ATI INC Q2 FY2025 earnings call

• Q2 was a strong quarter with revenue growth, exceeded $1.1 billion, adjusted EBITDA $208M, surpassing guidance. Adjusted EPS $0.74, above projection. Adjusted EBITDA margin 18.2%.
• High Performance Materials & Components segment margins 23.7%, 350 basis points improvement from Q2 2024.
• Signed new long-term guaranteed volume agreements with Boeing and Airbus, validating ATI as a strategic supplier.
• Commercial jet engine sales grew 27% in Q2, YTD up 31%, expected full year growth >20%.
• Defense segment on track for third straight year of double-digit growth.
• Specialty energy has rising demand in commercial nuclear and land-based gas turbines.
• Executed $250 million in share repurchases during the quarter, total buyback since 2022 over $800 million with $270 million remaining.

Revenue grew 4% year-over-year, exceeding $1.1 billion. Adjusted EBITDA reached $208 million, with the High Performance Materials & Components segment delivering margins of 23.7%, a 350 basis point improvement from Q2 2024. Adjusted earnings per share was $0.74, and adjusted free cash flow was $93 million, a 94% increase year-over-year. The High Performance Materials & Components segment contributed significantly to margin strength, with favorable product mix, strong price, and operational execution.

• Raised midpoint of full year guidance for adjusted EBITDA, EPS, and adjusted free cash flow.
• Q3 adjusted EBITDA guidance $200 million to $210 million, adjusted EPS $0.69 to $0.75.
• Full year adjusted EBITDA range $810 million to $840 million, raising midpoint by $5 million; adjusted EPS range $2.90 to $3.07 per share.
• Anticipate Q3 performance modestly increase from Q2 with more growth in fourth quarter.

• Near-term volatility as airframers balance inventory with supply chain realities.
• Tariff impacts affecting non-aerospace and defense sales, with customers preferring non-U.S. suppliers to avoid tariffs.
• Macroeconomic softness in certain industrial markets impacting sales.

Q: Seth Seifman asked about airframe inventory for widebodies and capacity utilization for ATI going into 2026.

A: Kimberly A. Fields said customer destocking inventory rebalancing continues, expecting demand uptick in back half with new contracts, and ATI is in good shape to meet 2027 targets with discrete investments. Donald P. Newman added details on nickel melt investment and capacity increase.

Q: David Strauss inquired about industrial end markets outlook and HPMC margins.

A: Donald P. Newman discussed industrial market variances, tariff impacts, and macroeconomic factors, noting HPMC incrementals north of 40% and expecting HPMC margins north of 24%.

Q: Richard Safran asked about aftermarket trends and contract terms.

A: Kimberly A. Fields said MRO continues strong, with sustained high demand, and contracts include share gains, beneficial mix, pricing, and terms with volume-based minimums and cost pass-through. Donald P. Newman talked about Airbus contract impact on 2027 guide.

Q: Gautam Khanna asked about nickel melt capacity increase and titanium furnace revenue contribution.

A: Kimberly A. Fields explained nickel melt investments with new equipment, and titanium furnace in Richland is up, with qualification ongoing. Donald P. Newman provided details on titanium investment and revenue modeling.

Q: Scott Deuschle asked about jet engine revenue growth range and Rolls-Royce alloy, and COVID-related employee retention credits.

A: Donald P. Newman said jet engine growth expected between 20%-25%, Kimberly A. Fields talked about Rolls-Royce alloy growth, and Donald P. Newman said $5M in deferred employee retention credits remaining with statute of limitations until 2028.

Q: Myles Walton asked about isothermal forging business share gains and titanium target.

A: Kimberly A. Fields discussed isothermal forging business growth and strong demand, while Donald P. Newman said titanium HPMC growth is modest.

Q: Phil Gibbs asked about tariff impacts and exotics business.

A: Donald P. Newman said insulated from tariff impacts via contracts, and Kimberly A. Fields talked about exotics business growth in nuclear and gas turbines with strong demand.

Q: Andre Madrid asked about LTA mix and margin target.

A: Kimberly A. Fields said LTA mix around 60%-65% for HPMC, with capacity investments allowing participation in transactional business.

Q: Andre Madrid also asked about medical market trends.

A: Kimberly A. Fields said medical market has softness due to inventory, destocking, pricing pressures, and shifting capacity to engine and energy markets.