ATI Q2 Earnings Call Highlights
Key Points
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- ATI exceeded its second-quarter outlook, with revenue up 11% year over year to $1.3 billion and adjusted EBITDA up 37% to $284 million. Strong pricing, product mix and aerospace, defense and specialty-materials demand drove a 440-basis-point margin expansion.
- The company raised its full-year guidance, projecting adjusted EBITDA of $1.135 billion to $1.185 billion, adjusted EPS of $4.90 to $5.18 and adjusted free cash flow of $550 million to $600 million. ATI ended the quarter with a record $4.4 billion backlog, about 70% of which it expects to convert into revenue over the next 12 months.
- Advanced Alloys Solutions led segment performance, with sales up 17% and margins reaching a record 23.7%, while defense revenue rose 36% and a renewed naval nuclear agreement is expected to generate roughly $1 billion over five years. HPMC shipments worth $30 million to $40 million shifted into the second half because of qualification timing, but management expects the deferred demand to convert later in the year.
ATI (NYSE:ATI) reported second-quarter results that exceeded its prior outlook, supported by higher pricing, favorable product mix and stronger demand in aerospace, defense and specialty materials. The company raised its full-year guidance for adjusted EBITDA, adjusted earnings per share and adjusted free cash flow.
Second-quarter revenue rose 11% year over year to $1.3 billion, while adjusted EBITDA increased 37% to $284 million. The result was $29 million above the high end of ATI's previous guidance, according to Board Chair, President and CEO Kim Fields. Excluding a $10 million asset-sale gain, underlying performance still exceeded the high end of the company's outlook by $19 million.
Adjusted EBITDA margin expanded 440 basis points year over year to 22.6%. Fields said the margin gain reflected commercial terms, product mix, execution and operational improvements through the company's Elevation operating system. ATI generated adjusted free cash flow of $69 million during the quarter and $143 million in the first half, compared with a $50 million use of cash in the first half of 2025.
Record backlog and higher full-year outlook
ATI ended the quarter with a record $4.4 billion backlog, up 18% from a year earlier and 7% sequentially. Fields said the backlog increasingly includes long-term agreements, sole-source positions and strategic programs that provide multiyear shipment and earnings visibility. The company expects about 70% of the backlog to convert into revenue over the next 12 months.
The company raised its full-year adjusted EBITDA guidance to $1.135 billion to $1.185 billion, with a midpoint of $1.16 billion representing 35% year-over-year growth. ATI also increased its adjusted EPS outlook to $4.90 to $5.18 and its adjusted free cash flow forecast to $550 million to $600 million.
Senior Vice President and CFO Rob Foster said the stronger outlook is supported by contracted pricing, committed customer schedules, a higher structural earnings base in the Advanced Alloys Solutions segment and High Performance Materials Components shipments that shifted from the second quarter into the second half.
- Third-quarter adjusted EBITDA is expected to be $305 million to $315 million.
- Third-quarter adjusted EPS is projected at $1.31 to $1.37.
- ATI expects fourth-quarter sales and profit to be its strongest of 2026, with midpoint guidance implying roughly $335 million in EBITDA.
- The company projects low-20% consolidated adjusted EBITDA margins for the full year and incremental margins of about 50%.
AA segment drives margin expansion
ATI's Advanced Alloys Solutions, or AA, segment delivered sales of $624 million, up 17% year over year. Segment margin increased 930 basis points to a record 23.7%, reflecting higher pricing, improved execution and a more favorable product mix.
Fields said ATI has repositioned AA toward higher-value aerospace, defense and specialty-energy applications while exiting lower-value products. Aerospace and defense now represent approximately 44% of AA revenue, more than double the share from five years ago. The company expects AA EBITDA margins to remain above 20%, and Fields told analysts it sees the potential for margins in the mid-20% range over time.
The segment has benefited from ATI's high-purity hafnium and zirconium capabilities. Fields said ATI is one of three qualified Western producers able to make those materials to purity standards required for aerospace and nuclear-energy applications. China’s export limitations have increased the value of those capabilities, she said.
Defense revenue rose 36% year over year to an all-time high, led by demand for naval nuclear, missile and missile-defense applications. ATI's renewed naval nuclear agreement extends through 2030 and more than doubles annual revenue relative to the prior contract, according to Fields. Foster said the five-year agreement represents about $1 billion in revenue, with roughly two-thirds of the increase tied to price and mix and one-third tied to volume.
ATI raised its full-year defense-growth outlook to the high teens. It continues to expect mid-teen growth in specialty energy, despite a 6% second-quarter decline as production capacity was prioritized for naval nuclear orders with more immediate delivery requirements.
HPMC timing shifts shipments into second half
High Performance Materials Components, or HPMC, reported sales of $637 million, up 5% year over year, driven primarily by nickel products for jet engines. Segment margins improved 40 basis points to 24.1%.
Qualification timing at ATI's new Chihuahua, Mexico, facility and its titanium electron-beam furnace, EB2, shifted certain HPMC deliveries into future periods. Fields said about $30 million to $40 million in revenue moved from the first half to the second half, with an incremental margin cadence of roughly 40% to 50%.
Management said these effects are timing-related and expects the deferred demand to convert in the second half. Completed contract renewals are also expected to improve pricing and mix in jet-engine materials, while productivity measures are intended to support sequential improvement through the remainder of the year.
Jet-engine revenue increased 13% year over year and 8% sequentially, with ATI maintaining its forecast for high-teen jet-engine revenue growth for the full year. The company said it supports every major next-generation commercial engine platform and produces six of the seven most advanced nickel-based superalloys, including five for which it is the sole-source supplier.
Capacity investments and cash priorities
ATI said its Chihuahua facility will support next-generation aerospace-engine testing and inspection, while EB2 expands premium-quality titanium capability and capacity. A new vacuum induction melting furnace remains scheduled to enter service by the end of 2027. ATI expects its nickel investments to increase capacity by approximately 15% to 20% by early 2028 compared with year-end 2025 and contribute about $350 million in annual revenue by 2028.
During the quarter, capital expenditures totaled $69 million, including $23 million funded directly by customers. ATI maintained its full-year gross capital expenditure forecast of $280 million to $300 million, partly offset by expected customer-funded capital spending of $55 million to $65 million.
Foster said share repurchases remain a priority for incremental free cash flow deployment. ATI repurchased $50 million of stock in the second quarter and had $495 million remaining under its current authorization.
About ATI (NYSE:ATI)
Allegheny Technologies Incorporated (ATI) is a global manufacturer of specialty materials and complex components, serving aerospace, defense, oil and gas, chemical processing, medical and other industrial end markets. The company operates through two main segments: High Performance Materials Components, which produces titanium and nickel-based alloys, stainless and specialty steels, and precision forgings; and Flat-Rolled Products, which supplies stainless steel, nickel and specialty alloy sheet, strip and precision-rolled plate.
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