Fourth Quarter 2017 Conference Call

Transcription

1 Fourth Quarter 2017 Conference Call January 23, 2018

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 Fourth Quarter 2017 Highlights $M (excl. EPS) Q Q % Chg. Revenue $909.9 $ % Segment Oper. Profit % Segment Oper. Profit Margin 9.7% 6.7% +300 b.p. Net Income (Loss)* $1.7 $ Net Income (Loss)* (ex. special items) $34.6 $(3.9) --- EPS $0.01 $ EPS (ex. special items) $0.27 $(0.04) --- *Attributable to ATI Revenue growth of 14% Continued strong jet engine market demand Improvements in oil & gas and construction & mining markets Segment Operating Profit Margin up 300 b.p. Improved product mix across ATI Favorable raw material pricing Adjusted results exclude a ($37 million) charge for debt extinguishment and a $4 million benefit from tax legislation changes note: see appendix for reconciliation of non-gaap financial measures 3

4 Full Year 2017 Highlights $M (excl. EPS) FY 2017 FY 2016 % Chg. Revenue $3,525.1 $3, % Segment Oper. Profit Segment Oper. Profit Margin 8.0% 0.2% +780 b.p. Net Income (Loss)* $(91.9) $(640.9) --- Net Income (Loss)* (ex. special items) $54.6 $(97.4) --- EPS $(0.83) $(5.97) --- EPS (ex. special items) $0.48 $(0.91) --- *Attributable to ATI Revenue growth of 13% Acceleration of next-generation aerospace products to meet ongoing production ramp Improving customer demand levels for flat-rolled products, led by Oil & Gas Segment operating profit margin up significantly Improving product mix in both segments Continued focus on cost reductions Adjusted results exclude fourth quarter items plus a $114 million goodwill impairment charge incurred in Q3 note: see appendix for reconciliation of non-gaap financial measures 4

5 High Performance Materials & Components Segment ($M) Q4 17 Q O/(U) 16 FY 17 FY O/(U) 16 Sales $517.7 $ % $2,067.4 $1, % Operating Profit $65.8 $ % $246.4 $ % % of Sales 12.7% 11.3% +140 b.p. 11.9% 8.7% +320 b.p. Fourth Quarter vs. Prior Year Revenue increased 9% Aerospace & Defense growth of 11%; next generation jet engine products +26% Declines in Electrical Energy and Medical markets Operating margin improved 140 b.p. 6th consecutive quarter of at least 140 b.p. margin improvement vs. prior year Continued product mix and utilization benefits related to next generation jet engine production ramp Full-Year vs. Prior Year Revenue growth rates mixed by market Commercial jet engine revenue +11%; commercial airframe +1% All other revenue +6%; growth in Oil & Gas and Construction & Mining Operating margins increased over 300 basis points Improved product mix due to next generation jet engine growth 5

6 Number of Engines High Performance Materials & Components Revenue by Market 2017 Full-Year Revenue Medical Jet Engine Production Airframe 19% Gov t & Defense 13% 8% 6% 3% Other 3% 4% Electrical Energy Const. & Mining Oil & Gas Legacy Next Generation Jet Engine 44% Market v. 16 Jet Engine 44% 43% +1 Airframe 19% 20% -1 Gov t & Defense 13% 12% +1 Total Aero & Defense 76% 75% F 2018F 2019F 2020F Jet Engine YOY Q4 17 revenue +10%; FY 17 revenue +11% 2017 GE LEAP engine deliveries 473; FY 2018 expected between 1,150 1,200 Airframe YOY Q4 17 revenue +4%; FY 17 revenue +1% Growth acceleration in H2 17 led by Boeing Government & Defense YOY Q4 17 revenue +22%, FY 17 revenue +14% Growth led by naval programs and military jet engines 6

7 Flat Rolled Products Segment ($M) Q4 17 Q O/(U) 16 FY 17 FY O/(U) 16 Sales $392.2 $ % $1,457.7 $1, % Operating Profit/(Loss) $22.4 $(0.8) ---- $37.0 $(163.0) --- % of Sales 5.7% (0.3%) +600 b.p. 2.5% (13.5%) +1,600 b.p. Fourth Quarter vs. Prior Year ATI FRP Type 304 Surcharge 2017/2018 Revenue increased 23% Increased demand & improved product mix Operating profit improved significantly Strong incremental margins on higher sales volumes Modest raw material benefit YOY; favorable impact vs. Q3 17 Full-Year vs. Prior Year First full year segment profit since 2012 Revenue increased 21% $ $ $ $ $ $ $ $ $- Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar '17 '18 Source: ATImetals.com nickel ferrochrome Lower ferrochrome prices for Q1 18 Growth in Oil & Gas and Electronics partially offset by declines in Electrical Energy Production interruptions due to work stoppage significantly impacted 2016 results Operating profit improved significantly Improved product mix driven by growth in high value markets Continuous focus on cost reductions and operational improvements 7

