ATI Inc.

Good morning and welcome to the Allegheny Technologies Incorporated second quarter 2020 results conference call. All participants will be in a listen only mode. Should you need assistance, please signal a conference specialist by pressing this star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Please note, this event is being recorded. I would now like to turn the conference over to Scott Minder, Vice President, Treasurer, and Investor Relations. Please go ahead, sir.

Thank you, Chad. Good morning, and welcome to the Allegheny Technologies Second Quarter 2020 Conference Call. This call is being broadcast on our website at atimetals.com. Participating in the call today are Bob Weatherby, President and Chief Executive Officer, and Don Newman, Senior Vice President and Chief Financial Officer. If you've connected to this call via the Internet, you should see slides on your screen. For those of you who dialed in, slides are available on our website. After our prepared remarks, we will open the line for questions. During the Q&A session, please limit yourself to two questions. We will attempt to get everyone in the queue within the allotted call time. Please note that all forward-looking statements are subject to various assumptions and caveats, as noted in the earnings release and shown on this slide. Now I will turn the call over to Bob.

Thanks, Scott. Good morning. Let's get right to it. The urgency of the situation created by the global pandemic required significant and comprehensive action. You may recall the discussion of our leadership priorities as part of our first quarter earnings call. They continue to focus our actions as we work to maintain a solid foundation to ensure long-term profitability and growth. and emerged from this global crisis a stronger, more focused company. Keeping our employees safe was and still is our foremost concern. The ATI team has done a great job doing that. Less than 1%, fewer than 50 of our coworkers have tested positive for COVID. Across our global footprint, our employees are being personally diligent in monitoring their health. Where necessary, they continue to work collaboratively through quarantines, aggressive cleaning protocols, periods of uncertainty, and operational disruption. They've kept themselves as well as their coworkers safe. This has enabled us to stay focused on delivering for our customers. This has been and remains an unprecedented challenge that led to a continuing unprecedented positive response. My thanks to the entire team for what we've accomplished together. Their actions speak to the strength of our commitment to our value for safety. Preserving cash and maintaining liquidity is high on the priority list. We entered the quarter in a strong position and took action to make it even better. These efforts, along with our free cash flow generation over time, will ensure that ATI has the ability to invest for profitable top-line growth despite the downturn. I'll leave the details of our actions for Don to discuss in his portion of today's review. The other three priorities focused our actions and have led to the second quarter results we're reporting today, prepared us to weather the storm of even lower aerospace demand in the next two quarters, and have positioned us for improved results in 2021. Driven by significant drops in near-term customer order levels, we've been aggressively adjusting crewing levels and work schedules across the system. Many locations have been completely idled with employees furloughed for multiple weeks. We've reduced salaries and benefits. We've implemented permanent layoffs and operations where we expect a significant period of time before recovery. We've also reduced staffing administrative functions. We've delayed capital investments and are actively managing our maintenance spent. We proactively curtailed melting operations to accelerate the alignment of our inventories with the new demand expectations. All of these actions were thoughtful, deliberate, and necessary. As we took these immediate actions, we did so with full recognition that the commercial aerospace market will recover. Fundamentally, we believe it's growth deferred, not growth lost. It may take a few years to get back to 2019 levels, but we're confident we'll get there. As such, it's imperative that we retain an appropriate cadre of skilled operators to respond to the previously announced aerospace market share gains set to begin in 2021. We kept this firmly in mind as future accruing levels were set. We're committed to strong execution in the near term and will be recovery ready when the market accelerates. So let's move to slide four and look at our second quarter revenues by market and our forward expectations for our core aerospace and defense markets, as well as the differentiated applications we supply. Starting with our view on the jet engine market, several of our major customers gave updates last week and Our view is consistent with those, both in terms of market conditions, near-term demand, and the continued potential COVID resurgence caveat. You may recall we saw initial leap engine order rate reductions starting in late 2019 triggered by the 737 MAX production stop. The reductions accelerated through the second quarter as the impact of the pandemic became evident. Subsequently, sales in the quarter were significantly below prior year. Stabilization of the forward order book for engines appears to be on the horizon. We expect a low point in demand to stretch from the second half of 2020 into early 2021 before improving in the second half of 2021. Thus, we're projecting four more quarters to realign the supply chain to real demand levels. At that point, accounting for the order lead time lag between delivery of our product and the delivery of the OEM's engine, we expect our order levels to more closely track increases in underlying engine production. As mentioned earlier, we've worked proactively to adjust our mouth schedules and institute short duration facility idlings to minimize stranded and or excess inventory in our operations. Regarding demand for materials we provide to the airframe supply chain, destocking was apparent in our second quarter results, but at a slower pace compared to the jet engine market. Airframe destocking is expected to accelerate in 2021. Until the grounded 737 MAX fleet returns to service, it's going to be difficult to predict when order levels in the airframe supply chains will reflect real demand. As we approach year end, if and as needed, we'll adjust our operations to align with lower 2021 order levels for airframe materials. As a reminder, in both the jet engine and airframe markets, we have significant new business share gains and margin enhancement actions that will begin early next year. While the magnitude of the positive benefits from these wins will be muted in 2021 due to the lower industry demand levels, The impact will be magnified as the market recovery gains momentum in 2022. Our defense business continues to post solid year-over-year growth. This strength is broad-based across many subsectors. It's led by demand expansion for naval nuclear materials in support of our customer, BWXT, and ultimately the United States Navy. Additionally, our missile component sales continued to increase, as did demand for our titanium armor plate materials used for land-based vehicles. We expect our defense revenues to expand in the second half of the year as the programs we supply remain mostly insulated from negative COVID impacts. We continue to work directly with the Armed Forces Research and Development Labs and the large defense prime contractors to develop next-generation applications that perform better with ATI material science and advanced process technologies, leading to meaningful ATI growth opportunities in the future. As for electronics, primarily served by our China-based precision roll strip business known as Stahl, second quarter volumes modestly exceeded expectations as domestic demand improved faster than expected. Looking ahead to the second half of the year, we expect this market to experience modest demand growth in support of anticipated year-end holiday sales. To date, China's economic recovery continues, but a significant regional or global COVID resurgence has the potential to negatively impact second-half demand, given the worldwide reliance on China-sourced consumer electronics. In the energy markets, the COVID impact has been significant. Based on the well-publicized supply-demand imbalance and related price declines, drilling and exploration activities were severely curtailed. Production, both on and offshore, was greatly reduced. Our customers are destocking inventories as they focus on repair work. Although offshore oil and gas applications drive ATI's largest energy submarket, Demand from other areas was markedly better, including specialty alloy products for industrial pollution control systems, civilian nuclear refueling, and land-based gas turbines, particularly in Asia. Looking ahead, oil and gas prices have started to improve as producers reduce supply. Demand has slowly begun to recover. We continue to expect overall energy demand to be soft in the second half of the year, with potential upside from government sponsored ultra deep water projects that require high value nickel alloy materials. These projects are expected to be awarded late this year for shipment in 2021. Turning to the medical market, second quarter sales declined after first quarter growth. The anticipated return of elective surgeries and the need for diagnostic MRIs were delayed due to the resurgent pandemic. We expect second half 2020 sales to remain moderately depressed due to lingering concerns about visiting medical facilities for non-critical procedures in this environment. With that, I'll turn the call over to Don to cover in more detail our second quarter financial results and our outlook for the balance of the year. I'll be back at the end to offer a few final thoughts before we open the line for your questions. Don?