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Operator: Greetings, and welcome to the Kaiser Aluminum Corporation Fourth Quarter and Full Year 2022 Earnings Conference Call. . It is now my pleasure to introduce your host, Kim Orlando, with Addo Investment Relations. Thank you. You may begin.

Kimberly Orlando: Thank you. Good morning, everyone, and welcome to Kaiser Aluminum’s Fourth Quarter and Full Year 2022 Earnings Conference Call. If you have not seen a copy of our earnings release, please visit the Investor Relations page of our website at kaiseraluminum.com. We have also posted a PDF version of the slide presentation for this call. Joining me on the call today are President and Chief Executive Officer, Keith Harvey; Executive Vice President and Chief Financial Officer, Neal West; and Vice President and Chief Accounting Officer, Jennifer Huey. Before we begin, I’d like to refer you to the first 3 slides of our presentation and remind you that the statements made by management and the information contained in this presentation that constitute forward-looking statements are based on management’s current expectations.

For a summary of specific risk factors that could cause results to differ materially from the forward-looking statements, please refer to the company’s earnings release and reports filed with the Securities and Commission, including the company’s annual report on Form 10-K for the full year ended December 31, 2022, which will be filed later today, February 23, 2023. The company undertakes no duty to update any forward-looking statements to conform the statement to actual results or changes in the company’s expectations. In addition, we have included non-GAAP financial information in our discussion. Reconciliations to the most comparable GAAP financial measures are included in the earnings release and in the appendix of the presentation. Reconciliations of certain forward-looking non-GAAP financial measures to comparable GAAP financial measures are not provided because certain items required for such reconciliations are outside of our control and/or cannot be reasonably predicted or provided without unreasonable effort.

Any reference in our discussion today to EBITDA means adjusted EBITDA, which excludes non-run rate items for which we have provided reconciliations in the appendix. At the conclusion of the company’s presentation, we will open the call for questions. I would now like to turn the call over to Keith Harvey. Keith?

Keith Harvey: Thanks, Kim, and thank you all for joining us for a review of our fourth quarter and full year 2022 results. Turning to Slide 6. Before we begin today, I wanted to remind everyone of our recently announced change to the presentation of our adjusted EBITDA to discontinue the use of adjustments to plant level LIFO and the consequential impact on certain other non-GAAP measures. Please refer to our press release issued on January 26, 2023, as well as our earnings press release and supplemental slide presentation for further details on this matter. While 2022 was a highly challenging year for Kaiser amid unprecedented supply chain disruptions and ongoing inflationary cost pressures, we made remarkable progress to position the business for success.

Beginning first with our results. As anticipated, the challenges at our packaging operations at Warrick continue to weigh on our performance in the fourth quarter. Adjusted EBITDA in the fourth quarter was relatively consistent with the prior quarter at approximately $30 million, primarily reflecting headwinds associated with our ability to increase prices to recover higher commodity and input costs, coupled with lower packaging shipments as we experienced some destocking, primarily by beverage customers at the end of the year. For the full year, adjusted EBITDA declined to $142 million due mainly to significant supply chain disruptions at Warrick that have since been resolved. Additionally, a compression in market-driven scrap discounts negatively impacted both the fourth quarter and second half of the year in 2022.

In an effort to minimize the impact on our customers due to ongoing supply disruptions we experienced last year, we purchased metal in the second half of 2022 at a higher cost, which led to a metal inventory imbalance due to lower scrap utilization. We estimate incremental cost in the fourth quarter of $19 million due to inventory imbalance and unrecovered alloy cost. For the full year, total incremental cost of $73 million included those costs previously identified due to supply chain disruptions at Warrick, along with unusual freight and third quarter outage costs at our Trentwood facility. We expect the majority of these imbalances and the resulting higher costs associated with these actions to dissipate over the next several quarters. The demand environment for the quarter was mixed as we experienced destocking in general engineering rod and bar and packaging in the quarter.

Aerospace demand continued to improve and shipments sharply increased in the quarter as our Trentwood facility resumed normal operations after successfully completing a major outage in the third quarter. Automotive demand remains steady as the industry continued to recover from its semiconductor and other supply chain challenges. Now turning to Slide 7. I’d like to now discuss some of the areas in which we’ve made significant progress in 2022 to position Kaiser for success. Beginning with Warrick. After completing this transformative acquisition in 2021 and resolving the various supply chain issues that hampered our performance in 2022, we have refined our strategy to best capitalize on the long-term growth opportunity ahead of us. First, we made changes to our organizational structure at Warrick, which went into effect at the beginning of this year, to augment the existing management team with several seasoned Kaiser leadership members.

