Q4 2023 TimkenSteel Corp Earnings Call

Operator: Good morning. My name is Krista, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Metallus fourth quarter and full year 2023 earnings conference call. All lines have been placed on mute to prevent any background noise.

Good morning, My name is Krista and I'll be your conference operator today at this time I would like to welcome everyone to the metallic fourth quarter and full year 2023 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session.

Jennifer K. Beeman: During today's conference call, we may make forward-looking statements as defined by the SEC. However, 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. 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 Metallus website, where non-GAAP financial information is referenced, additional details, and reconciliations to its GAAP equivalent are also included in the yearning. With that, I'd like to turn the call over to Mike. Mike?

Operator: After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during that time, simply press star followed by the number one on your telephone keypad. And if you would like to withdraw that question again, press star one. Thank you. I would now like to turn the conference over to Jennifer Beeman. Jennifer, you may begin.

If you would like to ask a question during that time simply press star followed by the number one on your telephone keypad and if you would like to withdraw that question again press Star one. Thank you I would now like to turn the conference over to Jennifer Beeman, Jennifer you may begin.

Jennifer K. Beeman: Good morning and welcome to Metallus's fourth quarter and full year 2023 conference call. I'm Jennifer Beeman, Director of Communications and Investor Relations for Metallus. Joining me today is Mike Williams, President and Chief Executive Officer, Chris Westbrooks, Executive Vice President and Chief Financial Officer, and Kevin Rakitic, Executive Vice President and Chief Commercial Officer. You all should have received a copy of our press release, which was issued last night.

Good morning, and welcome to <unk> fourth quarter, and full year 2023 conference call I'm, Jennifer Beeman director of Communications and Investor Relations for Mattel Us.

Michael S. Williams: Thank you, Jennifer, and I appreciate everyone joining us this morning. First, let me begin by welcoming you to our first call as Metallic. Our exciting brand change reflects our expertise in high-performance specialty metals, and we believe this differentiates us in the marketplace. As Metallus, we will continue to serve our valued customers and pursue growth in our established markets and beyond. As we embark on this new chapter, we remain committed to our core values and our unwavering commitment to safety, quality, collaboration, and the well-being of our employees. Turning to our financial performance in 2023, our teams diligently pursued our strategic imperatives, with a strong focus on targeted markets, particularly the aerospace and defense end markets. This strategic focus significantly contributed to our profitability, supported by a solid pricing environment. Additionally, we continue to return capital to shareholders via our share repurchase program while maintaining a strong balance. Safety remains a fundamental priority at Metallic.

Joining me today is Mike Williams, President and Chief Executive Officer, Kris Westbrooks Executive Vice President and Chief Financial Officer, and Kevin Rakitic Executive Vice President and Chief Commercial Officer, you. All Should've received a copy of our press release, which was issued last night.

Jennifer K. Beeman: During today's conference call, we may make forward-looking statements as defined by the SEC. However, 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. 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 Metallus website. Where non-GAAP financial information is referenced, additional details and reconciliations to its GAAP equivalent are also included in the earnings release. With that, I'd like to turn the call over to Mike. Mike?

Today's 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.

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 <unk> website.

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

Mike Williams: Thank you, Jennifer, and I appreciate everyone joining us this morning. First, let me begin by welcoming you to our first call as Metallics. Our exciting brand change reflects our expertise in high-performance specialty metals, and we believe this differentiates us in the marketplace. As Metallus, we will continue to serve our valued customers and pursue growth in our established markets and beyond. As we embark on this new chapter, we remain committed to our core values and our unwavering commitment to safety, quality, collaboration, and the well-being of our employees. Turning to our financial performance in 2023, our teams diligently pursued our strategic imperatives, with a strong focus on targeted markets, particularly the aerospace and defense end markets. This strategic focus significantly contributed to our profitability, supported by a solid pricing environment.

Thank you Jennifer and I appreciate everyone joining us this morning.

First let me begin by welcoming you to our first call as <unk>.

Our exciting brand change reflects our expertise in high performance specialty metals.

Michael S. Williams: Over the past year, we have kept you informed about our continuous safety efforts, investing approximately $10 million in 2023 towards safety enhancement. This includes an important investment in a comprehensive, company-wide safety training program with a specific emphasis on eliminating potential serious injuries. Looking ahead to 2024, our commitment to safety remains firm. We are building a safety culture that is achieved through clearly defined roles, responsibilities, and objectives. Our goal is to instill everyday safety practices to ensure that every employee ends their workday free from injury or infection.

We believe this distinguishes us in the marketplace.

We will continue to serve our valued customers and pursue growth in our established markets and beyond.

As we embark on this new chapter we remain committed to our core values.

And unwavering commitment to safety quality collaboration and the wellbeing of our employees.

Turning to our financial performance in 2023.

Our teams diligently pursued or strategic imperatives.

With a strong focus on targeted markets, particularly aerospace and defense end market.

Michael S. Williams: Turning to the results, as expected, fourth-quarter net sales declined 7% sequentially as a result of lower shipments as well as lower scrap and alloy prices. On a full year basis, net sales increased 2%, largely driven by an increase in base sales prices.

This strategic focus significantly contributed to our profitability.

Ported by a solid pricing environment.

Mike Williams: Additionally, we continue to return capital to shareholders via our share repurchase program while maintaining a strong balance. Safety remains a fundamental priority at Metallic. Over the past year, we have kept you informed about our continuous safety efforts, investing approximately $10 million in 2023 towards safety enhancement. This includes an important investment in a comprehensive company-wide safety training program with a specific emphasis on eliminating potential serious injuries. Looking ahead to 2024, our commitment to safety remains strong. We are building a safety culture that is achieved through clearly defined roles, responsibilities, and objectives. Our goal is to instill everyday safety practices to ensure that every employee ends their workday free from injury or incident.

Additionally, we continue to return capital to shareholders via our share repurchase program, while maintaining a strong balance sheet.

Michael S. Williams: Adjusted EBITDA and operating cash flow all remain relatively steady in 2023 compared with the prior year. Chris will cover the company's financial details shortly. MovieTor end market update.

Safety remains a fundamental priority <unk>.

Over the past year, we have kept you informed about our continuous safety efforts.

The approximately $10 million in 2023 towards safety enhancements.

Michael S. Williams: I'm pleased to share an exciting development regarding the work we do in defense. We are honored to have entered into a funding agreement with the United States Army for nearly $100 million, half of which is currently committed, with the balance subject to mutual agreement during subsequent phases after the final project details are presented to the Army. Specifically, this funding will enable the addition of a continuous bloom reheat furnace to help fulfill increased global demand for artillery shells. For perspective, the Army has recently stated a target run rate demand of 100,000 shells per month by late 2025 versus the 14,000 shells per month produced in 2022. Metallus is a critical specialty steel supplier to support this ramp-up in demand.

This includes an important investment and a comprehensive company wide safety training program with a specific emphasis on eliminating potential serious injuries.

Looking ahead to 2024, our commitment to safety remains firm.

We are building a safety culture that is achieved through clearly defined roles responsibilities and objectives.

Our goal is to instill everyday safety practices to ensure that every employee and their work day three from injury or incident.

Mike Williams: Turning to the results, as expected, fourth-quarter net sales declined 7% sequentially as a result of lower shipments as well as lower scrap and alloy prices. On a full year basis, net sales increased 2%, largely driven by an increase in base sales prices.

Turning to the results as expected fourth quarter net sales declined 7% sequentially as a result of lower shipments as well as lower scrap and alloy prices.

