What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-08-06 compared with 2024-04-30 · 236 added, 108 removed, 227 unchanged (60% of the section changed)

1 unchanged sentence

ATI is a global manufacturer of technically advanced specialty materials and complex components.

Our largest markets are aerospace & defense, representing 59% of sale s for the quarter ended March 31, 2024, led by products for jet engines and airframes.

Additionally, we have a strong presence in the energy markets, including specialty energy, oil & gas and downstream processing, as well as the medical and electronics markets.

In aggregate, these markets represented 85 % of our quarter ended March 31, 2024 sales.

Our largest markets are aerospace & defense, representing 61% of sale s for the year-to-date period ended June 30, 2024, led by products for jet engines and airframes.

Additionally, we have a strong presence in the energy markets, including specialty energy and conventional energy, as well as the medical and electronics markets.

In aggregate, these markets represented 85 % of our year-to-date period ended June 30, 2024 sales.

ATI is a market leader in manufacturing differentiated products that require our materials science capabilities and unique process technologies, including our new product development competence.

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Unless otherwise stated, references to years and quarters in this Quarterly Report on Form 10-Q relate to fiscal years and quarters, rather than calendar years and quarters.

First quarter 2024 sales of $1.04 billion were flat compared to sales for the first quarter of 2023, as increases in the sales to the aerospace & defense, medical and electronics markets were offset by softness in the energy market.

Total aerospace & defense sales were 59% of total sales for the first quarter 2024 compared to 56% for the first quarter of 2023.

Gross profit for the first quarter of 2024 was $197.4 million, or 18.9% of sales, an increase compared to $193.2 million, or 18.6% of sales, for the first quarter 2023, despite outages and weather impacts in the first quarter of 2024.

The first quarter of 2024 and 2023 gross profit includes $2.9 million and $1.2 million, respectively, of start up costs, which are excluded from segment EBITDA.

Restructuring charges for the first quarter of 2024 were $0.2 million, primarily for the involuntary termination of several employees in ATI’s domestic operations.

In addition, interest expense increased to $26.6 million in the first quarter of 2024 compared to $19.9 million in the first quarter of 2023 as a result of the issuance in August 2023 of $425 million aggregate principal amount of 7.25% Senior Notes due 2030 (2030 Notes).

Our pre-tax income was $85.3 million in the first quarter of 2024, compared to $90.9 million in the prior year period.

Our effective tax rate was 19.8%, resulting in an income tax provision of $16.9 million for the quarter ended March 31, 2024.

Our effective tax rate was 4.7%, resulting in an income tax provision of $4.3 million for the quarter ended April 2, 2023.

The effective tax rate for the quarter ended March 31, 2024 included discrete tax benefits, primarily $3.0 million for share-based compensation.

The effective tax rate for the quarter ended April 2, 2023 was impacted by the net valuation allowance position in the U.S.

Second quarter 2024 sales increased 4.7% to $1.10 billion, compared to $1.05 billion of sales for the second quarter 2023, as increases in sales to the aerospace & defense, medical, automotive, and specialty energy markets were offset by continued softness in certain industrial markets, particularly conventional energy.

Total aerospace & defense sales were 62% of total sales for the second quarter 2024 compared to 58% for the second quarter 2023.

Gross profit for the second quarter of 2024 was $227.4 million, or 20.8% of sales, an increase compared to $209.1 million, or 20.0% of sales for the second quarter 2023.

Second quarter 2024 gross profit includes a benefit of $8.6 million related to the recognition of previously deferred employee retention tax credits.

The Company previously deferred recognition of a portion of these tax credits pending the completion of any potential audit or examination, or the expiration of the related statute of limitations.

The benefit of $8.6 million recognized in the second quarter 2024 was due to the expiration of the statute of limitations for a portion of those credits.

The Company recognized $3.5 million of the benefit in the HPMC segment and $5.1 million in the AA&S segment.

Second quarter 2024 and 2023 gross profit also includes $1.8 million and $4.5 million, respectively, of start-up related costs, and $5.5 million and $2.8 million, respectively, of charges primarily related to inventory write-downs and asset write-offs, all of which are excluded from segment EBITDA.

The charges in 2024 were associated with the ongoing restructuring of the Company’s European operations and the 2023 charges related to the closure of our Robinson, PA operations.

Restructuring charges were a credit for the second quarter of 2024 of $1.9 million, primarily related to lowered severance-related reserves based on changes in planned operating rates and revised workforce reduction estimates, compared to charges of $2.7 million for the second quarter of 2023 for severance-related restructuring charges for involuntary reductions across ATI’s domestic operations.

Second quarter 2024 results include a $2.3 million gain on the sale of assets for our idled Houston, PA facility and second quarter 2023 results include a $0.6 million loss on the sale of our Northbrook, IL operations, both of which are reported in gain/loss on asset sales and sales of businesses, net.

In addition, interest expense increased to $28.4 million in the second quarter of 2024 compared to $21.3 million in the second quarter of 2023 as a result of the issuance in August 2023 of $425 million aggregate principal amount of 7.25% Senior Notes due 2030 (2030 Notes).

Our pre-tax income was $110.9 million in the second quarter of 2024, compared to $97.2 million in the prior year period.

Our effective tax rate was 22.8%, resulting in an income tax provision of $25.3 million for the quarter ended June 30, 2024.

Our effective tax rate was 3.8%, resulting in an income tax provision of $3.7 million for the quarter ended July 2, 2023.

The effective tax rate for the quarter ended June 30, 2024 includes discrete tax benefits of $1.6 million, which includes the recognition of a stranded deferred tax valuation allowance in accumulated other comprehensive loss due to the maturity of our interest rate swap.

The effective tax rate for the second quarter of 2023 was impacted by the net valuation allowance position in the U.S.

and our foreign earnings.

Net income attributable to ATI was $66.1 million, or $0.46 per share, in the first quarter of 2024, compared to $84.5 million, or $0.58 per share, for the first quarter of 2023.

Adjusted EBITDA was $151.0 million, or 14.5% of sales, for the first quarter 2024, and $147.1 million, or 14.2% of sales, for the prior year first quarter.

Net income attributable to ATI was $81.9 million, or $0.58 per share, in the second quarter of 2024, compared to $90.4 million, or $0.62 per share, for the second quarter of 2023.

