Earnings Recap — Q2 FY2026
CY Q3 2026 · Reported August 6, 2026 · Beat 6 of last 7 quarters
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ATI's record backlog and extended lead times across nickel alloys, premium titanium, and isothermal forgings underscore the persistent tightness in aerospace and defense supply chains, directly supporting the AI infrastructure buildout thesis that advanced materials remain a bottleneck. The company's capacity expansions in Mexico and new titanium EB furnace, along with a 15–20% nickel capacity increase by 2028, signal continued investment to meet multiyear demand from next-generation engine programs and defense platforms.
ATI delivered another strong quarter with revenue up 11% YoY to $1.3B, driven by 13% growth in jet engines and 36% growth in defense. Adjusted EBITDA of $284M exceeded guidance by $29M, with margins expanding 440 bps to 22.6%. The AA&S segment was the standout, with underlying EBITDA margin of ~22% (excluding a $10M asset sale gain) versus 14% a year ago, driven by portfolio optimization, pricing, and mix. HPMC sales grew 5% YoY to $637M, with margins of 24.1%, though qualification timing at the new Mexico facility and EB2 titanium furnace shifted some shipments into future periods. The company also announced a new naval nuclear contract with BWXT that more than doubles annual revenue versus the prior contract.
Management raised full-year 2026 guidance across all key metrics, citing a sustainable step change in AA&S performance and confidence in the HPMC ramp. Adjusted EBITDA midpoint raised to $1.160B (35% YoY growth), adjusted EPS midpoint to $5.04 (56% YoY growth), and adjusted free cash flow midpoint to $575M (51% YoY growth). Q3 guidance implies adjusted EBITDA of $305M–$315M, with Q4 expected to be the strongest quarter of the year, implying an annualized exit rate of ~$1.350B. Management expects consolidated incremental margins of ~50% for the year and sees AA&S EBITDA margins consistently above 20%, with potential to reach mid-20s. HPMC performance is expected to strengthen sequentially in the second half as deferred shipments convert and new contract pricing kicks in. The tone was confident, with emphasis on contracted pricing, committed customer schedules, and a record backlog providing multiyear visibility.
“That's not simply the result of stronger markets. It's the result of better mix, better pricing and better execution.”
on AA&S transformation
“We are not benefiting from just one favorable market or one strong quarter. We now have 2 businesses capable of generating durable earnings growth supported by differentiated products, stronger commercial performance, operational excellence and a record backlog that provides meaningful multiyear visibility into the future.”
on Balanced growth
“We see the fourth quarter as our strongest quarter of 2026 for sales and profit. Our midpoint guidance implies approximately $335 million of EBITDA in Q4. That translates to roughly $1.350 billion annualized exit rate.”
on Q4 exit rate
On the guidance raise, if I did the math right, you did -- at the midpoint, you took EBITDA up by $125 million, but you took up your free cash flow guide by $80 million. So I just wanted to know if you could go over what drove that and how we should be thinking about cash and cash conversion going forward?
Kim Fields noted the raise is based on contracted pricing, committed orders, and structural improvements in AA&S. Rob Foster explained the EBITDA increase is driven by higher second-half shipments, but not all converts to cash due to receivables timing on late Q4 shipments and planned inventory build for early 2027. He reiterated the full-year FCF midpoint of $575M represents 51% growth and a high-80s conversion rate, with a goal of 90%+ going forward.
I wanted to ask about the outlook in HPMC in the second half. You talked about catching up on some of the revenue. And to the extent that you also see margin expansion, I think the first half margin is kind of in the range -- mid-20s type of range that you've talked about, but had also been thinking about some LTA rollovers and mix improvement driving second half margin expansion there and if that's still part of the outlook?
Kim Fields confirmed HPMC sequential improvement in the second half is driven by Elevation productivity gains, contractual renewals with step-up pricing, and the conversion of $30M–$40M of deferred revenue from Q2 into future periods. She noted the deferred revenue carries incremental margins of 40%–50% and will accelerate as new facilities ramp.
Rob, you touched on kind of the implied Q4 EBITDA as an exit rate into next year. I guess, is there anything unusual in that number? Is there anything -- any reason as to why we wouldn't kind of -- or you guys wouldn't kind of grow off of that level as we head into '27? And kind of within that, are you thinking as we look at '27 is 50% incrementals for the overall business with what you're talking about for AA&S now? Is that a sustainable kind of run rate to use for incrementals from here?
Rob Foster said the Q4 exit rate of $1.350B EBITDA is directionally indicative of 2027, though no formal guidance was given. He noted the company now expects 50% incremental margins, up from 40%, reflecting structural changes, and expects to provide more guidance in the future. Kim Fields added that AA&S A&D mix is expected to remain at or above 44% and could rise further, supporting mid-20s margins.