Michael S. Williams: The new reheat furnace is expected to increase capacity for our high-quality bar-based defense products and support approximately $60 million of incremental base sales annually. This agreement is a testament to our long-standing partnership with the Department of Defense and our ability to consistently produce high-quality, specialty-grade... We are targeting late 2025 for the new bloom reheat furnace to be operational. We are well positioned to capitalize on the momentum we've established, expanding our sales within the aerospace and defense end market. Our net sales for 2023 grew by 44% compared to 2022, representing an 8% of our consolidated net sales for 2023. In the fourth quarter, aerospace and defense net sales further increased on strong customer demand to 13% of the total company. In our industrial end market, shipments decreased by 17% compared with the prior quarter as we saw a softening in industrial distribution and expected seasonality. In line with PMI data, the industrial combined index is indicating some contraction from the previous forecast, down about 2.4 percent in 2024.

On a full year basis.

Net sales increased 2% largely driven by an increase in base sales prices.

Shipments.

Mike Williams: Adjusted EBITDA and operating cash flow all remain relatively steady in 2023 compared with the prior year. Chris will cover the company's financial details shortly. MovieTor end market update.

Adjusted EBITDA and operating cash flow all remained relatively steady in 2023 compared with the prior year.

Chris will cover the company's financial details shortly.

Moving to our end market updates.

Mike Williams: I'm pleased to share an exciting development regarding the work we do in defense. We are honored to have entered into a funding agreement with the United States Army for nearly $100 million, half of which is currently committed, with the balance subject to mutual agreement during subsequent phases after the final project details are presented to the Army. Specifically, this funding will enable the addition of a continuous bloom reheat furnace to help fulfill increased global demand for artillery shells. For perspective, the Army has recently stated a target run rate demand of 100,000 shells per month by late 2025 versus the 14,000 shells per month produced in 2022. Metallus is a critical specialty steel supplier to support this ramp-up in demand.

I am pleased to share an exciting development regarding the work we do in defense.

We are honored to have entered into a funding agreement with the United States Army for nearly $100 million.

Half of which is currently committed with a balance subject to mutual agreement during subsequent phases. After the final project details are presented to the army.

Specifically this funding will enable the addition of a continuous bloom reheat furnace to help fulfill increased global demand for artillery shells.

For perspective.

The Army has recently stated a target run rate demand of 100000 shells per month by late 2025 versus the 14000 shells per month produced in 2022.

Tell us as a critical specialty steel supplier to support this ramp up in demand.

Mike Williams: The new reheat furnace is expected to increase capacity for our high-quality bar-based defense products and support approximately $60 million of incremental base sales annually. This agreement is a testament to our longstanding partnership with the Department of Defense and our ability to consistently produce high-quality, specialty-grade steel. We are targeting late 2025 for the new bloom reheat furnace to be operational. We are well positioned to capitalize on the momentum we've established, expanding our sales within the aerospace and defense market. Our net sales for 2023 grew by 44% compared to 2022, representing an 8% of our consolidated net sales for 2023. In the fourth quarter, aerospace and defense net sales further increased on strong customer demand to 13% of the total company. In our industrial end market, shipments decreased by 17% compared with the prior quarter, as we saw a softening in industrial distribution and expected seasonality. In line with PMI data, the industrial combined index is indicating some contraction from the previous forecast, down about 2.4% in 2024.

The new reheat furnace is expected to increase capacity for our high quality bar base defense products.

Support approximately $60 million of incremental base sales annually.

Michael S. Williams: Shipments to the distribution channel are off to a slower start in the first quarter of 2020, as distributors work through inventory on hand. We remain confident in the long-term prospects within the industrial markets and remain in active dialogue with our customers to support their requirements. Automotive shipments declined 15% compared with the third quarter as a result of the UAW strike and expected seasonality.

This agreement is a testament to our longstanding partnership with the department of defense and our ability to consistently produce high quality specialty grades of steel.

We are targeting late 2025 for the new Bloom reheat furnace to be operational.

We are well positioned to capitalize on the momentum we've established in expanding our sales within the aerospace and defense end market.

Michael S. Williams: However, we continue to actively support many internal combustion engine applications while making steady progress with hybrid and electric vehicle applications. While consumer preferences may not be perfectly aligned with the aggressive EV programs initiated by automakers, we are well-positioned to support initiatives with internal combustion engines, hybrid vehicles, or full electric platforms. Our energy shipments in the fourth quarter declined 9% on a sequential basis, with strict capital discipline remaining in focus for the energy sector.

Our net sales for 2023 grew by 44% compared to 2022, representing an 8% of our consolidated net sales for 2023.

In the fourth quarter Aerospace and defense net sales further increased on strong customer demand to 13% of the total company.

In our industrial end market shipments decreased by 17% compared with the prior quarter as we saw a softening in the industrial distribution and expected seasonality.

Michael S. Williams: Customer demand was soft in the quarter, and steel inventory levels remained elevated within the supply chain. We remain well-positioned to support the energy market as North American production remains vital to global supply and energy security. Moving to customer contracts

In line with PMI data the industrial blended index is indicating some contraction from previous forecast.

Michael S. Williams: I am pleased that we have wrapped up our annual customer price agreement negotiations, which now cover approximately 65% of our order book. Our 2024 average base price per ton for customers covered by annual agreements is expected to be similar to 2023. Lead times are relatively short at this time, with bar product lead times currently at four weeks, and product lead times at 11.

Down about two 4% in 2024.

Mike Williams: Shipments to the distribution channel are off to a slower start in the first quarter of 2020, as distributors work through inventory on hand. We remain confident in the long-term prospects within the industrial markets and remain in active dialogue with our customers to support their requirements. Automotive shipments declined 15% compared with the third quarter as a result of the UAW strike and expected seasonality.

Shipments to the distribution channel are off to a slower start in the first quarter of 2024 as distributors work through inventory on hand.

We remain confident in our long term prospects within the industrial markets and remain in active dialogue with our customers to support their requirements.

Automotive shipments declined 15% compared with the third quarter as a result of the UAW strike and expected seasonality.

Michael S. Williams: Distribution inventory levels remain elevated but are beginning to trend down. We remain focused on maintaining a high level of customer service and quality to meet our customers' demanding requirements. Our dedication to enhancing profitability continues with ongoing efforts across the company aimed at reaching our $80 million profitability target by 2026. Our focus is on commercial excellence, manufacturing efficiency, and process simplification, leveraging a solid balance sheet as our cornerstone. To date, we are about three-quarters of the way towards achieving our target to support our safety as well as our operational improvement. We have budgeted approximately $60 million in capital expenditures for 2024, in addition to safety and sustainability-related projects. Maintenance and Tooling CAP Act

Mike Williams: However, we continue to actively support many internal combustion engine applications while making steady progress with hybrid and electric vehicle applications. While consumer preferences may not be perfectly aligned with the aggressive EV programs initiated by automakers, we are well positioned to support initiatives with internal combustion engines, hybrid vehicles, or full electric platforms. Our energy shipments in the fourth quarter declined 9% on a sequential basis, with strict capital discipline remaining in focus for the energy sector.

However, we continue to actively support many internal combustion engine applications, while making steady progress with hybrid and EV applications.

While consumer preferences may not be perfectly aligned with the aggressive EV programs initiated by automakers.

We are well positioned to support initiatives with the internal combustion engines hybrid vehicles or full electric platforms.

Our energy shipments in the fourth quarter declined 9% on a sequential basis.

With strict capital discipline remain in focus for the energy sector.

