Q1 2024 Metallus Inc Earnings Call
Operator: Thank you for standing by. My name is Mark, and I will be your conference operator today. At this time, I would like to welcome everyone to Metallus Inc.'s First Quarter 2024 earnings call. All lines have been placed on mute to prevent any background noise.
Thank you for standing by my name is Mark and I will be conference operator today at this time I would like to welcome everyone to Metallurgy, Inc. First quarter 'twenty to 'twenty for earnings 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.
Operator: After the speaker's remarks, there will be a question and answer session. If you would like to ask a question, simply press star followed by a number one on your telephone keypad. If you would like to withdraw your question, press star one again. Thank you. I would now like to turn the call over to Jennifer Beeman. Please do so.
If you would like to ask a question simply press star followed by a number one on your telephone keypad.
Would like to withdraw your question Press Star one again, thank you.
I'd now like to turn the call over to Jennifer Beeman. Please go ahead.
Good morning, and welcome to metallic says first quarter 'twenty 'twenty four conference call I'm, Jennifer Beeman director of Communications and Investor Relations for Mattel US joining me today is Mike Williams, President and Chief Executive Officer, Kris Westbrooks Executive Vice President and Chief financial.
Jennifer K. Beeman: Good morning, and welcome to Metallus's first quarter 2024 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 Brackettich, Executive Vice President and Chief Commercial Officer. You all should have received a 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.
Officers and Kevin Rakitic, Executive Vice President and Chief Commercial Officer.
You also had received a copy of our press release, which was issued last night.
Jennifer K. Beeman: 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 the 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 With that, I'd like to turn the call over to Mike. Mike?
During 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 the 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 metallic 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.
Michael S. Williams: Good morning, and thank you for joining us today. Before I cover our performance in the first quarter. I wanted to reflect on the progress we've made over the past several years. If you've been following us, you know that we have significantly transformed our business with a focus on through-cycle profitability. [inaudible] We recognize the need to build a model capable of withstanding volatility, whether substantial or minor, in any of our markets or the broader macroeconomic landscape.
Mike: Good morning, and thank you for joining us today.
Mike: Before I cover our performance in the first quarter.
Mike: Wanted to reflect on the progress we've made over the past several years.
Mike: If you've been following US you know that we have significantly transformed our business with a focus on through cycle profitability and positive operating cash flow in all business cycles.
Mike: We recognize the need to build a model capable of withstanding volatility.
Mike: Well theres substantial were minor.
Mike: In any of our markets or the broader macroeconomic landscape.
Mike: Our performance in the first quarter of 2024 is evidence that our efforts have proven effective.
Michael S. Williams: Our performance in the first quarter of 2024 is evidence that our efforts have proven effective, given the sequential increase in profitability and continued solid cash generation, despite the softer demand environment, primarily from our industrial distribution and energy customers. Additionally, we continue to return capital to shareholders via our Share Repurchase Program. In fact, our board just authorized an additional $100 million share repurchase program, which reinforces our board's confidence in our ability to generate through-cycle profitability and positive operating cash flow while maintaining a strong balance sheet.
Mike: Given the sequential increase in profitability and continued solid cash generation, despite the softer demand environment.
Mike: Primarily from our industrial distribution and energy customers.
Mike: Additionally, we continue to return capital to shareholders.
Mike: Our share repurchase program.
Mike: In fact, our board just authorized an additional $100 million share repurchase program, which reinforces our board's confidence in our ability to generate through cycle profitability and positive operating cash flow, while maintaining a strong balance sheet.
Michael S. Williams: Our efforts to further diversify our portfolio are also yielding results as we continue to identify new opportunities for growth in the aerospace and defense market, where we have also launched significant programs and continue to build our portfolio of offers. Turning to safety, our mission remains firm to be recognized as having the safest specialty metals operation in the world. Our goal is for all employees to finish each and every day injury and incident free.
Mike: Our efforts to further diversify our portfolio are also yielding results as we continue to identify new opportunities for growth in the aerospace and defense end market.
