10-QPeriod: Q2 FY2020

ATI INC Quarterly Report for Q2 Ended Jun 30, 2020

Filed August 4, 2020For Securities:ATI

Summary

Allegheny Technologies Incorporated (ATI) reported a significant net loss of $422.6 million ($3.34 per share) for the second quarter of 2020, a sharp decline from the $75.1 million net income ($0.54 per share) reported in the same period of 2019. This downturn was largely driven by a substantial $287 million goodwill impairment charge related to the Forged Products reporting unit within the High Performance Materials & Components (HPMC) segment, stemming from the adverse impact of the COVID-19 pandemic on the commercial aerospace market. Sales for the quarter also decreased by 29% year-over-year to $770.3 million, reflecting weakened demand across key end markets, particularly commercial aerospace and energy, due to the pandemic. Despite these challenges, ATI took proactive steps to manage its liquidity and financial position, including issuing new convertible debt and partially retiring existing notes, while also implementing significant cost reduction measures. For the first six months of 2020, ATI reported a net loss of $401.5 million ($3.18 per share) compared to a net income of $90.1 million ($0.66 per share) in the prior year period. Sales for the six months were $1.73 billion, down from $2.09 billion in the same period of 2019. The company continues to navigate a challenging economic environment impacted by COVID-19, which has led to reduced sales volumes, lower gross profit margins, and the aforementioned impairment charges. ATI is focused on cost reductions and strategic debt management to mitigate the impact of these market headwinds.

Financial Highlights

46 data points
Beta

Revenue

$770.30M

9.7% Gross Margin

Net Income

-$422.60M

-54.9% Net Margin

EPS (Diluted)

$-3.34

Total Assets

$5.17B

Cash & Equivalents

$539.10M

Free Cash Flow

$101.00M

Financial Statements
Beta
Revenue$770.30M
Cost of Revenue$695.60M
Gross Profit$74.70M
SG&A Expenses$44.40M
Operating Income-$273.40M
Net Income-$422.60M
EPS (Basic)$-3.34
EPS (Diluted)$-3.34
Shares Outstanding (Basic)126.60M
Shares Outstanding (Diluted)126.60M

Key Highlights

  • 1Net loss of $422.6 million in Q2 2020, compared to net income of $75.1 million in Q2 2019.
  • 2Sales decreased 29% to $770.3 million in Q2 2020 compared to $1.08 billion in Q2 2019.
  • 3Recorded a $287 million goodwill impairment charge in the HPMC segment due to COVID-19 impacts on the aerospace market.
  • 4Issued $285 million in 3.5% Convertible Senior Notes due 2025 and used proceeds to repurchase $203.2 million of 4.75% Convertible Senior Notes due 2022.
  • 5Implemented significant cost reduction initiatives, including workforce reductions of approximately 800 employees (10% of workforce).
  • 6Cash and cash equivalents stood at $539.1 million as of June 30, 2020, with total liquidity of approximately $1 billion, including ABL facility availability.
  • 7Segment operating profit decreased to $27.3 million in Q2 2020 from $114.5 million in Q2 2019, reflecting lower sales and margins.

Frequently Asked Questions

The primary driver of the substantial net loss of $422.6 million in Q2 2020 was a $287 million goodwill impairment charge recognized in the High Performance Materials & Components (HPMC) segment. This impairment was necessitated by the adverse impacts of the COVID-19 pandemic on the commercial aerospace market, leading to reduced demand and future cash flow expectations for the Forged Products reporting unit. Additionally, lower sales volumes and resulting gross profit declines across both business segments due to the pandemic also contributed to the net loss.

The COVID-19 pandemic has significantly impacted ATI's sales and market demand. In the second quarter of 2020, overall sales decreased by 29% year-over-year. The commercial aerospace market experienced a substantial decline (50% in HPMC segment), and the energy and automotive markets also saw notable decreases. Management expects these weakened market conditions, particularly in aerospace and energy, to persist for at least the remainder of 2020.

ATI took several strategic financial actions to strengthen its liquidity and manage its debt profile. Notably, the company issued $285 million in 3.5% Convertible Senior Notes due 2025 and used a portion of the proceeds to repurchase approximately $203.2 million of its 4.75% Convertible Senior Notes due 2022. This move aimed to reduce cash interest costs and potentially mitigate future stockholder dilution. The company also increased its term loan borrowings under its ABL facility by $100 million.

ATI has implemented significant cost reduction initiatives to mitigate the financial impact of reduced demand. This includes plans to reduce company-wide employment by approximately 800 people (about 10% of its workforce), temporary idling of operations, salary reductions, and cuts in capital expenditures and corporate expenses. Management expects total cost reductions of $140 million to $160 million for 2020.