# ATI Inc: Form 10-Q for the period ended Mar 31, 2024

- Company: [ATI Inc](/companies/ati.md) (CIK 1018963)
- Form: 10-Q
- Filed: 2024-04-30
- Accepted by EDGAR: Apr 30, 2024, 13:52 ET
- Period: 2024-03-31
- Accession: 0001628280-24-019285
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1018963/000162828024019285/ati-20240331.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1018963/000162828024019285/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2024-03-31.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2024-01-01 to 2024-03-31 | $1.04bn | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 3 months, 2024-01-01 to 2024-03-31 | $845.5m | us-gaap:CostOfGoodsAndServicesSold |
| Gross profit | 3 months, 2024-01-01 to 2024-03-31 | $197.4m | us-gaap:GrossProfit |
| Selling, general and administrative | 3 months, 2024-01-01 to 2024-03-31 | $82.0m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2024-01-01 to 2024-03-31 | $115.2m | us-gaap:OperatingIncomeLoss |
| Income tax | 3 months, 2024-01-01 to 2024-03-31 | $16.9m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2024-01-01 to 2024-03-31 | $66.1m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2024-01-01 to 2024-03-31 | $0.46 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2024-01-01 to 2024-03-31 | $0.52 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2024-01-01 to 2024-03-31 | 147,500,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 3 months, 2024-01-01 to 2024-03-31 | −$98.8m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 3 months, 2024-01-01 to 2024-03-31 | $65.8m | us-gaap:PaymentsToAcquireProductiveAssets |
| Share repurchases | 3 months, 2024-01-01 to 2024-03-31 | $150.0m | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Cash and equivalents | at 2024-03-31 | $394.4m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2024-03-31 | $2.52bn | us-gaap:AssetsCurrent |
| Total assets | at 2024-03-31 | $4.78bn | us-gaap:Assets |
| Current liabilities | at 2024-03-31 | $897.1m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2024-03-31 | $3.41bn | us-gaap:Liabilities |
| Current portion of debt | at 2024-03-31 | $27.1m | us-gaap:DebtCurrent |
| Shareholders' equity | at 2024-03-31 | $1.26bn | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 39,237 characters.

### Overview

ATI is a global manufacturer of technically advanced specialty materials and complex components. Our largest markets are aerospace & defense, representing 59% of sales 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. 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. Our capabilities range from cast/wrought and powder alloy development to final production of highly engineered finished components, including those used in latest generation jet engines and 3D-printed aerospace products.

ATI follows a 4-4-5 or 5-4-4 fiscal calendar, whereby each fiscal quarter consists of thirteen weeks grouped into two four-week months and one five-week month, and its fiscal year ends on the Sunday closest to December 31. 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. 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. EBITDA and Adjusted EBITDA are measures utilized by ATI to analyze the performance and results of our business. Further, we believe these measures are useful to investors and industry analysts because these measures are commonly used to analyze companies on the basis of operating performance, leverage and liquidity. EBITDA and Adjusted EBITDA are non-GAAP measures and are not intended to represent, and should not be considered more meaningful than, or as alternatives to, a measure of operating performance as determined in accordance with U.S. generally accepted accounting principles (U.S. GAAP). 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. 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. See the Liquidity and Financial Condition section of Management’s Discussion and Analysis for a reconciliation of amounts reported under U.S. 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 increased 7% to $616 million in the first quarter 2024, compared to $576 million the 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 compared 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.