Mike: Where we have also won significant programs and continue to build our portfolio of offerings.
Mike: Turning to safety our mission remains firm.
Mike: To be recognized as having the safest specialty metals operation in the world.
Mike: Our goal is for all employees to finish each and every day injury and incident free.
Michael S. Williams: In 2024, we anticipate investing approximately $7 million toward continued safety training and equipment enhancement. In fact, our dedicated focus on preventing potential serious injuries has yielded positive results with our team completing corrective actions related to near-miss incidents in a timely manner. This is a direct result of effective investigation and Enhanced Root Cause Analysis.
Mike: In 2020 floor, we anticipate investing approximately $7 million toward continued safety training and equipment enhancements.
In fact, our dedicated focus on preventing potential serious injuries has yielded positive results with our team completing corrective actions related to near Miss incidents in a timely manner.
Mike: This was a direct result of effective investigations.
Mike: Enhanced root cause analysis.
Michael S. Williams: Additionally, several key initiatives were launched in the first quarter related to improving our safety governance processes, as well as standardizing and enhancing the Lockout-Tagout-Tryout program. We continue to build our capabilities through technical and leadership training, including hazardous identification and skill-building training. We recently held our annual Iron Shield competition, which invites our employees and crews to submit innovative safety projects that aim to improve the well-being of our workforce. In total, over 100 projects were submitted for consideration this year.
Mike: Additionally, several key initiatives were launched in the first quarter related to improving our safety governance processes as well as standardizing and enhancing the lockout tagout try out program.
Mike: We continue to build our capabilities through technical and leadership training, including hazardous identification skill building training.
Mike: We recently held our annual Iron Shield competition, which.
Mike: Which invites our employees and crews to submit innovative safety projects that aim to improve the wellbeing of our workforce.
Mike: In total over 100 projects were submitted for consideration this year.
Michael S. Williams: The winning project prioritized safety and efficiency at our quench and temper lines in our Gambrinus facility. The team utilized video technology for furnace pre-inspecions prior to the planned outage. By affixing a video camera to an in-process material, the camera captured images of the inner workings of the furnace, enabling real-time analysis of asset conditions, thus reducing the possibility of failure. Not only does this process eliminate unplanned downtime and reduce costly maintenance, but it enables our teams to safely adjust our operations as needed.
Mike: The winning project prioritize safety and efficiency at our quench and temper lines and our gambrinus facility.
Mike: The team utilized video technology for furniture pre inspections prior to planned outages.
Mike: Fixing a video camera to an impressive material the camera captured images of the inner workings of the furnace.
Mike: Enabling real time analysis of asset conditions thus.
Mike: Thus, reducing the possibility of failures.
Not only does this process and eliminate unplanned downtime and reduce costly maintenance.
But it enables our teams to safely adjust our operations as needed.
Michael S. Williams: I congratulate this cross-functional team for their creativity, collaboration, and follow-through, current to the financial results. First quarter net sales and shipments saw a slight sequential decline of 2% with pockets of strength, consistency, and some softness that I will discuss shortly.
Speaker Change: I congratulate this cross functional team for their creativity collaboration and follow through.
Speaker Change: Turning to the financial results.
Speaker Change: First quarter net sales and shipments so a slight sequential decline of 2% with pockets of strength consistency and some softness that I will discuss shortly.
Speaker Change: Our sequential profitability improvement was driven by strong product mix and lower manufacturing costs.
Michael S. Williams: Our sequential profitability improvement was driven by a strong product mix and lower manufacturing costs. In the first quarter, our metal utilization improved to 72 percent from 58 percent in the fourth quarter as we balanced our production to changing demand and year-end outages. Moving to our markets, in our industrial end market, shipments increased by 4% compared with the prior quarter; shipments to both industrial OEM and distribution customers improved in the fourth quarter but remain below optimal levels as an inventory correction persists among our distribution customers. We continue to remain in close contact with our customers to support their needs in this environment. Automotive shipments were relatively consistent when compared with the fourth quarter.
