Q2 2023 TimkenSteel Corporation Earnings Call

Good morning, My name is Chris and I'll be your conference operator today at this time I'd like to welcome everyone to the Timken Steel Corporation Q2, 2023 earnings call.

All lines have been placed on mute to prevent any background noise.

After the Speakers' remarks, there'll be a question and answer session.

Speaker 1: If you'd like to ask a question during this time, simply press star, then the number one on your telephone keep add. To withdraw your question, please press star 1.

If you'd like to ask a question. During this time simply press Star then the number one on your telephone keypad.

Your question. Please press star one again.

Speaker 1: Thank you, Jennifer Beeman, Director of Communications and Investor Relations. You may begin.

Jennifer Beeman director of Communications and Investor Relations you may begin.

Good morning, and welcome to Timken Steel second quarter 2023 conference call I'm, Jennifer Beeman director of Communications and Investor Relations for Timken Steel joining me today is Mike Williams, President and Chief Executive Officer, Kris Westbrooks Executive Vice President and Chief Financial Officer.

Speaker 2: Good morning and welcome to Timkin's Steel's second quarter 2023 conference call. I'm Jennifer Beaman, Director of Communications and Investor Relations for Timkin's Steel. Joining me today is Mike Williams, President and Chief Executive Officer Chris Westbrook's Executive Vice President and Chief Financial Officer and Kevin Rakketich, Executive Vice President and Chief Commercial Officer.

And Kevin Rakitic, Executive Vice President and Chief Commercial Officer.

Speaker 2: You all should receive the copy of our press release, which was issued last night. During today's conference call, we may make forward-looking statements as defined by the FCC. Our actual results may differ materially from those projected or implied due to a variety of factors, which we describe in greater detail in yesterday's release.

You all should have received a copy of our press release, which was issued last night during todays.

<unk> Conference call, we may make forward looking statements as defined by the SEC. Our actual results may differ materially from those projected or implied due to a variety of factors, which we describe in greater detail in yesterday's release.

Speaker 2: Please refer to our SEC filings including our most recent Form 10-K and Form 10-Q and the list of factors included in our earnings release, all of which are available on the Timken Steel website. Where non-GAAP financial information is referenced, additional details and reconciliation to its GAAP equivalent are also included in the earnings release. With that, I'd like to turn the call over to Mike. Mike?

Refer to our SEC filings, including our most recent Form 10-K and Form 10-Q, and the list of factors included in our earnings release, all of which are available on the timken steel website.

non-GAAP financial information is referenced additional details and reconciliation to its GAAP equivalent are also included in the earnings release with that I'd like to turn the call over to Mike Mike.

Good morning, everyone and thank you for joining us today.

Speaker 3: Good morning everyone and thank you for joining us today.

Speaker 3: First, I'd like to thank our employees for their hard work and unwavering dedication to Timkin Steel.

First I'd like to thank our employees for their hard work and unwavering dedication to timken steel.

Speaker 3: Because of their ongoing focus on safety and enhancing productivity, the company generated continued positive momentum.

Because of their ongoing focus on safety and enhancing productivity the company generated.

Continued positive momentum during the second quarter.

Speaker 3: Thanks to these efforts, we realized sequential improvement in chipments and profitability.

Thanks to these efforts, we realized sequential improvement in shipments and profitability.

Speaker 3: It's worth noting that our consistent positive operating cash flow trend remains strong, allowing us to strategically invest in the growth of our business and deploy our capital allocation strategy while maintaining a healthy balance sheet.

It's worth noting that our consistent positive operating cash flow trend remains strong.

Allowing us to strategically invest in the growth of our business and.

And deploy our capital allocation strategy, while maintaining a healthy balance sheet.

Speaker 3: As we progress on our journey to foster a culture deeply rooted in safety.

As we progress on our journey to foster a culture deeply rooted in safety.

Speaker 3: We remain focused on bolstering machine guarding, fencing, and our lockout tagout program.

We remain focused on bolstering machine guarding benzene.

And our lockout tagout programs.

Speaker 3: alongside an array of comprehensive training initiatives throughout the organization.

Alongside an array of comprehensive training initiatives throughout the organization.

Speaker 3: When it comes to the safety of our employees, we believe we can never over communicate or over train anyone.

When it comes to the safety of our employees, we believe we can never over communicate or overtrain anyone.