Mike Williams: Customer demand was soft in the quarter, and steel inventory levels remained elevated within the supply chain. We remain well positioned to support the energy market as North American production remains vital to global supply and energy security. Moving to customer contracts

Customer demand was soft in the quarter and steel inventory levels remained elevated within the supply chain.

We remain well positioned to support the energy market as North American production remains vital to global supply and energy security.

Moving to customer contracts.

Mike Williams: I am pleased that we have wrapped up our annual customer price agreement negotiation, which now cover approximately 65% of our order board. Our 2024 average base price per ton for customers covered by annual agreements is expected to be similar to 2023. Lead times are relatively short at this time, with bar product lead times currently at four weeks, to product lead times at 11.

I am pleased that we have wrapped up our annual customer price agreement negotiations.

Michael S. Williams: We're investing to complete other high-return projects, which began in 2023, including adding automated grinding, finishing, and saw capabilities in our Harrison facility and investing in our Eaton, Ohio facility with two additional manufactured component machining lines. We remain committed to investing in our assets and our people while delivering value to our shareholders. Our capital allocation strategy also focuses on our ongoing share repurchase program. Chris will cover our repurchase program in detail in a moment.

Let's now cover approximately 65% of our order book.

Our 2024 average base price per ton for customers covered by annual agreements is expected to be similar to 2023.

Lead times are relatively short at this time with our product lead times currently at four weeks and two product lead times at 11 weeks.

Distribution inventory levels remain elevated but are beginning to trend down.

We remain focused on maintaining a high level of customer service and quality to meet our customers demanding requirements.

Michael S. Williams: As we proceed in 2024, we are committed to prioritizing safety, along with enhancing customer service and advancing our strategic comparisons to foster sustainable profitability and cash flows throughout all business cycles. We express our sincere gratitude to our employees for their collaboration and unwavering dedication, our valued customers for their trust, our suppliers for their partnership, and our shareholders for their enduring support. Now, I would like to turn the call over to Chris.

Our dedication to enhancing profitability continues with ongoing efforts across the company aimed at reaching our $80 million profitability target by 2026.

Our focus is on commercial excellence.

Manufacturing efficiency and process simplification, leveraging our solid balance sheet is our cornerstone.

To date, we are about three quarters of the way towards achieving our target.

To support our safety as well as our operational improvements.

We have budgeted approximately $60 million in capital expenditures for 2024.

Kristopher R. Westbrooks: Thanks, Mike. Good morning, and thank you all for joining our earnings call. We're proud of our team's accomplishments in 2023. Specifically, the organization advanced its safety management system in a positive manner, increased its participation in the high-growth aerospace and defense market, and made important investments in its manufacturing facilities that will benefit future years. These accomplishments were achieved while continuing to return capital to shareholders and maintaining a strong balance. Thanks to all of our employees, customers, and suppliers who helped us achieve our objectives last year. Turning now to our full year 2023 financial results, net sales totaled $1.4 billion in the year, an increase of $32.5 million, or 2% from 2022. Net income was $69.4 million, or $1.47 per diluted share.

In addition to safety.

Sustainability related projects.

Maintenance and tooling Capex, we're investing to complete other high return projects, which began in 2023, including adding automated grinding, finishing and saw capabilities in our Harrison facility.

And investing in our Eaton, Ohio facility with two additional manufactured component machining lines.

We remain committed to investing in our assets and our people while delivering value to our shareholders.

Our capital allocation strategy also focuses on our ongoing share repurchase program.

Chris will cover our repurchase program in detail in a moment.

As we proceed in 2024, we are committed to prioritizing safety, along with enhancing customer service and advancing our strategic imperatives to foster sustainable profitability and cash flows throughout all business cycles.

We express our sincere gratitude to our employees for their collaboration and unwavering dedication our valued customers for their trust our suppliers for their partnership and our shareholders for their enduring support.

Kristopher R. Westbrooks: Excluding certain items such as insurance recovery income and pension remeasurement losses, adjusted net income was $89.8 million in 2023, or $1.91 per diluted share. Additionally, adjusted EBITDA was $169 million for the year. As it relates to the insurance recovery process associated with the unplanned downtime in 2022, the claims process is now complete. In 2023, we recognized $31.3 million of insurance recoveries, of which $20 million was recognized in the fourth quarter. In total, the company recognized $64.3 million in insurance recoveries over the past two years.

Now I would like to turn the call over to Chris.

Thanks, Mike Good morning, and thank you all for joining our earnings call.

We're proud of our team's accomplishments in 2023.

Specifically the organization advanced our safety management system in a positive manner increased.

We increased our participation in the high growth aerospace and defense market.

<unk> made important investments in our manufacturing facilities that will benefit future years.

These accomplishments were achieved while continuing to return capital to shareholders and maintaining a strong balance sheet.

Thanks to all of our employees customers and suppliers, who helped us achieve our objectives last year.

Turning now to our full year 2023 financial results.

Net sales totaled $1 4 billion in the year, an increase of $32 $5 million or 2% from 2022.

Kristopher R. Westbrooks: These cash recoveries have and will be used to reinvest in the business, as well as return capital to shareholders via our share repurchase program. Now turning to the fourth quarter of 2023 financial results, net sales totaled $328.1 million, with net income of $1.3 million, or $0.03 per diluted share.

Net income was $69 4 million or.

Our $1 47 per diluted share.

Excluding certain items, such as insurance recovery income and pension re measurement losses. Adjusted net income was $89 $8 million in 2023 or $1 91 per diluted share.

Additionally, adjusted EBITDA was $169 million for the year.

Kristopher R. Westbrooks: Comparatively, sequential third quarter of 2023 net sales were $354.2 million, with net income of $24.8 million, or $0.51 per diluted share. Net sales in the fourth quarter of 2022 were $245.4 million, with a net loss of $33.2 million, for a loss of 75 cents per diluted share. On an adjusted basis, excluding the impact of a pension remeasurement loss, insurance recovery gain, and certain other items, the company reported adjusted net income in the fourth quarter of $16.5 million, or $0.36 per diluted share. Comparatively, third-quarter adjusted net income was $24.9 million, or 52 cents per diluted share.

As it relates to the insurance recovery process associated with the unplanned downtime in 2020 to the claims process is now complete.

In 2023, we recognized $31 $3 million of insurance recoveries of which $20 million was recognized in the fourth quarter.

In total the company recognized $64 $3 million of insurance recoveries over the past two years.

These cash recoveries has and will be used to reinvest in the business as well as return capital to shareholders via our share repurchase program.

Now turning to the fourth quarter of 2023 financial results.

Net sales totaled $328 $1 million with net income of $1 3 million or <unk> <unk> per diluted share.

Imperatively sequential third quarter of 2023 net sales were $354 2 million with net income of $24 8 million or <unk> 51 per diluted share.

Kristopher R. Westbrooks: The adjusted net loss in the fourth quarter of 2022 was $4.6 million, or a loss of 10 cents per diluted share. Adjusted EBITDA was $35.7 million in the fourth quarter, an $11.1 million sequential decline. As expected, the fourth quarter was negatively impacted by lower shipments, also contributing to the sequential decline in adjusted EBITDA with planned lower melt utilization, higher annual shutdown maintenance costs, and a market-driven decrease in the scrap and alloy raw material surcharge environment. Partially offsetting these items were higher base sales prices attributed to $11 million of retroactive pricing recognized during the fourth quarter on automotive manufactured components, as well as favorable aerospace and defense product. Compared with adjusted EBITDA of $11.9 million in the fourth quarter of 2022, adjusted EBITDA increased by $23.8 million in the quarter. Turning now to the details of the financial results in the fourth quarter, shipments were 157,600 tons in the quarter, a decrease of 18,200 tons, or 10%, compared with the third quarter.