The combined team is highly focused on accelerating the integration of Warrick into Kaiser’s operating system. Second, we made solid progress working with our packaging customers to negotiate improvements related to the timing of contained metal and alloy price adjustments facilitating the pass-through of higher commodity and input costs in existing customer contracts to help mitigate the quarterly impact of higher material and other inflationary costs on our business. While we were pleased to have successfully renegotiated certain of our contracts with key customers, additional discussions are ongoing. Third, we further diversified our supply base to lower our reliance on any single supplier or geographical region. Our new contracts enabled us to flex our volumes to better align with customer demand.

And finally, we are prioritizing investments for growth through our roll coat capacity expansion project, which is expected to convert approximately 25% of our current output to higher-margin coated products. With the building mostly completed and equipment now beginning to arrive, we are focused on readying the site for startup in early 2024, with the goal of being fully operational by mid to late 2024. In addition, we are continuing to make progress with the physical separation of our Warrick facility from the adjacent Alcoa smelter and power plant, which we anticipate finalizing by early 2024. Longer term, we intend to increase our use of recycled materials as a percentage of raw materials at Warrick to increase the sustainability of our packaging products.

Lastly, following the abrupt cessation of magnesium deliveries to Warrick last year from one of our suppliers, U.S. MAG, which led us to declare force majeure during the third quarter of 2022, we are actively pursuing damages through litigation. Currently, all of our magnesium requirements have been secured through 2023 and partially into 2024. We remain bullish on the long-term outlook for our packaging business, following the positive strides we made in 2022 and guided by our refined strategy as we move forward. Moving to Slide 8. Beyond our packaging operations, we remained well positioned to benefit from the recovery we’ve been experiencing in aerospace and continued demand for general engineering products following the completion of a long planned major outage at our Trentwood facility in the third quarter of 2022.

The mill is back up and running, with lead times remaining extended. In summary, 2022 was a pivotal year in Kaiser’s evolution as we laid the necessary groundwork to position our company for long-term sustainable growth. I want to thank our team for their dedication and perseverance through the various supply chain disruptions and for maintaining a commitment to safety. Our teams, again, achieved strong safety performance in 2022, even as we experienced historically high turnover rates, hiring and training more than 900 employees, a strong testament to our safety-minded focus and processes. While many monumental hurdles are now behind us, we believe that challenges will continue as they relate to broader macroeconomic uncertainty marked by ongoing inflationary pressures, supply chain inconsistencies and labor turnover.

As such, we remain intently focused on continuing to pursue cost reduction efforts in our operations, improving efficiencies as our operation stabilize, and continued commercial actions to improve our margins. While our efforts will take time to manifest, we are confident in our go-forward strategy and our ability to execute, given our solid market position as a key supplier in diverse end markets with strong secular growth characteristics, strong customer relationships and multiyear contracts with key strategic partners. I’ll now turn the call over to Neal for more detail on the quarter. Neal?

Neal West: Thank you, Keith, and good morning, everyone. Before I discuss our full year and fourth quarter 2022 results, as Keith highlighted, I want to remind everyone of our January 26, 2023 press release, where we announced changes to the presentation of certain non-GAAP financial measures following discussions with the Securities and Exchange Commission staff. Part of our discussion with the SEC staff, we renamed value-added revenue, or VAR, to conversion revenue and revised our presentation of adjusted EBITDA, adjusted operating income, adjusted net income and adjusted EPS to discontinue the use of non-run rate adjustment item, identified as adjustment to plant-level LIFO. Separately, we revised our calculation for hedge costs of alloyed metal effective for the full year ended December 31, 2022.

Please refer to the January announcement, our earnings release and slide presentation for additional details. Now let’s turn to Slide 10. For the full year 2022, conversion revenue was $1.4 billion. Note that the impact of the changes we instituted beginning in 2022 to more fully reflect contained metal pass-through in our hedge cost of alloyed metal in comparison to our historical presentation conversion revenue resulted in roughly $112 million conversion revenue reduction in 2022. Turning to Slide 11 and reviewing our conversion revenue by end market. Aero high-strength conversion revenue totaled $103 million in the fourth quarter of 2022 after an $8 million adjustment for incremental alloyed metal, reflecting a 25% improvement on a 28% increase in shipments over the prior year quarter.