Adjusted EBITDA was $182.6 million, or 16.7% of sales, for the second quarter 2024, and $164.2 million, or 15.7% of sales, for the prior year second quarter.

EBITDA and Adjusted EBITDA are measures utilized by ATI to analyze the performance and results of our business.

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generally accepted accounting principles (U.S.

We categorically define EBITDA as income from continuing operations before interest and income taxes, plus depreciation and amortization, goodwill impairment charges and debt extinguishment charges.

We categorically define Adjusted EBITDA as EBITDA excluding significant non-recurring charges or credits, restructuring and other charges/credits, strike related costs, long-lived asset impairments, pension remeasurement gains and losses, and other postretirement/pension curtailment and settlement gains and losses.

We define EBITDA as income from continuing operations before interest and

income taxes, plus depreciation and amortization, goodwill impairment charges and debt extinguishment charges.

We define Adjusted EBITDA as EBITDA excluding significant non-recurring charges or credits, restructuring and other charges/credits, strike related costs, long-lived asset impairments, pension remeasurement gains and losses, and other postretirement/pension curtailment and settlement gains and losses.

EBITDA and Adjusted EBITDA are not intended to be measures of free cash flow for management’s discretionary use, as they do not consider certain cash requirements such as interest payments, tax payments and capital expenditures.

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GAAP to these non-GAAP measures.

Compared to the first quarter 2023, sales increased 13% in the HPMC business segment and decreased 10% in the AA&S business segment.

In aggregate, ATI’s aerospace & defense markets sales incre ased 7% to $616 million i n the first quarter 2024, compared to $576 million th e first quarter 2023, reflecting increases in commercial aerospace airframe and defense products.

In the HPMC segment, first quarter 2024 sales of aerospace & defense products increased 12%, and sales to the medical market more than doubled c ompared to the prior year period.

The decline in the AA&S segment reflects prolonged recovery in general industrial end markets.

Comparative information regarding our overall revenues (in millions) by end market and their respective percentages of total revenues for the quarters ended March 31, 2024 and April 2, 2023 is shown below.

Compared to the second quarter 2023, sales increased 7% in the HPMC business segment and increased 3% in the AA&S business segment in the second quarter 2024.

In aggregate, ATI’s aerospace & defense markets sales incre ased 13% to $684 million, or 62% of sales, i n the second quarter 2024, compared to $607 million, or 58% of sales th e second quarter 2023, reflecting increases in sales of commercial aerospace airframe and jet engine products as well as defense products.

In the HPMC segment, second quarter 2024 sales of aerospace & defense products increased 9% and sales to the medical market increased 36% c ompared to the prior year period.

The increase in the AA&S segment reflects a 21% increase in sales of aerospace & defense products, a 43% increase in automotive sales, and a 63% increase in medical market sales, partially offset by declines in conventional energy sales.

Results for the year-to-date period ended June 30, 2024 were sales of $2.14 billion and income before tax of $196.2 million, compared to sales of $2.08 billion and income before tax of $188.1 million for the comparable 2023 period.

Our results for the first half of 2024 reflect increased sales to the aerospace & defense, medical and electronics markets partially offset by softness in the energy market.

Our gross profit was $424.8 million, or 19.9% of sales, for the year-to-date period ended June 30, 2024, a $22.5 million or 5.6% increase compared to 2023, despite outages and weather impacts in the first quarter of 2024.

Year-to-date 2024 gross profit includes a benefit of $8.6 million related to the recognition of previously deferred employee retention tax credits due to the expiration of the statute of limitations.

The Company recognized $3.5 million of the benefit in the HPMC segment and $5.1 million in the AA&S segment.

Year-to-date 2024 and 2023 gross profit also includes $4.7 million and $5.7 million, respectively, of start-up related costs, and $5.5 million and $2.8 million, respectively, of charges primarily related to inventory write-downs and asset write-offs, all of which are excluded from segment EBITDA.

The charges in 2024 were associated with the ongoing restructuring of the Company’s European operations and the charges for 2023 related to the closure of our Robinson, PA operations.

Restructuring charges were a credit for the year-to-date period ended June 30, 2024 of $1.7 million, primarily related to lowered severance-related reserves based on changes in planned operating rates and revised workforce reduction estimates, compared to charges of $2.7 million for the year-to-date period ended July 2, 2023 related to severance for the involuntary reductions across ATI’s domestic operations.

Year-to-date 2024 results include a $2.3 million gain on the sale of assets for our idled Houston, PA facility and year-to-date 2023 results include a $0.6 million loss on the sale of our Northbrook, IL operations, both of which are reported in gain/loss on asset sales and sales of businesses, net.

In addition, interest expense increased to $55.0 million in the year-to-date period ended June 30, 2024 compared to $41.2 million in the year-to-date period ended July 2, 2023 as a result of the issuance in August 2023 of the 2030 Notes.

Our pre-tax income was $196.2 million in the year-to-date period ended June 30, 2024, compared to $188.1 million in the prior year period.

Our effective tax rate was 21.5%, resulting in an income tax provision of $42.2 million for the year-to-date period ended June 30, 2024.

Our effective tax rate was 4.3%, resulting in an income tax provision of $8.0 million for the year-to-date period ended July 2, 2023.

The effective tax rate for the year-to-date period ended June 30, 2024 includes discrete tax benefits of $4.7 million inclusive of $3.2 million for share-based compensation as well as the impact from the recognition of a stranded deferred tax valuation allowance in accumulated other comprehensive loss due to the maturity of our interest rate swap.

The effective tax rate for the year-to-date period ended July 2, 2023 was impacted by the net valuation allowance position in the U.S.

and our foreign earnings.

Net income attributable to ATI was $148.0 million, or $1.04 per share, in the year-to-date period ended June 30, 2024, compared to a net income attributable to ATI of $174.9 million, or $1.20 per share, for the prior year period.

Compared to the first half of 2023, sales increased 9% in the HPMC business segment and decreased 4% in the AA&S business segment.

In aggregate, ATI’s aerospace & defense markets sales increased 10% in the first half of 2024 compared to 2023, reflecting increases in sales of commercial aerospace airframe and jet engine products as well as defense products.

