ATI Announces Fourth Quarter 2020 Results

PITTSBURGH, Jan. 28, 2021 /PRNewswire/ --

• Sales of $658 million up 10% over Q3 2020
• Net loss attributable to ATI of $1,121.0 million, or $(8.85) per share; adjusted net loss of $41.9 million, or $(0.33) per share
• Restructuring and other charges, including previously announced non-cash asset impairments and related tax impacts, of $1,079.1 million, or $(8.52) per share
• Adjusted EBITDA of $23.0 million, up 39% over Q3 2020
• $646 million of cash at December 31, more than $950 million of total liquidity

Allegheny Technologies Incorporated (NYSE: ATI) reported fourth quarter 2020 results, with sales of $658 million and a net loss attributable to ATI of $1,121.0 million, or $(8.85) per share. As previously announced, the Company is exiting low-margin standard stainless sheet products, upgrading its capabilities and transforming its Specialty Rolled Products business unit.  Fourth quarter 2020 results include $1,079.1 million of restructuring and other charges, net of related tax impacts, predominantly for long-lived non-cash asset impairment charges associated with these operations.  On an adjusted basis, the fourth quarter 2020 net loss attributable to ATI was $41.9 million, or ($0.33) per share.  Adjusted EBITDA was $23.0 million, or 3.5% of sales for the fourth quarter 2020. 

"Our team continued to focus on execution in the fourth quarter, tightly managing costs and improving cash generation, while producing at increasing rates for our customers," said Robert S. Wetherbee, President and CEO. "As a result, we exceeded our financial expectations for the quarter despite ongoing challenging market conditions." 

"In the fourth quarter, we took decisive action to accelerate our future by exiting the low-margin standard stainless sheet product line and redeploying capital to high-return opportunities. We've already made significant progress on achieving that goal. The transformation represents a major step forward to making ATI a more sustainably profitable aerospace and defense-focused company."

For the fourth quarter 2019, sales were $1,018.6 million and net income attributable to ATI was $56.5 million, or $0.41 per share.  Results in 2019 included $37.5 million of pre-tax special charges related to debt extinguishment, an impairment charge related to the A&T Stainless joint venture, and salaried workforce severance actions.  Fourth quarter 2019 results also included a $41.9 million tax benefit related to the release of income tax valuation allowances.  On an adjusted basis, fourth quarter 2019 net income attributable to ATI was $50.2 million, or $0.36 per share.  Adjusted EBITDA for the prior year quarter was $119.3 million, or 11.7% of sales.

Operating Results by Segment

In the fourth quarter 2020, ATI changed its segment performance measure from Segment Operating Profit to Segment EBITDA, based on internal reporting changes.  Prior period results are presented using the new performance measure.  The financial schedule of Sales and EBITDA by Business Segment contains further information on depreciation and amortization by business segment.

• HPMC sales in the fourth quarter 2020 were flat versus the third quarter 2020 as demand from the commercial aerospace market stabilized.  Sales decreased 55% year-over-year due to challenging end market conditions in commercial aerospace largely brought on by the global Covid-19 pandemic.  Sales to the aerospace and defense markets in Q4 2020 represented 74% of total segment sales, with sales to the commercial aerospace market down 68%, while sales to the defense markets were 26% higher, compared to the prior year period. 
• HPMC segment EBITDA was $7.5 million, or 3.4% of sales. Compared to the third quarter 2020, results reflect a weaker overall product mix, particularly in mill products for jet engine applications, and increased costs related to slow-moving inventory.  Cost cutting measures continued to help offset these negative impacts.  Versus the prior year, lower overall demand, including profitable next generation jet engine products, and reduced asset utilization rates negatively impacted operating margins.

• AA&S fourth quarter 2020 sales improved 16% compared to the third quarter 2020, but were 16% lower compared to the prior year's quarter. Sales to the aerospace and defense markets were up 24% sequentially, led by a 62% increase in defense market sales.  Compared to the prior year period, aerospace & defense markets sales decreased 28%.  Sales to specialty energy markets were 37% higher compared to the prior year period, while total sales to all energy markets, which include oil & gas, hydrocarbon and chemical processing were 18% lower.
• AA&S segment EBITDA was $29.5 million, or 6.8% of sales.  Segment EBITDA improved significantly from Q3 2020 due to cost cutting measures, stronger sales of high-value products at our Specialty Alloys & Components business, as well as at our STAL joint venture.

Restructuring and Other Charges

• Fourth quarter 2020 pre-tax restructuring and other charges of $1,105.1 million predominantly relate to the previously-announced decision to cease production of standard stainless sheet products.
• Restructuring charges were $1,080.5 million, including $1,041.5 of long-lived asset non-cash impairment charges primarily related to the AA&S Segment's Brackenridge, PA operations. These operations include the Hot-Rolling and Processing Facility (HRPF), as well as stainless melting and finishing operations.  Restructuring charges also include $33.5 million of severance-related costs for hourly and salary employees, and $5.5 million of other costs related to facility idlings primarily for asset retirement and environmental obligations.
• Other fourth quarter 2020 special charges include $17.4 million of termination benefits for pension and postretirement medical obligations related to facility closures.  These costs are classified within nonoperating retirement benefit expense in the consolidated statements of operations.  Other charges also include $7.2 million of inventory valuation reserves, classified in cost of sales on the consolidated statement of operations, related to idled facilities.