Growth in shipments was driven by improving demand for commercial aerospace applications in addition to strong plate shipments following our third quarter plant outage at our Trentwood facility. For the full year 2022, aero high-strength conversion revenue totaled $356 million, up 13% over the prior year, after a $32 million adjustment for alloyed metals, reflecting a 15% increase in shipments driven by improving commercial aerospace demand and continuing strong demand for our biz jet and defense applications. Moving to Slide 12. Packaging conversion revenue was $134 million in the fourth quarter, up 2% year-over-year after a $23 million adjustment for alloyed metal. Shipments were 16% lower year-over-year as we work to return to a more normalized operation following the declaration of force majeure at our work operation in the third quarter of 2022, in addition to lower shipments due to destocking in the beverage can markets.

For the full year 2022, packaging conversion revenue was $555 million, up 42% after adjusting for $49 million for alloyed metal on a 21% increase in shipments over 2021. As a reminder, our packaging shipments in 2021 reflected only 9 months of activity as the acquisition of Warrick closed on March 31, 2021. In addition, our full year 2022 shipments were negatively impacted by approximately GBP 57 million due to the magnesium related force majeure event that occurred during the third quarter of 2022. Now moving to Slide 13. General engineering products conversion revenue for the fourth quarter was $92 million after the impact of a $4 million alloyed metal adjustment. General engineering conversion revenue was up 26%, driven by higher pricing, coupled with 7% reduction in shipments, which was predominantly due to normal seasonality and destocking at service centers for our extruded rod and bar products.

For the full year 2022, general engineering conversion revenue was $367 million, up 23% after a $22 million impact for alloyed metal, led by higher pricing and a modest 2% year-over-year increase in shipments, given the destocking of our extruded rod and bar products and the impact of the third quarter treatment planned outage. And moving to Slide 14. Auto conversion revenue was $25 million after a $2 million adjustment for alloyed metal, up 10% over the fourth quarter 2021, driven by a 6% increase in shipments and improved pricing. For the full year 2022, auto conversion revenue was $96 million after a $7 million adjustment for alloyed metal, relatively flat year-over-year on a modest 3% increase in shipments compared to 2021 as shipments remain stable amid persistent industry supply chain issues.

Additional detail on conversion revenue and shipments by end market applications can be found in the appendix of this presentation. Now turning to Slide 15. Reported operating income for the full year 2022 was $4 million, including $15 million of additional depreciation expense predominantly related to the Warrick acquisition. After adjusting for $31 million of non-run-rate charges, including a $24 million noncash impairment of goodwill and other intangibles related to our Warrick acquisition, a $3 million adjustment to our environmental reserves related to historical PCB cleanup activity at our Trentwood facility and a $2 million restructuring charge related to our corporate office relocation, adjusted operating income was $35 million, down 62% year-over-year.

Moving forward, we are flexing our highly variable cost structure to match current demand, in addition to initiating staffing reductions in our corporate plant overhead structure as we complete the full integration of Warrick into our operations and finalize relocation of corporate headquarters at Franklin. As a result, we expect to take additional restructuring charges over the course of the next year as we identify and initiate these additional cost reduction actions. For the fourth quarter of 2022, reporting operating loss was $22 million. After adjusting for the $25 million of non-run rate charges I just discussed, adjusted operating income was $3 million, down 85% year-over-year. For the full year 2022, our effective tax rate was 21.9% compared to 22.9% in 2021.

For the full year 2023 and over the long term, we expect our effective tax rate before discrete items to be in the low to mid-20% range under current tax regulations. Further, we anticipate that our cash taxes will remain in the low to mid-single digits until we consume our federal NOLs, which, as of year-end 2022, were $161 million. Reported net loss for the full year of 2022 was $30 million or $1.86 loss per diluted share compared to a net loss of $19 million or a loss of $1.17 per diluted share in 2021. After adjusting for the non-run rate items noted, adjusted net loss for ’22 was $2 million or a loss of $0.14 per adjusted diluted share compared to adjusted net income of $33 million or $2.03 per adjusted diluted share in 2021. Reported net loss for the fourth quarter of 2022 was $26 million or $1.66 loss per diluted share compared to net income of $2 million or $0.11 income per diluted share in the prior year period.

