investor overview june 2020/media/files/a/atimetals-ir-v2... · 2020-06-24 · microsoft powerpoint...
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© 2020 ATI. All rights reserved.
Investor OverviewJune 2020
© 2020 ATI. All rights reserved.
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, 2019.
Forward Looking Statements
2
© 2020 ATI. All rights reserved. 3
Extensive portfolio of highly differentiated products serving diverse end-markets
Jet Engine
Airframe
Defense
Aerospace & Defense Key Customers
Overview of ATI
Produce differentiated products with significant barriers to entry for a wide variety of end-markets, led by Aerospace & Defense
Unmatched materials science capabilities and manufacturing process technologies within our industry
Operates in two business segments:
High Performance Materials & Components (HPMC)
Advanced Alloys & Solutions (AA&S)
Full-Year 2019 Revenue by Market
Revenue by Segment
AA&S52%
HPMC 48%
Aerospace & Defense
52%Energy
19%
Medical4%
Electronics4%
Other21%
3
ATI Relentless Innovation®
AA&S57%
HPMC 43%
Full-Year 20192015
© 2020 ATI. All rights reserved. 4
Leadership Priorities
KEEP EMPLOYEES
SAFEBE “RECOVERY READY,”
LEVERAGING SHARE GAINS FOR GROWTH
OPTIMIZE COST STRUCTURE TO MATCH NEW DEMAND
EXPECTATIONS
Maintain a Solid Foundation to Ensure Long-Term Profitability and Growth
PRESERVE CASH & MAINTAIN LIQUIDITY
SUPPORT CUSTOMERS THROUGH CONTINUED STRONG EXECUTION
© 2020 ATI. All rights reserved.
Reporting Segment Realignment (January 2020)Taking action to increase long-term profitable growth in each business segment
5
Allegheny Technologies Incorporated
PreviousSegments
NewSegments
High Performance Materials & Components (HPMC)*
► Forged Products
► Specialty Materials
Advanced Alloys & Solutions(AA&S)
► Specialty Alloys & Components
► Specialty Rolled Products► Specialty-grade flat products formed through unique process capabilities► Aero Titanium Plate
► Standard Stainless Sheet Products► Standard stainless sheet products for the North American market► Includes results from A&T Stainless JV
► Other Joint Ventures► STAL: precision rolled stainless strip► Uniti Titanium: commercially pure titanium products
High Performance Materials & Components (HPMC)
► Forged Products
► Specialty Materials
► Specialty Alloys & Components
► Aero Titanium Plate
Flat Rolled Products(FRP)
► Flat Rolled Products – U.S.
► Joint Ventures► STAL► A&T Stainless ► Uniti Titanium
*Salem operations remains under HPMC segment
Enhances position as a leading specialty materials producer; Enables further penetration of core markets
© 2020 ATI. All rights reserved.
Increases long-term profitable growth potential in each segment
Extends and accelerates synergies between businesses
Creates broader market access with improved product offerings and cost competitiveness
Streamlines business structure
Proactive organizational cost management actions initiated in Q4 2019 and Q1 2020
6
High Performance Materials & Components Advanced Alloys & Solutions
Maximize Aero Engine and Airframe market growth opportunities
Long-term agreements position ATI to capture end-market
demand growth while improving profitability
High percentage of “material pull-through” within ATI drives
inventory efficiency and profitability
Capitalize on materials science capabilities and advanced
process technologies for revenue and margin growth
Maximize Defense, Airframe, and Energy market growth opportunities
Improve profitability & reduce earnings volatility
Drive high value flat product portfolio
De-emphasize standard value stainless products
Apply ATI Best Way
Create products more efficiently, with faster flow times
Gain share by leveraging capacity
Improve profitability through lower production costs
Segment Realignment BenefitsImproving profitability through enhanced growth opportunities and increased operational efficiency
© 2020 ATI. All rights reserved.
Full-Year 2019 Revenue
Aerospace & Defense Markets % of Revenue
Commercial Aero 75%
Jet Engine 55%
Airframe 20%
Government & Defense 7%
Total Aerospace & Defense 82%
Well-positioned to meet end-market demand growth upon industry recovery
7
Continued operational excellence to support customer needs
Expand competitive advantage through innovative technology and
advanced manufacturing capabilities
Multi-year revenue and operating margin growth potential driven
largely by long-term Aerospace & Defense contracts
Utilize existing capabilities to serve non-aerospace markets
Leverage powder alloy development and production investment,
including additive part design and manufacturing
Strategy & Outlook
High Performance Materials & ComponentsTechnology-Driven, Critical Supplier to Key Aerospace & Defense Customers
Aerospace & Defense
82%
Energy8%
Medical4%
Other6%
7
Nickel-based Alloys38%
Precision Forgings & Components
36%
Titanium-based Alloys
26%
Market Products
© 2020 ATI. All rights reserved.