| Markets Aerospace & Defense: | Quarter ended March 31, 2024 |  | Quarter ended April 2, 2023 |  |
| --- | ---: | ---: | ---: | ---: |
| Jet Engines- Commercial | $311.2 | 30% | $310.9 | 30% |
| Airframes- Commercial | 190.1 | 18% | 169.9 | 17% |
| Defense | 114.4 | 11% | 94.9 | 9% |
| Total Aerospace & Defense | $615.7 | 59% | $575.7 | 56% |
| Energy: |  |  |  |  |
| Oil & Gas | 102.5 | 10% | 127.5 | 12% |
| Specialty Energy | 56.1 | 5% | 82.7 | 8% |
| Total Energy | 158.6 | 15% | 210.2 | 20% |
| Medical | 59.1 | 6% | 35.0 | 3% |
| Automotive | 56.0 | 5% | 59.4 | 6% |
| Electronics | 52.9 | 5% | 34.4 | 3% |
| Construction/Mining | 27.2 | 3% | 40.4 | 4% |
| Food Equipment & Appliances | 11.9 | 1% | 21.5 | 2% |
| Other | 61.5 | 6% | 61.5 | 6% |
| Total | $1,042.9 | 100% | $1,038.1 | 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. ATI’s international sales are mostly to the aerospace, energy, electronics, automotive and medical markets.

Comparative information regarding our major products based on their percentages of revenues are shown below. HRPF conversion service sales in the AA&S segment are excluded from this presentation.

|  | Quarter ended March 31, 2024 | April 2, 2023 |
| --- | ---: | ---: |
| Nickel-based alloys and specialty alloys | 45% | 53% |
| Precision forgings, castings and components | 19% | 16% |
| Titanium and titanium-based alloys | 18% | 14% |
| Zirconium and related alloys | 10% | 7% |
| Precision rolled strip products | 8% | 10% |
| Total | 100% | 100% |

23

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

| Sales: | Quarter ended March 31, 2024 | April 2, 2023 |
| --- | ---: | ---: |
| High Performance Materials & Components | $529.9 | $471.1 |
| Advanced Alloys & Solutions | 513.0 | 567.0 |
| Total external sales | $1,042.9 | $1,038.1 |
| EBITDA: |  |  |
| High Performance Materials & Components | $97.6 | $81.6 |
| % of Sales | 18.4% | 17.3% |
| Advanced Alloys & Solutions | 71.8 | 83.7 |
| % of Sales | 14.0% | 14.8% |
| Total segment EBITDA | $169.4 | $165.3 |
| % of Sales | 16.2% | 15.9% |
| Corporate expenses | (17.1) | (16.9) |
| Closed operations and other expense | (1.3) | (1.3) |
| ATI Adjusted EBITDA | 151.0 | 147.1 |
| Depreciation & amortization | (36.0) | (35.1) |
| Interest expense, net | (26.6) | (19.9) |
| Restructuring and other charges | (3.1) | (1.2) |
| Income before income taxes | 85.3 | 90.9 |
| Income tax provision | 16.9 | 4.3 |
| Net income | 68.4 | 86.6 |
| Less: Net income attributable to noncontrolling interests | 2.3 | 2.1 |
| Net income attributable to ATI | $66.1 | $84.5 |

As part of managing the performance of our business, we focus on Managed Working Capital, which we define as gross accounts receivable, short-term contract assets and gross inventories, less accounts payable and short-term contract liabilities. We exclude the effects of inventory valuation reserves and reserves for uncollectible accounts receivable when computing this non-GAAP performance measure, which is not intended to replace Working Capital or to be used as a measure of liquidity.

We employ several strategies to actively manage our Managed Working Capital, seeking to effectively balance the need to maintain appropriate levels of Managed Working Capital to support our growth and operations, while deploying our cash efficiently. Our strategies to actively manage our Managed Working Capital include, but are not limited to, taking advantage of favorable customer and supplier payment terms, participating in customer and supplier financing programs, managing the timing of purchases of raw materials, and leveling manufacturing process throughput and shipping to limit periodic increases in Managed Working Capital. 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. GAAP, were as follows:

