Executive Summary / Key Takeaways

• ATI Inc. has successfully executed a strategic transformation, shifting its focus towards high-value aerospace and defense (A&D) markets and leveraging its differentiated materials science and process technologies to become a leading supplier in critical applications.
• The company's core technological advantages, particularly in proprietary nickel-based alloys for jet engines and high-purity titanium and specialty alloys for demanding applications, create significant competitive moats, enabling sole-source positions and driving margin expansion.
• Recent financial performance demonstrates strong momentum, with Q1 2025 sales up 10% year-over-year, driven by a 23% increase in A&D revenue, and consolidated Adjusted EBITDA margins improving to 17.0%, reflecting favorable mix, pricing, and operational execution.
• Management's outlook for 2025 anticipates continued profitable growth, with full-year Adjusted EBITDA guidance reaffirmed at $800 million to $840 million and EPS guidance raised to $2.87 to $3.09, supported by expected A&D sales growth of 12% to 14% and expanding margins in the second half.
• Disciplined capital deployment, including accelerated share repurchases ($250 million planned for Q2 2025) and strategic investments in capacity and reliability, underscores management's confidence in future cash generation and commitment to returning value to shareholders.

Forging a New Identity: ATI's Ascent in High-Performance Materials

ATI Inc. is no longer primarily defined by its legacy in broader metals and mining. A deliberate and successful strategic transformation, initiated around 2020, has reshaped the company into a global leader in technically advanced specialty materials and complex components, with a sharp focus on the demanding aerospace and defense (A&D) markets. This evolution was formally recognized on May 1, 2025, when ATI's Global Industry Classification Standard (GICS) code was reclassified to Aerospace and Defense, validating its strategic pivot and enhancing its visibility within this critical sector.

The company's core strength lies in its deep materials science expertise and unique process technologies. ATI develops and manufactures differentiated products, ranging from castwrought and powder alloys to highly engineered finished components. This integrated capability allows ATI to serve the most critical applications in markets where material performance is paramount.

Within the competitive landscape, ATI operates alongside larger, more diversified metals producers like Alcoa Corp (AA), Nucor Corporation (NUE), and Steel Dynamics Inc (STLD), as well as more specialized players like Commercial Metals Company (CMC) and Arconic Corporation (ARNC). While competitors like Nucor and STLD benefit from scale and cost efficiency in commodity steel, and Alcoa and Arconic have significant positions in aluminum and engineered products, ATI carves out its niche through technological differentiation. Its focus is on high-performance, difficult-to-manufacture alloys and components where material properties like strength, heat resistance, and purity are non-negotiable. This positions ATI as a premium supplier in specialized segments, contrasting with the more cost-sensitive competition in broader industrial markets.

ATI's technological moat is particularly evident in its proprietary alloys for jet engines. The company is the sole source supplier for five of the seven alloys found in the hot section of current and coming generation engines. These critical materials are secured under long-term contracts extending well into the 2030s and even 2040s, highlighting the high barriers to entry and the irreplaceable nature of ATI's technology in these applications. The ability to produce these difficult alloys at scale, with the required purity and consistency, is a significant competitive advantage.

Beyond jet engines, ATI's expertise in titanium and specialty alloys is crucial for airframes, defense platforms, and demanding "aero-like" markets such as specialty energy, medical, and electronics. For instance, ATI's hafnium production for electronics and hypersonics/space applications is noted as being one of very few global sources capable of providing the required purity and scale. This technological leadership translates into a strong competitive position, enabling ATI to command favorable pricing and secure long-term contracts, which are foundational to its investment thesis.

Performance Reflecting Strategic Focus and Operational Gains

ATI's recent financial performance underscores the success of its strategic shift and ongoing operational improvements. In the first quarter of 2025, sales increased 9.7% year-over-year to $1.14 billion. This growth was primarily fueled by a robust 23% surge in aerospace and defense sales, which reached $754.4 million and accounted for 66% of total revenue, up from 59% in the prior-year quarter. This significant A&D growth more than offset softness in some industrial markets and other areas impacted by lower U.S. demand and China's slowed economy.