Segment Operating Profit ($M)
Strong operating profit leverage on continued revenue growth
Further revenue growth driven by:
Growing global demand for commercial aircraft led by higher revenue passenger miles in all regions
Increased usage of ATI materials and components for next-generation jet engines, airframes and defense applications
Enhanced growth and margin opportunities through long-term contract extensions signed in 2019
Revenue ($M)
Aerospace & Defense76%
Medical8%
1,5851,548
1,705
1,963 1,979
$1,200
$1,400
$1,600
$1,800
$2,000
$2,200
2015 2016 2017 2018 2019
+6% CAGR
97
122
191
270 272
6.1%
7.9%
11.2%
13.7% 13.7%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
16.0%
$50
$100
$150
$200
$250
$300
$350
2015 2016 2017 2018 2019
Operating profit and margin drivers:
Increasing aircraft and next-generation jet engine production levels
Ongoing product mix improvements due to increased next-generation materials, forgings and components on a variety of new engine platforms
2019 operating profit growth limited by customer cash management actions and a steep decline in cobalt prices early in the year
Q4’19 operating profit margin of 14.7%
High Performance Materials & ComponentsFinancial Results and Outlook
8
+29% CAGR
© 2020 ATI. All rights reserved.
Maximize Aerospace, Defense and Energy market growth opportunities
Gain share by leveraging world-class process technologies and deep materials science expertise to produce market-leading flat products
Enhanced profitability through product mix & operational excellence
Increased high-value product volumes: nickel, titanium, and zirconium
Utilize ATI Best Way to produce products more efficiently at lower costs
Increased cash generation through capital efficient capacity utilization
Oil & GasOther
Strategy & Outlook
9
Enhanced value-add customer solutions; Improving profitability and cash flow generation
Revenue by Market
Improving Product Mix
Aerospace & Defense: Strong demand growth; sales up 48% vs. 2017
Energy: Ongoing solid demand growth; sales up 31% vs. 2017
High Value Products*: Sales up 25% since 2017; led by nickel and titanium alloys
Demonstrates success of “value-over-volume” strategy and penetration of core markets
Advanced Alloys & SolutionsLeveraging assets and expertise to enhance core market growth opportunities
Energy30%
Aerospace & Defense
24%
Electronics8%
Other38%
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Revenue by Product
FY 2019
Energy27%
Aerospace & Defense
18%
Electronics 8%
Other47%
FY 2017
High Value Products*
66%
Std. Value Stainless Products
34%High Value Products*
72%
Std. Value Stainless Products
28%
FY 2017 FY 2019
*Includes nickel, titanium and exotic alloys, and precision rolled strip
© 2020 ATI. All rights reserved.
(182)
(117)
92
144
109
-8.5%
-7.4%
5.1%
6.9%
5.1%
-10.0%
-6.0%
-2.0%
2.0%
6.0%
($200)
($150)
($100)
($50)
$0
$50
$100
$150
$200
Segment Operating Profit (Loss) ($M)
“Value-over-volume” strategy improving product mix; Streamlined cost structure
10
2019 YOY revenue growth driven by:
Increased sales of high-value products into key end-markets
Higher volumes of nickel-based, titanium, and zirconium alloys
Significant demand from Aerospace, Defense and Energy markets
Lower sales of standard value stainless sheet products
Decreased demand from Automotive and consumer-facing end-markets
Revenue ($M)
2,134
1,587
1,820
2,0842,144
$0
$500
$1,000
$1,500
$2,000
$2,500
2015 2016 2017 2018 2019
2019 YOY operating profit performance:
Third straight year of profitability
Improved product mix through penetration of core markets
Increased HRPF conversion volumes
Negative impacts from section 232 tariffs, higher retirement benefit
expenses and cost inefficiencies from soft std. value product demand
20182017
20162015
Advanced Alloys & SolutionsRevenue and Margin Trends
2019
10
© 2020 ATI. All rights reserved.