Speaker 3: One notable endeavor has been enhancing our job safety analysis training.

One notable endeavor has been enhancing our job safety analysis training.

Speaker 3: Through this industry proven process, we map each job or task into individual steps, while identifying potential hazards and strategizing effective measures to mitigate these risks.

Through this industry proven process, we map each job or task in the individual steps, while identifying potential hazards and strategizing effective measures to mitigate these risks.

Speaker 3: This proactive approach empowers our team to carry out their responsibilities with a heightened sense of confidence, awareness, and readiness.

This proactive approach empowers our team to carry out their responsibilities with a heightened sense of confidence.

Ernest and readiness, ultimately, reducing the likelihood of accidents or injuries.

Speaker 3: ultimately reducing the likelihood of accidents or injuries.

To underscore our commitment to safety.

Speaker 3: We have invested approximately $4 million in various safety training and other investments through the first half of 2023.

We have invested approximately $4 million in various safety training and other investments through the first half of 2023.

Speaker 3: This allocation is part of our larger commitment as we have allocated approximately 7 million dollars for safety programs in 2023.

This allocation is part of our larger commitment as we have allocated approximately $7 million for safety programs in 2023.

Okay.

Speaker 3: Turning to our second quarter performance, we achieved sequential growth in net sales of 10% driven by solid customer demand and base price.

Turning to our second quarter performance, we achieved sequential growth in net sales up 10% driven by solid customer demand and base pricing.

As anticipated these results translated into improved profitability.

Speaker 3: As anticipated, these results translated into improved profitability.

Speaker 3: We remain dedicated to sustaining this momentum and look forward to delivering on our commitment in the upcoming quarter.

We remain dedicated to sustaining this momentum.

Look forward to delivering on our commitment in the upcoming quarters.

Speaker 3: As anticipated, our melt utilization for the second quarter was approximately 75%.

As anticipated our melt utilization for the second quarter was approximately 75%.

Speaker 3: This rate included the impact of a few days of planned downtime to proactively complete maintenance on the furnace transformer.

This rate included the impact of a few days of planned downtime to proactively complete maintenance on the furnace transformer.

Speaker 3: We are encouraged by the ongoing positive macroeconomic trends that bode well for our company's growth in our targeted areas.

We are encouraged by the ongoing positive macroeconomic trends that bode well for our company's growth in our targeted areas.

Particularly promising is the continued upswing in electric and hybrid vehicle production, which represents a significant.

Speaker 3: Particularly promising is the continued upswing and electric and hybrid vehicle production, which represents. A significant opportunity for the public to continue to work with the public. And to ensure that the public is able to continue to work with the public. And to ensure that the public is able to continue to work with the public.

Opportunity for us.

Notably our base sales and EV related products grew by 77% year over year.

Speaker 3: Notably, our base sales and EV-related products grew by 77% year over year.

Speaker 3: We have been awarded approximately 20 essential component parts for EVs from various customers, indicating our strong

We have been awarded approximately 20 essential component parts for Evs from various customers.

Indicating our strong market presence we.

Speaker 3: We anticipate that this momentum will persist and even strengthen as we continue to foster valuable partnerships with our customers.

We anticipate that this momentum will persist and even strengthen as we continue foster valuable partnerships with our customers.

Given the market trend, we recently approved a 5 million dollar investment for two additional manufactured component machining lines to be installed at our facility in southwest, Ohio in late 2024.

Speaker 3: Given the market trend, we recently approved a 5M investment for 2 additional manufactured component machining lines. To be installed at our facility in Southwest Ohio in late 2024.

Speaker 3: This investment will broaden our EV components to customers and allow us to keep pace with the projected growth.

This investment will broaden our EV components to customers and allow us to keep pace with the projected growth.

Speaker 3: Currently, approximately 6% of our mobile manufactured components portfolio is attributed to electric vehicle components versus internal combustion parts.

Currently approximately 6% of our mobile manufactured components portfolio is attributed to electric vehicle components versus internal combustion parts.

Speaker 3: And we anticipate that the EV mix will continue to grow in the future.

And we anticipate that the EV mix will continue to grow in the future.

Speaker 3: In general, we experienced steady mobile shipments in the second quarter as the industry continued to see an easing of supply chain issues. However, we are staying close to our customers and suppliers who continue to work through raw materials shortages and labor issues.

