10-QPeriod: Q3 FY2017

ATI INC Quarterly Report for Q3 Ended Sep 30, 2017

Filed November 1, 2017For Securities:ATI

Summary

ATI Inc. (ATI) reported its third-quarter and year-to-date results for the period ending September 30, 2017. The company demonstrated sequential improvement in sales and a significant reduction in net loss compared to the prior year quarter, driven by stronger performance in both its High Performance Materials & Components (HPMC) and Flat Rolled Products (FRP) segments. A notable event during the quarter was a substantial goodwill impairment charge of $114.4 million related to the ATI Cast Products business within the HPMC segment, which impacted the overall net loss for the period. Despite this charge, the underlying operational trends suggest a recovery, with increased sales driven by demand in the aerospace & defense sector, particularly for jet engines and related components, as well as improvements in the oil & gas and automotive markets. Financially, while the company still reported a net loss, the year-over-year reduction is substantial, reflecting the benefits of prior restructuring efforts and an improving sales mix towards higher-value products. Liquidity remains a focus, with the company not meeting a specific financial covenant on its ABL facility, which restricts access to a portion of its credit line. However, ATI has secured covenant relief through amendments to its credit facilities, extending maturity dates and adjusting interest rates. The company anticipates continued revenue growth and operating margin improvement in the HPMC segment, while the FRP segment is expected to achieve modest profitability. Management is focused on technological leadership, cash flow generation, cost reduction, and balance sheet strengthening.

Financial Highlights

47 data points
Beta

Revenue

$869.10M

12.1% Gross Margin

Net Income

-$121.20M

-13.9% Net Margin

EPS (Diluted)

$-1.12

Total Assets

$5.08B

Cash & Equivalents

$124.90M

Free Cash Flow

$31.70M

Financial Statements
Beta
Revenue$869.10M
Cost of Revenue$763.80M
Gross Profit$105.30M
SG&A Expenses$64.60M
Operating Income-$73.70M
Net Income-$121.20M
EPS (Basic)$-1.12
EPS (Diluted)$-1.12
Shares Outstanding (Basic)108.90M
Shares Outstanding (Diluted)107.70M

Key Highlights

  • 1 ATI reported a net loss of $121.2 million ($1.12 per share) for Q3 2017, a significant improvement from a net loss of $530.8 million ($4.95 per share) in Q3 2016, primarily due to substantial restructuring charges in the prior year.
  • 2A goodwill impairment charge of $114.4 million was recognized in the third quarter of 2017 related to the ATI Cast Products business, impacting profitability but excluded from segment operating results.
  • 3Total sales increased by 11% to $869.1 million in Q3 2017 compared to $770.5 million in Q3 2016, driven by growth in both the High Performance Materials & Components (HPMC) and Flat Rolled Products (FRP) segments.
  • 4The HPMC segment saw sales increase 11% driven by strong demand in Aerospace & Defense, particularly commercial jet engines, and a significant rebound in Oil & Gas.
  • 5The FRP segment sales increased 15% due to higher shipment volumes for stainless products and improved pricing, along with increased demand in Electronics and Oil & Gas.
  • 6The company's ABL credit facility has a financial covenant that ATI was not meeting as of September 30, 2017, restricting access to $50 million of its revolving credit line until the covenant is met. However, credit facility amendments in June 2017 extended maturity dates and adjusted interest rates.
  • 7ATI suspended its quarterly dividend in Q4 2016 and did not declare any dividends during the reported periods.

Frequently Asked Questions

ATI reported a net loss of $121.2 million for the third quarter of 2017, a substantial improvement from the net loss of $530.8 million in the same period of 2016. This improvement was largely due to significant restructuring and other charges incurred in Q3 2016, while Q3 2017 included a large goodwill impairment charge. Sales increased by 11% year-over-year to $869.1 million in Q3 2017, reflecting improved performance across its business segments.

The $114.4 million goodwill impairment charge recorded in Q3 2017 relates to the ATI Cast Products business within the High Performance Materials & Components (HPMC) segment. This non-cash charge reflects a reassessment of future revenue, profitability, and cash flows for this specific business. While it impacted the reported net loss, management noted that this charge was excluded from the segment's operating results and does not affect the segment's operational performance metrics.

The primary driver for sales growth is the Aerospace & Defense market, particularly for commercial jet engines and related components. The company also noted significant improvements in the Oil & Gas and Automotive markets. These key markets represent a substantial portion of ATI's revenue, and their performance directly impacts the company's top-line results.

ATI had $124.9 million in cash and cash equivalents at September 30, 2017, with approximately $280 million in available liquidity under its Asset Based Lending (ABL) credit facility. However, the company was not meeting a specific financial covenant on this facility, limiting access to $50 million of its credit line. Amendments to credit facilities in June 2017 extended maturity dates and revised interest rates. ATI believes its current liquidity, cash on hand, and available borrowings are sufficient to meet its needs, including pension plan contributions.