Speaker Change: In the first quarter, our melt utilization improved to 72% from 58% in the fourth quarter as we balanced our production to changing demand and year end outages.
Speaker Change: Moving to our markets.
Speaker Change: In our industrial end market shipments increased by 4% compared with the prior quarter.
Speaker Change: <unk> to both industrial OEM and distribution customers improved in the fourth quarter, but remains below optimal levels as an inventory correction persists among our distribution customers.
Speaker Change: We continue to remain close contact with our customers to support their needs in this environment.
Speaker Change: Automotive shipments were relatively consistent when compared with the fourth quarter.
Michael S. Williams: We continue to experience a steady pull from our diversified automotive customers for both long products and manufactured components. Through our concentrated efforts, growth in our aerospace and defense market continues. Net sales increased by 5% sequentially and 166% on a year-over-year basis.
Speaker Change: We continue to experience a steady pool from a diversified automotive customers for both long products and manufactured components.
Speaker Change: Through our concentrated efforts growth in our aerospace and defense market continues.
Speaker Change: Net sales increased by 5% sequentially and 166% on a year over year basis.
Michael S. Williams: We currently participate in over 20 different defense-related programs in a variety of applications such as missiles, bombs, artillery, gun barrels, and ground support equipment. Additionally, we are currently providing value-added processing services for multi-metals, including stainless and other high-alloy steels. We also recently began new trials of titanium processing for select defense and high-value oil and gas and renewable energy applications. Thanks to the capabilities of our rowing mill and tube making assets, employee metallurgical expertise, and comprehensive knowledge of material processing and conversion, we have the ability to streamline supply chain lead times by several months.
Speaker Change: We currently participate in over 20 different defense related programs and a variety of applications such as missiles bombs artillery gun barrels and ground support equipment.
Speaker Change: We are currently providing value added processing services for multi metals.
Speaker Change: Including stainless and other high alloy steels.
Speaker Change: We also recently began new trials of titanium processing for select defense and high value oil and gas and renewable energy applications.
Speaker Change: Thanks to the capabilities of our rolling mill in two making assets employee metallurgical expertise and comprehensive knowledge of material processing and conversion.
Speaker Change: We have the ability to streamline supply chain lead times by several months.
Michael S. Williams: This enables us to expedite the integration of essential materials into the defense supply chain, ensuring timely availability when needed most. We recently had the honor of hosting members of the U.S. Air Force, along with an important defense customer, to discuss process innovations for weapons critical to national defense. We are grateful for this collaboration as we continue to support the Department of Defense's mission. Meanwhile, our energy customers continue to demonstrate strict capital discipline as North American oil and gas demand remains challenged for the foreseeable future.
Speaker Change: This enables us to expedite the integration of essential materials into the defense supply chain, ensuring timely availability when needed most.
Speaker Change: We recently had the honor of hosting members of the U S Air Force, along with an important defense customer to discuss process innovations for weapons systems critical to National defense.
Speaker Change: We are grateful for this collaboration as we continue to support the department of Defense's mission.
Speaker Change: Our energy customers continue to demonstrate strict capital discipline as north American oil and gas demand remains challenged with.
Speaker Change: For the foreseeable future.
Speaker Change: We continue to engage with our customers in this important end market as our products are critical to their many demanding applications.
Michael S. Williams: We continue to engage with our customers in this important end market as our products are critical to their many demanding applications. In terms of our strategic comparisons, we remain on track to achieve our targeted $80 million of profitability improvement, expected between 2022 and 2026. To date, we have achieved approximately 75% of our targeted profitability improvements with continued focus on manufacturing excellence as well as administrative process simplification. I want to thank our employees for their hard work, our customers for their enduring trust, our suppliers for their partnership, and our shareholders for their steadfast support. Now, I would like to turn the call over to Chris.
Speaker Change: In terms of our strategic imperatives, we remain on track to achieve our targeted $80 million of profitability improvements expected between 2022 and 2026.