*(In millions)*

|  | March 31, 2024 | December 31, 2023 |
| --- | ---: | ---: |
| Accounts receivable | $720.5 | $625.0 |
| Short-term contract assets | 65.3 | 59.1 |
| Inventory | 1,284.9 | 1,247.5 |
| Accounts payable | (482.6) | (524.8) |
| Short-term contract liabilities | (161.6) | (163.6) |
| Subtotal | 1,426.5 | 1,243.2 |
| Allowance for doubtful accounts | 3.1 | 3.2 |
| Inventory valuation reserves | 69.1 | 75.5 |
| Managed working capital | $1,498.7 | $1,321.9 |
| Annualized prior 3 months sales | $4,171.6 | $4,255.8 |
| Managed working capital as a % of annualized sales | 35.9% | 31.1% |

### Business Segment Results

### 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:

| Markets Aerospace & Defense: | Quarter ended March 31, 2024 |  | Quarter ended April 2, 2023 |  |
| --- | ---: | ---: | ---: | ---: |
| Jet Engines- Commercial | $296.9 | 56% | $282.5 | 60% |
| Airframes- Commercial | 85.7 | 16% | 71.0 | 15% |
| Defense | 60.0 | 12% | 41.9 | 9% |
| Total Aerospace & Defense | 442.6 | 84% | 395.4 | 84% |
| Medical | 35.9 | 7% | 17.5 | 4% |
| Energy: |  |  |  |  |
| Oil & Gas | 3.5 | 1% | 2.4 | 1% |
| Specialty Energy | 18.2 | 3% | 24.9 | 5% |
| Total Energy | 21.7 | 4% | 27.3 | 6% |
| Construction/Mining | 6.7 | 1% | 8.2 | 2% |
| Other | 23.0 | 4% | 22.7 | 4% |
| Total | $529.9 | 100% | $471.1 | 100% |

25

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:

|  | Quarter ended March 31, 2024 | April 2, 2023 |
| --- | ---: | ---: |
| Nickel-based alloys and specialty alloys | 39% | 45% |
| Precision forgings, castings and components | 36% | 34% |
| Titanium and titanium-based alloys | 24% | 20% |
| Precision rolled strip products | 1% | 1% |
| 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. 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.

### 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.

| Markets Aerospace & Defense: | Quarter ended March 31, 2024 |  | Quarter ended April 2, 2023 |  |
| --- | ---: | ---: | ---: | ---: |
| Jet Engines- Commercial | $14.3 | 3% | $28.4 | 5% |
| Airframes- Commercial | 104.4 | 20% | 98.9 | 17% |
| Defense | 54.4 | 11% | 53.0 | 10% |
| Total Aerospace & Defense | 173.1 | 34% | 180.3 | 32% |
| Energy: |  |  |  |  |
| Oil & Gas | 99.0 | 19% | 125.1 | 22% |
| Specialty Energy | 37.9 | 8% | 57.8 | 10% |
| Total Energy | 136.9 | 27% | 182.9 | 32% |
| Electronics | 51.9 | 10% | 33.9 | 6% |
| Automotive | 51.0 | 10% | 53.1 | 9% |
| Medical | 23.2 | 4% | 17.5 | 3% |
| Construction/Mining | 20.5 | 4% | 32.2 | 6% |
| Food Equipment & Appliances | 11.9 | 2% | 21.5 | 4% |
| Other | 44.5 | 9% | 45.6 | 8% |
| Total | $513.0 | 100% | $567.0 | 100% |

26

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. HRPF conversion service sales are excluded from this presentation.

|  | Quarter ended March 31, 2024 | April 2, 2023 |
| --- | ---: | ---: |
| Nickel-based alloys and specialty alloys | 51% | 60% |
| Zirconium and related alloys | 20% | 13% |
| Precision rolled strip products | 17% | 19% |
| Titanium and titanium-based alloys | 12% | 8% |
| 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.

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. 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.

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

|  | Quarter ended March 31, 2024 | April 2, 2023 |
| --- | ---: | ---: |
| High Performance Materials & Components | $16.3 | $17.4 |
| Advanced Alloys & Solutions | 18.0 | 16.1 |
| Other | 1.7 | 1.6 |
|  | $36.0 | $35.1 |

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. 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.

