ATI INC (ATI)

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview

ATI produces specialty materials, highly differentiated by our materials science expertise and advanced process technologies. Aerospace & defense, our largest end markets, represented 69% of sales for the year-to-date period ended June 28, 2026, led by products for jet engines and airframes in addition to a wide range of defense applications. Additionally, we have a strong presence in the specialty energy market and serve customers in several other markets including conventional energy, medical, electronics and other industrial markets.

We operate in two business segments: High Performance Materials & Components (HPMC) and Advanced Alloys & Solutions (AA&S). HPMC produces a wide range of high performance materials, components, and advanced metallic powder alloys. These products are made from nickel-based alloys and superalloys, titanium and titanium-based alloys, and a variety of other specialty materials. HPMC’s capabilities range from cast/wrought and powder alloy development to production of highly engineered finished components, and 3D-printed aerospace products. The HPMC segment’s primary focus is on maximizing jet engine materials and components growth, with approximately 93% of its revenue derived from the aerospace & defense markets, including approximately 71% from products for commercial jet engines.

The AA&S segment produces nickel-based alloys, titanium and titanium-based alloys, and specialty alloys, including zirconium, hafnium, and niobium, in a variety of forms including plate, sheet, and strip products. AA&S focuses on high-value materials that are utilized in technically challenging and extreme environments, which require materials that can withstand extreme heat, radiation and corrosion. Sales to the aerospace & defense markets comprise approximately 43% of total AA&S sales. AA&S also serves customers across several other markets, notably specialty energy and conventional energy, as well as electronics and certain industrial markets.

ATI follows a 4-4-5 or 5-4-4 fiscal calendar, whereby each fiscal quarter consists of thirteen weeks grouped into two four-week months and one five-week month, and its fiscal year ends on the Sunday closest to December 31. Unless otherwise stated, references to years and quarters in this Quarterly Report on Form 10-Q relate to fiscal years and quarters, rather than calendar years and quarters.

Results of Operations

Sales

Second quarter 2026 sales increased approximately 11% to $1.26 billion, compared to $1.14 billion of sales for the second quarter 2025, primarily due to higher pricing and strong demand in the aerospace & defense markets, particularly for commercial jet engine and naval nuclear defense products. In aggregate, ATI’s aerospace & defense sales increased 13% to $862.0 million, or 68% of total sales in the second quarter 2026, compared to $761.8 million, or 67% of total sales in the second quarter 2025. Also, sales to other markets increased $21 million in the second quarter 2026 compared to the second quarter 2025, primarily due to increases in various industrial markets, including conventional energy and automotive.

Sales for the year-to-date period ended June 28, 2026 increased approximately 6% to $2.41 billion, compared to $2.28 billion of sales for the year-to-date period ended June 29, 2025, primarily due to increased demand and favorable pricing in the aerospace & defense markets. On a year-to-date basis, commercial jet engine and defense sales increased 13% and 22%, respectively. In aggregate, ATI's aerospace & defense sales increased 10% to 1.66 billion, or 69% of total sales in the year-to-date period ended June 28, 2026, compared to 1.52 billion, or 66% of total sales in the year-to-date period ended June 29, 2025. On a year-to-date basis, sales to other markets declined by $16 million, or 2%, primarily for medical, conventional energy, and electronics. This reflected the impact of the timing of shipments and capacity prioritization for key markets,

Comparative information regarding our overall sales by end market and their respective percentages of total sales for the quarters and year-to-date periods ended June 28, 2026 and June 29, 2025 is shown below.

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For the second quarter 2026, international sales decreased to $464 million, or 37% of total sales, from $490 million, or 43% of total sales, in the second quarter 2025.

For the year-to-date period ended June 28, 2026, international sales decreased to $923 million, or 38% of total sales, from $991 million, or 43% of total sales, in the year-to-date period ended June 29, 2025.

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Comparative information regarding our major products based on their percentages of sales are shown below. Hot-Rolling and Processing Facility (HRPF) conversion service sales in the AA&S segment are excluded from this presentation.

Gross Profit

Gross profit for the second quarter 2026 was $309.8 million, or 24.6% of sales, compared to $242.5 million, or 21.3% of sales, for the second quarter 2025. Second quarter 2026 gross profit includes $6.1 million of start-up and transaction-related costs, which are excluded from Adjusted EBITDA. Second quarter 2025 gross profit includes a benefit of $7.0 million related to the recognition of previously deferred employee retention tax credits, of which $4.4 million related to the HPMC segment and $2.6 million related to the AA&S segment, as well as $7.1 million of start-up and transaction-related costs, which are excluded from Adjusted EBITDA.

Our gross profit was $572.7 million, or 23.7% of sales, for the year-to-date period ended June 28, 2026, compared to $478.3 million, or 20.9% of sales for the year-to-date period ended June 29, 2025. Year-to-date period ended June 28, 2026 gross profit includes start-up and transaction-related costs of $14.1 million and $1.1 million of restructuring-related costs, which are excluded from Adjusted EBITDA. Year-to-date period ended June 29, 2025 gross profit includes a benefit of $7.2 million related to the recognition of previously deferred employee retention tax credits, of which $4.4 million related to the HPMC segment and $2.8 million related to the AA&S segment. Year-to-date period ended June 29, 2025 gross profit also includes $11.1 million of start-up and transaction costs, which are excluded from Adjusted EBITDA.