Speaker Change: To date, we have achieved approximately 75% of our targeted profitability improvements with continued focus on manufacturing excellence as well as administrative process simplification.
Speaker Change: I want to thank our employees for their hard work.
Speaker Change: Our customers for their enduring trust.
Speaker Change: Our suppliers for their partnership.
And our shareholders for their steadfast support.
Now I would like to turn the call over to Chris.
Chris: Thanks, Mike Good morning, and thank you all for joining metallics. This first quarter of 2024 earnings call.
Kristopher R. Westbrooks: Thanks, Mike. Good morning, and thank you all for joining Metallus's first quarter of 2024 earnings call. I'm pleased that we started off the year with a sequential improvement in profitability and strong operating cash flow. We also continued to invest in the business, returning capital to shareholders through our share repurchase program while maintaining a strong balance sheet. During the first quarter, net sales totaled $321.6 million, and net income was $24 million, or 52 cents per diluted share.
Chris: I am pleased that we started off the year with sequential improvements in profitability and strong operating cash flow.
We also continued to invest in the business returning capital to shareholders through our share repurchase program, while maintaining a strong balance sheet.
Chris: During the first quarter net sales totaled $321 $6 million and net income.
Kristopher R. Westbrooks: Comparatively, sequential fourth quarter of 2023 net sales were $328.1 million, with net income of $1.3 million, or $0.03 per diluted share. Net sales in last year's first quarter were $323.5 million, with net income of $14.4 million, or $0.30 per diluted share. On an adjusted basis, the company reported net income in the first quarter of 2024 of $26.1 million, or $0.56 per diluted share. Comparatively, fourth quarter adjusted net income was $16.5 million, or $0.36 per diluted share.
Chris: <unk> was $24 million or <unk> 52 per diluted share.
Chris: Comparatively sequential fourth quarter of 2023, net sales were $328 $1 million with net income of $1 $3 million or <unk> <unk> per diluted share.
Chris: Net sales in last year's first quarter were $323 5 million with net income of $14 4 million or <unk> 30 per diluted share.
Chris: On an adjusted basis. The company reported net income in the first quarter of 2024 of $26 1 million or <unk> 56 per diluted share comparatively fourth quarter. Adjusted net income was $16 5 million or <unk> 36 per diluted share.
Kristopher R. Westbrooks: Adjusted income in the first quarter of last year was $20.8 million, or 44 cents per diluted share. Adjusted EBITDA was $43.4 million in the first quarter, a $7.7 million sequential increase, resulting in a 13.5% adjusted EBITDA margin for the quarter. First quarter performance exceeded guidance driven by higher than planned shipments of aerospace and defense products with a strong price mix. Additionally, the first quarter benefited from sequentially higher melt utilization, lower shutdown maintenance costs, and a market-driven increase in the raw material scrap surcharge environment.
Chris: Adjusted net income in the first quarter of last year was $20 8 million or <unk> 44 per diluted share.
Chris: Adjusted EBITDA was $43 4 million in the first quarter at $7 $7 million sequential increase resulting in a 13, 5% adjusted EBITDA margin for the quarter.
Chris: First quarter performance exceeded guidance driven by higher than planned shipments of aerospace and defense products with a strong price mix.
Chris: Additionally, the first quarter benefited from sequentially higher melt utilization lower shutdown maintenance costs and a market driven increase in the raw material scrap surcharge environment.
Chris: Partially offsetting these items were $11 million of full year 2023, retroactive price increases on automotive manufactured components recognized during the fourth quarter.
Chris: Compared with adjusted EBITDA of $36 million in the first quarter of last year adjusted EBITDA increased by $7 4 million in the quarter.
Kristopher R. Westbrooks: Partially offsetting these items were $11 million of full-year 2023 retroactive price increases on automotive manufactured components recognized during the fourth quarter. Compared with adjusted EBITDA of $36 million in the first quarter of last year, adjusted EBITDA increased by $7.4 million in the quarter.