Sales to the aerospace & defense markets in the HPMC segment were 11% higher than the first half of 2023, reflecting increases in commercial aerospace airframe and jet engine products as well as defense products.

The decline in the AA&S segment reflects continued softness in certain general industrial end markets, particularly conventional energy, which were partially offset by an 8% increase in aerospace & defense sales and a 47% increase in medical market sales.

Comparative information regarding our overall revenues (in millions) by end market and their respective percentages of total revenues for the quarters and year-to-date periods ended June 30, 2024 and July 2, 2023 is shown below.

Quarter ended Quarter ended

Markets March 31, 2024 April 2, 2023

Markets June 30, 2024 July 2, 2023

Aerospace & Defense:

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Total Aerospace & Defense $ 683.9 62 % $ 606.8 58 %

Oil & Gas 102.5 10 % 127.5 12 %

Conventional Energy 66.1 6 % 111.3 11 %

Specialty Energy 76.6 7 % 68.2 6 %

Total Energy 142.7 13 % 179.5 17 %

Automotive 70.8 7 % 52.8 5 %

Medical 61.7 6 % 41.9 4 %

Construction/Mining 44.2 4 % 48.4 5 %

Electronics 40.8 4 % 36.0 3 %

Food Equipment & Appliances 16.2 1 % 20.9 2 %

Other 35.0 3 % 59.7 6 %

Total $ 1,095.3 100 % $ 1,046.0 100 %

Year-to-date period ended Year-to-date period ended

Markets June 30, 2024 July 2, 2023

Aerospace & Defense:

Jet Engines- Commercial $ 664.0 31 % $ 651.8 31 %

Airframes- Commercial 400.9 19 % 334.1 16 %

Defense 234.7 11 % 196.6 10 %

Total Aerospace & Defense $ 1,299.6 61 % $ 1,182.5 57 %

Conventional Energy 168.6 8 % 238.8 12 %

Specialty Energy 132.7 6 % 150.9 7 %

Total Energy 301.3 14 % 389.7 19 %

Automotive 126.8 6 % 112.2 5 %

Medical 120.8 6 % 76.9 4 %

Electronics 93.7 4 % 70.4 3 %

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Total $ 2,138.2 100 % $ 2,084.1 100 %

For the first quarter 2024, international sales increased to $471 million, or 45% of total sales, from $450 million, or 43% of total sales, in the first quarter 2023.

For the second quarter 2024, international sales decreased to $457 million, or 42% of total sales, from $478 million, or 46% of total sales, in the second quarter 2023.

ATI’s international sales are mostly to the aerospace, energy, electronics, automotive and medical markets.

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HRPF conversion service sales in the AA&S segment are excluded from this presentation.

Quarter ended

March 31, 2024 April 2, 2023

Quarter ended Year-to-date period ended

June 30, 2024 July 2, 2023 June 30, 2024 July 2, 2023

Nickel-based alloys and specialty alloys 44 % 52 % 44 % 52 %

Precision forgings, castings and components 19 % 16 %

Titanium and titanium-based alloys 20 % 14 % 19 % 14 %

Zirconium and related alloys 10 % 7 %

Precision forgings, castings and components 19 % 17 % 19 % 16 %

Precision rolled strip products 9 % 9 % 9 % 10 %

Zirconium and related alloys 8 % 8 % 9 % 8 %

Total 100 % 100 % 100 % 100 %

Segment EBITDA for the first quarter 2024 was $169.4 million, or 16.2% of sales, compared to segment EBITDA of $165.3 million, or 15.9% of sales, for the first quarter of 2023.

Our measure of segment EBITDA, which we use to analyze the performance and results of our business segments, categorically excludes income taxes, depreciation and amortization, corporate expenses, net interest expense, closed operations and other income (expense), charges for goodwill and asset impairments, restructuring and other credits/charges, strike related costs, pension remeasurement gains/losses, debt extinguishment charges and gains or losses on asset sales and sales of businesses.

Segment EBITDA for the second quarter 2024 was $201.3 million, or 18.4% of sales, compared to segment EBITDA of $183.8 million, or 17.6% of sales, for the second quarter of 2023.

Segment EBITDA for the first half of 2024 was $370.7 million, or 17.3% of sales, compared to segment EBITDA of $349.1 million, or 16.8% of sales, for the first half of 2023.

Our measure of segment EBITDA, which we use to analyze the performance and results of our business segments, excludes income taxes, depreciation and amortization, corporate expenses, net interest expense, closed operations and other income (expense), charges for goodwill and asset impairments, restructuring and other credits/charges, strike related costs, pension remeasurement gains/losses, debt extinguishment charges and gains or losses on asset sales and sales of businesses.

Results on our management basis of reporting were as follows (in millions):

Quarter ended

March 31, 2024 April 2, 2023

Quarter ended Year-to-date period ended

June 30, 2024 July 2, 2023 June 30, 2024 July 2, 2023

High Performance Materials & Components $ 562.0 $ 527.1 $ 1,091.9 $ 998.2

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Corporate expenses (19.4) (17.7) (36.5) (34.6)

Closed operations and other expense (1.3) (1.3)

Closed operations and other income (expense) 0.7 (1.9) (0.6) (3.2)

ATI Adjusted EBITDA 182.6 164.2 333.6 311.3

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Restructuring and other charges (5.4) (9.2) (8.5) (10.4)

Loss on asset sales and sales of businesses, net — (0.6) — (0.6)

Income before income taxes 110.9 97.2 196.2 188.1

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We assess Managed Working Capital performance as a percentage of the prior three months annualized sales to evaluate the asset intensity of our business.

At March 31, 2024, Managed Working Capital increased as a percentage of annualized sales to 35.9% compared to 31.1% at December 31, 2023.

The increase in Managed Working Capital as a percentage of annualized sales was due in part to seasonal and strategic inventory builds and timing of shipments late in the first quarter of 2024.

Days sales outstanding, which measures actual collection timing for accounts receivable, worsened by 17% as of March 31, 2024 compared to year end 2023.

Gross inventory turns, which measures how many times we turn over our inventory relative to cost of sales in a year, worsened by 4% as of March 31, 2024 compared to year end 2023.

