10-QPeriod: Q2 FY2023

ATI INC Quarterly Report for Q2 Ended Jun 30, 2023

Filed August 2, 2023For Securities:ATI

Summary

ATI Inc. reported a strong second quarter of 2023, with net income attributable to ATI reaching $76.0 million, or $0.52 per diluted share, a significant improvement from a net loss of $38.0 million ($0.31 per share) in the prior year period. This turnaround was driven by a 9% increase in sales to $1.05 billion, largely fueled by a rebound in the commercial aerospace sector, which now constitutes 58% of total sales. The High Performance Materials & Components (HPMC) segment, in particular, saw a substantial 33% sales increase year-over-year, with its EBITDA margin improving to 20.5%, demonstrating effective cost management and strong demand for advanced aerospace materials. While the Advanced Alloys & Solutions (AA&S) segment experienced an 8% sales decline due to softness in general industrial markets, its performance was bolstered by a nearly 50% increase in commercial aerospace sales within the segment. The company's overall financial health shows a solid recovery, with positive pre-tax income of $82.8 million in the quarter. Management expressed confidence in future growth, particularly with investments in capacity to meet rising demand in key markets like aerospace, and reiterated that internally generated funds, cash on hand, and available credit lines are sufficient for liquidity needs.

Financial Highlights

47 data points
Beta

Revenue

$1.04B

18.6% Gross Margin

Net Income

$84.50M

8.1% Net Margin

EPS (Diluted)

$0.58

Total Assets

$4.43B

Cash & Equivalents

$196.20M

Free Cash Flow

-$285.20M

Financial Statements
Beta
Revenue$1.04B
Cost of Revenue$844.90M
Gross Profit$193.20M
SG&A Expenses$80.60M
Operating Income$112.60M
Net Income$84.50M
EPS (Basic)$0.66
EPS (Diluted)$0.58
Shares Outstanding (Basic)128.50M
Shares Outstanding (Diluted)150.10M

Key Highlights

  • 1Significant rebound in net income to $76.0 million ($0.52/share) for Q2 2023, compared to a net loss of $38.0 million ($0.31/share) in Q2 2022.
  • 2Total sales increased by 9% to $1.05 billion in Q2 2023, driven by a recovery in commercial aerospace demand.
  • 3High Performance Materials & Components (HPMC) segment sales grew by 33% year-over-year, with strong EBITDA margins of 20.5%.
  • 4Aerospace & Defense markets represented 58% of total sales in Q2 2023, up from 46% in Q2 2022, highlighting the segment's growing importance.
  • 5Advanced Alloys & Solutions (AA&S) segment experienced a sales decline of 8%, impacted by industrial market softness, though commercial aerospace sales within AA&S increased by nearly 50%.
  • 6Positive pre-tax income of $82.8 million in Q2 2023, a substantial improvement from a pre-tax loss of $30.9 million in Q2 2022.
  • 7Company maintains sufficient liquidity through internally generated funds, cash on hand, and available credit facilities.

Frequently Asked Questions

The primary driver was a substantial increase in sales, up 9% to $1.05 billion, largely due to the strong recovery in the commercial aerospace sector. This recovery boosted the High Performance Materials & Components (HPMC) segment, leading to a significant improvement in gross profit and net income. The company also benefited from effective cost management and improved operating leverage in its HPMC segment.

The aerospace and defense market is ATI's largest and fastest-growing segment. It accounted for 58% of total sales in Q2 2023, up from 46% in Q2 2022. This growth is primarily driven by increased demand for commercial jet engines and airframes, reflecting the broader recovery in air travel. The company is investing in capacity to meet this growing demand.

The Advanced Alloys & Solutions (AA&S) segment is experiencing softness in general industrial end markets and lingering impacts from COVID-19 in its Asian precision rolled strip business, leading to an 8% sales decline in Q2 2023. Management also noted higher retirement benefit costs impacting operating margins in the AA&S segment.

ATI maintains a healthy liquidity position with $267.1 million in cash and cash equivalents as of June 30, 2023, and approximately $500 million in available liquidity under its Asset Based Lending (ABL) Credit Facility. The company believes its internally generated funds, cash on hand, and available credit are sufficient to meet its liquidity needs. Its Debt to Adjusted EBITDA Leverage Ratio remained stable, while Net Debt to Adjusted EBITDA Leverage ratio saw a slight increase due to a decrease in cash balance.