Net sales in the fourth quarter of 2022 were $245 $4 million with a net loss of $33 2 million or a loss of <unk> 75 per diluted share.

On an adjusted basis, excluding the impact of a pension remeasurement loss insurance recovery game and certain other items. The company reported adjusted net income in the fourth quarter of $16 5 million or <unk> 36 per diluted share.

Comparatively third quarter adjusted net income was $24 9 million or <unk> 52 per diluted share.

The adjusted net loss in the fourth quarter of 2022 was $4 6 million or a loss of <unk> 10 per diluted share.

Adjusted EBITDA was $35 7 million in the fourth quarter and $11 $1 million sequential decline.

As expected the fourth quarter was negatively impacted by lower shipments also contributing to the sequential decline in adjusted EBITDA was planned lower melt utilization higher annual shutdown maintenance costs and a market driven decrease in the scrap and alloy raw material surcharge environment.

Partially offsetting these items were higher based sales prices attributed to $11 million of retroactive pricing recognized during the fourth quarter on automotive manufacturer components as well as favorable aerospace and defense product mix.

Compared with adjusted EBITDA of $11 9 million in the fourth quarter of 2022, adjusted EBITDA increased by $23 8 million in the quarter.

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

Shipments were 157600 tons in the quarter, a decrease of 18200 tons or 10% compared with the third quarter.

Kristopher R. Westbrooks: During the fourth quarter, we split the aerospace and defense end market out from the industrial end market for greater visibility going forward. Prior periods back to 2021 have been recast for comparability. In the industrial end market, shipments totaled 58,700 tons in the fourth quarter, a sequential decrease of 11,800 tons, or 17 percent. The decrease was primarily driven by ongoing customer inventory rebalancing within industrial distribution. Automotive customer shipments were 67,400 tons in the fourth quarter, a sequential decrease of 11,700 tons, or 15%.

During the fourth quarter, we split the aerospace and defense end market out from the industrial end market for greater visibility going forward.

Prior periods back to 2021 have been recast for comparability.

In the industrial end market shipments totaled 58700 tons in the fourth quarter, a sequential decrease of 11800 tons or 17%.

The decrease was primarily driven by ongoing customer inventory rebalancing within industrial distribution.

Automotive customer shipments were 67400 tons in the fourth quarter, a sequential decrease of 11700 tons or 15%. We estimate approximately one third of the sequential decrease in shipments was attributed to the previous automotive work stoppages, while the majority of the remaining decrease was a result of normal seasonality.

Kristopher R. Westbrooks: We estimate approximately one-third of the sequential decrease in shipments was attributed to the previous automotive work stoppages, while the majority of the remaining decrease was a result of normal seasonality. In aerospace and defense, continued strength and customer demand drove fourth quarter shipments of 18,500 tons, a sequential increase of 6,600 tons, or 55%. Shipments to energy customers totaled 13,000 tons in the fourth quarter, a sequential decrease of 1,300 tons, or 9%, as energy customer demand remained soft in the fourth quarter.

In aerospace and defense continued strength in customer demand drove fourth quarter shipments of 18500 tonnes, a sequential increase of 6600 tons or 55%.

Shipments to energy customers totaled 13000 tons in the fourth quarter, a sequential decrease of 1300 tons or 9% as energy customer demand remained soft in the fourth quarter.

Kristopher R. Westbrooks: Compared with the fourth quarter of 2022, shipments in the quarter increased by 23% as a result of higher industrial and aerospace and defense shipments. As a reminder, shipments in the fourth quarter of 2022 were negatively impacted by the availability of inventory for shipment following unplanned downtime in mid-2022. Net sales of $328.1 million in the fourth quarter decreased 7% sequentially. The decline in net sales was primarily due to lower shipments and a market-driven 14% decline in the average raw material surcharge revenue per ton as a result of lower scrap and alloy prices.

Compared with the fourth quarter of 2022 shipments in the quarter increased by 23% as a result of higher industrial and aerospace and defense shipments.

As a reminder, shipments in the fourth quarter of 2022 were negatively impacted by the availability of inventory for shipment.

Unplanned downtime in mid 2022.

Net sales of $328 1 million in the fourth quarter decreased 7% sequentially.

The decline in net sales was primarily due to lower shipments and our market driven 14% decline in the average raw materials surcharge revenue per ton as a result of lower scrap and alloy prices.

Kristopher R. Westbrooks: Partially offsetting these items were higher base sales prices attributed to incremental retroactive pricing realized in the fourth quarter and favorable aerospace and defense product. Regarding the aerospace and defense end market, net sales increased sequentially by 44% to $44.1 million in the fourth quarter, representing 13% of total company net sales in the quarter. On a full year basis, aerospace and defense net sales also increased by 44% to $115 million in 2023, or 8% of total company net sales. As Mike mentioned, aerospace and defense is a targeted area of growth for the company. We look forward to sharing further updates in the future. Manufacturing costs increased sequentially by $9.9 million in the fourth quarter as a result of lower cost absorption combined with higher planned annual shutdown maintenance.

Partially offsetting these items were higher base sales prices attributed to incremental retroactive pricing realized in the fourth quarter and favorable aerospace and defense product mix <unk>.

Regarding the aerospace and defense end market net sales increased sequentially by 44% to $44 1 million in the fourth quarter, representing 13% of total company net sales in the quarter.

On a full year basis aerospace and defense net sales also increased by 44% to $115 million in 2023 or 8% of total company net sales as.

As Mike mentioned aerospace and defense as a targeted area of growth for the company and we look forward to sharing further updates in the future.

Turning now to manufacturing manufacturing costs increased sequentially by $9 9 million in the fourth quarter as a result of lower cost absorption combined with higher planned annual shutdown maintenance expense.

Kristopher R. Westbrooks: Planned melt shop downtime in the fourth quarter for shutdown maintenance and to balance inventory with demand resulted in a melt utilization rate of 58% in the quarter compared to 76% in the third quarter. Excluding the planned downtime, we estimate that the fourth quarter melt utilization would have been in the mid-70s on a percentage basis. Switching gears to income tax,

Land melt shop downtime in the fourth quarter for the shutdown maintenance antebellum inventory with demand resulted in our melt utilization rate of 58% in the quarter compared with 76% in the third quarter.

Excluding the planned downtime, we estimate that the fourth quarter melt utilization would have been in the mid seventy's on a percentage basis.

Switching gears to income taxes, the company's effective tax rate was 28% in 2023 and cash taxes totaled $25 3 million for the full year.

Kristopher R. Westbrooks: The company's effective tax rate was 28% in 2023, and cash taxes totaled $25.3 million for the full year. In 2024, we estimate the company's effective tax rate will be $25 to $28 billion. From a pension perspective, the accounting funded status of the company plans was 76% at the end of 2023 compared with a funded status of 82% at the end of 2022. However, positive returns in the equity markets in the fourth quarter of 2023 helped partially offset asset losses experienced earlier in the year. Additionally, a decline in the discount rate has also contributed to a reduction in the funded status.

In 2024, we estimate the companys effective tax rate will be 25% to 28%.

From a pension perspective, the accounting funded status of the company plans was 76% at the end of 2023 compared to the funded status of 82% at the end of 2022.

Positive returns in the equity markets in the fourth quarter of 2023 helped partially offset asset losses experienced earlier in the year.

