ATI(ATI) - 2024 Q3 - Quarterly Results

Executive Summary & Financial Highlights Q3 2024 Performance Overview ATI Inc. reported Q3 2024 sales of $1.05 billion, marking its ninth consecutive quarter with sales exceeding $1 billion, with net income attributable to ATI at $82.7 million or $0.57 per share, driven significantly by aerospace & defense markets representing 62% of sales - Q3 2024 marks the ninth consecutive quarter with sales in excess of $1 billion[3] - Aerospace & defense represented 62% of Q3 2024 sales[3] | Metric | Q3 2024 ($ millions) | Q2 2024 ($ millions) | Sequential Change | Q3 2023 ($ millions) | Y-O-Y Change | | :---------------------------------------- | :------------------- | :------------------- | :---------------- | :------------------- | :----------- | | Sales | $1,051.2 million | $1,095.3 million | (4)% | $1,025.6 million | 2% | | Net income attributable to ATI | $82.7 million | $81.9 million | 1% | $90.2 million | (8)% | | Earnings per share | $0.57 | $0.58 | (2)% | $0.62 | (8)% | | Adjusted net income attributable to ATI* | $85.9 million | $86.0 million | —% | $94.2 million | (9)% | | Adjusted earnings per share* | $0.60 | $0.60 | —% | $0.64 | (6)% | | ATI adjusted EBITDA* | $185.7 million | $182.6 million | 2% | $162.6 million | 14% | Non-GAAP Adjustments Q3 2024 adjusted results exclude $4.3 million in pre-tax charges, primarily for start-up and transaction-related costs, while prior periods included inventory write-downs, start-up costs, and unplanned outages - Q3 2024 adjusted results exclude pre-tax charges of $4.3 million, primarily consisting of $2.5 million in start-up costs and $1.7 million for transaction-related costs[5] - Q2 2024 adjusted results excluded pre-tax charges of $5.4 million, including $5.5 million for inventory write-downs related to European restructuring and $1.8 million for start-up costs, partially offset by $1.9 million in credits from lower severance reserves[5][6] - Q3 2023 adjusted results excluded $4.2 million in pre-tax charges related to start-up costs and an unplanned outage, partially offset by restructuring credits[6] Management Commentary CEO's Remarks on Q3 Performance and Strategy CEO Kimberly A. Fields noted Q3 results showed year-over-year growth in sales and EBITDA but fell short of expectations due to industry-wide challenges, while the company focuses on operational efficiency, deleveraging, and returning cash to shareholders - Q3 results reflected year-over-year growth in sales and EBITDA but fell short of expectations due to a slowing aircraft production ramp, supply chain work stoppage, unplanned outages, and transportation issues from Hurricane Helene[7] - Consolidated adjusted EBITDA margin increased 100 basis points sequentially[8] - The company announced the early redemption of 2025 Convertible Notes and a new $700 million share repurchase authorization, demonstrating commitment to deleveraging and returning cash to shareholders[8] Segment Operating Results High Performance Materials & Components (HPMC) HPMC segment sales decreased 2% sequentially to $552.4 million, primarily due to lower sales in medical and general industrial markets, offset by increased demand for next-generation commercial jet engine products, with segment EBITDA at $123.2 million or 22.3% of sales | Metric | Q3 2024 ($ millions) | Q2 2024 ($ millions) | Q3 2023 ($ millions) | | :----------------- | :------------------- | :------------------- | :------------------- | | Sales | $552.4 million | $562.0 million | $539.5 million | | Segment EBITDA | $123.2 million | $113.8 million | $117.2 million | | % of Sales | 22.3% | 20.2% | 21.7% | - HPMC sales decreased 2% sequentially, primarily due to lower sales to medical and general industrial markets, partially offset by increased demand for next-generation commercial jet engine products[9] - Aerospace & defense sales represented 86% of total HPMC sales in Q3 2024, up from 85% in Q2 2024[9] Advanced Alloys & Solutions (AA&S) AA&S segment sales decreased 7% sequentially to $498.8 million, mainly due to lower aerospace & defense and specialty energy sales, partially offset by higher electronics end market sales, with segment EBITDA at $73.6 million or 14.8% of sales | Metric | Q3 2024 ($ millions) | Q2 2024 ($ millions) | Q3 2023 ($ millions) | | :----------------- | :------------------- | :------------------- | :------------------- | | Sales | $498.8 million | $533.3 million | $486.1 million | | Segment EBITDA | $73.6 million | $87.5 million | $61.5 million | | % of Sales | 14.8% | 16.4% | 12.7% | - AA&S sales decreased 7% sequentially, driven by lower aerospace & defense (commercial airframe products) and specialty energy sales, partially offset by higher electronics end market sales[10] - Overall aerospace & defense sales were 36% of total AA&S sales in Q3 2024[11] Corporate Financials & Capital Management Corporate Expenses and Other Items Restructuring and other charges in Q3 2024 totaled $4.3 million, primarily from start-up and transaction costs, while corporate expenses decreased to $13.4 million due to lower incentive compensation, and the effective tax rate increased to 24.6% - Restructuring and other charges for Q3 2024 were $4.3 million, primarily $2.5 million in start-up costs and $1.7 million in transaction-related costs[12] - Corporate expenses decreased to $13.4 million in Q3 2024 from $19.4 million in Q2 2024, mainly due to lower incentive compensation costs[12] - Closed operations and other income was $2.3 million in Q3 2024, including a $3.7 million gain from the sale of oil & gas rights[12] - The effective tax rate for Q3 2024 was 24.6%, an increase from 22.8% in Q2 2024, primarily due to lower discrete tax benefits[12] Cash Flow and Liquidity Cash provided by operating activities was $24 million for Q3 2024, with managed working capital increasing to 40.0% of sales, and the company redeemed $291.4 million of convertible notes, maintaining strong liquidity with $407 million cash on hand - Cash provided by operating activities was $24 million for Q3 2024[12] - Managed working capital as a percent of sales increased to 40.0% in Q3 2024 from 35.5% in Q2 2024[12] - The company redeemed $291.4 million of 3.5% Convertible Senior Notes due 2025 by issuing 18.8 million shares and received $76 million from the associated capped call[12] - Cash on hand at September 29, 2024, was $407 million, with approximately $551 million available under the ABL credit facility and no significant debt maturities until Q4 2025[12][13] Capital Allocation ATI's Board of Directors authorized a $700 million share repurchase program, under which the company repurchased **$40