If you think of steel when you hear ATI Inc., formerly Allegheny Technologies, think again.
The same company whose parent business patented and commercialized stainless steel in the U.S. is moving on to jet engines, titanium, hafnium and other high-performance materials.
The specialty metals company, which moved its corporate headquarters from Pittsburgh to Dallas in June, underwent a shift to more profitable products during the COVID-19 pandemic, aiming to earn the majority of its revenue from aerospace and industry specialty materials and metal alloys instead.
ATI creates the specialty materials and alloys used in everything from MRI machines and jet engines to semiconductors and military-grade missiles — all of which are well-represented in the Dallas-Fort Worth economy.
In its most recent quarterly results call, ATI announced it closed its last remaining stainless steel plant in Illinois, sealing the deal on its transformation to becoming a primary supplier for aerospace and defense industries.
“We are now fully out of standard stainless sheet products. I expect this would be the last time I mention this product line in my earnings call remarks,” said ATI president and CEO Bob Wetherbee.
ATI first said it would exit its standard stainless steel business in December 2020, during the heat of the pandemic.
“By shedding a low-margin product line and optimizing our footprint, we are redeploying resources to an aerospace and defense-centered portfolio,” Wetherbee said when the decision was announced.
A sign is installed on ATI’s 200-foot tower in Vandergrift, Pa., part of the upgrade to the company s specialty rolled products manufacturing.
(Courtesy of ATI Inc. / Courtesy of ATI Inc.)
Aerospace and defense industries generated about half of ATI’s revenue in 2019. The company shoots to have those segments bring in 65% or more of revenue in the future. The pandemic proved a challenging time for the aerospace industry, but ATI’s transformation timing was intentional.
“We formed the strategy during the pandemic — not a coincidence, rather a deliberate response to the impact the downturn had on our operations,” spokeswoman Natalie Gillespie said. “Our goal was to emerge stronger, having leveraged every opportunity.”
The company’s move to open an office in Uptown Dallas last year was part of that business transition.
“We’ve opened an office in Dallas to accelerate our transformation and further position us to become an aerospace and defense leader,” Wetherbee said during the company’s February investor day.
The Dallas office became the company’s headquarters this June. The company paid relocation expenses to Wetherbee and two other executives to establish the office.
Chief operating officer Kimberly Fields described the business transformation as a diamond in the rough.
“What ATI achieved during the pandemic is similar to a jeweler applying a cutting tool to a diamond in the rough, honing, sharpening, gaining the edge that shows off our capabilities brilliantly,” she said in February.
The decision is beginning to show sparkles of future profits, but the company is still absorbing quarterly losses — $38 million most recently, including a $116 million non-cash loss on the sale of its Sheffield, United Kingdom, operations. It also reported non-GAAP adjusted net income of $76.7 million, suggesting that it would have been profitable without the Sheffield loss.
Despite two years of annual losses, including a $1.6 billion battering in 2020, ATI’s sales hit $960 million this quarter, surpassing 2019 levels for the first time post-pandemic. Its stock price has also risen around 40% over the past month and more than 360% from 2020 lows.
“We fully expect to cross that $1 billion threshold in the coming quarters, getting back to 2019 levels on a run rate basis,” chief financial officer Don Newman said. “That’s after exiting standard stainless sheet products and divesting of Flowform and Sheffield. That’s a stunning recovery in a short amount of time.”
ATI officials say they will begin reaping returns as the aerospace industry continues to bounce back.
“Our end markets are improving, particularly commercial aerospace,” Wetherbee said last week. “Demand for new aircraft and the materials needed to keep them flying are expected to benefit our business for years to come. The defense and energy markets are also contributing to our positive performance and outlook.”
On top of exiting stainless steel, ATI also took steps to improve its product mix and secure more long-term agreements during the pandemic. One product it’s targeting is hafnium, an important material for making semiconductors chips, many of which are produced in Texas.
“We have incredibly unique capabilities in the semiconductor industry, so we supply hafnium at the atomic level that allows the chips to perform all the great things that they do,” chief commercial and marketing officer Kevin Kramer said in February. “We also supply products in the manufacturing of things like bellows and plates that will do stamping for the various components in the electronics market.”
In July, ATI announced a multi-year agreement to supply the majority share of titanium plate and sheet products to GKN Aerospace, a British multinational company that serves more than 90% of the world’s aircraft and engine manufacturers.
That deal demonstrates two of ATI’s strategic shifts: targeting the aerospace industry and locking in long-term contracts.
Although the semiconductor, aerospace and defense industries ATI is supplying have a strong presence in North Texas, the company maintains manufacturing operations across the country.
“When you think about where ATI is today, we actually have four major centers of gravity in our business: Pennsylvania, the Carolinas, Wisconsin and Oregon,” Wetherbee said. “Being centrally located allows this leadership team to do what they enjoy the most, which is engaging with our people, engaging with our customers and engaging with our shareholders.”