In general we experienced steady mobile shipments in the second quarter as the industry continued to see an easing of supply chain issues. However, we are staying close to our customers and suppliers, who continue to work through raw material shortages and labor issues.

Speaker 3: Moving toward industrial products, we are benefiting from the expansion of the U.S. industrial supply base, particularly in support of major Department of Defense programs.

Moving to our industrial products, we are benefiting from the expansion of the U S industrial supply base.

Particularly in support of major department of defense programs.

Speaker 3: In the second quarter, our industrial shipments increased by 9% compared with the prior quarter, reflecting strength in defense and mining sectors.

In the second quarter, our industrial shipments increased by 9% compared with the prior quarter, reflecting strength in defense and mining sectors.

Our energy shipments in the second quarter were relatively flat on a sequential basis.

Speaker 3: Our energy shipments in the second quarter were relatively flat on a sequential basis.

Speaker 3: Concerns for weakening demand have slowed drilling activity. However, inventories remain relatively low for current and forecasted demand.

Concerns for weakening demand has slowed drilling activity, however, inventories remain relatively low for current and forecasted demand.

Speaker 3: we remain committed to our profitability improvement initiatives and work continues company-wide to achieve our target of $80 million by 2026.

We remain committed to our profitability improvement initiatives.

And work continues companywide to achieve our target of $80 million by 2026.

Speaker 3: Again, our actions focus on commercial excellence, manufacturing and reliability excellence, and administrative process simplification with a strong balance sheet as our foundation.

Again, our actions focus on commercial excellence manufacturing and reliability excellence and administrative process simplification with a strong balance sheet as our foundation.

Speaker 3: I look forward to continuing our positive momentum into the second half of 2023 with an ongoing focus on safety, manufacturing excellence, customer service, and advancing our strategic comparative to drive sustainable through cycle profitability and cash flows.

I look forward to continuing our positive momentum into the second half of 2023 with an ongoing focus on safety manufacturing excellence customer service and advancing our strategic imperatives to drive sustainable through cycle profitability and cash flows.

Speaker 3: I thank our customers for their trust, our suppliers for their partnership, and our shareholders for their continued support. Now I'd like to turn the...

I, thank our customers for their trust our suppliers for their partnership and.

And our shareholders for their continued support.

Now I'd like to turn the call over to Chris.

Speaker 3: Thanks Mike, good morning everyone and thanks for joining the call today.

Thanks, Mike Good morning, everyone and thanks for joining the call today.

Speaker 3: As expected, Tim can steal financial results in the second quarter, including sequential increases in malt utilization, shipments, and profitability combined with positive operating cash flow. We're encouraged by this performance and the company's outlook. Turn to...

As expected Timken Steel's financial results in the second quarter included sequential increases in melt utilization shipments and profitability combined with positive operating cash flow. We're encouraged by this performance and the company's outlook.

Turning to the second quarter financial results.

Speaker 3: Net sales totaled $356.6 million with net income of $28.9 million, or 62 cents per diluted share. Comparatively, sequential first quarter of 2023 net sales were $323.5 million, with net income of $14.4 million, or 30 cents per diluted share.

Net sales totaled $356 $6 million with net income of $28 9 million or <unk> 62 per diluted share.

<unk> sequential first quarter of 2023 net sales were $323 5 million with net income of $14 $4 million were <unk> 30 per diluted share.

Speaker 1: Net sales and last year's second quarter were $415.7 million with net income of $74.5 million or $1.42 per diluted share.

Net sales in last year's second quarter were $415 $7 million with net income of $74 5 million or $1 42 per diluted share.

Speaker 1: On an adjusted basis, the company reported net income in the second quarter of $27.6 million or 60 cents per diluted chair.

On an adjusted basis. The company reported net income in the second quarter of $27 6 million or <unk> 60 per diluted share.

Speaker 1: Comparatively, the first quarter adjusted net income was $20.8 million, or $0.44 per diluted share.

Comparatively the first quarter adjusted net income was $20 8 million or <unk> 44 per diluted share.

Speaker 1: Adjusted net income in the second quarter last year was $67.4 million or $1.29 per dulyted share.

Adjusted net income in the second quarter last year was $67 4 million or $1 29 per diluted share.