Additionally, a decline in the discount rate also contributed to a reduction in the funded status.

Kristopher R. Westbrooks: In 2024, we expect to make required pension contributions of approximately $40 million, which includes approximately $25 million of required contributions in the first quarter. Regarding pension and retiree medical expenses, we anticipate total expense in 2024 to be similar to 2023, excluding the impact of remeasuring. In terms of ongoing pension de-risking actions, we're on track to annuitize the company's previously terminated salary pension. At the end of 2023, the Salary Pension Plan liability totals $124 million. In mid-2024, we expect to transfer all remaining salary pension plan liabilities and the majority of the related assets to a highly rated insurance company. Shortly thereafter, the insurance company will assume responsibility for all future participant benefits.

In 2024, we expect to make required pension contributions of approximately $40 million, which includes approximately $25 million of required contributions in the first quarter.

Regarding pension and retiree medical expense, we anticipate total expense in 2024 to be similar to 2023, excluding the impact of re measurement.

In terms of ongoing pension Derisking actions, we are on track to <unk>. The Companys previously terminated salary pension plan.

At the end of 2023, the salary pension plan liability totaled $124 million.

In mid 2024, we expect to transfer all remaining salary pension plan liabilities and the majority of the related assets to a highly rated insurance company.

Shortly thereafter, the insurance company will assume responsibility for all future participant benefit payments.

Kristopher R. Westbrooks: Moving on to cash flow and liquidity, during the fourth quarter, operating cash flow was $74.1 million, driven by profitability and lower levels of working capital. This marks the company's 19th consecutive quarter generating positive operating cash. For the full year, the company generated operating cash flow of $125.3 million.

Moving onto cash flow and liquidity during the fourth quarter operating cash flow was $74 1 million driven by profit.

Profitability and lower levels of working capital.

This marks the companys 19th consecutive quarter generating positive operating cash flow.

For the full year, the company generated operating cash flow of $125 $3 million.

Kristopher R. Westbrooks: Capital expenditures totaled $15.4 million in the fourth quarter and $51.6 million for the full year, generally in line with previously stated guidance. Planned capital expenditures are approximately $60 million in 2024, as Mike previously mentioned. Looking at the components of the 2024 CapEx budget, we've allocated $5 million to important safety CapEx projects following a significant investment in 2023. Our growth CapEx in 2024 totals approximately $20 million to support the projects that Mike highlighted earlier, an automated grinding and finishing line at our Harrison facility, an automated inline saw also at our Harrison facility, and two new automotive manufacturing components lines at our facility in Southwest Ohio. We expect to begin realizing benefits from these investments in late 2024 and early 2025 with rates of return in excess of our cost of capital. Lastly, maintenance and tooling CapEx represent the majority of the remainder of the 2024 CapEx budget. Additionally, our team is excited to launch the Continuous Bloom Reheat Furnace Project, as just announced.

Capital expenditures totaled $15 4 million in the fourth quarter and $51 6 million for the full year generally in line with previously stated guidance.

Planned capital expenditures are approximately $60 million in 2024 as Mike previously mentioned.

Looking at the components of the 2020 for Capex budget.

We've allocated $5 million to important safety Capex projects following our significant investments in 2023.

Our growth Capex in 2024 totals approximately $20 million to support the projects that Mike highlighted earlier.

An automated grinding and finishing line our Harrison facility and automated in line saw also with our Harrison facility and two new automotive manufactured components lines at our facility in southwest Ohio.

We expect to begin realizing benefits from these investments in late 2024, and early 2025 with rates of return in excess of our cost of capital.

Lastly, maintenance and tooling capex represent the majority of the remainder of the 2020 for Capex budget.

Additionally, our team is excited to launch the continuous Bloom Reheat furnace project has just announced the total cost of this investment is approximately $90 million and will support the U S. Army's artillery shell production ramp.

Kristopher R. Westbrooks: The total cost of this investment is approximately $90 million and will support the U.S. Army's artillery shell production ramp. It is our expectation that the government funding that Mike discussed will cover our 2024 CapEx requirements for this investment. As such, CAPEX required for the Balloon Reheat Furnace is excluded from our CAPEX guidance for 2024.

It's our expectation that the government funding that Mike discussed will cover our 2020 for Capex requirements for those investments.

As such Capex required for the balloon reheat furnace is excluded from our Capex guidance for 2024.

Kristopher R. Westbrooks: We estimate this investment will support approximately $60 million of incremental base cells annually, demand dependent. Additionally, the investment will increase the efficiency of the bloom reheat process for all cast products prior to rolling while reducing our carbon footprint. We're targeting late 2025 for the new asset to be operational, and look forward to providing updates on the significant growth project in future quarters. From a shareholder return perspective, I wanted to spend a moment to recap our share repurchase program activity over the past two years. As a reminder, our board authorized a $50 million share repurchase program in December 2021. This initial repurchase authorization reflected the board and senior leadership's confidence in the company's ability to generate sustainable through-cycle profitability while maintaining a strong balance sheet and cash flow. That repurchase program was exhausted, and an additional $75 million share repurchase program was authorized towards the end of 2022. Throughout 2023, the company continued to make progress on its share repurchase program. In total, during 2022 and 2023, the company repurchased 4.7 million shares of its common stock for $84.6 million, resulting in an average repurchase price of $17.85 per share.

We estimate this investment will support approximately $60 million of the incremental based cells annually demand dependent adil.

Additionally, the investment will increase the efficiency of the balloon reheat process for all cast products prior to rolling while reducing our carbon footprint.

We're targeting late 2025 for the new assets to be operational and look forward to providing updates on the significant growth project and future orders.

From a shareholder return perspective, I wanted to spend a moment to recap our share repurchase program activity over the past two years.

As a reminder, our board authorized a $50 million share repurchase program in December 2021.

This initial repurchase authorization reflected the board and senior leaderships confidence and the companys ability to generate sustainable through cycle profitability, while maintaining a strong balance sheet and cash flow.

That repurchase program was exhausted and an additional $75 million share repurchase program was authorized towards the end of 2022.

Throughout 2023, the company continued to make progress on its share repurchase program and.

In total during 2022 and 2023, the company repurchased $4 7 million shares of its common stock for $84 6 million.

Resulting in an average repurchase price of $17 85 per share.

Kristopher R. Westbrooks: As of December 31, 2023, the company had a balance of $40.4 million remaining under its share repurchase authorization. When combined with convertible note repurchases in 2022 and 2023, the common stock and convertible note repurchase activity resulted in a significant 16.5% reduction in diluted shares outstanding compared to the fourth quarter of 2021. We continue to prefer the flexibility of the share repurchase program and are committed to exhausting the remaining authorization as we progress forward, as supported by the continued strength of our balance sheet and cash flow generation. At the end of 2023, the company's cash and cash equivalents were $280.6 million, and the cash balance generated nearly $10 million of interest income last year.

As of December 31, 2023, the company had a balance of $44 million remaining under our share repurchase authorization.

When combined with convertible note repurchases in 2022 and 2023, the common stock and convertible note repurchase activity resulted in a significant 16, 5% reduction in diluted shares outstanding compared to the fourth quarter of 2021.

We continue to prefer the flexibility of the share repurchase program and are committed to exhausting. The remaining authorization as we progress forward as supported by the continued strength of our balance sheet and cash flow generation.

At the end of 2023, the company's cash and cash equivalents were $286 million and the cash balances generated nearly $10 million of interest income last year.

We expect the strength of our balance sheet supported by $539 $4 million of total liquidity at the end of 2023 combined with expected through cycle profitability and positive operating cash flow to provide us the opportunity to continue to execute on our capital allocation strategy.

