Executive Summary / Key Takeaways

• ATI Inc. has successfully transformed into a premier aerospace and defense (A&D) materials and components supplier, with A&D markets now constituting 70% of its total revenue, validated by its recent GICS reclassification.
• The company delivered robust financial performance in Q3 2025, with adjusted EBITDA reaching $225 million and an adjusted EBITDA margin exceeding 20%, its highest since the pandemic.
• ATI's differentiated materials, particularly its sole-source superalloys for jet engines and advanced titanium products, establish a formidable competitive moat, driving significant share gains and favorable pricing in critical applications.
• Operational excellence and strategic, customer-co-funded investments are expanding capacity and enhancing efficiency, positioning ATI for sustained profitable growth and strong cash flow generation.
• Management has raised its full-year 2025 guidance, projecting adjusted EBITDA between $848 million and $858 million and adjusted free cash flow between $330 million and $370 million, reflecting confidence in its long-term trajectory.

Forging a Future in High-Performance Materials

ATI Inc. stands as a global manufacturer of technically advanced specialty materials and complex components, strategically repositioned to serve the most demanding sectors. The company's core business revolves around producing high-performance materials, including titanium and titanium-based alloys, nickel- and cobalt-based superalloys, advanced powder alloys, and other specialty materials. These are transformed into long product forms, precision forgings, and machined parts essential for extreme environments. ATI's overarching strategy has been a deliberate pivot towards high-value aerospace and defense (A&D) applications, a transformation that has profoundly reshaped its business model and financial profile.

This strategic evolution began years ago, with ATI proactively embedding tariff language, surcharges, and pass-through mechanisms into its customer contracts starting around 2017-2018. This foresight aimed to manage volatility in raw material costs and inflation, laying a resilient financial foundation. The focused growth strategy initiated in 2020 has culminated in A&D markets representing an all-time high of 70% of total revenue in Q3 2025, a shift underscored by the company's recent reclassification to an A&D Global Industry Classification Standard (GICS) code. This reclassification validates the strategic evolution and provides greater visibility of ATI as a world-class A&D supplier.

The broader industry landscape supports ATI's strategic direction. The aerospace sector is experiencing an accelerating recovery, marked by robust backlogs at major airframers like Boeing (BA) and Airbus (EADSY). Sustained defense spending, driven by global geopolitical tensions and modernization programs, further fuels demand. Concurrently, the burgeoning needs of high-performance chips and the resurgence of nuclear energy are creating significant opportunities in ATI's "Aero-Like" markets, which leverage similar advanced material requirements.

The Technological Moat: Precision, Proprietary, and Performance

ATI's competitive edge is deeply rooted in its differentiated technology and advanced manufacturing capabilities. The company's core technological strength lies in its expertise across a broad spectrum of advanced alloys, including titanium, nickel-based superalloys, zirconium, hafnium, and niobium. This is complemented by sophisticated complex component manufacturing processes such as precision forging and powder metallurgy.

A key differentiator is ATI's position as the sole-source producer for five of the seven most advanced superalloys used in the hot sections of jet engines. These materials are critical for performance under extreme temperatures and stresses, with contracts extending well into the 2030s and even 2040s. The high barriers to entry for these alloys, due to their complex production and stringent qualification requirements, create a durable competitive moat. This proprietary technology translates into tangible benefits, enabling ATI to command premium pricing and foster strong customer loyalty in defense markets, effectively countering competitors who may offer broader material varieties but lack ATI's specialized performance.

Operational achievements underscore the benefits of these technological advantages. In 2024, isothermal forging output increased by 32%, reaching its highest quarterly total ever in Q4. More recently, Q3 2025 saw double-digit output increases in nickel remelt operations and a threefold improvement in isothermal flow path heat treat cycle time. The company also expanded its powder atomization capacity by over 25% and unlocked more than 20% additional capacity in the zirconium sponge process during the same quarter. These initiatives collectively expanded available capacity by approximately 10%, primarily impacting differentiated products. ATI is also the leading Western producer of high-purity zirconium, a critical material for national defense, energy, and aerospace.

New technological developments are also in the pipeline. ATI's new titanium alloy sheet operation in Pageland, South Carolina, is now online, filling a critical product gap for airframes. The EB2 melter for titanium in Washington is also operational and undergoing qualifications, expected to be qualified for standard quality (airframe, armor) by the end of 2025 and premium quality (rotating grade for engines) in the middle to back half of 2026. R&D initiatives, often backed by the U.S. government and allies, focus on new material qualifications for classified defense programs. Strategic capital investments, particularly for nickel melting, are purpose-built for proprietary alloys and frequently co-funded by customers, targeting internal rates of return (IRR) above 30%. These investments are not merely about increasing volume but about expanding ATI's competitive moat and supporting customers' ambitious growth targets without negatively impacting pricing.