Selling and Administrative Expenses

Selling and administrative expenses for the second quarter 2026 were $95.7 million, an increase of 15.6% compared to $82.8 million for the second quarter 2025. The increase was primarily due to $11.0 million of transformation and transaction-related costs and $2.6 million of losses on the sale of customer accounts receivable, which are excluded from Adjusted EBITDA. Second quarter 2025 included $1.6 million of losses on the sale of customer accounts receivable, which are excluded from Adjusted EBITDA.

Selling and administrative expenses for the year-to-date period ended June 28, 2026 were 187.8 million, an increase of 11.9% compared to $167.8 million for the year-to-date period ended June 29, 2025. The increase was primarily due to $18.9 million of transformation and transaction-related costs and $5.1 million of losses on the sale of customer accounts receivable, which are excluded from Adjusted EBITDA. Year-to-date period ended June 29, 2025 included $3.2 million of losses on the sale of customer accounts receivable, which are excluded from Adjusted EBITDA.

Restructuring Charges

Second quarter 2026 included restructuring-related severance, impairment, and other costs of $3.9 million due to the rationalization of certain facilities, which are excluded from Adjusted EBITDA. Second quarter 2025 included a credit of $1.3 million, due to a reduction in severance-related reserves based on revised workforce reduction estimates.

The year-to-date period ended June 28, 2026 included restructuring-related severance, impairment, and other costs of $10.9 million due to the rationalization of certain facilities, which are excluded from Adjusted EBITDA. The year-to-date period ended June 29, 2025 included a credit of $1.3 million, due to a reduction in severance-related reserves based on revised workforce reduction estimates.

Gain/Loss on Asset Sales and Sales of Businesses, net

The gain on asset sales and sales of businesses, net of $9.8 million during the quarter and year-to-date periods June 28, 2026 was primarily attributable to the sale of a previously closed manufacturing facility during the second quarter of 2026, which was part of the AA&S segment.

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The loss on asset sales and sales of businesses, net of $3.9 million during the year-to-date period ended June 29, 2025 was primarily comprised of a $3.7 million loss on the sale of certain immaterial, non-core operations in Birmingham, UK and Dusseldorf, Germany, which were part of our European business in the HPMC segment.

Interest Expense, Net

Interest expense, net decreased to $23.9 million in the second quarter of 2026 compared to $25.4 million in the second quarter of 2025. Capitalized interest redu

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is intended to help the reader understand our results of operations and financial condition or the year ended December 28, 2025 (fiscal year 2025) as compared to the year ended December 29, 2024 (fiscal year 2024). The MD&A includes certain statements that are forward-looking statements. Actual results or performance could differ materially from those encompassed within such forward-looking statements as a result of various factors, including those described below. The MD&A should be read in conjunction with our consolidated financial statements and notes thereto included in Part II, Item 8 (Financial statements and Supplementary Data) of this Form 10-K. Information on the Company’s results of operations, financial condition and liquidity for fiscal year 2024 as compared to the year ended December 31, 2023 (fiscal year 2023) is included in our Annual Report on Form 10-K in Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” filed on February 21, 2025 and is incorporated herein by reference.

ATI Overview

ATI is a global manufacturer of technically advanced specialty materials and complex components. We are a market leader in manufacturing differentiated products that require our materials science capabilities and unique process technologies, including our new product development competence. Our largest markets are aerospace & defense, representing approximately 68% of total sales, led by products for jet engines and airframes. Additionally, we have a strong presence in the specialty energy end market, which includes products for nuclear and renewable energy applications. In aggregate, these markets represent over 73% of our total revenue. We also sell to several other end markets, including industrial, electronics and medical.

We operate in two business segments: HPMC and AA&S. The HPMC segment produces a wide range of high performance materials, components, and advanced metallic powder alloys. These products are made from nickel-based alloys and superalloys, titanium and titanium-based alloys, and a variety of other specialty materials. HPMC’s capabilities range from cast/wrought and powder alloy development to production of highly engineered components, and 3D-printed aerospace products. The HPMC segment’s primary focus is on maximizing jet engine materials and components growth, with

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approximately 92% of its revenue derived from the aerospace & defense markets, including nearly 68% from products for commercial jet engines. Commercial aerospace products have been the main source of sales and EBITDA growth for HPMC over the last several years and are expected to continue to drive HPMC and overall ATI results in the future. HPMC has also experienced strong growth in defense products, with fiscal year 2025 sales growth of 24%. Sales of defense products comprise almost 11% of HPMC's total sales.

The AA&S segment produces nickel-based alloys, titanium and titanium-based alloys, and specialty alloys in a variety of forms including plate, sheet, and strip products. AA&S focuses on high-value materials that are utilized in technically challenging and extreme environments, which require materials that can withstand extreme heat, radiation and corrosion. AA&S continued its focus of growing sales to the aerospace & defense end markets, with fiscal year 2025 sales to those markets increasing 15%. Aerospace & defense now comprises approximately 41% of AA&S total revenue. AA&S also serves customers across several other markets, notably specialty energy and conventional energy, as well as electronics and certain industrial markets.

