Third Quarter 2017 Conference Call

Transcription

1 Third Quarter 2017 Conference Call October 24, 2017

2 Forward-Looking Statements This presentation contains forward-looking statements. Actual results may differ materially from results anticipated in the forward-looking statements due to various known and unknown risks, many of which we are unable to predict or control. These and additional risk factors are described from time to time in the Company s filings with the Securities and Exchange Commission, including its Annual Report on Form 10-K for the year ended December 31, 2016.

3 Q Highlights $M (excl. EPS) Q Q % Chg. Revenue $770.5 $ % Net Income (Loss)* $(530.8) $(121.2) --- Net Income (Loss)* (ex. special items) $(22.5) $(7.6) --- EPS $(4.95) $(1.12) --- EPS (ex. special items) $(0.21) $(0.07) --- *Attributable to ATI High Performance Materials & Components Revenue of $513 million Operating profit of $62 million Operating margin of 12.0% Next-generation aerospace jet engine mix improvements vs. prior year Cast products business goodwill impairment charge of $1.05 per share; $114 million net of tax Flat Rolled Products Revenue of $356 million Operating loss of $7 million Steep decline in raw material pricing drives quarterly loss Underlying operational improvements continue note: see appendix for reconciliation of non-gaap financial measures 3

4 High Performance Materials & Components Segment ($M) Q2 16 Q3 16 Q4 16 Q1 17 Q2 17 Q3 17 Q3 17 YOY Sales % Operating Profit % % of Sales 7.8% 10.2% 11.3% 10.0% 12.9% 12.0% +180 b.p. Third Quarter vs. Prior Year Revenue increased 11% Commercial jet engine: growth of 13%; next generation 39% of total Forgings business, led by aerospace, increased 26% Improvements in construction & mining equipment demand Operating profit increased 31%; Operating margin improved 180 b.p. Consistently achieving low double-digit operating profit as % of sales Margin expansion driven by forgings and specialty material products Cast Products continues to operate at a loss $2 million new powder facility operational start-up costs; commercial qualification process on-track Third Quarter vs. Second Quarter Revenue and operating profit declines due primarily to normal business seasonality Consistent next-generation jet engine product sales 4

5 Relentless Innovation in Aerospace Powder Alloys Expanded Recently approved expansion to produce primarily standard titanium alloy powders New Powder Expansion GE / ATI R&D JV Richburg (SC) Produce meltless titanium alloy powders initially for use in additive manufacturing. Capacity and capability increases as process matures. Capacity Larger batch sizes; primarily serves current ATI forging demand Bakers Powder Existing (NC) Oakdale (PA) Commercial qualification process ongoing Robinson Mfg. (PA) Robinson R&D (PA) Titanium Alloys Existing Smaller batch sizes; primarily serves current ATI additive mfg. demand New alloy development, initial production scale-up Nickel, Copper & Other Alloys Existing Capability Enhanced Expanding capabilities and capacity to serve growing industry needs 5

6 Flat Rolled Products Segment ($millions) Q Q Q Q Q Q YTD Sales $312.1 $308.7 $318.9 $355.5 $353.8 $ ,065.5 Operating Profit (Loss) $(31.8) $(20.8) $(0.8) $19.0 $2.9 $(7.3) 14.6 % of Sales (10.2)% (6.7)% (0.3)% 5.3% 0.8% (2.0%) 1.4% Third Quarter vs. Prior Year Revenue increased 15% Increased sales volumes; higher selling prices on select products Operating profit improved Increased sales volumes, improved product mix & operational performance Third Quarter vs. Second Quarter Improving raw material prices into Q4 Revenue increased ~1% Increased high-value aerospace & defense, oil & gas demand Higher sales volumes, better product mix partially offset by lower product surcharges Operating profit declined consistent with expectations Steep raw material price declines created out-of-phase surcharge condition Raw material prices improved during Q3, benefit expected in Q4 Continued improvement in product mix and operational performance $ $ $ $ $ $ $ $- Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Source: ATImetals.com ATI FRP Type 304 Surcharge 2017 nickel ferrochrome 6

7 Flat Rolled Products Improvement Continuous Operations Improvement 25% improvement in critical customer-facing quality metrics YTD 12% productivity improvement in key cold-rolling process bottleneck Tangible flow time reductions for high-value products Improvement in inventory turns Improving Product Mix Increased shipments of HRPF-enabled nickel alloy products Includes high-value products not previously possible within ATI HRPF Conversion Update Working on both domestic and international opportunities 5 projects currently at trial stage 2 projects moved from evaluation stage to trial stage in past 3 months Significant HRPF utilization and cash generation potential 7

