10-QPeriod: Q1 FY2016

ATI INC Quarterly Report for Q1 Ended Mar 31, 2016

Filed May 6, 2016For Securities:ATI

Summary

ATI Inc. reported a challenging first quarter of 2016, marked by a significant net loss of $101.2 million ($0.94 per share) compared to a modest profit in the prior year. This downturn was primarily driven by a substantial 33% decrease in sales, largely attributable to the underperformance of the Flat Rolled Products (FRP) segment, which experienced a 55% drop in sales due to challenging market conditions, including overcapacity and import pressures, particularly in commodity stainless and grain-oriented electrical steel products. The company also faced significant operational disruptions, including costs associated with a work stoppage and return-to-work for unionized employees, impacting both FRP and High Performance Materials & Components (HPMC) segments. Strategic repositioning efforts within the FRP segment, including the idling of certain facilities and workforce reductions, are underway to improve future profitability. Despite the current headwinds, ATI is strategically focusing on its higher-value specialty materials and components, with sales to the aerospace and defense market increasing significantly as a percentage of total revenue. The company anticipates a gradual improvement in performance, with the FRP segment expected to achieve modest profitability in the latter half of 2016, supported by ongoing restructuring and a shift towards higher-value products.

Financial Highlights

46 data points
Beta

Revenue

$757.50M

-4.4% Gross Margin

Net Income

-$101.20M

-13.4% Net Margin

EPS (Diluted)

$-0.94

Total Assets

$5.72B

Cash & Equivalents

$156.90M

Free Cash Flow

-$61.50M

Financial Statements
Beta
Revenue$757.50M
Cost of Revenue$790.70M
Gross Profit-$33.20M
SG&A Expenses$62.60M
Operating Income-$104.80M
Net Income-$101.20M
EPS (Basic)$-0.94
EPS (Diluted)$-0.94
Shares Outstanding (Basic)109.00M
Shares Outstanding (Diluted)107.30M

Key Highlights

  • 1Net loss attributable to ATI of $101.2 million for Q1 2016, a significant decline from net income of $10.0 million in Q1 2015.
  • 2Total sales decreased by 33% to $757.5 million in Q1 2016 from $1,125.5 million in Q1 2015.
  • 3The Flat Rolled Products (FRP) segment experienced a severe sales decline of 55%, leading to an operating loss of $109.6 million.
  • 4Sales to the Aerospace & Defense market increased to 52% of total sales in Q1 2016, up from 36% in Q1 2015, indicating a favorable shift in market mix.
  • 5The company incurred $26 million in costs related to a work stoppage and return to work of unionized employees, impacting Q1 2016 results.
  • 6ATI is undergoing restructuring, including workforce reductions and idling of certain production facilities in the FRP segment, to improve future profitability.
  • 7Borrowings under the Asset Based Lending (ABL) Revolving Credit Facility increased significantly, while the company did not meet its fixed charge coverage ratio covenant.

Frequently Asked Questions

The primary driver for the significant net loss of $101.2 million in the first quarter of 2016 was a substantial decline in sales, particularly within the Flat Rolled Products (FRP) segment. This was exacerbated by challenging market conditions, import pressures, and operational disruptions from a labor work stoppage and return-to-work process.

ATI is implementing several strategic initiatives in the FRP segment, including rightsizing and restructuring activities. This involves workforce reductions, idling of specific production facilities for commodity stainless sheet and grain-oriented electrical steel (GOES) products, and a focus on repositioning the business towards higher-value product mixes. The company aims for modest profitability in the FRP segment in the second half of 2016.

The HPMC segment is expected to see increasing operating levels throughout 2016, primarily driven by the commercial aerospace market and its next-generation mill products, forgings, and castings. The company anticipates HPMC segment operating profit as a percentage of sales to return to low double-digit levels in the second half of the year.

As of March 31, 2016, ATI had $157 million in cash and cash equivalents. The company also has available liquidity under its $400 million ABL Revolving Credit Facility, although it was not meeting its fixed charge coverage ratio covenant, limiting access to a portion of the facility. Total debt increased due to borrowings under the ABL facility. The company believes its existing cash, internally generated funds, and available credit lines will be adequate to meet its liquidity needs.