We continue efforts to focus on operational improvements to positively impact the inventory intensity of our business and alleviate the required investment of Managed Working Capital in our

growing business, however, the first quarter historically sees an increase in Managed Working Capital to support the coming year’s operations.

The computations of Managed Working Capital at March 31, 2024 and December 31, 2023, reconciled to the financial statement line items as computed under U.S.

At June 30, 2024, Managed Working Capital increased as a percentage of annualized sales to 35.5% compared to 31.1% at December 31, 2023.

The increase in Managed Working Capital as a percentage of annualized sales was due in part to seasonal and strategic inventory builds and timing of shipments in the second quarter of 2024.

Days sales outstanding, which measures actual collection timing for accounts receivable, worsened by 13% as of June 30, 2024 compared to year end 2023.

Gross inventory turns, which measures how many times we turn over our inventory relative to cost of sales in a year, worsened by 11% as of June 30, 2024 compared to year end 2023.

We continue efforts to focus on operational improvements to positively impact the inventory intensity of our business and alleviate the required investment of Managed Working Capital in our growing business, however, the first half of the fiscal year historically sees an increase in Managed Working Capital to support operations in the second half of the fiscal year.

The computations of Managed Working Capital at June 30, 2024 and December 31, 2023, reconciled to the financial statement line items as computed under U.S.

GAAP, were as follows.

March 31, December 31,

The June 30, 2024 amounts include management working capital balances that are classified as held for sale.

June 30, December 31,

(In millions) 2024 2023

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Inventory valuation reserves 71.6 75.5

Net managed working capital held for sale 39.8 —

Managed working capital $ 1,553.6 $ 1,321.9

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High Performance Materials & Components Segment

First quarter 2024 sales were $529.9 million, increasing 13% compared to the first quarter 2023, primarily due to continued strong demand in aerospace & defense markets as well as increased medical market sales, which more than doubled compared to the first quarter of 2023.

Sales to the commercial aerospace market increased 8%, as airframe sales increased 21% and commercial jet engine sales increased 5%, and sales to the defense market increased 43%.

Overall aerospace & defense market sales were 84% of total HPMC sales in the first quarter of 2024.

Comparative information for our HPMC segment revenues (in millions) by market and their respective percentages of the segment’s overall revenues for the quarters ended March 31, 2024 and April 2, 2023 is as follows:

Second quarter 2024 sales were $562.0 million, an increase of 7% compared to the second quarter 2023, primarily due to continued strong demand in aerospace & defense markets, with sales increasing 9%, as well as increased medical market sales, which increased 36% compared to the second quarter of 2023.

The increase in aerospace & defense sales was primarily due to higher commercial airframe sales of 40% and commercial jet engine sales of 4%.

Overall aerospace & defense market sales were 85% of total HPMC sales in the second quarter of 2024.

Comparative information for our HPMC segment revenues (in millions) by market and their respective percentages of the segment’s overall revenues for the quarters ended June 30, 2024 and July 2, 2023 is as follows:

Quarter ended Quarter ended

Markets March 31, 2024 April 2, 2023

Markets June 30, 2024 July 2, 2023

Aerospace & Defense:

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Medical 33.0 6 % 24.3 5 %

Oil & Gas 3.5 1 % 2.4 1 %

Conventional Energy 2.4 — % 3.7 1 %

Specialty Energy 22.5 4 % 29.9 5 %

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Total $ 562.0 100 % $ 527.1 100 %

International sales represented 55% of total segment sales for the first quarter 2024, compared to 58% in the prior year period.

Comparative information for the HPMC segment’s major product categories, based on their percentages of revenue for the quarters ended March 31, 2024 and April 2, 2023, is as follows:

International sales represented 52% of total segment sales for the second quarter 2024, compared to 58% in the prior year period.

Comparative information for the HPMC segment’s major product categories, based on their percentages of revenue for the quarters ended June 30, 2024 and July 2, 2023, is as follows:

Quarter ended

March 31, 2024 April 2, 2023

June 30, 2024 July 2, 2023

Nickel-based alloys and specialty alloys 39 % 49 %

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Total 100 % 100 %

Segment EBITDA in the first quarter 2024 increased to $97.6 million, or 18.4% of total sales, compared to $81.6 million, or 17.3% of total sales, for the first quarter 2023.

Strength in the HPMC segment continues to be driven by content on higher margin latest generation commercial aerospace platforms.

Despite fourth quarter 2023 melt-related challenges that impacted first quarter sales, HPMC results for the first quarter of 2024 reflected year-over-year improved operating leverage as we continue to experience increasing demand from the aerospace & defense markets.

To meet increased demand and capitalize on market opportunities, we continue to invest, including hiring new employees within the segment in the first quarter of 2024 as well as the continuation of our titanium melt expansion in Richland, Washington.

Segment EBITDA in the second quarter 2024 was $113.8 million, or 20.2% of total sales, compared to $109.7 million, or 20.8% of total sales, for the second quarter 2023.

Results in the second quarter of 2024 included $3.5 million of benefits related to the recognition of previously deferred employee retention tax credits for government enacted relief packages in response to the COVID-19 pandemic that had statute of limitations that expired, which were mostly offset by higher incentive compensation costs.

The margin decline quarter over quarter was primarily due to an unfavorable sales mix.

Sales for the year-to-date period ended June 30, 2024 were $1.09 billion, an increase of 9% compared to the year-to-date period ended July 2, 2023, primarily due to continued strong demand in aerospace & defense markets as well as increased medical market sales, which were up 65% compared to the 2023 comparable period.

Sales to the commercial aerospace market increased 9%, as airframe sales increased 30% and commercial jet engine sales increased 5%, and sales to the defense market increased 22%.

Sales to the energy markets decreased 24%, mainly due to lower specialty energy sales.