### Income Taxes

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. and our foreign earnings.

### Liquidity and Financial Condition

We have an Asset Based Lending (ABL) Credit Facility, which is collateralized by the accounts receivable and inventory of our operations. The ABL facility also provides us with the option of including certain machinery and equipment as additional collateral for purposes of determining availability under the facility. The ABL facility, which matures in September 2027, includes a $600 million revolving credit facility, a letter of credit sub-facility of up to $200 million, a $200 million term loan (Term Loan), and a swing loan facility of up to $60 million. The Term Loan has an interest rate of 2.0% above adjusted Secured Overnight Financing Rate (SOFR) and can be prepaid in increments of $25 million if certain minimum liquidity conditions are satisfied. In addition, we have the right to request an increase of up to $300 million in the maximum amount available under the revolving credit facility for the duration of the ABL.

The applicable interest rate for revolving credit borrowings under the ABL facility includes interest rate spreads based on available borrowing capacity that range between 1.25% and 1.75% for SOFR-based borrowings and between 0.25% and 0.75% for base rate borrowings. 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. 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 approximately $557 million.

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. Repurchases under these programs are made in the open market or in privately negotiated transactions, with the amount and timing of repurchases depending on market conditions and corporate needs. 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.

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. Based on current actuarial assumptions, we are not required to make any contributions to our pension plan during year 2024. Also, we do not expect to pay any significant U.S. federal or state income taxes in year 2024 due to net operating loss and tax attribute carryovers. If we needed to obtain additional financing using the credit markets, the cost and the terms and conditions of such borrowings may be influenced by our credit rating. 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. We have no off-balance sheet arrangements as defined in Item 303(a)(4) of SEC Regulation S-K.

In managing our overall capital structure, we focus on the ratio of net debt to Adjusted EBITDA, which we use as a measure of our ability to repay our incurred debt. We define net debt as the total principal balance of our outstanding indebtedness excluding deferred financing costs, net of cash, at the balance sheet date. See the explanations above for our definitions of Adjusted EBITDA and EBITDA, which are non-GAAP measures and are not intended to represent, and should not be considered more meaningful than, or as alternatives to, a measure of operating performance as determined in accordance with U.S. GAAP. 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. 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 March 31, 2024 | April 2, 2023 | Latest year ended March 31, 2024 | Year ended December 31, 2023 |
| --- | ---: | ---: | ---: | ---: |
| Net income attributable to ATI | $66.1 | $84.5 | $392.4 | $410.8 |
| Net income attributable to noncontrolling interests | 2.3 | 2.1 | 12.8 | 12.6 |
| Net income | 68.4 | 86.6 | 405.2 | 423.4 |
| Interest expense | 26.6 | 19.9 | 99.5 | 92.8 |
| Depreciation and amortization | 36.0 | 35.1 | 147.0 | 146.1 |
| Income tax provision (benefit) | 16.9 | 4.3 | (115.6) | (128.2) |
| Pension remeasurement loss | — | — | 26.8 | 26.8 |
| Pension settlement loss | — | — | 41.7 | 41.7 |
| Restructuring and other charges | 3.1 | 1.2 | 33.3 | 31.4 |
| Loss on asset sales and sale of businesses, net | — | — | 0.6 | 0.6 |
| Adjusted EBITDA | $151.0 | $147.1 | $638.5 | $634.6 |
| Debt |  |  | $2,173.5 | $2,179.6 |
| Add: Debt issuance costs |  |  | 18.5 | 19.6 |
| Total debt |  |  | 2,192.0 | 2,199.2 |
| Less: Cash |  |  | (394.4) | (743.9) |
| Net debt |  |  | $1,797.6 | $1,455.3 |
| Total Debt to Adjusted EBITDA |  |  | 3.43 | 3.47 |
| Net Debt to Adjusted EBITDA |  |  | 2.82 | 2.29 |

### Cash Flow

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. 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. 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. 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.

