10-QPeriod: Q3 FY2019

ATI INC Quarterly Report for Q3 Ended Sep 30, 2019

Filed November 1, 2019For Securities:ATI

Summary

ATI Inc.'s Q3 2019 results indicate a stable top line with sales of $1.019 billion, consistent with the prior year's quarter. The company successfully executed on strategic divestitures, selling its Cast Products business and two non-core forging facilities, which generated significant cash proceeds and contributed to a substantial increase in cash and cash equivalents to $511.3 million. While overall segment operating profit saw a slight decline year-over-year, this was influenced by factors including increased retirement benefit expense and the impact of tariffs on joint venture operations. Importantly, the company amended and restated its ABL credit facility, increasing its borrowing capacity and extending its maturity, bolstering its liquidity position. ATI also reported progress in its debt management, with a decrease in its debt-to-EBITDA ratio and net debt to total capitalization.

Financial Highlights

47 data points
Beta

Revenue

$1.02B

15.7% Gross Margin

Net Income

$111.00M

10.9% Net Margin

EPS (Diluted)

$0.78

Total Assets

$5.63B

Cash & Equivalents

$511.30M

Free Cash Flow

$94.40M

Financial Statements
Beta
Revenue$1.02B
Cost of Revenue$859.00M
Gross Profit$159.70M
SG&A Expenses$65.20M
Operating Income$94.50M
Net Income$111.00M
EPS (Basic)$0.88
EPS (Diluted)$0.78
Shares Outstanding (Basic)126.10M
Shares Outstanding (Diluted)146.70M

Key Highlights

  • 1Sales remained stable at $1.019 billion for the third quarter of 2019, consistent with the prior year.
  • 2Completed the divestiture of non-core assets, including the Cast Products business and two forging facilities, generating substantial cash proceeds.
  • 3Strengthened liquidity with a significant increase in cash and cash equivalents to $511.3 million.
  • 4Amended and restated its ABL Credit Facility, increasing borrowing capacity to $500 million and extending maturity to September 2024.
  • 5The company's debt-to-EBITDA ratio improved to 3.04 from 3.07, and net debt to total capitalization decreased to 32.6% from 38.3%.
  • 6Aerospace & Defense remains the largest market, representing 49% of third-quarter sales, with growth noted in government aerospace and defense markets.
  • 7The company is actively managing its working capital, which increased to 33.6% of annualized sales, driven by higher accounts receivable and increased inventory.

Frequently Asked Questions

In the third quarter of 2019, ATI's High Performance Materials & Components (HPMC) segment sales decreased by 5.8% to $551.7 million compared to the prior year, primarily due to business divestitures. However, segment operating profit increased to $78.8 million from $76.0 million year-over-year. The Flat Rolled Products (FRP) segment saw sales increase by 7.4% to $467.0 million, driven by stronger demand in oil & gas and aerospace & defense markets. Segment operating profit for FRP decreased to $20.4 million from $29.5 million in the prior year, impacted by higher retirement benefit expenses and losses from the A&T Stainless joint venture.

ATI completed the sale of its Cast Products business and two non-core forging facilities in Q3 2019. These divestitures generated approximately $250 million in cash, net of adjustments and transaction costs, significantly boosting the company's cash and cash equivalents to $511.3 million and improving its liquidity position. These transactions also reduced the company's goodwill balance.

ATI ended the quarter with $511.3 million in cash and cash equivalents. Liquidity is further enhanced by an amended and restated Asset Based Lending (ABL) Credit Facility, which now provides $500 million in revolving credit and a $100 million term loan, extending the facility's maturity to September 2024. Total debt remains substantial, but key leverage ratios are showing improvement. The debt-to-EBITDA ratio was 3.04, and net debt as a percentage of total capitalization decreased to 32.6%.

The Aerospace & Defense market is ATI's largest, accounting for approximately 50% of total sales, with products for jet engines being a key driver. This market contributed $503.5 million in sales in Q3 2019, a slight increase year-over-year. Other significant markets include Oil & Gas and Energy. While Aerospace & Defense sales showed modest growth, the company is navigating near-term headwinds, including customer cash management efforts impacting jet engine product sales.