Adjusted for non-run rate items noted above, adjusted net loss for the fourth quarter of 2022 was $7 million or $0.45 loss per adjusted diluted share compared to adjusted net income of $5 million or $0.33 per adjusted diluted share in the prior year quarter. Turning to Slide 16. As Keith highlighted, adjusted EBITDA for the full year 2022 was $142 million, a decrease of $43 million compared to 2021. The decline predominantly reflects the impact of significant supply chain issues, specifically related to magnesium and hot metal supply in our packaging operation, which we have extensively discussed in prior quarter earnings calls. Reduced packaging and plate shipments due to the magnesium related force majeure, we took in the third quarter, coupled with the third quarter planned outage at our Trentwood operation, further impacted results as we discussed in our third quarter earnings release.

In addition, higher inflationary driven costs during the year, which we are aggressively working to offset through pricing actions, cost reduction efforts and efficiency improvement projects further impacted results. Adjusted EBITDA as a percentage of conversion revenue was 10.3% in 2022. Moving to Slide 17. Adjusted EBITDA for the fourth quarter 2022 was $30 million. Our fourth quarter adjusted EBITDA was relatively consistent with the third quarter of 2022 as anticipated and was down approximately $19 million from the prior year quarter. A year-over-year $91 million improvement in pricing and mix helped offset the impact of higher inflationary costs across our businesses. which we identified in manufacturing costs, including labor, energy, employee-related costs and operating supplies.

However, the quarter was impacted by lower scrap utilization and higher volume of purchase in get as we continue to recover from the supply chain disruption at our work operation and higher unrecovered alloy costs, which, as indicated by Keith, was approximately $19 million. Our commercial teams remain focused on improving pricing to offset the impact of higher inflationary costs and have already achieved additional contract revisions towards the end of 2022 that will further assist us in operating in a higher cost environment as we move through 2023. Adjusted EBITDA as a percentage of conversion revenue was 8.4% in the fourth quarter of 2022. Now turning to a discussion on our balance sheet and cash flow on Slide 18. As of December 31, 2022, total cash of approximately $57 million and more than $558 million of borrowing availability on our revolving credit facility provide a total liquidity of approximately $615 million.

There are no borrowings underneath the revolving credit facility during the fourth quarter. Subsequent to year-end, we elected to draw down on our revolver by approximately $19 million as we continue to invest in our growth capital projects, specifically the roll coat line and packaging. We believe our total liquidity remains strong with $539 million remaining available on our revolver and $33 million of cash, giving us confidence in our ability to be able to further our growth strategy and continue returns to our valued stockholders. As a reminder, our senior note interest costs are fixed at $48 million annually, and we have no debt maturing until 2028. For the full year 2022, our $142 million of EBITDA and available cash funded $170 million of working capital usage, of which $121 million predominantly related to inventory build.

In addition, $143 million of capital, $46 million of interest, $50 million of dividends paid and $6 million of cash taxes. We expect working capital to be a source of funds over the next few quarters as the business focuses on inventory rationalization, adjusting to a more normalized supply chain environment. On January 12, we announced our Board of Directors declared a quarterly dividend of $0.77 per common share, underscoring the confidence our Board and management have in our long-term strategy for profitable growth and increasing shareholder value. And now I’ll just turn the call back over to Keith to discuss our 2023 outlook. Keith?

Keith Harvey: Thanks, Neal. Now I’ll turn to our outlook for the first quarter of 2023. eginning with aerospace on Slide 20. We expect continued strong momentum for aero and high-strength shipments in the first quarter, with shipments sequentially approximately 5% higher in the first quarter versus the fourth quarter of 2022. And conversion revenue improving by 5% to 10% in the same period as the recovery continues in commercial aerospace towards pre-pandemic levels, which we believe should be attainable by the year-end 2024. Rate increases for single aisle and wide-body jets are being planned for this year as supply chains improve, airline passenger miles continue to increase and declarations by the air framers support a stronger 2023.

The demand for business jet production remains strong and the backlog for business jet remains robust, with production increases set to grow each year over the next several years. Defense has been holding strong and is expected to continue as a result of increasing demand for the F-35 and other legacy platforms, which Kaiser is well positioned to support. Following the upgrades at our Trentwood mill and competitive position of our other facilities servicing the aerospace and high strength end markets, we remain bullish on our ability to service the incremental demand expected in the first quarter and beyond. Turning now to Slide 21, in packaging. With the most significant supply chain challenges experienced in 2022 at our Warrick rolling mill now behind us, we anticipate a return to more normalized operations in 2023 and albeit with some lingering impacts of higher metal costs and a continued lag in price adjustments to fully pass through certain costs with 1 or 2 existing contracts.