Profitability metrics demonstrated clear improvement. The consolidated gross profit margin expanded to 20.6% in Q1 2025, up from 18.9% in Q1 2024. This margin expansion was driven by higher sales volumes, a favorable sales mix increasingly weighted towards high-margin A&D products, and favorable pricing dynamics.

Segment performance mirrored these trends. The High Performance Materials Components (HPMC) segment saw sales increase 10% year-over-year to $584.1 million, primarily due to a 21% jump in aerospace defense sales within the segment. HPMC Segment EBITDA margin improved significantly to 22.4% in Q1 2025, compared to 18.4% in the prior year, reflecting improved operating leverage, favorable pricing, and productivity gains.

The Advanced Alloys Solutions (AAS) segment also contributed to growth, with sales increasing 9% year-over-year to $560.3 million. This was driven by a 25% increase in aerospace defense sales and a 21% increase in conventional energy sales, although partially offset by a decrease in electronics sales. AAS Segment EBITDA margin improved to 14.9% in Q1 2025 from 14.0% in Q1 2024, benefiting from higher sales and a favorable sales mix, particularly from higher demand for nickel-based alloys. While AAS margins saw a sequential decline from Q4 2024 (which included specific non-recurring benefits), the year-over-year expansion highlights the underlying improvement in the segment's profitability profile.

Operationally, ATI continues to focus on increasing output and efficiency. Investments in key assets like presses, forging equipment, and downstream testing and finishing capabilities are translating into higher throughput and improved reliability. The successful ratification of a new six-year labor agreement with the USW for the AAS segment on April 22, 2025, provides crucial long-term labor stability, underpinning the company's ability to meet growing demand in critical markets.

Financial Strength and Strategic Capital Deployment

ATI maintains a solid financial position, providing the flexibility to invest in growth and return value to shareholders. At March 30, 2025, the company held $475.8 million in cash and cash equivalents and had approximately $537 million in available additional liquidity under its Asset Based Lending (ABL) facility. While cash balances decreased from year-end 2024, largely due to working capital dynamics and capital deployment, the overall liquidity position remains robust.

Cash flow generation in Q1 2025 reflected the impact of increased operating levels and seasonal inventory builds, resulting in cash used in operating activities of $92.5 million. Cash used in investing activities totaled $50.6 million, primarily driven by capital expenditures of $53.3 million aimed at supporting future growth and reliability. Cash used in financing activities was $107.5 million, notably including $70.0 million for share repurchases.

Managed working capital, a key focus area for efficiency, increased as a percentage of annualized sales in Q1 2025 to 35.9% from 30.9% at year-end 2024. This increase was attributed to seasonal inventory builds and the timing of shipments and vendor payments. While this metric saw some near-term pressure, the company's focus remains on improving working capital efficiency over time.

ATI's capital deployment strategy is balanced, prioritizing investments in the business, managing its debt profile, and returning capital to shareholders. The company's next significant debt maturity is the 6.95% Debentures due in the fourth quarter of 2025, which it plans to repay using balance sheet cash. The Net Debt to Adjusted EBITDA leverage ratio worsened slightly in Q1 2025 compared to year-end 2024 due to the decreased cash balance, but the company remains focused on managing its leverage.

Shareholder returns are a clear priority. The company has a $700 million share repurchase program authorized in September 2024, with $180 million utilized by March 30, 2025. Demonstrating confidence in its current valuation and future cash generation, ATI intends to repurchase up to $250 million in shares during the second quarter of 2025, effectively accelerating its full-year buyback plan. This aggressive approach to share repurchases signals management's belief in the intrinsic value of the stock.