Comparative information for our HPMC segment revenues (in millions) by market and their respective percentages of the segment’s overall revenues for the year-to-date periods ended June 30, 2024 and July 2, 2023 is as follows:

Year-to-date period ended Year-to-date period ended

Markets June 30, 2024 July 2, 2023

Aerospace & Defense:

Jet Engines- Commercial $ 628.7 58 % $ 601.7 60 %

Airframes- Commercial 179.4 16 % 138.0 14 %

Defense 112.0 10 % 91.9 9 %

Total Aerospace & Defense 920.1 84 % 831.6 83 %

Medical 68.9 6 % 41.8 4 %

Conventional Energy 5.9 1 % 6.1 1 %

Specialty Energy 40.7 4 % 54.8 5 %

Total Energy 46.6 5 % 60.9 6 %

Construction/Mining 15.0 1 % 19.2 2 %

Other 41.3 4 % 44.7 5 %

Total $ 1,091.9 100 % $ 998.2 100 %

International sales represented 53% of total segment sales for the first half of 2024.

Comparative information for the HPMC segment’s major product categories, based on their percentages of revenue for the year-to-date periods ended June 30, 2024 and July 2, 2023 , is as follows:

Year-to-date period ended

June 30, 2024 July 2, 2023

Nickel-based alloys and specialty alloys 39 % 47 %

Precision forgings, castings and components 36 % 33 %

Titanium and titanium-based alloys 24 % 19 %

Precision rolled strip products 1 % 1 %

Total 100 % 100 %

Segment EBITDA in the first half of 2024 increased to $211.4 million, or 19.4% of total sales, compared to $191.3 million, or 19.2% of total sales, for the first half of 2023.

HPMC segment results continue to be driven by content on next-generation commercial aerospace platforms.

Results in the first half of 2024 included $3.5 million of benefits related to the recognition of previously deferred employee retention tax credits for government enacted relief packages in response to the COVID-19 pandemic that had statute of limitations that expired, which were mostly offset by higher incentive compensation costs.

Despite fourth quarter 2023 melt-related challenges that impacted first half 2024 sales, HPMC results for the first half of 2024 reflected year-over-year improved operating leverage as we continue to experience increasing demand from the aerospace & defense markets.

To meet increased demand and capitalize on market opportunities, we continue to invest, including hiring new employees within the segment in 2024 as well as the continuation of our titanium melt expansion in Richland, Washington.

Furthermore, our commitment to continuous improvement is resulting in adjustments to our work-flow processes to de-bottleneck our critical operations.

We believe that these investments, strong backlog and our LTAs with aerospace market OEMs for our specialty materials, including powders, parts and components, position the HPMC segment for profitable growth for the next several years.

Although the aerospace market OEMs have experienced some near-term challenges and delays in their estimated production ramps, we believe the backlog of commercial aircraft, increasing requirements for maintenance, repair, and operations, and the current OEM production forecasts support our growth expectations in this end market.

Advanced Alloys & Solutions Segment

First quarter 2024 sales were $513.0 million, decreasing 10% compared to the first quarter of 2023, primarily due to prolonged recovery in general industrial end markets, especially energy.

In addition, sales to the overall aerospace & defense market declined 4% compared to the first quarter of 2023 primarily due to declines in sales for jet engines resulting from the timing of customer orders.

Recovery in some industrial markets is beginning to show, including sales to the electronic and medical markets that increased 53% and 33%, respectively, compared to prior year.

Comparative information regarding our AA&S segment revenues (in millions) by market and their respective percentages of the segment’s overall revenues for the quarters ended March 31, 2024 and April 2, 2023 is shown below.

Second quarter 2024 sales were $533.3 million, an increase of 3% compared to the second quarter of 2023, primarily due a 21% increase in aerospace & defense products, 41% increase in specialty energy, and 63% increase in medical market sales, partially offset by continued softness in certain general industrial end markets, particularly conventional energy.

Further, sales to the automotive market increased 43% compared to the prior year quarter.

Quarter ended Quarter ended

Markets March 31, 2024 April 2, 2023

Markets June 30, 2024 July 2, 2023

Aerospace & Defense:

3 unchanged sentences

Total Aerospace & Defense 206.4 39 % 170.6 33 %

Oil & Gas 99.0 19 % 125.1 22 %

Conventional Energy 63.7 12 % 107.6 21 %

Specialty Energy 54.1 10 % 38.3 7 %

Total Energy 117.8 22 % 145.9 28 %

Electronics 51.9 10 % 33.9 6 %

Automotive 67.0 13 % 46.8 9 %

Medical 23.2 4 % 17.5 3 %

Electronics 38.8 7 % 35.3 7 %

Construction/Mining 35.9 7 % 37.4 7 %

Medical 28.7 5 % 17.6 3 %

Food Equipment & Appliances 16.2 3 % 20.9 4 %

1 unchanged sentence

Total $ 533.3 100 % $ 518.9 100 %

International sales represented 36% of total segment sales for the first quarter 2024, compared to 31% in the prior year’s first quarter.

Comparative information regarding the AA&S segment’s major product categories, based on their percentages of revenue for the quarters ended March 31, 2024 and April 2, 2023, are presented in the following table.

International sales represented 31% of total segment sales for the second quarter of 2024, compared to 33% in the prior year’s second quarter.

Comparative information regarding the AA&S segment’s major product categories, based on their percentages of revenue for the quarters ended June 30, 2024 and July 2, 2023, are presented in the following table.

HRPF conversion service sales are excluded from this presentation.

Quarter ended

March 31, 2024 April 2, 2023

June 30, 2024 July 2, 2023

Nickel-based alloys and specialty alloys 49 % 55 %

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Total 100 % 100 %

Segment EBITDA was $71.8 million, or 14.0% of sales, for the first quarter 2024, compared to segment EBITDA of $83.7 million, or 14.8% of sales, for the first quarter 2023.

A stronger mix of titanium mill products and exotic alloys was offset by weaker demand for PRS products and nickel-based alloys, which contributed to the margin decrease compared to the prior year.

Segment EBITDA was $87.5 million, or 16.4% of sales, for the second quarter 2024, compared to segment EBITDA of $74.1 million, or 14.3% of sales, for the second quarter 2023.

The margin increase compared to the prior year was primarily due to a favorable sales mix as growth in titanium mill products and exotic alloys offset weaker demand for nickel-based alloys.

Results in the second quarter of 2024 included $5.1 million of benefits related to the recognition of previously deferred employee retention tax credits for government enacted relief packages in response to the COVID-19 pandemic that had statute of limitations that expired, the majority of which were offset by higher incentive compensation costs.