### Critical Accounting Policies

### Asset Impairment

We monitor the recoverability of the carrying value of our long-lived assets. An impairment charge is recognized when the expected net undiscounted future cash flows from an asset’s use (including any proceeds from disposition) are less than the asset’s carrying value, and the asset’s carrying value exceeds its fair value. Changes in the expected use of a long-lived asset group, and the financial performance of the long-lived asset group and its operating segment, are evaluated as indicators of possible impairment. Future cash flow value may include appraisals for property, plant and equipment, land and improvements, future cash flow estimates from operating the long-lived assets, and other operating considerations. In the fourth quarter of each year in conjunction with the annual business planning cycle, or more frequently if new material information is available, we evaluate the recoverability of idled facilities.

Goodwill is reviewed annually in the fourth quarter of each year for impairment or more frequently if impairment indicators arise. 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. 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.

### Income Taxes

The provision for income taxes includes deferred taxes resulting from temporary differences in income for financial and tax purposes using the liability method. Such temporary differences result primarily from differences in the carrying value of assets and liabilities. Future realization of deferred income tax assets requires sufficient taxable income within the carryback and/or carryforward period available under tax law. On a quarterly basis, we evaluate the realizability of our deferred tax assets.

The evaluation includes the consideration of all available evidence, both positive and negative, regarding historical operating results including recent years with reported losses, the estimated timing of future reversals of existing taxable temporary differences, estimated future taxable income exclusive of reversing temporary differences and carryforwards, and potential tax planning strategies which may be employed to prevent an operating loss or tax credit carryforward from expiring unused. In situations where a three-year cumulative loss condition exists, accounting standards limit the ability to consider projections of future results as positive evidence to assess the realizability of deferred tax assets. Valuation allowances are established when it is estimated that it is more likely than not that the tax benefit of the deferred tax asset will not be realized.

### Retirement Benefits

In accordance with accounting standards, we determine the discount rate used to value pension plan liabilities as of the last day of each year. The discount rate reflects the current rate at which the pension liabilities could be effectively settled. In estimating this rate, we receive input from our actuaries regarding the rate of return on high quality, fixed income investments with maturities matched to the expected future retirement benefit payments. The effect on pension liabilities for changes to the discount rate, the difference between expected and actual plan asset returns, and the net effect of other changes in actuarial assumptions and experience are immediately recognized in earnings through net periodic pension benefit cost within nonoperating retirement benefit expense on the consolidated statements of operations when pension plans are remeasured annually in the fourth quarter or on an interim basis as triggering events require remeasurement. This immediate recognition is in accordance with the accounting standards.

For ERISA (Employee Retirement Income Security Act of 1974, as amended) funding purposes, discount rates used to measure pension liabilities for U.S. qualified defined benefit plans are calculated on a different basis using an IRS-determined segmented yield curve, which currently results in a higher discount rate than the discount rate methodology required by accounting standards. Funding requirements are also affected by IRS-determined mortality assumptions, which may differ from those used under accounting standards.

### Other Critical Accounting Policies

A summary of other significant accounting policies is discussed in Management’s Discussion and Analysis of Financial Condition and Results of Operations and in Note 1 to the Consolidated Financial Statements contained in our Annual Report on Form 10-K for the year ended December 31, 2023.

The preparation of the financial statements in accordance with U.S. generally accepted accounting principles requires us to make judgments, estimates and assumptions regarding uncertainties that affect the reported amounts of assets and liabilities. Significant areas of uncertainty that require judgments, estimates and assumptions include the accounting for derivatives, retirement plans, income taxes, environmental and other contingencies, as well as asset impairment, inventory valuation and collectability of accounts receivable. We use historical and other information that we consider to be relevant to make these judgments and estimates. However, actual results may differ from those estimates and assumptions that are used to prepare our financial statements.