Kristopher R. Westbrooks: We expect the strength of our balance sheet, supported by $539.4 million of total liquidity at the end of 2023, combined with expected through-cycle profitability and positive operating cash flow, to provide us the opportunity to continue to execute on our capital allocation strategy, which includes investing in profitable growth, maintaining a strong balance sheet, and returning capital to shareholders through continued share repurchase. Turning now to the first quarter of 2024. From a commercial perspective, first quarter shipments are expected to be slightly lower than the fourth quarter. While distribution inventory levels remain elevated at the start of the year and the energy market remains soft, we expect continued strength in aerospace and defense demand and steady automotive shipments. Lead times for our products currently extend to April, and two products lead times extend to May.

This includes investing in profitable growth.

Gaining a strong balance sheet and returning capital to shareholders through continued share repurchases.

Turning now to the first quarter of 2020 for outlook.

From a commercial perspective first quarter shipments are expected to be slightly lower than the fourth quarter.

While distribution inventory levels remain elevated at the start of the year and the energy market remains soft we expect continued strength in aerospace and defense demand and steady automotive shipments.

Lead times from our products currently extend to April and two product lead times extend to May.

As it relates to base selling prices, Mike commented on the outcome of our annual customer price agreement negotiations covering approximately 65% of the order book.

Historically, the company targeted 70% plus of the order book being covered by annual pricing agreements and.

In 2024, we targeted 65% to be covered by annual price agreements to provide us flexibility to adapt to evolving market conditions.

As a result of the completed negotiations average base sales price per ton for 2024 price agreements are expected to be similar to average base sales price per ton for the full year 2023 mixed dependent.

Kristopher R. Westbrooks: As it relates to base selling prices, Mike commented on the outcome of our annual customer price agreement negotiations covering approximately 65% of the order book. Historically, the company targeted 70% plus of the order book being covered by annual pricing agreements. In 2024, we targeted 65% to be covered by annual price agreements to provide us with flexibility to adapt to evolving market conditions. As a result of the completed negotiations, the average base sales price per ton for 2024 is expected to be similar to the average base sales price per ton for the full year 2023, NICS dependent. Price mix in the first quarter of 2024 is expected to be unfavorable on a sequential basis, given that the fourth quarter includes approximately $11 million of full-year retroactive pricing. [inaudible] Operationally, melt utilization is expected to be approximately 70% in the first quarter. Manufacturing costs are expected to sequentially decline in the first quarter, giving completion of approximately $10 million of annual melt shop shutdown maintenance in the fourth quarter of 2023. Given these elements, the company anticipates first quarter adjusted EBITDA to be slightly lower than the fourth quarter.

Price mix in the first quarter of 2024 is expected to be unfavorable on a sequential basis given that the fourth quarter includes approximately $11 million of full year retroactive price increases.

Additionally, surcharge revenue per ton is expected to be sequentially higher in the first quarter due to an increase in the number one bushel <unk> scrap index.

Operationally melt utilization is expected to be approximately 70% in the first quarter.

Manufacturing costs are expected to sequentially decline in the first quarter, given completion of approximately $10 million of annual melt shop shutdown maintenance in the fourth quarter of 2023.

Given these elements the company anticipates first quarter, adjusted EBITDA to be slightly lower than the fourth quarter.

To wrap up we remain very encouraged by our long term business outlook under our new metallic brand.

We're committed to actively pursuing targeted growth in aerospace and defense, while supporting all of our customers with a high level of service strategically investing in our business and returning capital to shareholders.

Thanks for your interest in metallics, we'd now like to open the call for questions.

Thank you if you'd like to ask a question. Please press star followed by the number one on your telephone keypad and if you would like to withdraw that question again Crestar. One. Your first question comes from the line of John Frank <unk> from Sidoti. Please go ahead.

Good morning, everyone and thanks for taking the questions.

I'd like to start with the fourth quarter.

Provide a little bit of color on why the.

Reconstructed industrial segment was down so much sequentially can you give us maybe.

Kristopher R. Westbrooks: To wrap up, we remain very encouraged by our long-term business outlook under our new Metallus brand. We're committed to actively pursuing targeted growth in aerospace and defense while supporting all of our customers with a high level of service, strategically investing in our business, and returning capital to shareholders. Thanks for your interest in Metallus.

Those layer of depth.

On the demand profile.

Sure John Thanks for asking the question.

Predominantly where we're seeing.

The slowdown is in the distribution channels to service the industrial market.

Our direct OEM business was pretty steady.

The distribution.

Operator: We'd now like to open the call for questions. Thank you. If you'd like to ask a question, please press star followed by the number one on your telephone keypad. And if you'd like to withdraw that question, again, press star one. Your first question comes from the line of John Franzreb from Sidoti.

If you look at the number of days of inventory or months of inventory.

They are high compared to historical average.

Yes.

Typically what we see with these cycles like this is the distributors will work that inventory off and then youll start to see the volume activity return at more normal rates the other aspect.

John Edward Franzreb: Please go ahead. Good morning everyone and thanks for taking the questions. I'd like to start with the fourth quarter.

Excuse me.

Yes.

The other aspect.

That we saw.

Yes.

Is that we saw some price deterioration.

Michael S. Williams: Could you provide a little bit of color on why the reconstructed industrial segment was down so much sequentially? Can you give us a little, maybe the layer of depth of what was going on in the demand profile? Sure, John.

Certain.

Competitors chasing some volume.

<unk> for lower prices, and we chose not to participate in that activity.

Okay.

Fair enough.

Michael S. Williams: Thanks for asking the question. Primarily where we're seeing a slowdown is in the distribution channels to service the industrial market. Our direct OEM business was pretty steady. The distribution...

I've got a bunch of questions, but I think I wanted to I'm going to shift gears here too.

The aerospace and defense segment.

Can you just provide some context, how much of artillery business did you actually finish 2023.

Michael S. Williams: If you look at the number of days of inventory or months of inventory, they're high compared to the historical average. So typically, what we see with these cycles like this is the distributors will work the inventory off, and then you'll start to see the buying activity return at more normal rates. The other aspect.

In total revenue.

Maybe context to how the margin contribution of that business is relative to the rest of the other end markets.

And also about capacity currently.

And production of the <unk> business.

And Theres a lot there.

Michael S. Williams: The other aspect that we saw was some price deterioration and, you know, certain competitors chasing some volume purchases for lower prices, and we chose not to participate in that activity. Fair enough. Well, I have a bunch of questions, but I think I'm going to shift gears here to the aerospace and defense segment. Can you just provide some context?

Give you some color there, but I do have to be forthright and so there is some confidentiality.

Between this.

A new partnership with the U S. Army. So we've got to be very careful about what information we share and what we don't.

Sure what I will tell you is the majority of our aerospace and defense sales is.

Defense and predominantly artillery shells.

Actually it's not the shelf itself, it's the warhead.

Michael S. Williams: How much of the artillery business did you actually finish in 2023 in total revenue? Maybe context to how the margin contribution of that business is relative to the rest of the other end markets, and also about capacity currently in production of the artillery business. I can give you some color there, but I do have to, you know, be forthright and say there is some confidentiality between this new partnership with the U.S. Army. So we have to be very careful about what information we share and what we don't share. What I will tell you is the majority of our aerospace and defense sales are around defense and, predominantly, artillery shells. Actually, it's not the shell itself; it's the warhead that we're manufacturing, very complex, difficult to manufacture, specialty grades to service those products.