Sales for the first half of 2024 were $1.05 billion, a decrease of 4% compared to the first half of 2023, as continued softness in certain general industrial end markets, especially conventional energy, was partially offset by an 8% increase in aerospace & defense products, 31% increase in electronics sales, and 47% increase in medical market sales.

Further, sales to the automotive market increased 18% compared to prior year.

Comparative information regarding our AA&S segment revenues (in millions) by market and their respective percentages of the segment’s overall revenues for the year-to-date periods ended June 30, 2024 and July 2, 2023 is shown below.

Year-to-date period ended Year-to-date period ended

Markets June 30, 2024 July 2, 2023

Aerospace & Defense:

Jet Engines- Commercial $ 35.3 3 % $ 50.1 5 %

Airframes- Commercial 221.5 21 % 196.1 18 %

Defense 122.7 12 % 104.7 10 %

Total Aerospace & Defense 379.5 36 % 350.9 33 %

Conventional Energy 162.7 16 % 232.7 21 %

Specialty Energy 92.0 9 % 96.1 9 %

Total Energy 254.7 25 % 328.8 30 %

Automotive 118.0 11 % 99.9 9 %

Electronics 90.7 9 % 69.2 6 %

Construction/Mining 56.4 5 % 69.6 6 %

Medical 51.9 5 % 35.1 3 %

Food Equipment & Appliances 28.1 3 % 42.4 4 %

Other 67.0 6 % 90.0 9 %

Total $ 1,046.3 100 % $ 1,085.9 100 %

International sales represented 33% of total segment sales for the first half of 2024.

Comparative information regarding the AA&S segment’s major product categories, based on their percentages of revenue for the year-to-date periods ended June 30, 2024 and July 2, 2023, are presented in the following table.

HRPF conversion service sales are excluded from this presentation.

Year-to-date period ended

June 30, 2024 July 2, 2023

Nickel-based alloys and specialty alloys 50 % 57 %

Zirconium and related alloys 19 % 15 %

Precision rolled strip products 18 % 18 %

Titanium and titanium-based alloys 13 % 10 %

Total 100 % 100 %

Segment EBITDA was $159.3 million, or 15.2% of sales, for the first half of 2024, compared to segment EBITDA of $157.8 million, or 14.5% of sales, for the first half of 2023.

The margin increase compared to the prior year was primarily due to a favorable sales mix as growth in titanium mill products and exotic alloys offset weaker demand for nickel-based alloys.

Results in the first half of 2024 included $5.1 million of benefits related to the recognition of previously deferred employee retention tax credits for government enacted relief packages in response to the COVID-19 pandemic that had statute of limitations that expired, the majority of which were offset by higher incentive compensation costs.

We continue to expect margin expansion within this segment through 2024 with improved sales mix and improving operating performance.

Additionally, early signs of improving industrial demand would benefit overall operating leverage.

We are on-track to ramp capacity at our titanium melt shop in Albany, Oregon in the first half of fiscal year 2024, and expect to reach full production capacity in the second half of fiscal year 2024.

We have increased capacity at our titanium melt shop in Albany, Oregon in the first half of fiscal year 2024, and expect to reach full production capacity at that facility in the second half of fiscal year 2024.

While availability of raw materials for our melting processes remains adequate, changes in raw material prices may cause variability in profit margins based on the timing of index pricing mechanisms.

Corporate Items

Corporate expenses for the first quarter of 2024 were $17.1 million, compared to $16.9 million for the first quarter 2023.

Closed operations and other expense for the first quarter 2024 was $1.3 million, consistent with the first quarter 2023.

Corporate expenses for the second quarter of 2024 were $19.4 million, compared to $17.7 million for the second quarter 2023.

For the year-to-date period ended June 30, 2024, corporate expenses were $36.5 million, compared to $34.6 million for the year-to-date period ended July 2, 2023.

The current year increases reflect higher incentive compensation costs compared to the prior year periods.

Closed operations and other income for the second quarter 2024 was $0.7 million, compared to expense of $1.9 million for the second quarter 2023.

For the year-to-date period ended June 30, 2024, closed operations and other expense was $0.6 million, compared to $3.2 million for the year-to-date period ended July 2, 2023.

Closed operations and other income (expense) for the quarter and year-to-date period ended June 30, 2024 includes a $2.3 million gain on the sale of assets for our idled Houston, PA facility included within gain on asset sales and sales of businesses, net, on the consolidated statement of operations, for which $3.5 million of proceeds were received and reported as an investing activity on the consolidated statement of cash flows.

The following table shows depreciation & amortization for the relevant periods by each business segment.

Quarter ended

March 31, 2024 April 2, 2023

Depreciation expense in the second quarter and year-to-date period ended July 2, 2023 includes $0.8 million of accelerated depreciation on fixed assets for the closure of our Robinson, PA operations.

Quarter ended Year-to-date period ended

June 30, 2024 July 2, 2023 June 30, 2024 July 2, 2023

High Performance Materials & Components $ 17.9 $ 17.9 $ 34.2 $ 35.3

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$ 37.9 $ 35.9 $ 73.9 $ 71.0

Interest expense, net of interest income, in the first quarter 2024 increased to $26.6 million, compared to $19.9 million for the first quarter 2023, reflecting the issuance of the 2030 Notes during the third quarter 2023.

Capitalized interest reduced interest expense by $4.0 million in the first quarter 2024 and $3.4 million in the first quarter 2023.

Restructuring and other charges of $3.1 million for the first quarter of 2024 include $2.9 million of start up costs and $0.2 million of restructuring charges.

Restructuring and other charges were $1.2 million for start up costs for the first quarter of 2023.

Start up costs are included within cost of sales in the consolidated statements of operations.

Interest expense, net of interest income, in the second quarter 2024 increased to $28.4 million, compared to $21.3 million for the second quarter 2023.

Interest expense, net of interest income, for the year-to-date period ended June 30, 2024 was $55.0 million, compared to $41.2 million for the year-to-date period ended July 2, 2023.

These increases reflect the issuance of the 2030 Notes during the third quarter 2023.

Capitalized interest reduced interest expense by $1.9 million in the second quarter 2024 and $3.3 million in the second quarter 2023.

For the year-to-date periods ended June 30, 2024 and July 2, 2023, capitalized interest was $5.9 million and $6.7 million, respectively.