Chris: Turning now to the details of the financial results in the first quarter.
Kristopher R. Westbrooks: Turning now to the details of the financial results in the first quarter, shipments were 155,200 tons in the quarter, a decrease of 2,400 tons or 2% compared with the fourth quarter. In the industrial end market, shipments totaled 60,800 tons in the first quarter, a sequential increase of 2,100 tons, or 4%. First quarter shipments to industrial original equipment and distribution customers both improved on a sequential basis. However, industrial distribution shipments remain soft given ongoing customer inventory rebalancing.
Chris: Shipments were 155200 tons in the quarter, a decrease of 2004 hundred tons or 2% compared with the fourth quarter.
Chris: In the industrial end market shipments totaled 6800 tons in the first quarter, a sequential increase of 2100 tons or 4%.
Chris: First quarter shipments to industrial original equipment and distribution customers both improved on a sequential basis. However, industrial distribution shipments remained soft given ongoing customer inventory rebalancing.
Chris: Automotive customer shipments were 66500 tonnes in the first quarter relatively in line with the fourth quarter as automotive demand remained steady.
Kristopher R. Westbrooks: Automotive customer shipments were 66,500 tons in the first quarter, relatively in line with the fourth quarter as automotive demand remained steady. In aerospace and defense, shipments totaled 16,500 tons in the quarter, a sequential decrease of 2,000 tons, or 11%, with a record fourth quarter of 2023 aerospace and defense shipment, first quarter shipments moderated a bit while demand continued to remain strong. Compared to the prior year's first quarter, aerospace and defense shipments more than doubled.
Chris: In aerospace and defense shipments totaled 16500 tonnes in the quarter, a sequential decrease of 2000 tons or 11%.
Chris: With record fourth quarter of 2023, aerospace and defense shipments first quarter shipments moderated a bit while demand continued to remain strong.
Chris: Compared to the prior year first quarter aerospace and defense shipments more than doubled.
Chris: Shipments to energy customers totaled 11400 tons in the first quarter, a sequential decrease of 1600 tons or 12% as energy customer demand remained soft in the first quarter.
Kristopher R. Westbrooks: Shipments to energy customers totaled 11,400 tons in the first quarter, a sequential decrease of 1,600 tons, or 12%, as energy customer demand remained soft in the first quarter. Compared to the first quarter of last year, total shipments in the quarter decreased by 10% as a result of lower automotive, energy, and industrial shipments, partially offset by higher aerospace and defense. Net sales of $321.6 million in the first quarter decreased 2% sequentially.
Chris: Compared to the first quarter of last year total shipments in the quarter decreased by 10% as a result of lower automotive energy and industrial shipments, partially offset by higher aerospace and defense shipments.
Chris: Net sales of $321 $6 million in the first quarter decreased 2% sequentially. The decline in net sales was primarily due to slightly lower shipments and the previously discussed retroactive pricing recognized in the fourth quarter of 2023.
Kristopher R. Westbrooks: The decline in net sales is primarily due to slightly lower shipments and the previously discussed retroactive pricing recognized in the fourth quarter of 2023. Partially offsetting these items were sales of higher mix aerospace and defense products, as well as a market-driven 6% increase in average raw material surcharge revenue per ton as a result of higher scrap prices. Turning now to manufacturing, As expected, manufacturing costs decreased sequentially by approximately $10 million in the first quarter.
Chris: Partially offsetting these items were sales of higher mix of aerospace and defense products as well as a market driven 6% increase in average raw materials surcharge revenue per ton as a result of higher scrap prices.
Chris: Turning now to manufacturing.
Kristopher R. Westbrooks: The sequential decrease in manufacturing costs was a result of improved cost absorption from increased production levels combined with lower annual shutdown maintenance costs. The melt utilization rate was 72% in the first quarter compared to 58% in the fourth quarter of 2023. Now switching gears to pensions. In the first quarter, the company contributed $28.4 million to its pension plan, of which most was related to the required bargaining plan contribution. We expect to make required pension contributions of approximately $6 million per quarter for the remainder of 2024, resulting in total required pension contributions of approximately $45 million.