Financial Resilience and Operational Momentum

ATI's strategic transformation and technological leadership are clearly reflected in its financial performance. In Q3 2025, the company reported revenue of $1.13 billion, a 7% increase year-over-year. Adjusted EBITDA for the quarter reached $225 million, marking a 21% increase year-over-year and an adjusted EBITDA margin of 20%, the highest since the pandemic and nearly double the 2019 margin. This robust profitability was broad-based, with the High Performance Materials & Components (HPMC) segment achieving margins above 24% and the Advanced Alloys & Solutions (AAS) segment exceeding 17%. The HPMC segment's margin expansion was primarily driven by higher sales and favorable pricing of nickel-based and specialty alloys, while AAS benefited from a favorable sales mix and pricing of exotic alloys.

Year-to-date through Q3 2025, ATI's sales increased 7% to $3.41 billion, with adjusted EBITDA up 19% over the prior year (excluding asset sales). This demonstrates the significant operating leverage of ATI's business model, with incremental margins approaching 50% in the first half of 2025. The company's TTM Gross Profit Margin stands at 21.43% and its TTM EBITDA Margin at 16.34%.

Cash flow generation has been a standout. Year-to-date Q3 2025, cash provided by operating activities reached $299 million, a substantial $273 million improvement from the prior year. This was supported by higher net income and improved working capital management, including the positive impact of selling $80 million of accounts receivable under a new Receivables Facility. Despite this, managed working capital as a percentage of annualized sales increased to 36.40% in Q3 2025 from 30.90% at year-end 2024, primarily due to seasonal inventory builds and timing of shipments.

ATI maintains a strong liquidity position, with $372.2 million in cash and cash equivalents, approximately $570 million in available liquidity under its ABL facility, and up to $100 million under a Delayed-Draw Term Loan.

ATI is committed to returning value to shareholders, having executed $150 million in share repurchases in Q3 2025, bringing total buybacks to $470 million year-to-date. The company's net debt ratio improved from 2.2x to 1.6x in Q4 2024, although it worsened to 1.85x in Q3 2025 due to a lower cash balance.

Competitive Landscape and Strategic Positioning

ATI operates in a highly specialized and competitive environment, facing both direct and indirect rivals. Key direct competitors include Carpenter Technology Corporation (CRS), Haynes International, Inc. (HAYN), Materion Corporation (MTRN), and The Timken Company (TKR).

ATI's competitive strengths are evident in its market positioning. Its proprietary technology in advanced alloys, particularly its sole-source superalloys for jet engines, provides a significant advantage. This allows ATI to maintain pricing power and foster strong customer loyalty in critical defense and aerospace applications, where material performance under extreme conditions is paramount. This contrasts with competitors like Haynes International, which also specializes in high-temperature alloys, but ATI's broader application range and integrated production capabilities can offer lower manufacturing costs.

In the aerospace sector, ATI has solidified its standing through strategic partnerships. The company recently signed an extended and expanded long-term titanium products agreement with Boeing, reinforcing its position as a top supplier for both narrowbody and widebody programs. Furthermore, a new multi-year agreement with Airbus, valued at approximately $1 billion over five years, positions ATI as a leading flat-rolled titanium supplier to the airframer, effectively doubling its participation. These contracts include volume-based minimums and mechanisms for inflation, raw material, and tariff pass-throughs, providing stability and margin protection. This contractual framework is a key differentiator, insulating ATI from the raw material volatility that can impact competitors.

While ATI's P/E ratio of 31.27 is higher than Timken's 17.44 and Haynes International's 20.79, it is lower than Carpenter Technology's 37.35 and Materion's 171.17, suggesting a mixed valuation picture relative to its peers. ATI's PEG ratio of 1.26 is also favorable compared to the Aerospace - Defense Equipment industry average of 2.5, indicating a potentially attractive growth-adjusted valuation.

However, ATI also faces vulnerabilities. Its reliance on certain imported raw materials, such as zirconium from China, creates supply chain dependencies that could be impacted by geopolitical tensions and tariffs. While ATI has diversified its sourcing and built stockpiles to mitigate these risks, such dependencies could still affect costs. The industrial segment, representing approximately 20% of ATI's business, is more susceptible to macroeconomic downturns and tariff impacts, where non-U.S. customers may prefer non-U.S. suppliers. In contrast, Materion, with its strong presence in electronics, may have a more diversified revenue base less exposed to these specific industrial headwinds.