Restructuring and other charges of $5.4 million for the second quarter of 2024 include $5.5 million of inventory write-downs related to our ongoing European restructuring and $1.8 million of start-up costs, both of which are included within cost of sales on the consolidated statements of operations.

These charges were partially offset by credits of $1.9 million primarily for lowered severance-related reserves based on changes in planned operating rates and revised workforce reduction estimates.

Restructuring and other charges of $8.5 million for the year-to-date period ended June 30, 2024 include $5.5 million of inventory write-downs related to our ongoing European restructuring and $4.7 million of start-up costs, both of which are included within cost of sales on the consolidated statements of operations.

These charges were partially offset by credits of $1.7 million primarily for lowered severance-related reserves based on changes in planned operating rates and revised workforce reduction estimates.

Restructuring and other charges of $9.2 million for the second quarter of 2023 include $2.7 million of severance-related restructuring charges as well as $4.5 million of start-up costs and $2.0 million primarily for asset write-offs for the closure of our Robinson, PA operations, both of which are included within cost of sales on the consolidated statements of operations.

Restructuring and other charges of $10.4 million for the year-to-date period ended July 2, 2023 also include $1.2 million of additional start-up costs related to the Company’s titanium operations in Albany, OR, which are included within cost of sales on the consolidated statements of operations.

These restructuring and other charges were excluded from segment EBITDA.

Cash payments associated with prior restructuring programs were $1.5 million in the first quarter of 2024.

Of the $13.9 million of remaining reserves associated with these restructuring actions as of March 31, 2024, $9.7 million are expected to be paid within the next year.

Our effective tax rate was 19.8%, resulting in an income tax provision of $16.9 million for the quarter ended March 31, 2024.

Our effective tax rate was 4.7%, resulting in an income tax provision of $4.3 million for the quarter ended April 2, 2023.

The effective tax rate for the quarter ended March 31, 2024 included discrete tax benefits, primarily $3.0 million for share-based compensation.

The effective tax rate for the quarter ended April 2, 2023 was impacted by the net valuation allowance position in the U.S.

Cash payments associated with prior restructuring programs were $4.1 million in the first half of 2024.

Of the $9.4 million of remaining reserves associated with these restructuring actions as of June 30, 2024, all are expected to be paid within the next year.

Loss on asset sales and sales of businesses, net, for the second quarter and year-to-date period ended July 2, 2023 is related to a $0.6 million loss on the sale of the Company’s Northbrook, IL operations.

For the quarter and year-to-date period ended June 30, 2024, our effective tax rate was 22.8% and 21.5%, respectively, resulting in an income tax provision of $25.3 million and $42.2 million, respectively.

For the quarter and year-to-date period ended July 2, 2023, our effective tax rate was 3.8% and 4.3%, respectively, resulting in an income tax provision of $3.7 million and $8.0 million, respectively.

Discrete tax benefits for the year-to-date period ended June 30, 2024 were $4.7 million, which also includes $3.2 million for share-based compensation.

The effective tax rates for the quarter and year-to-date period ended July 2, 2023 were impacted by the net valuation allowance position in the U.S.

and our foreign earnings.

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The ABL facility contains a financial covenant whereby we must maintain a fixed charge coverage ratio of not less than 1.00:1.00 after an event of default has occurred and is continuing or if the undrawn availability under the ABL revolving credit portion of the facility is less than the greater of (i) 10% of the then applicable maximum loan amount under the revolving credit portion of the ABL and the outstanding Term Loan balance, or (ii) $60.0 million.

We were in compliance with the fixed charge coverage ratio as of March 31, 2024.

We were in compliance with the fixed charge coverage ratio as of June 30, 2024.

Additionally, we must demonstrate minimum liquidity specified by the facility during the 90-day period immediately preceding the stated maturity date of our 3.5% Convertible Senior Notes due 2025 and the 6.95% Debentures due 2025 issued by our wholly owned subsidiary, Allegheny Ludlum LLC.

The ABL also contains customary affirmative and negative covenants for credit facilities of this type, including limitations on our ability to incur additional indebtedness or liens or to enter into investments, mergers and acquisitions, dispositions of assets and transactions with affiliates, some of which are more restrictive, at any time during the term of the ABL when our fixed charge coverage ratio is less than 1.00:1.00 and our undrawn availability under the revolving portion of the ABL is less than the greater of (a) $120 million or (b) 20% of the sum of the maximum loan amount under the revolving credit portion of the ABL and the outstanding Term Loan balance.

As of March 31, 2024, there were no outstanding borrowings under the revolving portion of the ABL facility, and $31.7 million was utilized to support the issuance of letters of credit.

At March 31, 2024, we had $394 million of cash and cash equivalents, and available additional liquidity under the ABL facility of approxima tely $557 million.

As of June 30, 2024, there were no outstanding borrowings under the revolving portion of the ABL facility, and $31.7 million was utilized to support the issuance of letters of credit.

At June 30, 2024, we had $426 million of cash and cash equivalents, and available additional liquidity under the ABL facility of approximately $556 million.

We have no significant debt maturities until the second quarter 2025.

Periodically, our Board of Directors authorizes the repurchase of ATI common stock (the “Share Repurchase Program”), the most recent of which was $150 million in November 2023.

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Open market repurchases are structured to occur within the pricing and volume requirements of SEC Rule 10b-18.

In the quarter ended March 31, 2024, ATI used $150.0 million to repurchase 3.4 million shares of its common stock under the Share Repurchase Program.

In the quarter ended April 2, 2023, ATI used $10.1 million to repurchase 0.2 million shares of its common stock under the Share Repurchase Program.

At March 31, 2024, we have utilized the full amount currently authorized under the Share Repurchase Program.

In the year-to-date period ended June 30, 2024, ATI used $150.0 million to repurchase 3.4 million shares of its common stock under the Share Repurchase Program.

At June 30, 2024, we have utilized the full amount currently authorized under the Share Repurchase Program.

In the year-to-date period ended July 2, 2023, ATI used $10.1 million to repurchase 0.2 million shares of its common stock under the Share Repurchase Program.

We believe that internally generated funds, current cash on hand and available borrowings under the ABL facility will be adequate to meet our liquidity needs.