We expect continued destocking with some customers in the first quarter with those orders being moved into the balance of 2023. Shipments in the first quarter are expected to be flat to fourth quarter of 2022, with conversion revenue down an expected 3% to 4% in the same period comparison due to a slightly unfavorable mix. As indicated previously, our capacity for 2023 remains fully committed, and our targeted growth investment in a new roll coat line is expected to become fully operational in 2024. Accordingly, we remain very excited about Warrick’s long-term potential and competitive positioning in the packaging market. Now turning to general engineering on Slide 22. Demand for general engineering plate and rod and bar products has slowed as distributor inventories further increased in the fourth quarter with distributors taking advantage of lower metal prices to pull ahead orders during the fourth quarter of last year.

Also announced late last year was the Biden administration’s restrictions on semiconductor chip exports to China, which resulted in softening demand for semiconductor plate from previous strong levels. That said, the slowdown in semiconductor plate has opened capacity at our Trentwood facility to accommodate the rising aerospace demand, highlighting a key benefit of our unique diversification strategy. Longer term, we believe demand will remain steady, led by the continued trend towards reshoring for domestic supply of semiconductors, industrial and machine tool end-use applications. Pricing remains stable for these products, and we expect shipments and conversion revenue in the first quarter to be down approximately 5% to 7% sequentially compared to the fourth quarter of 2022.

Now I’ll turn to Slide 23 and a review on automotive. Despite pent-up demand and expected higher build rates for trucks and light vehicles in North America in 2023, we continue to expect a slow recovery due to persistent challenges facing the industry. Currently, we don’t expect a meaningful recovery in this market until mid- to late 2023. We expect shipments in the first quarter to be up 3% to 4%, with conversion revenue up 10% to 15% sequentially versus the fourth quarter of 2022, driven by improved pricing and pass-through costs on certain programs. Turning now to Slide 24 and a summary of my outlook. Holistically, we believe Kaiser is well-positioned to navigate the current demand environment prevailing in our end markets. EBITDA margins in the first quarter of 2023 are expected to improve approximately 200 basis points over the previous quarter, and we are cautiously optimistic our EBITDA margins will continue to strengthen as we move throughout the year and return to more normalized cost, improved efficiencies and continued commercial actions.

However, given continued strong inflationary pressures, ongoing macroeconomic uncertainty and recessionary concerns, we will not be providing our outlook for adjusted EBITDA and margins for the full year 2023. In addition, we believe the full year 2022 adjusted EBITDA and margins represent the trough as we move forward into 2023. Further, we are well-prepared to address economic adversity given our strong liquidity position and ability to flex our variable cost structure. At the same time, we believe it is prudent to continually taking advantage of the growth opportunities ahead of us, while continuing our long-standing focus for managing debt and delivering solid returns to our shareholders. Looking at our capital allocation strategy. We remain committed to supporting the growth of our business in 2023, while concurrently continuing our track record of stockholder returns through quarterly cash dividends, which we have paid for 16 consecutive years without reduction or suspension.

Our total CapEx planned for 2023 is approximately $170 million to $190 million, with approximately 60% of that dedicated to our growth initiatives, including our roll coat #4 expansion at our packaging operations and other projects to improve our capacity, quality and sustainability. Major maintenance spending is expected to be approximately $40 million for the year, with approximately 30% of that spending to occur in the first quarter. Now turning to Slide 26. In summary, I’m very pleased with the progress we’ve made to position Kaiser for a stronger future. Importantly, our longer-term strategy remains intact, and we continue to believe we can deliver conversion revenue of approximately $2 billion and an EBITDA margin in the mid- to high 20% range, the timing of which remains subject to expected investments and macroeconomic conditions.

With that, I’ll now open the call to any questions you may have. Operator?

Operator: . Our first question comes from the line of Timna Tanners with Wolfe Research.

Timna Tanners: I’m trying to get a handle on kind of the factors in 2023 that keep you from achieving the ultimate EBITDA margin goal. So just trying to go through one by one, one being packaging/destocking, which, I think, is supposed to abate. I’d just like a little bit more color on that. The other being any lingering issues with supply chain and some end markets? But could you try to go through and provide us a little bit more color on the things that are keeping you from achieving the EBITDA margin goal? And how you expect to — some of the plans to kind of progress through those challenges?