Adjusted EBITDA was $50 $5 million in the second quarter, a 40% increase from the first quarter. This $14 $5 million sequential improvement in adjusted EBITDA was driven by higher base sales prices on increased shipments combined with an increase in the raw material surcharge environment.

Speaker 1: Adjusted EBITDA was $50.5 million in second quarter, a 40% increase from the first quarter. This $14.5 million sequential improvement in adjusted EBITDA was driven by higher-based sales prices on increased shipments combined with an increase in the raw material surcharge environment.

Speaker 1: Compared with record adjusted, the EBITDA of $84.2 million in the second quarter last year. Adjusted the EBITDA decreased by $33.7 million in the quarter.

Compared with record adjusted EBITDA of $84 2 million in the second quarter last year, adjusted EBITDA decreased by $33 $7 million in the quarter.

Speaker 1: This year over your decrease was reflective of lower shipments, given our finished goods inventory position, as well as a market decline in the raw material surcharge environment, which was at peak levels during the second quarter of last year.

This year over year decrease was reflective of lower shipments given our finished goods inventory position as well as the market decline in the raw material surcharge environment, which was at peak levels during the second quarter of last year.

Speaker 1: Higher manufacturing and pension costs also contributed to the decline and adjusted the apathy from the record second quarter of 2022.

Higher manufacturing and pension costs also contributed to the decline in adjusted EBITDA from the record second quarter of 2022.

Speaker 1: During the first and second quarters of 2023, the company had insurance recoveries of $9.8 and $1.5 million respect.

During the first and second quarters of 2023, the company had insurance recoveries of $9, eight and $1 $5 million, respectively. These recoveries related to the unplanned downtime in the second half of last year and have been excluded from 2023 adjusted EBITDA.

Speaker 1: These recoveries related to the unplanned downtime in the second half of last year and have been excluded from 2023 address to the EBITDA. Turning now to the details of...

Turning now to the details of the financial results in the second quarter.

Speaker 1: shipments were 177,500 tons in the quarter, an increase of 4,600 tons or 3% compared to the first quarter of 2023.

Shipments were 177500 tonnes in the quarter, an increase of 4600 tons or 3% compared with the first quarter of 2023.

Speaker 1: In the industrial and market, shipments totaled 78,400 tons in the second quarter. That's a quential increase of 6,200 tons or 9%.

In the industrial end market shipments totaled 78400 tons in the second quarter, a sequential increase of 6200 tons or 9%.

Speaker 1: The sequential increase in industrial shipments was supported by improving finish good inventory position.

The sequential increase in industrial shipments was supported by an improving finished goods inventory position.

Speaker 1: driving the sequential increase in industrial shipments with steady demand across a wide range of sectors such as heavy equipment used in mining as well as strong demand for defense related products.

Driving the sequential increase in industrial shipments with steady demand across a wide range of sectors, such as heavy equipment used in mining as well as strong demand for defense related products.

Speaker 1: Mobile customer shipments were 79,500 tons in the second quarter, a slight sequential decrease of 900 tons, or 1%.

Mobile customer shipments were 79500 tonnes in the second quarter, a slight sequential decrease of 900 tonnes of 1%.

Speaker 1: Chibbons in the mobile and market represented 45% of the total portfolio in the second quarter, a 2% point reduction from the first quarter as planned.

Shipments in the mobile end market represented 45% of the total portfolio in the second quarter, a two percentage point reduction from the first quarter as planned.

Speaker 1: Mobile customers continue to pull hard to support demand and replenish inventory.

Mobile customers continue to pull hard to support demand and replenish inventories.

Speaker 1: shipments to energy customers totaled 19,600 tons in the second quarter. The sequential decrease of 700 tons or 3%.

Shipments to energy customers totaled 19600 tons in the second quarter, a sequential decrease of 700 tons or 3%.

Speaker 1: of our total second quarter shipments approximately 24,000 ship tons were sourced from third-party melt producers and then rolled, finished, and shipped by Timkin Steel.

Of our total second quarter shipments approximately 24000 ship tons were sourced from third party milk producers and then rolled finished and ship item can steal.

Speaker 1: Given improvements in our melt productivity, we anticipate a sequential decrease in shipments of third-party melt in the third quarter.

Given the improvements in our melt productivity, we anticipate a sequential decrease in shipments of third party milk in the third quarter.

Speaker 1: Net sales of $356.6 million in the second quarter increased 10% sequentially.