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In addition, we regularly review our capital structure, various financing alternatives and conditions in the debt and equity markets in order to opportunistically enhance our capital structure.

In connection therewith, we may seek to refinance or retire existing indebtedness, incur new or additional indebtedness or issue equity or equity-linked securities, in each case, depending on market and other conditions.

In connection therewith, we may seek to refinance or retire existing

indebtedness, incur new or additional indebtedness or issue equity or equity-linked securities, in each case, depending on market and other conditions.

We have no off-balance sheet arrangements as defined in Item 303(a)(4) of SEC Regulation S-K.

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Our ratio of net debt to Adjusted EBITDA (Adjusted EBITDA Leverage Ratio) measures net debt at the balance sheet date to Adjusted EBITDA as calculated on the trailing twelve-month period from this balance sheet date.

Our Debt to Adjusted EBITDA Leverage ratio improved slightly in the first quarter of 2024 compared to year end 2023, while our Net Debt to Adjusted EBITDA Leverage ratio worsened in the first quarter of 2024 compared to year end 2023, largely a

due to a decreased cash balance.

Our Debt to Adjusted EBITDA Leverage ratio improved in the second quarter of 2024 compared to year end 2023, resulting from higher earnings, while our Net Debt to Adjusted EBITDA Leverage ratio worsened in the second quarter of 2024 compared to year end 2023, largely a due to a decreased cash balance.

The reconciliations of our Adjusted EBITDA Leverage Ratios to the balance sheet and income statement amounts as reported under U.S.

GAAP are as follows:

Quarter ended Latest year ended Year ended

March 31, 2024 April 2, 2023 March 31, 2024 December 31, 2023

Quarter ended Trailing 12-month period ended Year ended

June 30, 2024 July 2, 2023 June 30, 2024 December 31, 2023

Net income attributable to ATI $ 81.9 $ 90.4 $ 383.9 $ 410.8

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Net Debt to Adjusted EBITDA 2.68 2.29

Cash used in operations was $98.8 million in the first quarter of 2024, compared to $285.2 million in the first quarter of 2023.

Both periods reflect higher accounts receivable and higher inventory balances due to increased operating levels, but these conditions impacted the first quarter 2024 to a much lesser extent than the first quarter of 2023.

Cash provided by operations was $2.3 million in the year-to-date period ended June 30, 2024, compared to cash used in operations of $217.1 million in the year-to-date period ended July 2, 2023.

Both periods reflect higher accounts receivable and higher inventory balances due to increased operating levels, but these conditions impacted 2024 to a much lesser extent than 2023.

Working capital balances, and consequently cash from operations, can fluctuate throughout any operating period based upon the timing of receipts from customers and payments to vendors.

However, we actively manage our working capital to allow for the required flexibility to meet our strategic objectives.

Other significant first quarter 2024 operating cash flow items included payment of 2023 annual incentive compensation.

Other significant first quarter 2023 operating cash flow items included $50 million in contributions to the U.S.

Other significant first half 2024 operating cash flow items included payment of 2023 annual incentive compensation.

Other significant first half 2023 operating cash flow items included $50 million in contributions to the U.S.

defined benefit pension plans and the payment of 2022 annual incentive compensation.

Cash used in investing activities was $63.8 million in the first quarter of 2024, reflecting $65.8 million in capital expenditures primarily related to AA&S transformation projects and various HPMC growth projects.

For the first quarter of 2023, cash used in investing activities was $59.3 million, reflecting $60.4 million in capital expenditures.

Cash used in investing activities was $117.1 million in the year-to-date period ended June 30, 2024, reflecting $126.0 million in capital expenditures primarily related to various growth projects to support the aerospace & defense and aero-like markets.

Proceeds from disposals of property, plant and equipment in the year-to-date period ended June 30, 2024 of $5.9 million largely relate to $3.5 million of proceeds received for the sale of assets for our idled Houston, PA facility.

For the year-to-date period ended July 2, 2023, cash used in investing activities was $100.8 million, reflecting $103.3 million in capital expenditures.

We expect to fund our capital expenditures with cash on hand and cash flow generated from our operations and, if needed, by using a portion of the ABL facility.

Cash used in financing activities was $186.9 million in the first quarter of 2024, which included $150.0 million to repurchase 3.4 million shares of ATI stock under our Share Repurchase Program authorized by our Board of Directors.

For the first quarter of 2023, cash used in financing activities was $43.3 million, which included $10.1 million for the repurchase of 0.2 million shares of ATI stock.

At March 31, 2024, cash and cash equivalents on hand totaled $394.4 million, a decrease of $349.5 million from year end 2023.

Cash and cash equivalents held by our foreign subsidiaries was $132.9 million at March 31, 2024, of which $73.7 million was held by the STAL joint venture.

Cash used in financing activities was $193.9 million in the year-to-date period ended June 30, 2024, which included $150.0 million to repurchase 3.4 million shares of ATI stock under our Share Repurchase Program authorized by our Board of Directors.

For the year-to-date period ended July 2, 2023, cash provided by financing activities was $1.0 million, and included $50 million of borrowings under the Company’s ABL Credit Facility and $10.1 million of payments for the repurchase of 0.2 million shares of ATI stock.

At June 30, 2024, cash and cash equivalents on hand totaled $425.6 million, a decrease of $318.3 million from year end 2023.

Cash and cash equivalents held by our foreign subsidiaries, excluding the $9.6 million of cash held for sale, was $154.8 million at June 30, 2024, of which $93.9 million was held by the STAL joint venture.

Critical Accounting Policies

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Other events and changes in circumstances may also require goodwill to be tested for impairment between annual measurement dates.

At March 31, 2024, we had $227.2 million of goodwill on our consolidated balance sheet.

At June 30, 2024, we had $227.2 million of goodwill on our consolidated balance sheet.

All goodwill relates to reporting units in the HPMC segment.

Management concluded that none of ATI’s reporting units or long-lived assets experienced any triggering event that would have required an interim impairment analysis at March 31, 2024.

Management concluded that none of ATI’s reporting units or long-lived assets experienced any triggering event that would have required an interim impairment analysis at June 30, 2024.

The provision for income taxes includes deferred taxes resulting from temporary differences in income for financial and tax purposes using the liability method.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis