energy's one that I think has, like I said, is a near, medium, and longer term opportunity for us to continue to grow. It's a small part of our portfolio today. It's 5% or 6%.
I do think that'll continue to grow. It uses all the same strengths and capabilities that we have that we need to use for aerospace and defense.
I mean, on the industrial gas turbine side, I mean, are you engaged now in discussions with some of the big players like a Vernova or Siemens?
Yeah. Yeah. And we've got relationships and contracts with them. There is one that we're talking to that is even looking at moving to a powdered alloy so that they can get more efficiency and run their turbines hotter. There is opportunity for development for proprietary alloys very similarly to what we have in the jet engine space.
First quarter, you had a really strong first quarter. Can you give us a little more insight in how you see this year unfolding, Q2 and the rest of the year?
Sure. Yeah. The first quarter started out really strong. We were $20 million above our midpoint from an EBITDA standpoint. We were able to finalize our labor agreement with USW for six years for ANS, which is just a fantastic foundation for our aerospace customers from that business. As we look forward, second quarter, we are on track and are doing well throughout the quarter. I'm anticipating continued good performance. We'll evaluate the rest of the year and what we want to do as far as full year guidance as we get to the middle of the year after the second quarter. Trade and tariff policy continues to move around. We are seeing some rebounding of some of those other markets we haven't talked about.
Things are starting to normalize a little bit, but I won't go out on a limb to say that we're kind of already there and it's stable across the board yet.
I mean, how much is the tariff impact for you?
From a cost standpoint, very little.
Yeah.
Yeah. I mean, I think we said $50 million and we're really well protected with pass-throughs and we're working with our customers. I mean, there's, you know, there's a lot of collaboration around duty drawback and other things that we can do to collect that and protect their, our customers as well. On the demand side, we're not seeing any impact from an aerospace or defense side whatsoever. In fact, you know, I think, like I said, what's happening in Europe and the rearming in Europe is gonna actually be a benefit to us. It is some of those smaller industrial markets that are more transactional, and they've actually rebounded and are firming up. I do think that, you know, our business is focused on OEMs and focused on people that are using our material and building things.
Ultimately, at the end of the day, people continue to need this material to build their products to serve their customers. We aren't seeing any long-term impacts or any changes. Just wanna get through the second quarter, continue to perform well. Like I said, then we'll reevaluate. But yeah, we had a great first quarter.
I know you've got targets out there for 2027. Can you describe those and how you see them today?
Yeah. We are well on track to meet those targets as we go forward. I think it's a margin of kind of 19%-21%, a billion dollars of EBITDA. We've already hit the 65% aerospace and defense. You know, things are continuing to go well from that standpoint. We're well on track to that. Like I said, as we get into the back half of the year, as we get to the end of the year, we'll reevaluate, you know, when's the right time to update and if we need to make any changes to that guidance.
Any things that you see as a risk to the upside or downside on that?
Not very many, I'll be honest. Demand is really strong. It's a good market. It's a good time to be in aerospace and defense. I'd say our operations are operating really well. The debottlenecking and productivity is improving. As you saw, you know, I mentioned the margins for HPMC, you know, just under 22.5%. We see margins, you know, going to 24% this year, and the target there is 30% in HPMC. The equipment reliability, the productivity, is going really well and we're seeing a lot of benefits already from the investments that we've made.
In terms of cash deployment, I think in, on the Q1 call, you said that you're looking to accelerate share repurchases. Can you talk about how you're thinking about cash deployment in general?
Sure.
Beyond, beyond Q2 as well.
Yeah, sure. We kind of approach it, you know, in three ways. You know, one is investment, organic investment for growth. And as we've been talking about here this morning, there's a lot of opportunities. We're being very selective, making sure those investments meet at least a 30% threshold. In some cases, there's this melt investment I talked to you about, it'll be paid back in one year. It's a very, very quick payback on some of these investments. Second is debt and, you know, retiring debt. We're targeting kind of between one and two times leverage. We were at one point, I just think of one, 1.9, just under two at the end of the first quarter. We're pretty much there.
I'm not really seeing that we're gonna be doing a ton more work there, but there's a few things coming into maturity. The last is the return capital to shareholders. We're prioritizing doing that through share repurchase. As you mentioned, the first quarter, we accelerated it. We took about half of our outstanding authorization. We're gonna continue to evaluate that, you know, and taking a look at where are the stock prices. Do we think it's fairly valued? How much upside do we see? Then make a decision on do we wanna continue to accelerate that, as we go forward.
When you look at investment CapEx, what are your priorities? What are you thinking about here? I'd say that this year, but, you know, as you look at the next, say, three years or so, what would you be focused on?
Yeah. We're kind of finalizing a lot of our titanium. We've talked a lot about titanium. It's only about 20% of our business, but we've been making some discreet investments on the nickel side of our business. We are evaluating from a jet engine, all those proprietary alloys, both from a powder as well as a cast and wrought process investments. I mentioned, you know, we have some new capacity coming on next year. We do see some additional opportunities there. We've made a few discreet investments on our zirconium and hafnium production. We've improved, increased that about 25% over the last couple of years. There could be some more opportunities, especially given with commercial nuclear, maybe taking off the defense in the Indo-Pacific. I think I saw, I know you challenged me.
I think I saw another Virginia class in there. We'll see if it comes to fruition or not. You know, if they do start to increase, you know, the build rate on either the subs or on the carriers, that could be a huge amount of material pull as well.
Yeah. A lot of people would be happy if they can do that. Let's wrap up. As you look at the next 12 months, you know, where are you gonna be focusing your time?
Really two things. Execution, on all this capital that we've put in place, getting it qualified, getting it up and running so we can support the ramp, for aerospace, defense, energy. Second is investment, as we just talked about. Where do we continue to invest, not just for capacity, but also for capabilities? I mentioned that new melting process. It's gonna change the way we melt nickel products today. And so we're gonna be continuing to drive that investment around technologies, drive that investment in partnering with customers on new materials and new processes, so that as the OEMs continue to develop engines that run hotter, more efficiently, we've got the materials ready that'll allow them to be able to deliver that.
Great. Kim, thank you very much for joining us. It's been really good.
All right. I appreciate it. Sorry about the cough. I got a little bit of a cold coming back from Europe, but I appreciate the time and I appreciate everybody's time here. Thank you.
Thank you.