Corporate Items and Cash

• Corporate expenses in the fourth quarter 2020 were $11.2 million, or $4.5 million lower than the prior year period, primarily due to lower incentive compensation expense based on performance versus targeted metrics, and lower expenses resulting from cost reduction actions.  
• Closed operations and other expenses in the fourth quarter 2020 were $2.8 million, reflecting lower legal and retirement benefit costs of closed operations.
• Fourth quarter 2020 results include a $26.0 million tax benefit associated with the fourth quarter tax impacts of the long-lived asset impairments and other restructuring charges.  ATI maintains a valuation allowance on its U.S. deferred tax assets due to being in a cumulative loss position.  ATI does not expect to pay any significant U.S. federal or state income taxes for the next several years due to net operating loss carryforwards.
• Cash on hand at December 31, 2020 was $645.9 million, and available additional liquidity under the asset based lending credit facility was approximately $310 million. For the fourth quarter of 2020, cash provided by operating activities was $121.9 million, including $148.5 million from reductions in managed working capital.  U.S. pension plan contributions in the quarter were $35.4 million.  Cash used in investing activities was $39.5 million, primarily related to capital expenditures.

Full Year 2020 Results

For the full year 2020, sales were $2.98 billion and net loss attributable to ATI was $1,572.6 million, or $(12.43) per share.  Restructuring and other charges, net of associated tax impacts, were $1,507.2 million, or $(11.91) per share. Pre-tax special items for the full year 2020 included $287.0 million for goodwill impairment, $27.0 million of severance charges, and $21.5 million of debt extinguishment charges in addition to the fourth quarter 2020 restructuring and other charges mentioned above. Full year 2020 results also include charges for a valuation allowance on U.S. federal and state net deferred tax assets.  Adjusted EBITDA for fiscal year 2020 was $196.3 million, or 6.6% of sales. 

Sales for the full year 2019 were $4.12 billion and net income attributable to ATI was $257.6 million, or $1.85 per share.  In addition to the fourth quarter 2019 special items mentioned above, full year 2019 results included $89.8 million in pretax gains on sales of non-core assets.  Excluding these items, adjusted net income attributable to ATI was $165.1 million, or $1.21 per share.  Adjusted EBITDA for 2019 was $439.4 million, or 10.7% of sales.

Outlook

"Looking ahead to the first quarter, we expect a continued difficult market environment driven by the Covid-19 resurgence and the relatively low rates of global air passenger travel," said Wetherbee. "Our first quarter 2021 compares to a robust pre-pandemic quarter for ATI that included a surge in wide-body jet engine product sales."

"For the full year 2021, we are optimistic that the worst is behind us and demand will begin to rebound as Covid-19 vaccines are increasingly approved and administered around the world. We expect our demand to improve in the second half of the year, led by increasing narrow-body engine production volumes enhanced by ATI's jet engine-related share gains and new business in airframes. In 2021, we are focused on delivering operational excellence for our customers, transforming our specialty rolled business, and maintaining the strength of our balance sheet and cash generation efforts," concluded Wetherbee.

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Allegheny Technologies will conduct a conference call with investors and analysts on Thursday, January 28, 2021, at 8:30 a.m. ET to discuss the financial results. The conference call will be broadcast, and accompanying presentation slides will be available, at ATImetals.com. To access the broadcast, click on "Conference Call". Replay of the conference call will be available on the Allegheny Technologies website.

This news release contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Certain statements in this news release relate to future events and expectations and, as such, constitute forward-looking statements. Forward-looking statements, which may contain such words as "anticipates," "believes," "estimates," "expects," "would," "should," "will," "will likely result," "forecast," "outlook," "projects," and similar expressions, 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. Our performance or achievements may differ materially from those expressed or implied in any forward-looking statements due to the following factors, among others: (a) material adverse changes in economic or industry conditions generally, including global supply and demand conditions and prices for our specialty metals; (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 and (h) business and economic disruptions associated with the currently ongoing COVID-19 pandemic or other similar widespread public health crises 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, 2019, and in other reports filed with the Securities and Exchange Commission. We assume no duty to update our forward-looking statements.

Solving the World's Challenges through Materials Science

ATI (NYSE: ATI) is a $3 billion global manufacturer solving the world's most difficult challenges through materials science; advanced, integrated process technologies; and relentlessly innovative people. We serve customers whose demanding applications need to fly higher, dig deeper, stand stronger, and last longer— anywhere on, above, or below the earth. We partner to create new specialty materials in forms that deliver ultimate performance and long-term value in applications like jet engine forgings and 3D-printed aerospace components. We produce powders for forging and additive manufacturing; rolled materials, and finished components. Our specialty materials withstand extremes of temperature, stress and corrosion to improve and protect human lives every day.  Learn more at ATIMetals.com.

In managing the overall capital structure of the Company, some of the measures that we focus on are net debt to net capitalization, which is the percentage of debt, net of cash that may be available to reduce borrowings, to the total invested and borrowed capital of ATI (excluding noncontrolling interest), and total debt to total ATI capitalization, which excludes cash balances. 

SOURCE Allegheny Technologies

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