Chris: As expected manufacturing cost decreased sequentially by approximately $10 million in the first quarter. The sequential decrease in manufacturing costs was the result of improved cost absorption from increased production levels combined with lower annual shutdown maintenance costs.
Chris: The melt utilization rate was 72% in the first quarter compared with 58% in the fourth quarter of 2023.
Chris: Now switching gears to pensions in the first quarter. The company contributed $28 4 million to its pension plans of which most was related to the required bargaining plan contributions.
Chris: We expect to make required pension contributions of approximately $6 million per quarter for the remainder of 2024, resulting in total required pension contributions of approximately $45 million this year.
Kristopher R. Westbrooks: At the end of March, the company's pension plans were funded at approximately 80% on an accounting basis. As it relates to the salary pension plan, at the end of March, the previously frozen and terminated salary plan was 104% funded, and its liabilities totaled $122 million. During the second quarter, we plan to transfer the salaried plans, assets, and liabilities to a highly rated insurance company. It's important to note that the gross benefits payable to recipients will remain the same as a result of this transaction. Additionally, the group annuity contract is an irrevocable commitment by the insurance company to make annuity payments under the contract.
Chris: At the end of March the company's pension plans were funded at approximately 80% on an accounting basis.
Chris: As it relates to the salary pension plan at the end of March the previously frozen and terminated salary plan was 104% funded and its liabilities totaled $122 million.
Chris: During the second quarter, we plan to transfer the salary plans assets and liabilities to a highly rated insurance company.
Chris: It is important to note that the gross benefits payable to recipients will remain the same as a result of this transaction.
Chris: Additionally, the group annuity contract is an irrevocable commitment by the insurance company to make annuity payments covered under the contract.
Kristopher R. Westbrooks: This upcoming salary plan annuitization action follows a similar 2022 bargaining plan annuitization of $256 million. Both annuitizations represent significant steps towards further strengthening our balance sheet and de-risking our legacy pension. Excluding the salaried plan, the company's remaining pension liabilities have declined to approximately $550 million at the end of March, compared to $1.3 billion of total pension liabilities at the end of 2021. Moving on to cash flow and liquidity, during the first quarter, operating cash flow was $33.4 million, driven by profitability and the receipts of $20 million of previously recognized insurance recovery.
Chris: This upcoming salary plan annuities Asian action follows a similar 2022 bargaining in plan annuity position of $256 million.
Chris: Both the newest positions represent significant steps towards further strengthening our balance sheet and derisking, our legacy pension plans.
Chris: Excluding the salary plan the company's remaining pension liabilities have declined to approximately $550 million at the end of March compared to $1 3 billion of total pension liabilities at the end of 2021.
Chris: Moving onto cash flow and liquidity.
Chris: During the first quarter operating cash flow was $33 $4 million driven by profitability and the receipt of $20 million of previously recognized insurance recoveries.
Kristopher R. Westbrooks: This marks the company's 20th consecutive quarter of generating positive operating cash flow. Capital expenditures totaled $17.4 million in the first quarter, and we continue to estimate full-year CapEx to be approximately $60 million. Planned investments this year include approximately $20 million to support the automated grinding and finishing line at our Harrison facility, an automated inline saw also at our Harrison facility, and two new automotive manufacturing component lines at our facility in Southwest Ohio.
Chris: This marks the company's 20th consecutive quarter of generating positive operating cash flow.
Kristopher R. Westbrooks: Additionally, maintenance, tooling, and safety projects represent the remainder of the 2024 CapEx budget. Regarding the government funding of up to $99 million that we announced earlier this year, our team is making progress on the Balloon Reheat Furnace investment to support the U.S. Army's mission of ramping up artillery shell production. We expect approximately $45 million of funding to be received this year, with the majority of that amount to be received in the second half of the year. Spending on the Bloomberry Heat Furnace investment will generally follow receipt of government funding. An overview of the anticipated accounting treatment for the government's funding is available on our recently filed Form 10-Q.