We are.

Manufacturing.

Very complex.

If a call to manufactured specialty grades to service those products and.

In regards to the capacity.

The funding that the federal government or the U S Army Department of defense is providing.

Really for us to Debottleneck, our operations from rolling through finishing.

To be able to make more of these very complex difficult grades a manufacturer.

So it's purely.

I used the word investment.

Deep bottleneck.

To get the capacity to meet the supply chain demand to satisfy the U S Army's differ.

Defense strategy long term.

Okay. So it's fair to say you are right you are at capacity now we shouldn't assume a sizable growth in that business in 2024 is that what I'm hearing.

Michael S. Williams: Regarding capacity... The funding that the federal government or the U.S. Army Department of Defense is providing is really for us to de-bottleneck our operations from rolling through finishing to be able to make more of these very complex, difficult grades of manufacturing. So it's purely, I use the word investment to de-bottleneck, to get the capacity to meet the supply chain demand to satisfy the U.S. Army's defense strategy long-term. Okay, so it's fair to say you're at capacity now. We shouldn't assume sizable growth in that business in 2024. Is that what I'm hearing?

Well again.

If you look on them.

On the call when you look when you Chris provided the statistics that 2% of growth.

We've seen.

Around the defense products and what are our full run rate for 2024 is expected to be $60 million in additional revenue will not occur until we get the investments made the assets in place or upgraded assets.

Michael S. Williams: Again, if you look on the call, when you look, Chris provided the statistics that the percent of growth that we've seen around the defense products and what our full run rate for 2024 is expected to be, the $60 million in additional revenue will not occur until we get the investments made, the assets in place, or upgraded assets to get to the bottom of that key, which we are saying would happen at the end of 2025 as those assets ramp up. Perfect. And I guess one last question, and then I'll get back into queue.

To get the Debottlenecking, which we're saying would happen at the end of 2025 as those assets ramp up.

Perfect and I guess, one last question and ill get back into queue.

Given the slow start and you expect for the year what are your thoughts about hitting your targeted.

Targeted melts right.

84% is that something that's still achieve.

<unk> in 2024 or is that maybe pushed to the right given current conditions.

I think it's.

John Edward Franzreb: Given the slow start that you expect for the year, what are your thoughts about hitting your, you know, your targeted melt rate of 80 to 84 percent? Is that something that's still achievable in 2024, or has that been maybe pushed to the right given current conditions? I think, you know, it's achievable. Our assets are in really good shape. Our workforce has been well-trained. It's just that, commercially, the demand isn't there for us right now. We can run at that rate right now.

<unk> our assets are in really good shape.

<unk>.

Our workforce is.

It has been well trained.

<unk>.

It's just that right now commercially the demand is not there for us we could run at that rate right now.

If the demand was there our utilization rate is really aligned to.

Customer demand.

Okay. Thanks, I'll go back into queue. Thanks, taking the questions.

Thanks, John.

Our next question comes from the line of Phil Gibbs from Keybanc capital markets. Please go ahead.

Hey, good morning.

Good morning, Phil.

Can you can you talk a little bit about the Capex budget. This year that $60 million I think you alluded to the safety expenditures, perhaps being somewhat equivalent to the 2023 spend but maybe breakout what's become core and then maybe some of the growth.

Michael S. Williams: If there was demand, our utilization rate would really be aligned to customer demand. Okay, thanks. I'll get back to you.

Philip Ross Gibbs: Thanks for taking the question. Thanks, John. Thanks, John. Your next question comes from the line of Phil Gibbs from KeyBank Capital Markets. Please go ahead. Hey, good morning. Morning, Phil.

<unk> that youre, making in the business.

Sure. So our Capex plan for this year around safety is around is actually less than last year because of the investment a significant investment we made last year.

Kristopher R. Westbrooks: Can you talk a little bit about the CapEx budget this year, the $60 million? I think you alluded to the safety expenditures perhaps being somewhat equivalent to the 2023 spend, but maybe break out what's become core and then maybe some of the growth investments that you're making in the business. Sure.

So its about probably half of what we spent last year.

Around focused on safety.

There are some modest sustainability investments that were making to achieve our ongoing.

Sustainability targets.

I think majority of around 30 is about.

Kristopher R. Westbrooks: So, you know, our CapEx plan for this year around, safety around, is actually less than last year because of the investment, the significant investment we made last year. So it's probably half of what we spent last year focused on safety. There are some modest sustainability investments that we're making to achieve our ongoing sustainability targets. I think a majority of around 30s, about.

Maintenance Capex.

And then the rest is really targeted to growth.

In regards to lowering manufacturing costs, improving yields improving quality improving productivity.

That's where the remainder of the balance of the Capex is focused towards.

Okay.

Thank you.

And then I wanted to ask a question on the retroactive pricing adjustments pretty pretty heavy in the fourth quarter I think maybe even a little bit heavier than you experienced in the third quarter is the majority of that first question in the mobile business and then secondly, what.

Kristopher R. Westbrooks: Maintenance CapEx. And then the rest is really targeted to growth, in regards to lowering manufacturing costs, improving yields, improving quality, and improving productivity. That's where the remainder of the balance of the CapEx is focused. Thank you. And then I wanted to ask a question on the retroactive pricing adjustments. Pretty, pretty heavy in the fourth quarter, I think maybe even a little bit heavier than you experienced in the third quarter.

What is the outlook for for mobile and 24, so firstly on the retroactive adjustments and then secondly, just on the demand outlook.

Sure.

Yes, I mean, the rest of the retroactive pricing predominantly is over with.

Kristopher R. Westbrooks: Is the majority of that first question in the mobile business? And then secondly, what is the outlook for mobile in 24 months? So firstly, on the retroactive adjustments, and then secondly, just on the demand outlook. Sure.

Thanks.

One other.

Customer out there that we're still engaged but it's pretty small in nature than we do have the the.

The second quarter.

The second quarter agreements that were in negotiation right now.

Kristopher R. Westbrooks: Yeah, I mean, the retroactive pricing is predominantly over with. I think there's one other customer out there that we're still engaged with, but it's pretty small in nature. Then we do have the, you know, the second quarter agreements that we're in negotiation right now. But again, as we said in our outlook, we basically expect pricing to be flat year over year. We do... From an automotive perspective, it's pretty steady. I would say that most of the impact in the fourth quarter was around the strike effect for the several weeks that they were out, but we see that pretty steady.

But again as we said in our outlook.

So you could expect pricing to be flat year over year.

We do.

From an automotive perspective, it's pretty steady.

I would say that most of the impact in the fourth quarter was around the strike effect further several weeks that they were out but.

But we see that pretty steady you look at their forecasted build rates around $15 8 million units this year.

The mix of that.

We think is very positive because strong ice demand skills there.

EV programs are still launching but at a slower rate.

Kristopher R. Westbrooks: You look at their forecasted build rates, around 15.8 million units this year. The mix of that, we think is very positive because strong ice demand is still there, the EV programs are still launching but at a slower rate, and then now there's this big focus on hybrid, and we play in all three of those.

And then now there's this big focus on hybrid and we play in all three of those.

So we think automotive is going to be.

Good this year.

I'll refrain from using the word great. Good because interest rates are high and what the customer.

Kristopher R. Westbrooks: So we think the automotive industry is going to be, you know, good this year. I refrain from using the word great, but good because interest rates are high and customer demand seems to still be there. And we watch it closely.

Customer demand seems to still be there.

And we watch it closely.

Yeah.

Thank you.