Outlook and Growth Trajectory

Management's outlook for 2025 and beyond reflects confidence in the company's strategic direction and the underlying strength of its core markets, while acknowledging potential near-term uncertainties. For the second quarter of 2025, ATI expects Adjusted EBITDA to be in the range of $195 million to $205 million, with Adjusted EPS between $0.67 and $0.73. This suggests a performance similar to Q1, with expectations for a more significant ramp and recovery later in the year.

The full-year 2025 Adjusted EBITDA guidance is reaffirmed at $800 million to $840 million. This guidance balances the positive signals from A&D demand with conservatism regarding non-A&D markets potentially impacted by trade uncertainty. Full-year Adjusted EPS guidance was raised to a range of $2.87 to $3.09, primarily benefiting from the planned accelerated share repurchases in Q2.

Key assumptions underpinning the 2025 outlook include expected full-year jet engine sales growth of 15% to 20% over 2024 levels, driven by both new builds and strong MRO demand (estimated at 40%-50% of current engine demand). Defense sales are anticipated to maintain a growth rate in the upper single digits. Overall A&D sales are projected to grow 12% to 14% in 2025, offsetting anticipated lower year-over-year sales in industrial markets.

Consolidated EBITDA margins are expected to improve throughout 2025, reaching the 18% range for the full year. Segment margins are also projected to expand in the second half of the year, with HPMC margins anticipated to exceed 24% and AAS margins in the 15% to 16% range (excluding tariff pass-through impacts).

ATI remains confident in its previously stated 2027 targets of achieving over $5 billion in sales (specifically, targeting over $5.2 billion) and over $1 billion in Adjusted EBITDA. This confidence is supported by the robust backlog ($4.0 billion at March 30, 2025, with approximately 70% expected to be satisfied within 12 months), recent significant customer commitments (including the $4 billion announced in July 2024, primarily for nickel jet engine products, and the multi-year titanium agreement with Airbus (AIR) signed in May 2025, valued at approximately $1 billion over five years and expected to double ATI's participation with Airbus next year), and anticipated market growth, particularly the wide-body ramp expected in the coming years. Investments in new capacity, such as the titanium alloy sheet facility brought online in Pageland, South Carolina (June 2025), and the new EB2 melter in Oregon (online and in qualification), are strategically timed to support this expected demand growth.

Risks and Considerations

While the outlook is positive, investors should be mindful of potential risks. Market volatility, particularly in the commercial aerospace supply chain, could persist, impacting order timing and production schedules. Trade-related uncertainty, especially concerning industrial markets and potential tariffs, could affect demand and require ongoing mitigation efforts. Operational execution remains critical; while recent issues have been addressed, unexpected outages or bottlenecks could impact performance.

The company is also subject to various legal and environmental liabilities, including ongoing litigation related to pension annuitization and local air permitting issues, although management does not currently anticipate these having a material adverse effect on financial condition or liquidity. The successful ratification of the USW labor agreement mitigates near-term labor dispute risk in a key segment. ATI's strategy of supply chain diversification, contractual pass-through mechanisms, and continuous operational improvement are key levers to mitigate these risks.

Conclusion

ATI Inc. has successfully transformed into a focused, high-performance materials and components supplier deeply embedded in the aerospace and defense value chain. Its differentiated technology, particularly in proprietary jet engine alloys and high-purity specialty materials, provides a strong competitive moat, enabling sole-source positions and driving expanding margins. Recent financial results demonstrate solid execution and momentum, with strong A&D growth underpinning improved profitability.

Management's outlook signals continued profitable growth, supported by robust demand in core markets, strategic capacity investments, and disciplined capital deployment focused on shareholder returns. While market volatility and operational challenges present potential headwinds, ATI's strategic responses, including flexible supply chains and contractual protections, position it to navigate these dynamics. The company's trajectory towards its 2027 targets appears well-supported by its current performance, strategic initiatives, and the favorable long-term outlook for its core end markets, particularly as the aerospace build rates continue their expected ramp.