Keith Harvey: Sure. I appreciate your question. So let’s start with Warrick. So obviously, we had a — as we’ve identified about $73 million of incremental costs that hit us in 2022, we can — looking at those costs and moving forward in ’23, we believe 60% to 70% of those costs are not going to reoccur. So that’s behind us, and we wouldn’t expect it to happen in ’23. Remainder of those costs, we expect that to continue to abate as we go through the next several quarters because we pass through some lagging cost associated with alloys, and we rebalanced and normalized our inventories. We brought in a lot of inventory last year through that force majeure period to make sure that our customers weren’t disadvantaged. And we’ll be smoothing out that over the next several quarters.

The second thing is that we’ve got a more stable operation now at the Warrick facility. All those disruptions last year created tremendous inefficiencies in the operations. And we’re starting to see those settle down and resume back to more normal rates. Those will occur as we go throughout the year, but we expect those to continue to improve. And so we’ll have a high focus on that and on cost reduction. On cost production, we anticipate producing $8 million to $10 million through the year on cost reduction. And that’s an area that we’re going to focus on. And as we get more efficient, we believe we’ll be able to pull that out. Our — if you look at our contract discussions that we’ve had, especially around packaging, we’ve continued to have improved mix, pricing, improve the pass-through conditions on all our current contracts.

And if you look back over the last several 4 to 5 quarters, you’ll see that we’ve been improving those sales margins by roughly 20% and above. So we’re getting those additional prices, improve MAX through. It’s really been an issue around these costs that we’ve experienced, okay? And so that focus is really our area. And you talked about — another part of your question was around the destocking and what we expected to occur. We think that those — I don’t know if transitory destocking is a word to use, but we believe that it’s a short-term phenomena. There was a lot of material in the inventory and there were some consumer habit changes that have taken place. Our customers, basically, feel that, that’s being moved back to the end of the year.

First quarter is generally one of the slowest quarters from a packaging perspective. So we expect to heat up back into the second and to the third quarter to be quite strong and back to the levels that we experienced in the first quarter of last year. So that’s our outlook. We think if the market continues to hold still, we’ve got good conditions in place, relatively good pricing increases and stabilization of operations will help us start getting our cost.

Timna Tanners: That’s really helpful. So could we assume that if you see the sequential improvement that you described and for the reasons that you just gave, could you be closer to that targeted EBITDA margin exit 2023?

Keith Harvey: Well, I look at it this way, Timna. If I take a look at what happened to us in 2022, and we had some gut checks last year, no question. but we delivered $142 million of EBITDA. If you roll back in that $73 million of incremental cost, and then if you look at this LIFO impact adjustment that we made, which was roughly a $22 million impact to EBITDA for the year, this business would have delivered roughly $237 million EBITDA which would equate to roughly a 17% margin. And at the beginning of last year, we anticipated the business before we knew all this was in front of us that our — this business was going to deliver a 17% to 20% margin. So I think we’re on the right track. We just had a number of those unique things impacting us.

The uncertainty with ’23, obviously, is whether there’s going to be a hard landing versus a soft landing on any type of recession. And we’ve seen a slight slowdown in the first quarter as we’ve identified, but not uncertain as to what the rest of the year looks like. And so as we go forward, as we mentioned in our prepared statement, we felt — we feel Q4 was really the trough where we are. We’re digging back out of this. And as the year progresses, if it progresses as we expect, we expect to continually improve back to our historic margins.

Timna Tanners: Okay. Helpful. If I could squeeze one last one in. Can you provide any further detail on the mentioned lawsuit against U.S. MAG and your insurance recovery potential there?

Keith Harvey: Really can’t make any comments, Timna, while that’s underway. That’s in — the starting up right now. We expect toward the end of the year to have some more definitive explanation for that. But certainly, we felt that there were damages that the force majeure was not under accepted conditions, and it impacted our company. And we’re going to fight to recover those damages.

Operator: Our next question comes from the line of Emily Chieng with Goldman Sachs.

Emily Chieng: My first question is just around the Warrick roll mill — roll coat line that you’re building right now. As you think about that coming online, just any thoughts around supply chain issues that may impact the time line of when that does come online? And then secondly, ahead of that starting to — that starting up. Do you need to take time off-line at Warrick to have that installed and commissioned?