8 Flat Rolled Products Revenue by Market & Product 2017 Full Year Revenue by Market 2017 Full Year Revenue by Product Construction & Mining 10% 5% Electrical Energy Electronics Stainless Plate 5% Aero & Def 10% Food Equip. & Appliance 15% Automotive 18% 24% 10% Other Oil & Gas 8% Titanium Products Stainless & Specialty Sheet 33% 4% Nickel & Specialty Alloys 24% Precision & Engineered Strip 34% Market Comments YOY Recovery in Oil & Gas market: revenues increased over 50% vs. low prior year levels Strong growth in consumer products end markets Electronics +39%, Appliance +32% Declines in Electrical Energy; flat revenues in Aerospace & Defense markets Product Comments YOY High value product revenues +20% Strong demand for nickel-based alloys and titanium products Commodity product revenue growth driven by stainless sheet materials and higher raw material surcharges 8

9 Financial Update & Outlook Cash and liquidity at 12/31/2017 $142 million cash on hand $305 million available on ABL No outstanding borrowings in ABL/revolver: Q3 17 balance $25 million $76 million cash flow from operations in Q Managed working capital percent of sales improved 190 b.p. vs. prior year Capital expenditures $37 million Q4 2017; $123 million FY 17 Annual depreciation & amortization ~$160 million for FY capex expected to be $100 - $125 million Includes 100% of $25 million investment in Next Gen Alloys JV: GE will fund ~50% Includes 100% of the ongoing STAL JV expansion (China): fully funded through JV cash 9

10 Strengthened Balance Sheet ATI Pension Plan Participation Debt Maturity Profile 35,000 30,000 25,000-3,700 Retirees through annuity buyout Eliminated in Q4 17 using follow on common equity proceeds ,000 15,000 10,000-1,700 Deferred through lump sum cash out -1,350 Deferred through lump sum cash out ,000 2,600 actives hard frozen YE # participants Actives-Open Actives-Frozen Deferred Retiree Proactively reducing pension plan population >20% of participants removed since 2012 through liability management actions Nearly all operations frozen or closed to new entrants Plan funded status continues to improve Increased 6 percentage points 2017 YOY In $ millions Notes Convertible Senior Notes Term Loan Eliminated $350 million 9.375% interest rate due 2019 Lower interest expense; ~$32M annual savings Used majority of proceeds from follow-on equity offering (~$400 million) No borrowings on revolving credit facility No significant debt maturities until

11 2018 Financial Assumptions Category 2018 Expected Impact 2017 Actual Pension contribution $40-50 $135 Capital expenditures $100 - $125 $123 Retirement benefit expense ~$52 $71 Interest expense $100 - $105 $ effective tax rate 5% - 10% - will likely vary by quarter Avg. share count (Q1) ~125 million shares increased due to follow-on common equity offering in Q4 17 Impact of 2022 convertible notes Quarterly (if-converted) EPS information: $3.4M (pretax) interest expense addback to EPS numerator 19.9 million shares added to EPS denominator $ millions unless otherwise stated 11

12 Strategy & Outlook High Performance Materials & Components Segment Q financial results expected to continue strong YOY growth trend FY 2018 revenues expected to increase a high-single digit percentage YOY Commercial jet engine revenue growth >10% FY 2018 operating margins expected to increase by ~ 200 basis points YOY Ongoing next-generation aerospace growth and improving product mix Flat Rolled Products Segment Q customer demand patterns consistent with Q Q negatively impacted by ~$10 million due to: Lower raw material surcharges tied to ferrochrome declines Required retirement cost capitalization accounting change impact Low single-digit operating margins expected in Q FY 2018 revenues expected to increase a high-single digit percentage YOY Continued recovery in key end markets FY 2018 operating margins expected to improve b.p. YOY Increased JV contributions; new conversion agreements (both in H2 18) Continued operational improvements; product mix benefits 12