Your next question comes from the line of Dave storms from Stonegate capital markets. Please go ahead.

Kristopher R. Westbrooks: Thank you. Your next question comes from a line Dave Storms from Stonegate Capital Markets. Please go ahead. Good morning, Dave.

Good morning.

Dave.

David Joseph Storms: I just hoped we could start with some of the cost savings. We are about 75% of the way there. Should we think of the remainder of the cost-saving initiatives on kind of a linear trajectory, or are there some? uh... plants that I would make? Actually, I would say it's fairly linear because I would say most of the majority of the remaining.

Just hoping we could start with some of the cost savings initiatives I know you mentioned, you're about 75% of the way there.

Should we think of the remainder of the cost savings initiatives on kind of a linear trajectory or are there some.

Plants, there that would make us look a little lumpier.

Actually I would say, it's fairly linear because I would say most of it.

A majority of the remaining to.

Kristopher R. Westbrooks: To achieve the remaining target, it's tied to these CapEx investments that we're making that will materialize by the end of this year. Now, we have other efforts around productivity and cost equality reduction. That's more.

To achieve the remaining targeted is tied to these capex investments that we're making.

That will materialize by the end of this year.

Now we have other efforts around productivity.

And cost of quality reduction.

That's more.

Sure.

Kristopher R. Westbrooks: I guess that's more hard work, not so much CapEx investment. So we're working, and that will continue to work throughout this year. I think the majority of the remaining savings is coming out of these investments. These are large CapEx investments for us. So thank you. And then just

I guess, that's more of a hard work.

So much capex investment.

So we're working that well.

For you to work throughout this year, but I think majority of the remaining savings is coming to these investments is large cap. This large capex investments for us.

Understood. Thank you and then just.

Kristopher R. Westbrooks: I kind of just touched on it, but with the remainder of the order book... a goal by next quarter, you know, is this kind of a waiting game for the overall inventory to decline? Yeah, so the way I kind of describe it, Dave, is that there's higher levels of inventory in the supply chain, specifically in the distribution channels. We've been here before, over many decades of being in this industry. I'd say we're approximately about a month over-invented in the months of supply. That will work off their short lead time so customers can get what they want, distribution customers, can get what they want when they need it within a very short lead time. And they'll work those inventories down. We already see that starting to happen.

Could you kind of just touched on it but with the remainder of the order book.

Should we expect.

Maybe you can in that 70% goal.

<unk> by next quarter.

Kind of a waiting game for the overall inventory to decline.

How should we be thinking about that.

Yes, so the way I kind of describe it Dave is theirs.

There is higher levels of inventory in the supply chain, specifically in the distribution channels.

We've been here before over many decades of being in this industry.

I'd say were approximately about a month over inventoried.

Months of supply that will work off their short lead time, so customers can get what they distribution customers can get what they want when they need it within a very short lead time.

And they'll work those inventories down we already see that starting to happen.

Kristopher R. Westbrooks: So as they work that down, they'll go back to what I would say, are there historical ordering patterns and demand requirements going forward. That's very helpful. Thank you for taking the time to answer my question. Thank you, Dave. As a reminder, if you'd like to ask a question, please press star 1 on your telephone keypad. Your next question comes from the line of John Franzeb from Sidoti. Please go ahead.

So as they work down they'll go back to what I would say.

Are there historical ordering patterns.

Demand requirements going forward.

That's very helpful. Thank you for taking my questions.

Thank you Dave.

As a reminder, if you'd like to ask a question. Please press star one on your telephone Keypad. Your next question comes from the line of John France, France, Zhang from Sidoti. Please go ahead.

John Edward Franzreb: Yeah, just a couple quick follow-ups. I'm curious about the decision to take the targeted, pre-negotiated pricing level from 70% down to 65%. What was behind that decision?

Yes, just a couple of quick follow ups.

I'm curious about the decision to take the.

<unk> targeted.

Renegotiated pricing level from 70% down to 65, what was behind that decision.

Michael S. Williams: Again, in the fourth quarter, there was price pressure out there for the spot market, which then was trying to be rolled into annual agreements. And we chose not to chase those declining prices. So we ended up with 65% under contract, and the remainder will be spot prices through the rest of the year. Okay, got it, and about a year ago today. There was discussion about being more active in the M&A market. I believe the original timeline was 12 to 18 months.

Again, there was.

In the fourth quarter there was.

Price pressure.

Out there for.

The spot market, which then was trying to be rolled into annual agreements.

And we chose not we chose not to chase.

Those declining us.

Prices.

So we ended up with 65% under contract.

And the remainder will be spot pricing through the rest of the year.

Okay got it.

But youre about a year ago today.

There was discussion about being more active in the M&A market.

I believe the original timeline was 12 to 18 months.

Michael S. Williams: Can you give us maybe an update on that process? Should we expect something in the coming six months? You know, any kind of additional color would be helpful.

Can you give us maybe an update on that process.

Should we expect something in the coming six months any kind of additional color would be helpful.

Michael S. Williams: Yeah, well, I can't; my crystal ball doesn't forecast what's going to happen. In regards to M&A activity, what we did is we hired an individual that's primarily focused on M&A. We've built the tools and the processes for the analytics required to assess M&A targets. We have, and we're involved in pipelines of getting, The Published Opportunities, possibilities that are aligned with our strategy, which is really focused around expanding our aerospace and defense capability or product. I can't give you a firm commitment of when it's going to happen, but I will tell you that it will be strategically aligned with our strategic imperatives, it'll be aligned with our footprint, it'll be aligned with the end markets that we want to grow in, particularly Specialty Metals, and it will not threaten our balance sheet in any way.

Yes, I can my Crystal ball doesn't forecast, what's going to happen.

In regards to the M&A activity. What we did do is we have an individual that is primarily focused on M&A.

We've built the tools and the processes.

For the analytics required to assess <unk>.

M&A targets.

We have we're involved in pipelines of getting.

The published opportunities.

Certain.

Possibilities that are aligned with our strategic imperatives, which is really focused around expanding our aerospace and defense capability or products.

I can't give you a firm commitment of when.

It's going to happen, but I will tell you that it will be strategic in line.

With our strategic imperatives.

It will be aligned with our footprint it will be aligned with the end markets that we want to grow and with particularly.

Specialty metals.

And it will not threaten our balance sheet in any way.

John Edward Franzreb: Okay. He took my follow-up to that. He's curious how willing you are to lever up to do an acquisition. Well, John, you've been you and I have been talking for about a year now. I think you've got an idea of the type of conservative person I am because I constantly talk about protecting our strong balance sheet.

Okay. You took my follow up to that I was curious how willing you are to lever up to do the <unk> acquisition.

Well John you've.

<unk> been talking for about a year now I think you've got an idea of the type of conservative person I am.

Because I constantly talk about protecting our strong balance sheet.

Michael S. Williams: Okay, fair enough. Thanks for taking the follow-up. Thanks, John. We have no further questions in our queue at this time. I will now turn the call back over to Jennifer Beeman for closing remarks. Thanks, everyone, for joining us today, and that concludes our call. This concludes today's conference call. Thank you for your participation, and you may now disconnect. www.microsoft.com.au www.kenhub.com, The Ultimate Parody Site!

Okay, Okay fair enough thanks for taking the follow ups.

Thanks, John.

And we have no further questions in our queue. At this time I will now turn the call back over to Jennifer <unk> for closing remarks.

Thanks, everyone for joining us today and that concludes our call.

This concludes today's conference call. Thank you for your participation and you may now disconnect.

Okay.

Yeah.

Yeah.

Yeah.

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