ATI Q2 Earnings Call Highlights

Key Points

• 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&S segment drives margin expansion

ATI's Advanced Alloys & Solutions, or AA&S, 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&S toward higher-value aerospace, defense and specialty-energy applications while exiting lower-value products. Aerospace and defense now represent approximately 44% of AA&S revenue, more than double the share from five years ago. The company expects AA&S 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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