13 2017 Full-Year Summary Financial and Operational Performance Sales of $3.5 billion, increased 13% vs. PY Continued growth in Jet Engine market sales; Oil & Gas market recovery Segment operating profit margins of 8.0% versus breakeven 2016 results Product mix improvements, productivity gains, cost control Adjusted earnings per share of $0.48, up $1.39 from FY 16 Managed working capital % sales improved over 190 b.p. YOY Strategic Initiatives Announced innovative stainless joint venture with Tsingshan Created Next Gen Alloys joint venture with GE Aviation Signed strategic, long-term agreements with Pratt & Whitney, General Dynamics Land Systems, & others Strengthened Balance Sheet Generated nearly $160 million in operating cash flow (ex s $135 million pension contribution) Eliminated $350 million of high-coupon debt, due June 2019, using proceeds from follow-on common equity offering Continued to reduce pension plan participants via retiree lump-sum payout 13

14 Fourth Quarter 2017 Conference Call Q&A

15 Additional Materials Appendix

16 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 January 23, 2018: Three Months Ended Fiscal Year Ended December 31 September 30 December 31 December Income (loss) attributable to ATI $ 1.7 $ (121.2) $ 9.9 $ (91.9) $ (640.9) Adjust for special items: Debt extinguishment charge, net of tax (a) $ 37.0 $ - $ Impairment of goodwill, net of tax (b) Restructuring and other charges, net of tax (c) Rowley excess operating costs, net of tax (d) Work stoppage and return-to-work costs (e) Income tax items including valuation allowances (f) (4.1) - (32.4) (4.1) Income (loss) attributable to ATI excluding special items $ 34.6 $ (7.6) $ (3.9) $ 54.6 $ (97.4) Per Diluted Share * Per Diluted Share * Income (loss) attributable to ATI $ 0.01 $ (1.12) $ 0.09 $ (0.83) $ (5.97) Adjust for special items: Debt extinguishment charge, net of tax (a) $ 0.29 $ - $ Impairment of goodwill, net of tax (b) Restructuring and other charges, net of tax (c) Rowley excess operating costs, net of tax (d) Work stoppage and return-to-work costs (e) Income tax items including valuation allowances (f) (0.03) - (0.30) (0.03) 1.31 Income (loss) attributable to ATI excluding special items $ 0.27 $ (0.07) $ (0.04) $ 0.48 $ (0.91) * Presentation of adjusted results per diluted share includes the effects of convertible debt, if dilutive. (a) Fourth quarter and fiscal year ended December 31, 2017 results include a debt extinguishment charge of $37.0 after-tax, or $(0.29) per share, for the full redemption of the $350, 9.375% Senior Notes due (b) 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 pre-tax non-cash goodwill impairment charge ($113.6 after-tax), or $(1.05) per share. (c) For the three months ended December 31, 2016, $28.6 of pre-tax restructuring charges ($18.6 after-tax at a standard 35% tax rate), or $(0.17) per share, including $13.0 for additional HPMC segment titanium operations closure-related actions at the Rowley, UT, Frackville, PA and Albany, OR titanium operations, and $15.6 for FRP closure-related costs at the Midland and Bagdad, PA facilities and for additional FRP severance charges for salaried workforce reductions. These restructuring charges, which are excluded from business segment results, include contractual obligations, closure costs, severance and supplemental unemployment benefits. FRP restructuring costs also include $3.4 of special termination benefits for pension and other postretirement benefit plans. In addition to the amounts for the three months ended December 31, 2016 above, the twelve months ended December 31, 2016 includes $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, which are excluded from HPMC segment results. The remaining $7.1 after-tax, or $(0.06) per share, includes additional charges for severance actions. (d) 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. (e) For the first six months of fiscal year 2016, the Company incurred 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 provisions of the new labor agreements. (f) Amounts for the three months and fiscal year ended December 31, 2017 include $4.1 of tax benefits, or $0.03 per share, from the 2017 Tax Cuts and Jobs Act legislation. Amounts for the three months ended December 31, 2016 include $32.4, or $0.30 per share, of above-normal income tax benefits compared to those that would apply at a standard 35% tax rate, primarily related to income tax valuation allowance changes. Amounts for the fiscal year ended December 31, 2016 include $141.3 or $(1.31) per share, of belownormal income tax benefits on the $734.0 pretax loss due primarily to valuation allowances recorded on U.S. federal deferred tax assets. 16