Chris: Capital expenditures totaled $17 4 million in the first quarter and we continue to estimate full year capex to be approximately $60 million.
Chris: Planned investments. This year include approximately $20 million to support the automated grinding and finishing line at our Harrison facility and automated in line saw also at our Harrison facility and two new automotive manufactured component lines at our facility in southwest Ohio.
Chris: Additionally, maintenance tooling and safety projects represent the remainder of the 2020 for Capex budget.
Chris: Regarding the government funding of up to $99 million that we announced earlier this year. Our team is making progress on the balloon reheat furnace investment to support the U S armies mission of ramping up artillery shell production.
Chris: We expect approximately $45 million of funding to be received this year with the majority of that amount to be received in the second half of the year.
Chris: Spending on the Bloomberg heat furnace investment will generally follow the receipts of the government funding.
Chris: An overview of the anticipated accounting treatment for the government funding is available on our recently filed Form 10-Q.
Kristopher R. Westbrooks: We're targeting late 2025 for the new asset to be operational, and look forward to providing updates on this significant growth project in future quarters. Switching gears now to shareholder return activity. During the first quarter of 2024, the company repurchased 212,000 common shares at a total cost of $4.4 million. Additionally, since the beginning of 2022 through May 6, 2024, the company repurchased $92.9 million of its common stock using available cash on hand. These repurchases represent 74% of the previous board authorization.
Chris: We're targeting late 2025, the new assets to be operational and look forward to providing updates on the significant growth projected future orders.
Chris: Switching gears now to shareholder return activities.
During the first quarter of 2024, the company repurchased 212000 common shares at a total cost of $4 $4 million since.
Chris: Since the beginning of 2022 through May six 2024, the company repurchased $92 $9 million of its common stock using available cash on hand. These.
Chris: These repurchases represent 74% of previous board authorizations.
Kristopher R. Westbrooks: When combined with convertible note repurchases, the company's repurchase activities have resulted in a significant 17% reduction in the company's diluted shares outstanding since the end of 2021. Given the company's progress in its common share repurchase activities, earlier this week, the Board of Directors authorized an additional $100 million share repurchase program.
Chris: When combined with convertible note repurchases the company's repurchase activities have resulted in a significant 17% reduction in the company's diluted shares outstanding since the end of 2021.
Chris: Given the company's progress in its common share repurchase activities earlier. This week the board of directors authorized an additional $100 million share repurchase program.
Kristopher R. Westbrooks: In total, as of May 6, the company has $132.1 million remaining under its Authorized Share Repurchase Program. We are committed to exhausting this authorization as we progress forward, as supported by the continued strength of our balance sheet and cash flow generation. At the end of the first quarter of 2024, the company's cash and cash equivalents were $278.1 million, and total liquidity was $549 million. We expect the strength of the company's balance sheet, combined with the expected three-cycle profitability and positive operating cash flow, to provide us with the opportunity to continue to execute our capital allocation strategy. This includes investing in profitable growth, maintaining a strong balance sheet, and returning capital to shareholders through continued share repurchase.
Chris: In total as of May six the company has $132 $1 million remaining under its authorized share repurchase program.
Chris: We are committed to exhausting this authorization as we progress forward as supported by the continued strength of our balance sheet and cash flow generation.
Chris: At the end of the first quarter of 2024, the company's cash and cash equivalents were $278 1 million and total liquidity was $549 million we.
Chris: We expect the strength of the company's balance sheet combined with expected through cycle profitability and positive operating cash flow.
Chris: What is the opportunity to continue to execute our capital allocation strategy.
Chris: This includes investing in profitable growth, maintaining a strong balance sheet and returning capital to shareholders through continued share repurchases.
Chris: Turning now to the second quarter of 2020 for outlook.