Net sales of $356 6 million in the second quarter increased 10% sequentially.

The sequential increase in net sales was driven by higher base sales prices and shipments.

Speaker 1: The fuel increase in net sales is driven by higher base sales prices and shifts.

Speaker 1: Additionally, contributing to the increase in net sales was a market driven 22% increase in average raw material surcharge per ton as a result of higher scrap and alloy price.

Additionally, contributing to the increase in net sales was a market driven 22% increase in average raw materials surcharge per ton as a result of higher scrap and alloy prices.

Speaker 1: These sales prices increased by approximately $100 per ton or 8% on average in the second quarter across our end markets in comparison to the full year 2022 average.

Base sales prices increased by approximately $100 per ton or 8% on average in the second quarter across our end markets in comparison to the full year 2022 average.

Speaker 1: Turning to manufacturing, as anticipated, melt utilization was 75% in the second quarter compared to 73% in the first quarter.

Turning to manufacturing as anticipated melt utilization was 75% in the second quarter compared with 73% in the first quarter Manny.

Speaker 1: Manufacturing costs increased sequentially by $6.8 million as a result of higher first quarter plant costs being recognized in the second quarter as inventory was sold.

Manufacturing costs increased sequentially by $6 8 million as a result of higher first quarter plant costs being recognized in the second quarter as inventory was sold.

Speaker 1: Additionally, we pulled forward $1.2 million of planned annual shutdown work into the second quarter from the second half of the year as the operating schedule permitted.

Additionally, we pulled forward $1 $2 million of planned annual shutdown work into the second quarter from the second half of the year as the operating schedule permitted.

Switching gears to income taxes, the company's effective tax rate was 27% in the second quarter and 25% for the first half of the year.

Speaker 1: The company's effective tax rate was 27% in the second quarter and 25% for the first half of the year. This higher than expected effective tax rate was primarily driven by non-deductible expenses.

This higher than expected effective tax rate was primarily driven by non deductible expenses.

Speaker 1: At this time, the company expects the effective tax rate for the remainder of 2023 to be approximately 25%.

At this time the company expects the effective tax rate for the remainder of 2023 to be approximately 25%.

Speaker 1: From a cash tax as perspective, we spent approximately $13 million on income taxes in the second quarter.

From a cash taxes perspective, we spent approximately $13 million on income taxes in the second quarter.

Moving onto cash flow and liquidity.

Speaker 1: Moving on to cash flow and liquidity. During the second quarter operating cash flow is $13.3 million driven by quarterly net income and insurance recoveries, partially offset by a use of cash to fund working capital sollte

During the second quarter operating cash flow was $13 $3 million driven by quarterly net income and insurance recoveries, partially offset by a use of cash to fund working capital requirements.

Speaker 1: This marks the company's 17th consecutive quarter generating positive operating cash.

This marks the companys 17th consecutive quarter generating positive operating cash flow.

Speaker 1: Capital expenditures totaled $8.1 million in the second quarter.

Capital expenditures totaled $8 1 million in the second quarter. The company now for cash capex to be approximately $50 million in 2023, an increase from the previous $45 million guidance.

Speaker 1: company and I forecast cat-back to be approximately $15 million in 2023, an increase from the previous $45 million guide.

Speaker 1: The higher CAPEX forecast includes down payments for two recently approved manufactured component machine lines, as well as new automated grinding and finishing investments discussed last quarter.

The higher Capex forecast includes down payments for two recently approved manufactured component machining lines as well as new automated grinding into finishing investments discussed last quarter.

From a share repurchase perspective, the company repurchased 650000 common shares during the second quarter at a total cost of $11 $4 million.

Speaker 1: From a Sherry purchase perspective, the company repurchased 650,000 common shares during the second quarter at a total cost of $11.4 million.

Speaker 1: As of June 30th, the company had $52.2 million remaining on its sharey purchase provost.

As of June 30, the company had $52 $2 million remaining on its share repurchase program.

Speaker 1: Since the inception of the program early last year through the end of June 2023, Weaver purchased 4.2 million shares at a total cost of $73 million.

Since the inception of the program early last year through the end of June 2023, we've repurchased four 2 million shares at a total cost of $73 million.

