ATI Inc.

Good day and welcome to the ATI third quarter results conference call. All participants will be in a listen only mode. Should you need assistance, please signal a conference specialist by pressing the 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 touch tone phone. 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, VP, Treasurer in Investor Relations. Please go ahead.

Scott Minder Thank you. Good morning and welcome to ATI's third quarter 2021 earnings call. Today's discussion is being broadcast on our website. Participating in today's call are Bob Weatherby, Board Chair, President and CEO, and Don Newman, Senior Vice President and Chief Financial Officer. Bob and Don will focus on our third quarter highlights and key messages, but may refer to certain slides within their remarks. These slides are available on our website. They provide additional color and details on our results and outlook. After our prepared remarks, we'll open the line for questions. As a reminder, all forward-looking statements are subject to various assumptions and caveats. These are noted in the earnings release and in the slide presentation. Now, I'll turn the call over to Bob. Thanks, Scott.

Good morning and thanks for joining us today. It feels great to report that we returned to profitability in the third quarter, three months ahead of our expectations. This was no small achievement as we overcame pandemic-induced disruptions, a three-plus-month labor strike, and the challenges inherent in significant business transformation. Our success is due in equal parts to accelerated rates of recovery in our diverse end market. our significant business restructuring and transformation efforts, and the perseverance of the ATI team. Our third quarter adjusted earnings per share were $0.05. EPS improved to $0.35 per share when you factor in the net positive impacts from settling our recent labor strike, including the benefits from our new collective bargaining agreement and the lingering strike-related costs, as well as the gain from the flow-form products divestiture. I'm proud of what our team has accomplished, overcoming the challenges of the past two years. We're winning on the top line through new business and by capturing share gains. We're winning on the bottom line by tightly managing costs and solidifying our financial foundation. We've begun to pivot to growth. We're excited about what we can achieve as the commercial aerospace recovery accelerates and our business operates at high utilization levels. Before I dig into our performance and outlook by end market, I'll provide a progress update on a few of our strategic initiatives. First, we took another step in our ongoing business transformation. We sold our FlowForm business for $55 million, resulting in a gain on sale of nearly $14 million. While this business primarily served the defense market, it had little connection to the broader ATI. There were few material synergies, and its long-term success was linked to specific program volumes rather than our material science. The new owner will be better placed to invest for its future. Second, we built upon our firm financial foundation by taking steps to reduce earnings volatility and cash flow variability and increase financial flexibility. I don't want to steal a lot of Don's highlights here, so I'll limit my comments. We successfully tapped the favorable debt markets to our advantage. We significantly extended our debt maturities by redeeming notes due in 2023. At the same time, we added new notes due in 2029 and 2031. A portion of these proceeds were used to support a voluntary pension contribution. As a result of these third quarter actions, annual interest expense will decrease by about $6 million and pension funding levels improve. Third, as a visible next step in our continuing journey to become one ATI, we promoted Kim Fields to serve as Chief Operating Officer effective January 2022. This officially recognizes the role she's been serving in since December 2020, leading both business segments. Kim's doing a great job aligning the businesses, accelerating execution, and streamlining material flows. As markets recover and asset utilization increases, we're better positioned to expand margins and improve cash generation under her leadership. Lastly, we continue to make progress on strategically transforming our specialty roll products business, taking deliberate actions to create a competitive cost structure. This began last December when we announced our plans to exit low-margin standard stainless sheet products. It includes closing five facilities and concurrently streamlining and upgrading our high-value material flow paths. Those efforts are largely on track. I'll have more on that in a moment. In July, we reached agreement with Specialty Role Products Union-represented employees, ending their three-and-a-half-month strike. Together, we signed a contract that rewards our employees for their important contributions to ATI's overall success. The SRP business is now positioned to be successful in the long term. I'm pleased to say that by the end of September, we've ramped SRP's production rates back to pre-strike levels, with one exception that we're working hard to address. The SRP team did an outstanding job safely getting back on track, accelerating production to meet strong customer demand. You might wonder where we stand on our decision to exit standard stainless sheet products, given the current strong market demand. History reminds us This is a temporary upswing in a highly cyclical business with chronically low margins and high fixed costs. Our commitment to exit hasn't wavered, but our