10-QPeriod: Q3 FY2018

ATI INC Quarterly Report for Q3 Ended Sep 30, 2018

Filed October 31, 2018For Securities:ATI

Summary

Allegheny Technologies Incorporated (ATI) reported a significant turnaround in its financial performance for the nine months ended September 30, 2018, compared to the same period in 2017. The company achieved net income attributable to ATI of $181.3 million, a substantial improvement from a net loss of $93.6 million in the prior year. This recovery was driven by strong sales growth across both its High Performance Materials & Components (HPMC) and Flat Rolled Products (FRP) segments, with overall sales increasing to $3.01 billion from $2.62 billion. The HPMC segment benefited from robust demand in aerospace and defense, while the FRP segment saw growth in high-value products. The company also reported a significant gain of $15.9 million from the deconsolidation of its A&T Stainless joint venture. ATI ended the nine-month period with $153.5 million in cash and cash equivalents, demonstrating improved financial health and liquidity.

Financial Highlights

47 data points
Beta

Revenue

$1.02B

15.7% Gross Margin

Net Income

$50.50M

5.0% Net Margin

EPS (Diluted)

$0.37

Total Assets

$5.39B

Cash & Equivalents

$153.50M

Free Cash Flow

$81.60M

Financial Statements
Beta
Revenue$1.02B
Cost of Revenue$859.80M
Gross Profit$160.40M
SG&A Expenses$65.50M
Operating Income$94.90M
Net Income$50.50M
EPS (Basic)$0.40
EPS (Diluted)$0.37
Shares Outstanding (Basic)125.70M
Shares Outstanding (Diluted)146.00M

Key Highlights

  • 1Net income attributable to ATI for the first nine months of 2018 was $181.3 million, a significant improvement from a net loss of $93.6 million in the prior year.
  • 2Total sales increased by 14.7% to $3.01 billion for the first nine months of 2018, driven by growth in both the HPMC and FRP segments.
  • 3The High Performance Materials & Components (HPMC) segment experienced a 12.2% sales increase, largely due to demand in aerospace & defense.
  • 4The Flat Rolled Products (FRP) segment saw a 19.2% sales increase, fueled by strong demand for high-value products.
  • 5The company recognized a $15.9 million pre-tax gain from the deconsolidation of its A&T Stainless joint venture.
  • 6Cash and cash equivalents increased to $153.5 million at September 30, 2018, from $141.6 million at December 31, 2017, indicating improved liquidity.
  • 7Segment operating profit margin improved significantly to 10.8% for the first nine months of 2018, up from 7.5% in the prior year.

Frequently Asked Questions

The substantial improvement in net income was driven by a combination of factors including strong sales growth in both the High Performance Materials & Components (HPMC) and Flat Rolled Products (FRP) segments, a significant gain from the deconsolidation of the A&T Stainless joint venture, and improved operational efficiencies leading to higher gross profit margins.

The aerospace and defense market is a key driver for ATI's High Performance Materials & Components (HPMC) segment. Sales in this segment, particularly for next-generation jet engine products and components, have shown strong growth and are a significant contributor to the company's overall revenue and profitability.

ATI ended the period with $153.5 million in cash and cash equivalents, showing an increase from the prior year. Total debt remained significant but net debt to total capitalization decreased, indicating a strengthening balance sheet. The company had no outstanding borrowings under its revolving credit facility, and significant available liquidity under its ABL facility, suggesting a solid liquidity position.

Yes, ATI adopted ASC 606, Revenue from Contracts with Customers, effective January 1, 2018, using a modified retrospective approach. This resulted in a $15.5 million increase to retained earnings and changes in contract assets and liabilities. Additionally, new guidance on accounting for defined benefit pension and other postretirement benefit expenses changed the presentation of costs, impacting operating income reporting.