Speaker 1: In total, these common share repurchases plus the 2022 and 2023 convertible no repurchases have resulted in a significant 15.5% reduction in diluted shares outstanding compared with the fourth quarter of 2021.

In total these common share repurchases plus the 2022 and 2023 convertible note repurchases have resulted in a significant 15, 5% reduction in diluted shares outstanding compared with the fourth quarter of 2021.

Speaker 1: The company's cash and cash equivalence totaled $221.9 million in total liquidity was approximately $530 million as of June 30th, 2023.

The company's cash and cash equivalents totaled $221 $9 million and total liquidity was approximately $530 million as of June 32023.

As we progress forward, we expect the strength of our balance sheet consistent cash flow generation and positive business outlook to provide us the opportunity to continue to execute on our capital allocation strategy.

Speaker 1: As we progress forward, we expect the strength of our balance sheet, consistent cash flow generation, and positive business outlook to provide us the opportunity to continue to execute on our capital allocation strategy.

Speaker 1: This includes investing in profitable growth, maintaining a strong balance sheet, and returning capital to Sheryl.

This includes investing in profitable growth, maintaining a strong balance sheet and returning capital to shareholders.

Turning now to the outlook from a commercial perspective third quarter shipments are expected to modestly increase supported by steady demand across our end markets as evidenced by orders currently booking into the fourth quarter.

Speaker 1: Turning now to the outlook, from a commercial perspective, third-quarter shipments are expected to modestly increase, supported by steady demand across our end markets, as evidenced by orders currently booking into the fourth quarter.

Speaker 1: The sales price per ton is anticipated to remain strong for the remainder of the year with fluctuations driven by changes in products.

Base sales price per ton is anticipated to remain strong for the remainder of the year with fluctuations driven by changes in product mix.

Speaker 1: Operationally, Melutilization has expected this sequentially increase in the third quarter.

Operationally melt utilization is expected to sequentially increase in the third quarter.

Speaker 1: Additionally, we're in the process of completing our annual shutdown maintenance for the second half of the year with an expected remaining cost of approximately $12 million. At this time, we're planning for one third of the spend in the third quarter and the remaining two thirds of the spend in the fourth quarter with the melt shop shutdown maintenance planned early in the fourth quarter.

Additionally, we're in the process of completing our annual shutdown maintenance for the second half of the year with an expected remaining costs of approximately $12 million at this time, we're planning for one third of the spend in the third quarter and the remaining two thirds of the spend in the fourth quarter with the melt shop shutdown maintenance planned early in the fourth quarter.

Speaker 1: Given these elements, the company expects adjusted to remain strong and operating cash flow to be positive in the third quarter of 2023.

Given these elements the company expects adjusted EBITDA to remain strong and operating cash flow to be positive in the third quarter of 2023.

Speaker 1: To wrap up, thanks to all of our employees who keep safety top of mind on a daily basis and help the company deliver a solid second quarter. We appreciate your interest in Timkin's deal to look forward to sharing our continued progress in the future. We now like though.

To wrap up thanks to all of our employees, who keep safety top of mind on a daily basis and helped the company deliver a solid second quarter we.

We appreciate your interest in Timken steel and look forward to sharing our continued progress in the future we'd now like to open the call for questions.

Thank you and as a reminder, if you would like to ask a question. Please press Star then one on your telephone keypad.

Speaker 4: Thank you. And as a reminder, if you would like to ask a question, please press star or then one on your telephone keypad.

Speaker 4: The first question is from John Franz Reb with Siddode and Co. Your line is open.

The first question is from John <unk> with Sidoti <unk> Co. Your line is open.

Speaker 3: Good morning everyone and thanks for taking questions and congratulations on a good quarter. I'd like to start on the band profile. I was kind of impressed with the industrial growth in the quarter. You're called out defense and mining. I'm curious about what that outlook looks like in the second half of the year. It would seem like to be pretty volatile. Are there any kind of changes in the demand profile in the second half?

Good morning, everyone and thanks for taking the questions and congratulations on a good quarter.

I'd like to start just on the.

On the demand profile.

I was kind of impressed with the industrial growth in the quarter you called out defense in mining.

I'm curious about what that outlook looks like in the second half of the year.

It would seem that can be pretty volatile are there any kind of changes in the demand profile in the second half.

Speaker 1: the first half and I guess you could also apply that to the mobile business. We seem to be seeing a lot of kick up in the production rates versus what we were seeing say three months ago.

