10-QPeriod: Q1 FY2022

ATI INC Quarterly Report for Q1 Ended Mar 31, 2022

Filed May 4, 2022For Securities:ATI

Summary

Allegheny Technologies Incorporated (ATI) reported a profitable first quarter in 2022, demonstrating a significant turnaround from the prior year's loss. Sales increased by 20% year-over-year to $834.1 million, driven by strong performance in key end-markets, particularly aerospace and defense, which saw a substantial rebound. The company's operating income more than doubled, reflecting improved operational efficiency and the benefits of strategic cost-saving measures implemented previously. Despite some challenges with rising raw material costs and supply chain uncertainties, ATI's diversification across multiple industries and its focus on high-performance materials and advanced solutions appear to be paying off. While the company incurred a partial loss on the pending sale of its Sheffield, UK operations, this is expected to be largely resolved upon completion of the divestiture. Importantly, ATI generated positive net income attributable to ATI, a significant improvement from the net loss reported in the first quarter of 2021. The company also highlighted its ongoing share repurchase program, indicating a commitment to returning value to shareholders. Investors should monitor the successful integration of strategic initiatives and the company's ability to navigate inflationary pressures and supply chain dynamics.

Financial Highlights

47 data points
Beta

Revenue

$834.10M

20.3% Gross Margin

Net Income

$30.90M

3.7% Net Margin

EPS (Diluted)

$0.23

Total Assets

$4.24B

Cash & Equivalents

$316.70M

Free Cash Flow

-$217.20M

Financial Statements
Beta
Revenue$834.10M
Cost of Revenue$664.70M
Gross Profit$169.40M
SG&A Expenses$75.20M
Operating Income$77.00M
Net Income$30.90M
EPS (Basic)$0.24
EPS (Diluted)$0.23
Shares Outstanding (Basic)126.40M
Shares Outstanding (Diluted)152.80M

Key Highlights

  • 1Sales increased 20% to $834.1 million in Q1 2022 compared to $692.5 million in Q1 2021, driven by strong demand in aerospace and defense.
  • 2Operating income more than doubled to $77.0 million, with operating margin improving to 9.2% from 4.6% year-over-year.
  • 3Net income attributable to ATI was $30.9 million ($0.23 per share) in Q1 2022, a significant improvement from a net loss of $7.9 million ($0.06 per share) in Q1 2021.
  • 4The company reported a $25.1 million partial loss on the pending sale of its Sheffield, UK operations, with an additional loss of approximately $110 million expected upon completion.
  • 5ATI generated $125.0 million in Adjusted EBITDA, a 99.7% increase year-over-year, reflecting improved operational performance.
  • 6The company repurchased 3.5 million shares for $89.9 million in Q1 2022 under its $150 million stock repurchase program.
  • 7Cash used in operating activities was $217.2 million, primarily due to increases in accounts receivable and inventory balances.

Frequently Asked Questions

The primary driver of the revenue increase was the strong recovery and growth in ATI's key end-markets, particularly aerospace and defense. Sales to the commercial aerospace market increased by 77%, with a significant boost from commercial jet engines, and overall aerospace & defense sales grew by 44% year-over-year.

ATI recorded a $25.1 million partial loss on the sale of its Sheffield, UK operations in the first quarter of 2022. The company expects to recognize an additional pre-tax loss of approximately $110 million upon completion of the sale, which is projected for the second quarter of 2022. This future loss includes impacts from a UK defined benefit pension plan and foreign currency translation losses.

ATI's ABL credit facility has a $500 million revolving credit facility and a $200 million term loan. However, the company did not meet the fixed charge coverage ratio at March 31, 2022, limiting access to a portion of the ABL facility. As of March 31, 2022, there were no outstanding borrowings under the revolving portion of the ABL, and the company had $316.7 million in cash and cash equivalents, with approximately $370 million in available additional liquidity under the ABL facility. The company believes its internally generated funds, cash on hand, and available borrowings are adequate to meet its liquidity needs.

ATI anticipates sequential revenue growth throughout the year, driven by continued recovery in commercial aerospace and increasing demand for energy solutions. The company is well-positioned to benefit from this demand. However, changes in raw material prices and supply chain uncertainties, especially related to the Russia/Ukraine conflict, could impact profit margins and availability of raw materials.