$-
$100
$200
$300
$400
$500
$600
2019 2020 2021 2022 2023 2024 2025 2026 2027
Notes Convertible Notes Term Loan
Debt Structure – Q2 2020 ProformaRecent Actions and Ongoing Efforts To Achieve Balance Sheet Goals
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Strong balance sheet and liquidity supported by ABL
Recently Completed Actions Reduce Refinancing Risk and add Liquidity Q2 2020: refinanced majority of 4.75% 2022 Convertible Notes
Issued $285M of Convertible Notes, due 2025, using proceeds to repurchase ~70% of existing 2022 Convertible Notes
Lower 3.5% coupon on new 2025 Notes
Added call feature provides increased flexibility and expanded settlement options
Q2 2020: Drew $100M Delayed Draw Term Loan 1
Provides low-cost term liquidity
2019 Actions Strengthened Balance Sheet Issued 2027 Notes, used proceeds to repay 2021 Notes
Reduced debt by $150M
Upsized ABL, extending maturity to 2024
Sold non-core assets, generating ~$250M of cash
Net Debt/EBITDA(2) Ratio: 2.1x
$ Millions
(1) Official draw date of 6/26/2020(2) EBITDA based on LTM Q1’20 financials as adjusted for special items. See appendix for
definition and reconciliations to the nearest GAAP measure.
© 2020 ATI. All rights reserved. 12January 2019
Plan Status; Closed to New Entrants
Proactively reduced pension plan population
>50% total participant reduction since 2012
Less than 16,000 participants remain,
including ~1,300 active-open
Proactive Steps to Reduce Participants
2016 annuity buyout reduced ~3,700 participants
Q4‘18 annuity buyout reduced ~3,700 participants
Q3’19 annuity buyout reduced ~1,800 participants
Actively pursuing options to reduce defined benefit pension plan participation
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Defined Benefit Pension Risk ReductionStrategic Efforts to Reduce Plan Participation
12
-
5,000
10,000
15,000
20,000
25,000
30,000
35,000
2012 2013 2014 2015 2016 2017 2018 2019 2020
Actives-Open Actives-Frozen Deferred Retiree# participants
> 50% Reduction
Data as of the beginning of each year
© 2020 ATI. All rights reserved.
2020 OutlookFull Year 2020
EPS FCF1
Suspended EPS Guidance
$110M - $140M
EPS ($0.07) – ($0.17)
Q2 2020
Earnings Drivers
737 MAX production restart in Q2 at low rate
prior assumption: Q2 restart at moderate rate
Nickel prices in expected range of $5.00/lb. - $5.50/lb.
prior assumption: $6.00/lb. to $6.50/lb.
Significant global impact from COVID-19 pandemic
prior assumption: minimal impact
$115M - $135M in expense cost reductions
prior assumption: modest cost reductions
Q1’20 effective tax rate of 31%; FY is uncertain
prior assumption: 23% to 25%
Cash Flow Drivers
Capex in the range of $130M - $150M
prior assumption: $200M - $210M
Managed working capital: significant source of cash
prior assumption: modest use of cash
U.S. pension contribution of $130M (no change)
Key Outlook Assumption
1 See appendix for reconciliation of non-GAAP financial measures
13
© 2020 ATI. All rights reserved.
ATI competes by serving customers in:
Strategic Markets
Aerospace Defense Energy
Diversified Applications
Medical Electronics
Materials Science Advanced, Integrated Process Technologies
Relentless, Innovative People
Our CommitmentCreating long-term shareholder value through Relentless Innovation®
Our Values• Integrity: The cornerstone of our business
relationships. We do what we say we will, and we do things the right way.
• Safety & Sustainability: We strive for a Zero Injury Culture committed to the safety of our people, our products, and the communities in which we operate.
• Accountability: We take responsibility and hold ourselves accountable for our actions, performance and results.
• Teamwork and Respect: We work together for ATI’s long-term success. We welcome and respect others’ views, capabilities and experiences.
• Innovation: We drive sustainable value and meet our commitments through continuous transformation.
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Our VisionSolving the World’s Challenges through Materials Science
Additional Materials Appendix
© 2020 ATI. All rights reserved.