Versus the first half and I guess you can also apply that to the mobile business, we seem to be seeing a lot of pick up in the production rates versus what we are seeing some safely months ago.

Speaker 5: or John . So I think if we the profile that we would expect to see would be modest increases in our industrial sales and the modest increases in mobile, I think the larger parts going to come in industrial, particularly around the defense area or sector.

Sure John So I think if we.

The profile that we would expect.

To see would be modest increases in our industrial sales.

Some modest increases in mobile, but I think the larger part is going to come in industrial, particularly around the defense area or sector.

Mhm.

Speaker 5: So I think energy is going to be fairly flat quarter over quarter. So as the sales rates and the build rates continue to increase, we may also see some.

So I think energy is going to be fairly flat quarter over quarter.

So as the build rates sales rates versus in the build rates continue to increase.

You May also see some.

Speaker 5: Increased demand tied to potential UAW work stoppage with the Automotive OEM.

Increased demand tied to a potential UAW work stoppage with the automotive Oems.

Speaker 5: So we're going to watch that very closely and see how that develops over the next couple of months.

So we're going to watch that very closely and see how that develops over the next couple of months.

Fair enough.

Speaker 1: Fair enough and you talk a little bit about your ability to track your business and other in part of the

And can you talk a little bit about your ability to.

We track New business I know that's been part of the.

Speaker 1: growth profile, kind of an update on new customer captures.

Growth profile kind of an update on our new customer captures.

Speaker 5: Yeah, I mean, I don't know that we've had a whole lot of new, new customer captures. I mean, there's always customers that come, you know, in and out, depending on what products requirements they need. But what we continue to see is solid, solid growth and the EV.

Yes.

I don't know that we've had a whole lot of new customer captures I mean, there is always customers that come in and out depending on what products requirements, they need but what we continue to see us.

Solid.

Growth in the EV.

Speaker 5: products that we manufacture. We've been informed of several uplifts by the Automotive OEMs on various EV platforms that we participate in.

Products that we manufacture we've been informed of several uplifts by the automotive Oems on various EV platforms that we participate in.

Speaker 5: We expect that, you know, mining continues to be pretty solid in the in the industrial space. And then we expect.

We expect mining continues to be pretty solid and then in the industrial space and then we expect.

The demand for defense products that we produce to continue to increase.

Speaker 5: the demand for defense products that we produce to continue to increase.

In the third quarter.

Speaker 1: And you got it. And the changes are the lack of utilization of 30 third party producers in the coming quarter. What's driving that?

Got it.

The changes or the lack of utilization of third party.

Producers in the coming quarter, what's driving that.

Well I.

Speaker 5: Well, there's, I would say the predominant thing is that our melt utilization is increasing. So as you can understand our internal costs are cheaper to manufacture than it is to procure it.

I would say the predominant thing is.

Utilization is increasing so.

You can understand.

Our internal costs are cheaper to manufacture than it is to procure it.

Speaker 5: So we expect to see margin improvement as we continue to ramp up our melt utilization and use our own melt for our sales versus third party. There is also a second component there as well. We can only apply third party melt where it makes financial sense.

So we expect to see margin improvement as we continue to ramp up our melt utilization and user of our own milk.

For our sales versus third party.

There is also a second component there as well we can only apply third third party milk, where it makes financial sense.

And so.

Speaker 5: That's still, we're working on some projects that could work out to be very positive for us. I'm not gonna get a great details on those because those are in the trial stages right now, but there's some opportunities to maybe do this little bit product diversification with third party mail. We just need to make sure that financially, it makes very positive sense to do so.

That's still we're working on some projects.

Net.

Good.

Work out to be very positive for us I'm not going to get a great details on those because those are in the trial stages right now, but there are some opportunities to maybe reduce a little bit product diversification.

With third party milk, we just need to make sure that financially it makes very positive sense to do so.

Speaker 1: And one last question, I'll go back into Q. On the warm material spread, looks like it was a little bit more of a headwind than we thought maybe three months ago, at least more than I was looking at. Can you talk a little bit about your expectations for that, going into the third quarter?

Got it and when this question and I'll get back into queue on the raw material spread.

It looks like it was a little bit more of a headwind than we thought maybe three months ago at least more than I was looking at.

Can you talk a little bit about your expectations for that going into the third quarter.