Keith Harvey: Emily, thanks for your question. So the Warrick roll coat line is anything, inflationary and timing on any of these things have been quite challenging. But for now, we’re on track on timing. Inflationary costs, as you can imagine, price of steel and other of those things have continued to push some upward pressure on the budgets, but those are within the realm that we expected. Timing is to have the equipment. As I mentioned, the building is erected, the equipment is beginning to come in, and we’re on expectation to have that in place in some time early in 2024. If you were to see the layout of our operation, Emily, it’s completely segregated against all the other operations. So there should be no impact to any of the day-to-day operations in place as they stand.

We have a qualification plan to get us there, fully operational and ready to begin supply by mid- to late 2024. So we expect that is to all in online. And as a reminder on that, the reason we’re so excited about that influx, so there’s two areas to look at for Warrick. One is on those costs, and we saw what could happen to us in 2022. And we’re quickly looking to adjust those and get those in perspective. But on the second part is the top line growth for that business. And as we’ve mentioned before this investment, once delivered, is going to allow us to improve margins on coated products versus non-coated greater than 3x. So that’s a significant enhancement for us, and that will be on roughly 25% of the existing capacity. Any significant amount of that money is already — the volume is under contract.

So we’re very excited to get that in place. We think that’s going to have significant impact to our earnings and not only for the shorter term, but through the end of the decade. So that’s our current situation, and things remain on track there.

Emily Chieng: Great. And then a follow-up. I’d just love to hear a little bit more color around sort of your contract discussions, and maybe if there’s been any incremental progress made on getting improved pricing and pass-throughs on a couple of these different cost items there. What has progressed since the last quarter update? And then how do you think about what the components are that we should embed into this new hedged cost of alloyed metals? What are the alloys there specifically that we should start tracking more closely?

Keith Harvey: Yes. So we’re — so on the contract negotiations, those have continued to go very well, Emily. We’re seeing improved pricing even on existing contracts, as we started — we purchased in 2021, and we saw some even in the current shorter-term contracts, we saw opportunities for improvement. And indeed, we’ve seen over 20% on conversion revenue per pound increases over the last 5 quarters. And then as we look further out, we’re seeing improved mix. We’re seeing improved pricing opportunities. We’re looking at inflationary pass-throughs to help us negate some of the challenges that impacted us in 2022 and expected this year. So I would say that the environment there for improvement and pass-throughs and better mixes and the ability for us to do what we do in our businesses and go after high margins and niche areas with very low-cost operations are intact.

So we’re very pleased about the progress there. Now the challenge that we identified in 2022, we made great progress with customers in really how we look at moving these costs through our system on a — generally, these are done on an annual basis. And we’ve done some things with our customers to help us look at those quarterly impacts and moving those costs forward on a quicker basis. But even more importantly, we’ve identified a lot more of these commodity pass-throughs. And then our discovery of a number of these, especially through those high commodity increases, we found a couple of disconnects with a couple of our contracts where we’re not passing through the entire cost of things such as magnesium. And we’re working with customers to really make those adjustments and get those back in line with where the remainder of our contracts are.

So that’s a little bit of the lag that we’re talking about. And then when you get to the point of what alloys are we looking at? What are we — we’re looking at everything. I mean we’re looking at all alloys. So magnesium, obviously being on the top of the list, but we follow metal prices for aluminum. We’re following manganese. We’re following copper for our other products, other product lines, copper and all of those. We’re looking at energy. We’re looking at also our metal input cost. So one of the large impacts to us, as we called out, especially in the second half of the year, because of those supply disruptions, it really got us off of our game in bringing in the right types of materials, such as more scrap and lower-cost units and forced us into some higher costs, which we paid the price for.

And — but our go-forward is that we’ll have a much better handle on managing those costs as we move forward those input costs, which will affect the

Operator: That is all the time we have for questions. I’d like to hand it back to Mr. Keith Harvey for closing remarks.

Keith Harvey: Okay. Well, thank you for joining us today. We look forward to returning to a more normalized operating conditions with stronger profitable growth in 2023. And I look forward to updating you on your progress in April. Have a great day.

Operator: Ladies and gentlemen, this does conclude today’s teleconference. Thank you for your participation. You may disconnect your lines at this time, and have a wonderful day.