### Pending Accounting Pronouncements

See Note 1 of the Notes to Consolidated Financial Statements for information on new and pending accounting pronouncements.

### Forward-Looking and Other Statements

From time to time, we have made and may continue to make “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Certain statements in this report relate to future events and expectations and, as such, constitute forward-looking statements. Forward-looking statements include those containing such words as “anticipates,” “believes,” “estimates,” “expects,” “would,” “should,” “will,” “will likely result,” “forecast,” “outlook,” “projects,” and similar expressions. Forward-looking statements are based on management’s current expectations and include known and unknown risks, uncertainties and other factors, many of which we are unable to predict or control, that may cause our actual results, performance or achievements to differ materially from those expressed or implied in the forward-looking statements. Important factors that could cause actual results to differ materially from those in the forward-looking statements include: (a) material adverse changes in economic or industry conditions generally, including global supply and demand conditions and prices for our specialty materials and changes in international trade duties and other aspects of international trade policy; (b) material adverse changes in the markets we serve; (c) our inability to achieve the level of cost savings, productivity improvements, synergies, growth or other benefits anticipated by management, from strategic investments and the integration of acquired businesses; (d) volatility in the price and availability of the raw materials that are critical to the manufacture of our products; (e) declines in the value of our defined benefit pension plan assets or unfavorable changes in laws or regulations that govern pension plan funding; (f) labor disputes or work stoppages; (g) equipment outages; (h) the risks of business and economic disruption associated with extraordinary events beyond our control, such as war, terrorism, international conflicts, public health issues, such as epidemics or pandemics, natural disasters and climate-related events that may arise in the future; and (i) other risk factors summarized in our Annual Report on Form 10-K for the year ended December 31, 2023, and in other reports filed with the Securities and Exchange Commission. We assume no duty to update our forward-looking statements.

## Market risk

As filed, 6,422 characters.

As part of our risk management strategy, we utilize derivative financial instruments, from time to time, to hedge our exposure to changes in energy and raw material prices, foreign currencies, and interest rates. We monitor the third-party financial institutions which are our counterparties to these financial instruments on a daily basis and diversify our transactions among counterparties to minimize exposure to any one of these entities. Fair values for derivatives were measured using exchange-traded prices for the hedged items including consideration of counterparty risk and the Company’s credit risk. Our exposure to volatility in interest rates is presently not material, as nearly all of our debt is at fixed interest rates.

***Volatility of Interest Rates.*** We may enter into derivative interest rate contracts to maintain a reasonable balance between fixed- and floating-rate debt. The Company has a $50 million floating-for-fixed interest rate swap which converts a portion of the Term Loan to a 4.21% fixed rate. The swap matures in June 2024. The Company designated the interest rate swap as a cash flow hedge of the Company’s exposure to the variability of the payment of interest on a portion of its Term Loan borrowings. Any gain or loss associated with this hedging arrangement is included in interest expense. At March 31, 2024, the net mark-to-market valuation of the outstanding interest rate swap was an unrealized pre-tax gain of $0.4 million, all of which is in prepaid expenses and other current assets on the balance sheet.

***Volatility of Energy Prices.*** Energy resource markets are subject to conditions that create uncertainty in the prices and availability of energy resources. The prices for and availability of electricity, natural gas, oil and other energy resources are subject to volatile market conditions. These market conditions often are affected by political and economic factors beyond our control. Increases in energy costs, or changes in costs relative to energy costs paid by competitors, have and may continue to adversely affect our profitability. To the extent that these uncertainties cause suppliers and customers to be more cost sensitive, increased energy prices may have an adverse effect on our results of operations and financial condition. We use approximately 6 to 8 million MMBtu’s of natural gas annually, depending upon business conditions, in the manufacture of our products. These purchases of natural gas expose us to the risk of higher gas prices. For example, a hypothetical $1.00 per MMBtu increase in the price of natural gas would result in increased annual energy costs of approximately $6 to $8 million. We use several approaches to minimize any material adverse effect on our results of operations or financial condition from volatile energy prices. These approaches include incorporating an energy surcharge on many of our products and using financial derivatives to reduce exposure to energy price volatility.

