ATI Inc.

Good day and welcome to ATI announces fourth quarter 2021 results conference call. All participants will be in a listen only mode. Should you need assistance, please signal 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 telephone keypad. And 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 Mr. Scott Mender, Vice President, Treasurer, and Investor Relations. Please go ahead, sir.

Thank you. Good morning and welcome to ATI's fourth 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, Executive Vice President and CFO. Bob and Don will focus on our fourth quarter and full year 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. Our Q4 performance exceeded expectations. We're excited to share what 2022 will bring. No doubt 2021 was a challenging and rewarding year, all rolled into one. While the global pandemic's ebbs and flows continued to impact our markets, we accomplished a lot. Performance accelerated across the year. We exited 2021 on a high note. earning our highest quarterly revenues and margins of the year in the fourth quarter. This was largely due to the solid foundation our teams laid in 2020 and early 2021. On an adjusted basis, we earned 25 cents per share, building on our return to profitability in the third quarter and well ahead of expectations. For the full year, 2021 EBITDA margins were 10.4%, only 30 basis points below full year 2019. And that's despite 32% lower revenues. It's a strong statement of what we've accomplished, transforming our business to emerge stronger from the downturn. The team executed for our customers at the highest level while maintaining lean cost structures. This gives us confidence that continued strong financial performance is ahead. Don will share more details about our financial performance in a few minutes, but I wanted to give you the great news up front. Let's start with the progress we made on our strategic initiatives in the quarter. First, we've been on a glide path to fully fund our defined benefit pension obligations. This will ultimately eliminate annual cash contributions and expenses. Our pace of progress significantly accelerated in 2021. We ended the year at an 84% funded status. up from 75% at year-end 2020. We took further action to reduce plan participation through another third-party annuitization. We're working from every angle to eliminate this financial obligation. The end of our pension saga is near. Next, we've been laser focused on generating cash and maintaining a healthy level of total liquidity throughout the pandemic. In the face of significant uncertainty, a year ago, we shared our 2021 goal to achieve positive free cash flow, excluding pension contributions. We achieved that goal. In the fourth quarter, we generated over $230 million of free cash flow. As a result, we ended the year with over $1 billion in cash and liquidity. Third, Earlier this morning, we announced that our board of directors authorized the repurchase of up to $150 million of ATI stock. With our strong cash and liquidity position and our current stock price, we strongly believe that it's the right time and the right method to return cash to shareholders. While Scott might kick me under the table, I'll take this opportunity to advertise our upcoming Investor Day on February 17th where we'll share our long-term top line, bottom line, and cash generation targets, as well as more details on our capital allocation strategy. I hope that you'll all join us at that virtual event. All right, back to the script. Our progress on our strategic initiatives. Lastly, we continue to make progress on the transformation of our specialty world products business, what we call SRPs. We updated you on our targets last quarter, and we're on track to complete the footprint consolidation and exit standard stainless sheet product sales by mid-year 2022. We've made significant progress toward this goal in two ways. First, product mix enrichment. In the fourth quarter, 96% of SRP sales were high value products. That's a big difference from a few years ago, and the product mix and margin benefits from this effort are expanding. Standard stainless inventory continues to dwindle. We intend to deliver the remaining amount over the next several months. And to be clear, we're no longer melting or producing new standard stainless sheet products. Second, footprint consolidation. Since year end, we've sold our facility in Pico Rivera, California. When we announced the SRP transformation just 14 months ago, we said we would reduce the footprint by five facilities. With this sale, we've completed three of those five. We'll complete the remainder of the consolidation in the next few months. In a moment done, we'll share the AA&S segment financials where the SRP business unit accounts for a majority of the revenues. Spoiler alert, they're much improved and poised to get even better. So in short, we have a clear strategy to become an aerospace and defense leader. In 2021, and especially in the fourth quarter, Our progress toward achieving our goals has been substantial. Now let's talk about our recent performance by end market, as well as where we're headed. I'll start with our core market jet engines. The industry's long predicted recovery has begun in earnest. The positive impacts are expanding within ATI. Our forgings growth began early in 2021. On the material side, there'd been a lag as customers work through excess inventory. That rapidly changed in Q4. Demand for jet engine materials snapped back to support increasing OEM build rates. Forging customers were low on inventory. Here's an industry stat that helps put this expanding production ramp into perspective. The industry's jet engine orders in November 2021 were the highest monthly total since June of 2019. And that's almost exclusively for narrowbody