ATI (ATI) Morgan Stanley‘s 12th Annual Laguna Conference 2024 summary

Demand environment and industry trends

• Current aerospace upcycle is characterized by a gradual, supplier-paced ramp-up, avoiding past cycles' rapid surges and corrections.

• Demand for engine products and materials remains strong, with MRO activity running at twice historical rates.

• Diversified exposure across all major airframe and engine programs reduces risk from individual OEM disruptions.

• Defense demand is robust, with titanium armor and naval propulsion contributing to growth amid global tensions.

• Underlying market demand is stable, with quarter-to-quarter smoothing rather than cancellations or long-term delays.

Supply chain, geopolitical risks, and titanium strategy

• Ongoing efforts to de-risk from Russian titanium suppliers have driven significant capacity expansion, with 80% more titanium melt capacity versus 2022.

• Restarted and new facilities are expected to add $150M–$170M in annual revenue at run rate, with further contributions as new assets qualify through 2025–2026.

• Geopolitical events, such as potential Russian export restrictions, are closely monitored, with contingency plans to accelerate new capacity if needed.

• Industry still relies on Russian titanium due to limited global capacity, but pressure from governments is increasing to diversify sources.

• Widebody aircraft ramp-up will further increase titanium demand, as these require significantly more material than single-aisle planes.

Financial strategy and capital deployment

• Announced a $700M multi-year share repurchase program, funded by operational cash flow, bringing total repurchases since 2022 to over $1B.

• Capital deployment priorities: invest for growth, de-lever the balance sheet, and return capital to shareholders.

• Net debt ratio expected to be between 1.5 and 1.75 by year-end, with a long-term target of 1–2 times.

• Convertible notes maturing in 2024 are being addressed to avoid dilution, with repurchases offsetting their conversion.