8 Financial Update Cash and liquidity at 9/30/2017 $125 million cash on hand $280 million available on ABL Paid $35 million on ABL/revolver in Q Expect to pay-off outstanding ABL/revolver balance by 2017 year-end $32 million cash flow from operations in Q Capital expenditures $85 million 2017 YTD; $125 million expected for FY 17 Annual depreciation expected $160 million for FY 17 Beyond 2017, annual capex expected to be approx. $100 million New powder $11 million expansion to produce standard titanium alloy powders approved by ATI s Board of Directors 8

9 Revenue by Market 2017 YTD Revenue Jet Engine Production Electrical Energy Auto 8% Oil & Gas 11% 6% 5% Other 21% Medical Number of Engines Legacy Next Generation Aero & Defense 49% Direct international sales: 41% Aero & Defense Commercial Aero 41% Jet Engine 27% Airframe 14% Gov t & Defense 8% F 2018F 2019F 2020F Jet Engine Strong demand for next generation alloys Forged products revenue +25% 2017 YTD Airframe Increased Q3 demand vs. Q2; improved product mix Government & Defense Initial titanium plate orders for U.S. defense industry received in Q3 Growth through geographic and end-use market diversification 9

10 Strategy & Outlook High Performance Materials & Components Segment Sustained strong performance in commercial aerospace Increase in titanium airframe volumes in Q4 Q financial results expected to modestly improve vs. Q revenue growth and margin expansion anticipated year-over-year Significant profit improvement in castings business Elimination of new powder facility operational start-up expense Ongoing next-generation aerospace growth and improving product mix Flat Rolled Products Segment Improving raw material pricing outlook Q4-to-date Low single-digit operating margins expected in Q FY 2017 profitability anticipated Ongoing penetration of differentiated aerospace and oil and gas markets; ongoing operational improvements 2018 benefit from conversion agreements currently being negotiated Continue to position segment to be profitable and generate cash regardless of raw materials prices or trade policy 10

11 Third Quarter 2017 Conference Call Q&A

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13 Additional Materials Appendix Confidential 13

14 Non-GAAP Financial Measures The Company reports its financial results in accordance with accounting principles generally accepted in the United States of America ("GAAP"). However, management believes that certain non-gaap financial measures, used in managing the business, may provide users of this financial information with additional meaningful comparisons between current results and results in prior periods. Non-GAAP financial measures should be viewed in addition to, and not as an alternative for, the Company's reported results prepared in accordance with GAAP. The following table provides the calculation of the non-gaap financial measures discussed in the Company's press release dated October 24, 2017 ($M except per share amounts): Three Months Ended September 30 September Loss attributable to ATI $ (121.2) $ (530.8) Adjustments: Impairment of goodwill, net of tax (a) (113.6) - Restructuring and other charges, net of tax (b) - (329.1) Rowley excess operating costs, net of tax (c) - (6.1) Income tax items including valuation allowances (d) - (173.1) Loss attributable to ATI excluding special items $ (7.6) $ (22.5) Per Diluted Share Loss attributable to ATI $ (1.12) $ (4.95) Adjustments: Impairment of goodwill, net of tax (a) (1.05) - Restructuring and other charges, net of tax (b) - (3.07) Rowley excess operating costs, net of tax (c) - (0.06) Income tax items including valuation allowances (d) - (1.61) Loss attributable to ATI excluding special items $ (0.07) $ (0.21) (a) During the third quarter of 2017, the Company performed an interim goodwill impairment analysis, as required by accounting standards, for our Cast Products business and determined that all goodwill assigned to this business unit was impaired. As a result, the Company recorded a $114.4 million pre-tax non-cash goodwill impairment charge ($113.6 million after-tax), or $(1.05) per share. (b) Restructuring and other charges for the three months ended September 30, 2016 include $471.3 of pre-tax asset impairment charges ($310.3 after-tax), or $(2.89) per share, and $28.6 of pre-tax shutdown, idling and employee benefit costs ($18.8 after-tax), or $(0.18) per share for the Rowley, UT facility. (c) During the third quarter of 2016, the Company indefinitely idled its titanium sponge production facility in Rowley, UT. These amounts represent the above-market production costs and other operating expenses for this facility for the period indicated, net of expected ongoing carrying costs, and have been adjusted out of the Company's GAAP amounts to provide Company results that are more representative of the future, which will exclude these costs. (d) Amounts for the three months ended September 30, 2016 include $173.1, or $(1.61) per share, of income tax valuation allowances recorded on U.S. federal deferred tax assets due to cumulative losses from U.S. operations 14