Non-GAAP Financial Measures
16
(a) Full year 2019 results include an $11.4 million pre-tax joint venture impairment charge for the Allegheny & Tsingshan Stainless joint venture, which included ATI's 50% share of the JV's impairment charge on the carrying value of long-lived assets at the Midland, PA production facility. (b) Full year 2019 results include a $21.6 million pre-tax debt extinguishment charge for the full redemption of the $500 million, 5.95% Senior Notes due 2021. Full year 2017 results include a $37.0 million pre-tax debt extinguishment charge for the full redemption of the $350 million, 9.375% Senior Notes due 2019.(c) The 2017 goodwill impairment charge was to write-off goodwill for our Cast Products business. The 2015 goodwill impairment charge was to write-off all the goodwill for our Flat Rolled Products business. (d) 2016 results include $3.4 million of employee benefit costs for special termination benefits for pension and other postretirement benefit plans.(e) Restructuring costs in 2016 consist primarily of charges related to the indefinite idling of the Rowley, UT titanium sponge production facility. Restructuring costs in 2015 consist of $54.5 million of long-lived asset impairment charges, $3.5 million of facility closure costs and $6.3 million of employee severance. (f) Costs in 2015 include costs to qualify the Company's titanium sponge at its Rowley, UT facility as premium quality. Fiscal years 2015 and 2016 include $24.5 million and $17.7 million, respectively, in inventory valuation charges related to market-based valuation of titanium products. Additionally, 2015 includes a $25.4 million charge to revalue inventory based on current market prices for non-premium quality grades of titanium sponge and 2016 includes an $11.3 million charge to revalue titanium sponge inventory based on revised assessments of industrial grade titanium market conditions and expected utilization. Finally, 2016 includes the above market production costs and other operating expenses for the Rowley, UT facility, net of expected ongoing carrying costs. (g) Represents costs associated with the work stoppage and return-to-work of USW-represented employees including reduced operating efficiencies, out-of-phase raw material costs, and provision of the new labor agreements. (h) Represents products commissioning costs for the Company's Hot-Rolling and Processing Facility.
Free cash flow as defined by ATI includes the total of cash provided by (used in) operating activities and investing activities as presented on the consolidated statements of cash flows, adjusted to exclude cash contributions to the Company’s U.S. qualified defined benefit pension plans.
Free cash flow
Earnings before interest, taxes, depreciation and amortization (EBITDA)
© 2020 ATI. All rights reserved. 17January 2019
Non-GAAP Financial Measures
17
Free Cash Flow
($ in millions) 2015 2016 2017 2018 2019Cash provided by (used in) operating activities 131.4$ (43.7)$ 22.4$ 392.8$ 230.1$ Cash (used in) provided by investing activities (145.1) (200.0) (119.6) (145.1) 81.7 Add back: cash contributions to ATI Pension Plan 0.3 115.0 135.0 40.4 145.0 Free Cash Flow as defined (13.4)$ (128.7)$ 37.8$ 288.1$ 456.8$
Adjusted Sales Information Industrial Forgings($ in millions) and Cast Products
Reported Businesses Adjusted
Total ATI Sales- Q4 2019 1,018.6$ -$ 1,018.6$ Total ATI Sales- Q4 2018 1,037.9 (48.0) 989.9 Percentage Change -1.9% 2.9%
Total ATI Sales- Full Year 2019 4,122.5$ (95.3)$ 4,027.2$ Total ATI Sales- Full Year 2018 4,046.6 (182.8) 3,863.8 Percentage Change 1.9% 4.2%
HPMC Sales- Q4 2019 602.8$ -$ 602.8$ HPMC Sales- Q4 2018 596.1 (48.0) 548.1 Percentage Change 1.1% 10.0%
HPMC Sales- Full Year 2019 2,398.1$ (95.3)$ 2,302.8$ HPMC Sales- Full Year 2018 2,334.2 (182.8) 2,151.4 Percentage Change 2.7% 7.0%
HPMC Aerospace & Defense Markets Sales- Full Year 2019 1,879.1$ (68.0)$ 1,811.1$ HPMC Aerospace & Defense Markets Sales- Full Year 2018 1,771.3 (108.1) 1,663.2 Percentage Change 6.1% 8.9%
For the Years Ended December 31,
Free cash flow as defined by ATI includes the total of cash provided by (used in) operating activities and investing activities as presented on the consolidated statements of cash flows, adjusted to exclude cash contributions to the Company’s U.S. qualified defined benefit pension plans.
© 2020 ATI. All rights reserved.
Thank you for your interest in ATI.Investor Contact:Scott Minder: (412) 395-2720