timeline has extended by three to five months due to the strike-related impacts. First, the strike caused us to slow aerospace qualification activities across SRP operations. It also created a significant product backlog destined for strategic customers. As a result, as facilities slated for closure, we'll extend a few select operations into the second quarter of 2022. We would have preferred to stay on our original timeline. We're committed to better position our customers for the accelerating economic recovery and take near-term advantage where current market conditions offer a valuable upside. The savings capture will be slowed by a quarter or two, but let me be clear. The overall favorable economics attached to our transformation over the long run remain in place. Turning to our third quarter performance and outlook by market, we're seeing clear evidence of recovery. Momentum is building as volumes return to pre-pandemic demand levels. Let's start with our largest end market, commercial aerospace. Expansion continues unevenly across our product portfolio. In the jet engine market, forging's demand grew for the fourth quarter in a row. This expansion was driven by demand for narrowbody engines, coupled with our 2021 market share gains. Our Q3 results included initial LEAP 1B volume increases to support the expected 737 MAX production ramp. In contrast to forgings, our sequential jet engine specialty materials sales declined somewhat. While it appears that our customers' jet engine material inventories are nearing a low point, it's clear that pockets of inventory exist. We also believe there's widespread customer desire to tightly manage your inventory levels. We predict these inventory stockpiles will be fully depleted soon as OEM production rate increases materialize. We expect customer hesitancy to wane over the next few quarters and order patterns to reflect underlying demand once again. Lastly, on commercial aerospace, our airframe business expanded sequentially for two reasons. First, post-strike recovery efforts in our SRP business, and second, the increasing orders associated with our new European OEM long-term agreement. Year over year, airframe sales declined. We expect this market to continue at low levels in Q4 and into 2022 as international travel rates recover more slowly and 787 deliveries remain on hold. Despite the mixed third-quarter aerospace performance, there's good news on the horizon. As the COVID Delta variant's impact slows and international travel restrictions ease, customers are once again returning to the skies. This market is already displaying strong recovery trends in the form of increased domestic passenger travel, higher global cargo volumes, and accelerated fleet retirement. Moving to the defense market, revenue declined sequentially, largely due to customer shipment timing and the sale of our flow form business. Year-over-year growth was strong. What's driving growth in the near term? Titanium armor for land-based vehicle programs in the U.S. and the U.K., military jet engine sales, and the expansion of new helicopter programs. Longer term, we remain highly confident in ATI defense growth. Our confidence stems from a wide range of new programs and opportunities that can benefit from our advanced materials development and production capabilities. Turning to the energy markets, we saw significant growth sequentially and year-over-year in both business segments. This occurred in oil and gas as well as specialty energy. In our advanced alloys and solutions segment, we produced and shipped most of a large nickel alloy project destined for offshore waters in South America. In our high-performance materials and components segment, strong demand continued for our nickel products used in land-based gas turbine production in Asia. The near-term outlook for our energy markets is solid. Global GDP growth and higher travel rates will increase energy demands clearly. Sustainability trends will drive exploration and production of more environmentally friendly energy generation and transmission technologies. All of these are best served with our unique high-performance materials. Let's wrap up our markets discussion with our critical applications used in medical and electronics. In medical, sales grew sequentially and year over year. Increased demand for biomedical implant materials was driven by low post-pandemic customer inventory levels and increased elective surgery volumes. In Q4, we expect these trends to continue and likely expand to include MRI-related materials. The electronics sales were lower compared to the record-setting levels of the previous quarter and last year, but still very strong. The strong demand for other key end markets required production allocations within our China precision-rolled strip facility, constraining, within the quarter, available capacity for electronics products. We also had a planned Q3 maintenance outage at our Oregon facility. Underlying customer demand for electronics remains strong and should continue. I'll wrap up my opening comments by saying I'm confidently bullish on ATI's future. Our end markets are recovering. We're growing our market share. We've aggressively locked in cost structure improvements. We have significant growth opportunities on the horizon. We've put ourselves in a position to accelerate growth and expand margins. We're executing to win. It's an exciting time for ATI. I'm proud to lead this team as we achieve our goal of becoming a premier supplier of aerospace and defense materials. With that, I'll turn it over to Don to cover our financial results in more detail and provide you with our Q4 financial outlook. Don?