Speaker 5: Yeah, you know, again, you know, scrap scratches are somewhat at times very volatile. They change from month to month. So from a forecasting standpoint, it can become a little difficult. However, we do expect further compression on the spread in Q3.

Yes.

Again scrap prices are somewhat at times very volatile.

They they.

They change from month to month, so from a forecasting standpoint, it can become a little difficult.

However, we do expect further.

<unk> on the spread in Q3.

Okay.

Great. Thanks, guys I'll get back in queue.

Speaker 1: Great, thanks guys, I'll get back into queue. Thanks, John .

Thanks, John .

Speaker 4: Again, that's star one. If you'd like to ask a question, the next question is from Dave Storms with Stonegate Capital Markets.

Again, Thats star one if you'd like to ask a question. The next question is from Dave storms with Stonegate capital markets. Your line is open.

Speaker 6: Hi everyone, thanks for taking my questions. John stepping in for Dave here.

Hi, everyone. Thanks for taking my questions John stepping in for Dave here.

Okay I guess.

Speaker 6: And the cuts on melt utilization, can we see that 80% mark in Q3, what steps are we taking to get there? And there's an 80% average over Q4, still reasonable.

You touched on melt utilization can we see that 80% Mark in Q3, what steps were taken get there.

And as an 80% average over Q4 still reasonable.

I think in.

Speaker 5: I think in that, you know, the 80 to 84 is somewhat reasonable. I mean, we're off to a pretty good start for the quarter already. We have one month.

Of the 80% to 84 somewhat reasonable I mean, we're off to a pretty good start for the quarter already we have one months.

So the quarter completed and were seeing positive improvement.

Speaker 5: So, the quarter completed and we're seeing positive improvement from our 75.

From our 75 in Q2.

Speaker 7: John , when you get into Q4, we do have our planned down time. So we're expecting to be down for about 10 days. That'll be about 30,000 tons of milk. So I would expect that utilization rate to trend down in Q4, just based on the typical annual schedule.

John when you get into Q4, we do have our planned downtime. So we're expecting to be down for about 10 days that will be about 30000 tons of milk. So I would expect that utilization rate to trend down in Q4, just based on the typical annual schedule.

Okay.

Speaker 6: Got it. Very helpful, very helpful. With the two new machine lines, can you provide any additional color? You know, how do you expect those support the increasing demand going forward? You know, we'll leave enough or do you see additional lines being open sometime in the future?

Alright got it very helpful very helpful.

And with the two new machine lines cube.

But any additional color.

How do you expect those support increasing demand going forward, we will leave enough or do you see additional lines being open sometime in the future.

Speaker 5: Yeah, so the investment in those lines is directed specifically at the EV market. We've been informed by several OEMs that their demand for the EV components that we manufacture is going to increase.

Yes, so those lots of investment in those lines is directed specifically at the EV market.

We've been informed by several Oems that their demand for the EV components that we manufacture is going to increase.

Speaker 5: So we're just aligning our capability with the demand with this investment.

We're just aligning our capability with the demand with this investment.

Speaker 5: And what we will do, you know, at going forward, we stay close to our customers as we see opportunity with our customers for increased demand, you know, we'll make the appropriate investments to make sure we support our customers.

And what we will do going forward, we stay close to our customers as we see opportunity with our customers for increased demand will make the appropriate investments to make sure we support our customers.

Speaker 5: John , to add to that, we do expect modest and criminal revenue and EBITF and those investments and from a timing perspective, it's likely going to be late 2024 once production commences on those assets.

John to add to that we do expect modest incremental revenue and EBITDA from those investments and from a timing perspective, it's likely going to be late 2024 once production commences on those assets.

Okay got it thank you for taking my questions.

Thanks, Sean.

Speaker 4: We have no further questions at this time. I'll turn it back to the presenters for any closing.

We have no further questions at this time I will turn it back to the presenters for any closing remarks.

Speaker 2: I think that concludes our call today. Thanks everyone for joining and we look forward to updating you next quarter. Thank you. This includes today's conference.

I think that concludes our call today, thanks, everyone for joining and we look forward to updating you next quarter. Thank you.

This concludes today's conference call. Thank you for participating you may now disconnect.

Okay.

Yeah.

Yeah.

Yeah.

Yeah.

Speaker 8: People people.

Okay.