engines this time around as Wide-body production rates are still low. One more stat, this time ATI-focused. Our 2021 isothermal forging sales nearly doubled year over year, largely driven by our share gains. What's especially astounding about this accomplishment? We achieved this level despite producing LEAP-1B parts only in the last four months of the year and with low wide-body demand. That's a clear sign that good news is on the horizon for both the aerospace industry and ATI. Looking ahead, we expect continued strong forgings and materials growth as our customers increase narrow-body production rates in 2022 and 2023. There's a roadmap for Boeing 737 MAX to return to service in China. Global domestic air travel rates continue to improve, albeit with a short-term negative blip due to the Omicron variant. Allow me a moment to congratulate the team at our ISO Forging Center of Excellence in Wisconsin. Our fourth ISO press, commissioned in 2021, has achieved all necessary customer qualifications. We'll be putting that tremendous press to good use for our customers going forward. The team worked hard to achieve this milestone. We celebrate their efforts and look forward to the results that will lead to a strong return on investment for that new asset. Thank you to our outstanding team. Moving to airframes, where market demand remains subdued, international travel rates are still well below 2019 levels through the effects from the global pandemic and ever-changing travel restrictions country by country. On a positive note, we showed sequential revenue growth due to a large discrete commercial space order that we expect to complete in Q1 2022. We believe the airframe market is at, or at least very near, the low point. We expect essentially flat underlying demand in 2022. For ATI, we have a few modest tailwinds that should benefit our 2022 performance. First, accelerating growth from the European airframe OEM that began in 2021. And second, we'll see new business from a producer of an electric autonomous aircraft taxing technology for use with narrow body airplanes. In the defense market, sales in comparison to prior periods were mixed. This was largely due to the timing of long lead time orders in our naval nuclear market and the sale of our flow form product line in mid-2021. To help normalize the impact from quarterly timing variations, full year 2021 defense sales across all sectors were up a little more than 1%. If you remove the impact from the flow form sale, revenues improved by nearly 5%. Our full year growth was largely driven by increased military jet engine products, and the naval nuclear materials, which more than offset the temporary project gap in ground vehicle armor. In 2022, we expect continued growth. The current budgets for the Departments of Defense and Energy provide funding for programs of ATI's key customers. This anticipated expansion will be led by a recovery in vehicle armor as new Abrams tanks are produced and the UK ramps up its Ajax program. Continued strong funding for hypersonics where ATI plays an increasingly expansive role, will provide more long-term growth opportunities. Now let's talk about ATI's other markets, where we support critical applications that leverage our aerospace and defense capabilities and capacities. First up is energy, where oil and gas markets generally improve and specialty energy markets broadly decline. Oil and gas sales were driven by the final shipment of nickel alloy materials for a large pipeline project off the coast of Brazil. We also saw increased drilling activity associated with higher oil prices and strong end-user demand. While we anticipate oil and gas sales to be lower in the first quarter, largely due to the completion of the discrete fourth quarter pipeline project, we expect strong underlying market fundamentals to continue. We anticipate more offshore pipeline projects to be sourced in 2022, and ATI will remain competitive as nickel alloy markets tighten. Specialty energy markets declined versus both prior periods for two primary reasons. First, after robust Q3 results, Asian land-based gas turbine sales were lower. Second, reduced pollution control demand in India resulting from pandemic-induced project delays. In 2022, we anticipate pollution control projects to restart in India and underlying land-based gas turbine demand to remain strong in Asia, improving from Q4 levels. Lastly, the electronics and medical markets are smaller for us, but we saw demand growth continue. Electronic sales grew significantly for our hafnium-based materials, coupled with ongoing solid demand within our Asian precision rolled strip business. Looking ahead, we expect electronics demand to remain strong in 2022. Medical market sales rebounded sharply from prior year. Hospitals reopened for elective surgeries. They also resumed installation of new and maintenance of existing MRI machines. The near-term outlook for medical markets is being modestly impacted by the current Omicron surge, reducing hospital capacity for non-COVID related care. That said, underlying medical equipment demand remains solid. Looking forward to 2022 and what ATI can deliver for our shareholders, customers, and dedicated employees. Our markets are recovering well. By concentrating on the things under our control in 2020 and 2021, we've positioned ourselves to win. We're a leaner company, more focused on aerospace and defense, with amazing capabilities and a winning team. I bet you can sense my enthusiasm and confidence. If you like what you hear today and want to hear more, come back on February 17th, our Virtual Investor Day, for a more complete picture of our long-term plans and goals. With that, I'll turn it over to Don to give you more detail on our Q4 and full-year financial results and our 2022 outlook.