At March 31, 2024, the outstanding financial derivatives used to hedge our exposure to energy cost volatility included natural gas hedges. Approximately 70% of our forecasted domestic requirements for natural gas for the remainder of 2024 and approximately 35% for 2025. At March 31, 2024, the net mark-to-market valuation of these outstanding natural gas hedges was an unrealized pre-tax loss of $6.2 million, comprised of $5.4 million in other current liabilities and $0.8 million in other long-term liabilities on the balance sheet. For the three months ended March 31, 2024, natural gas hedging activity increased cost of sales by $2.4 million.

***Volatility of Raw Material Prices.*** We use raw material surcharge and index mechanisms to offset the impact of increased raw material costs; however, competitive factors in the marketplace can limit our ability to institute such mechanisms, and there can be a delay between the increase in the price of raw materials and the realization of the benefit of such mechanisms. For example, in 2023, we used approximately 70 million pounds of nickel; therefore, a hypothetical change of $1.00 per pound in nickel prices would result in increased costs of approximately $70 million. While we enter into raw materials futures contracts from time-to-time to hedge exposure to price fluctuations, such as for nickel, we cannot be certain that our hedge position adequately reduces exposure. We believe that we have adequate controls to monitor these contracts, but we may not be able to accurately assess exposure to price volatility in the markets for critical raw materials.

The majority of our products are sold utilizing raw material surcharges and index mechanisms. However, as of March 31, 2024, we had entered into financial hedging arrangements, primarily at the request of our customers related to firm orders, for an aggregate notional amount of approximately 2 million pounds of nickel with hedge dates through 2024. The aggregate notional amount hedged is less than 5% of a single year’s estimated nickel raw material purchase requirements. These derivative instruments are used to hedge the variability of a selling price that is based on the London Metal Exchange (LME) index for nickel, as well as to hedge the variability of the purchase cost of nickel based on this LME index. Any gain or loss associated with these hedging arrangements is included in sales or cost of sales, depending on whether the underlying risk being hedged was the variable selling price or the variable raw material cost, respectively. At March 31, 2024, the net mark-to-market valuation of our outstanding raw material hedges was an unrealized pre-tax loss of $4.5 million, all of which is in other current liabilities on the balance sheet.

***Foreign Currency Risk.*** Foreign currency exchange contracts are used, from time-to-time, to limit transactional exposure to changes in currency exchange rates. We sometimes purchase foreign currency forward contracts that permit us to sell specified amounts of foreign currencies expected to be received from our export sales for pre-established U.S. dollar amounts at specified dates. In addition, we may also hedge forecasted capital expenditures and designate cash balances held in foreign currencies as hedges of forecasted foreign currency transactions. At March 31, 2024, we had no material outstanding foreign currency forward contracts.

## Controls and procedures

As filed, 951 characters.

(a) Evaluation of Disclosure Controls and Procedures

Our Chief Executive Officer and Chief Financial Officer have evaluated the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) or Rule 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of March 31, 2024, and they concluded that these disclosure controls and procedures are effective.

(b) Changes in Internal Controls

There was no change in our internal controls over financial reporting identified in connection with the evaluation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) or Rule 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of March 31, 2024 conducted by our Chief Executive Officer and Chief Financial Officer, that occurred during the quarter ended March 31, 2024 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

## Risk factors

As filed, 602 characters.

In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2023, which could materially affect our business, financial condition or future results. The risks described in our Annual Report on Form 10-K are not the only risks facing our Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.

Filed Apr 30, 2024.
Source: SEC EDGAR, the filing index for accession 0001628280-24-019285. Last ingested by Listed: Oct 29, 2026, 14:24 ET. No prices; not investment advice.