Overview of Fiscal Year 2025 Financial Performance

Sales in fiscal year 2025 increased 5%, to $4.6 billion, and gross profit increased 12%, to $1.0 billion, compared to fiscal year 2024, reflecting increased demand for products within our aerospace & defense end markets, partially offset by softness in the medical, other industrial, and specialty energy end markets. International sales, including both U.S. exports and foreign sales from our foreign operations, were $1.9 billion in fiscal year 2025 and represented 43% of total sales, compared to $1.8 billion or 42% of total sales in fiscal year 2024.

Results for fiscal year 2025 included $70 million of net pre-tax charges and fiscal year 2024 included $17 million of net pre-tax gains as further described in the Results of Operations section below. The Company’s net income for fiscal year 2025 was $404.3 million, or $2.85 per share. ATI Adjusted EBITDA for fiscal year 2025 was $859.3 million, or 18.7% of sales, compared to $729.1 million, or 16.7% of sales, for fiscal year 2024. See further explanation below for non-GAAP definitions and calculations.

A summary of our results is as follows:

Key financial highlights of fiscal year 2025 include the following:

•Year-over-year sales growth of approximately 5%, with ATI’s 2025 sales representing our highest total since 2012. Fiscal year 2025 sales to the aerospace & defense markets increased 14% and represented 68% of our total sales, compared to 62% of total sales in fiscal year 2024.

•Growth in aerospace & defense drove year-over-year increases in operating income of 5% and net income attributable to ATI of 10%. Adjusted EBITDA improved to $859.3 million compared to $729.1 million in 2024, an increase of 18%. Adjusted EBITDA as a percentage of sales was 18.7% for fiscal year 2025, an improvement of 200 basis points compared to fiscal year 2024.

•We generated cash flow of $614.3 million from operating activities in fiscal year 2025, an increase of almost 51% compared to fiscal year 2024, as we continued efforts to focus on operational improvements to positively impact the inventory intensity of our business and reduce the required investment of managed working capital in relation to our growth in sales. Managed working capital as a percent of sales was 32.5% as of December 28, 2025, compared to 30.9% as of December 29, 2024, primarily due to the timing of payments to vendors and the 5% increase in 2025 sales.

•We continued our disciplined approach to capital allocation, funding growth while returning cash to our shareholders through the repurchase of our stock. We repurchased approximately 6.4 million shares of ATI stock for $470 million in fiscal year 2025. We have approximately $120 million of share repurchase authorization remaining under the plan approved by our Board of Directors.

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•We continued to deleverage our balance sheet, repaying $150 million of debentures in the fourth quarter of 2025. Further, we reduced our interest expense in fiscal year 2025 by approximately $9.0 million compared to fiscal year 2024, which was due to the redemption of the $291.4 million outstanding principal amount of 3.5% Convertible Senior Notes due 2025 (2025 Convertible Notes) during the third quarter of 2024.

Results of Operations

Fiscal Year 2025 Compared to Fiscal Year 2024

Sales

Fiscal year 2025 sales increased $225.3 million to $4.6 billion compared to fiscal year 2024, primarily due to increased demand for commercial jet engine products and defense applications. Total sales to the aerospace & defense markets increased by 14% compared to fiscal year 2024. This increase was partially offset by lower sales to the medical, specialty energy, and certain industrial end markets.

Comparative information for our overall revenues by end market, and their respective percentages of total revenues, is as follows:

Comparative information for our major products, based on their percentages of revenues, is as follows. Hot-Rolling and Processing Facility (HRPF) conversion service sales in the AA&S segment are excluded from this presentation.

Sales by geographic area and as a percentage of total sales, were as follows:

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Gross Profit

Fiscal year 2025 gross profit was $1,007.0 million, or 22.0% of sales, a $108.8 million increase compared to fiscal year 2024. Gross profit in fiscal year 2025 includes $23.6 million of start-up and transaction-related costs, which are excluded from Adjusted EBITDA. Fiscal year 2025 gross profit also includes a benefit of $7.2 million related to the recognition of previously deferred employee retention tax credits, of which $4.4 million related to the HPMC segment and $2.8 million related to the AA&S segment.

Fiscal year 2024 gross profit was $898.2 million, or 20.6% of sales, and included $15.3 million primarily for start-up and transaction-related costs, which are excluded from Adjusted EBITDA. Fiscal year 2024 gross profit also included a benefit of $16.7 million related to the recognition of previously deferred employee retention tax credits, of which $9.0 million of the benefit was recognized in the HPMC segment and $7.7 million in the AA&S segment.

The overall 140 basis points improvement in fiscal year 2025 gross profit margin as compared to fiscal year 2024 gross profit was primarily due to favorable sales mix and pricing as well as higher volumes.

Selling and Administrative Expenses

Selling and administrative expenses for fiscal year 2025 were $365.1 million, an increase of $22.8 million from 2024. The increase was

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