Outlook and Growth Catalysts

ATI's management has expressed strong confidence in its future trajectory, raising its full-year 2025 guidance across the board. Adjusted EBITDA is now projected to be between $848 million and $858 million, a $28 million increase at the midpoint from previous guidance. Adjusted EPS is expected to be between $3.15 and $3.21, and adjusted free cash flow between $330 million and $370 million, a $40 million increase at the midpoint.

For Q4 2025, adjusted EBITDA is projected between $221 million and $231 million, with consolidated margins expected to exceed 19%. HPMC margins are anticipated to continue increasing, exceeding Q3's 24.2%, while AAS margins are expected to be between 16% and 16.5%.

Key market drivers underpin this optimistic outlook:

• Jet Engines: Full-year jet engine growth is expected to exceed 20%, with Q4 revenue growth in the high single to low double digits. ATI's order book extends into mid-2027, driven by next-generation programs like LEAP and GTF, and MRO activity, which represents about 50% of total engine sales.
• Airframes: High single-digit growth in airframe revenues is anticipated for 2026, driven by steady production ramps, increased ATI content, and favorable pricing under new long-term contracts. Beyond 2026, ATI's airframe business is poised to grow faster than overall industry volumes.
• Defense: ATI's defense business has delivered three consecutive years of double-digit growth, outpacing defense spending. Missile and propulsion programs, including THAAD and PAC-3 systems, are expanding rapidly, positioning ATI for above-market growth into the next decade.
• Specialty Energy: This market is expected to see growth starting in Q4 2025 and accelerating into 2026, driven by rising demand in commercial nuclear and land-based gas turbines, particularly from data centers.

Capital expenditures are projected to remain between $260 million and $280 million for 2025, with a portion potentially funded by customers. These investments are strategically directed towards high-return projects, often exceeding a 30% IRR, focused on differentiated products and debottlenecking. ATI is ahead of schedule on its 2027 growth and margin targets, with clear visibility through 2030 and beyond, reinforcing its long-term investment appeal.

Risks and Mitigation

While ATI's outlook is strong, several risks warrant consideration. The company faces ongoing litigation related to its October 2023 pension annuitization, though a magistrate judge has recommended dismissal for lack of standing. Environmental remediation obligations carry a reserve of approximately $15 million, with a reasonable possibility of costs exceeding reserves by as much as $16 million.

The dynamic tariff and trade landscape presents a notable risk. Tariffs announced in 2025 represent approximately $50 million in annual cost exposure prior to offsets. However, ATI anticipates minimal impact on full-year earnings due to its robust mitigation strategies. These include a diversified global supply chain, proactive cost management, duty drawback programs, defense-related exemptions, and contractual pass-through mechanisms for material fluctuations, inflation, and tariffs. As CEO Kimberly Fields stated, "Our contracts are really built to manage this type of volatility... that allows us, if there are any of these tariff costs that we aren't able to offset to pass through to our customers to make sure that it doesn't impact our financial results."

Raw material price volatility, particularly for nickel, remains a concern, but ATI employs surcharges, index mechanisms, and financial hedging to manage this exposure. Operational challenges, such as those experienced in Q3 2024 with nickel VIM melt issues and an [inaudible] repair, are being addressed through investments in equipment reliability and AI technology for predictive maintenance. Labor stability has been secured with a new six-year collective bargaining agreement in the AAS segment.

Conclusion

ATI Inc. has successfully executed a profound strategic transformation, firmly establishing itself as a leader in high-performance materials and complex components for the aerospace and defense sectors. This pivot, underpinned by a relentless focus on differentiated technology, operational excellence, and strategic customer partnerships, has translated into robust financial performance, expanding margins, and strong cash flow generation. The company's proprietary alloys, advanced manufacturing capabilities, and resilient contractual frameworks create a formidable competitive moat, enabling it to capture significant share in critical, high-growth markets.

With a compelling outlook for sustained growth in jet engines, airframes, and defense, coupled with disciplined capital allocation and a proactive approach to risk mitigation, ATI is well-positioned for continued value creation. The company's ability to consistently deliver on its commitments and adapt to evolving market dynamics reinforces its appeal as a compelling investment opportunity in the specialty materials industry, poised for further expansion through the decade and beyond.