Kristopher R. Westbrooks: Turning now to the second quarter of 2024 outlook, second quarter shipments are expected to be similar to the first quarter. From an end market perspective, we anticipate second quarter automotive and industrial shipments to remain relatively steady with continued softness in distribution and energy demand. While aerospace and defense demand remains strong, we expect a modest sequential decline in second quarter aerospace and defense shipments based on customer order timing. With lead times fairly short, we continue to target short lead time opportunities in the spot market to support our customers.
Chris: Second quarter shipments are expected to be similar to the first quarter.
Chris: From an end market perspective, we anticipate second quarter automotive and industrial shipments to remain relatively steady with continued softness in distribution and energy demands.
Chris: While aerospace and defense demand remains strong we expect a modest sequential decline in second quarter Aerospace and defense shipments based on customer order timing.
Chris: With lead times are fairly short we continue to target short lead time opportunities in the spot market to support our customers' needs.
Kristopher R. Westbrooks: Base price per ton is anticipated to remain solid in the second quarter, while product mix is expected to be less favorable in the first quarter. Additionally, surcharge revenue per ton is expected to sequentially decline in the second quarter due to a lower average number one bushling scrap-in. Operationally, second quarter melt utilization is expected to be sequentially lower than the first quarter. During the second quarter, we're planning to take one week of downtime to install new technology on our electric arc furnace to drive higher levels of asset reliability and safety.
Chris: Base price per ton is anticipated to remain solid in the second quarter, while product mix is expected to be less favorable in the first quarter.
Chris: Additionally, surcharge revenue per ton is expected to sequentially decline in the second quarter due to a lower average number one bushels scrap index.
Chris: Operationally second quarter melt utilization is expected to be sequentially lower than the first quarter. During the second quarter. We're planning to take one week of downtime to install new technology on our electric arc furnace to drive higher levels of asset reliability and safety performance. Additionally, the company continues to balance production with demand.
Kristopher R. Westbrooks: Additionally, the company continues to balance production with demand. Given these elements, the company anticipates second quarter adjusted diva debt to be lower than the first quarter of 2024. To wrap up, thanks to all of our employees who work safely and help the company deliver a solid start to 2024. Thanks for your interest in Metallus.
Chris: Given these elements the company anticipate second quarter, adjusted EBITDA to be lower than the first quarter of 2024.
Chris: To wrap up thanks to all of our employees, who work safely helped the company deliver a solid start to 2024.
Speaker Change: Thanks for your interest in metallic we would now like to open the call for questions.
Speaker Change: We will now begin the question and answer session. If you have dialed in and would like to ask a question simply press star and.
Operator: We will now begin the question and answer session. If you have dialed in and would like to ask a question, simply press star and one on the telephone keypad to raise your hand and join the queue. If you would like to withdraw a question, simply press star one again. If you are if you are called upon to answer a question and a listening file loudspeaker on your device, please pick up your handset and ensure that your phone is not on mute when you're asking a question. Again, press star one to join the queue. Your first question comes from the line of John Franzreb with the Tidotian Company. Please go ahead.
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Speaker Change: Your first question comes from the line of John <unk>.
John: Sidoti and company. Please go ahead.
John Edward Franzreb: Good morning, everyone, and thanks for taking the questions. I'd like to start with some of your end market expectations on a go-forward basis. Two things I'm curious about. One, on the automotive side of the business, it seems like production rates are actually gradually improving, except for maybe at one large OEM. I'm curious if you're overexposed at one large OEM that may find itself with excess inventory.
John Edward Franzreb: Good morning, everyone and thanks for taking the questions.
John Edward Franzreb: I'd like to start with some of your end market expectations on a go forward basis, two things I'm curious about one on the automotive side of the business.
John: It seems like production rates actually gradually improving.
John: Except for maybe one large OEM I'm curious if you are overexposed at one large OEM that may find itself excess inventory.
Michael S. Williams: I don't believe we are, John. We are heavily focused on our working capital, and we produce on the orders that we get.
John: I don't believe we are John we are heavily focused on our working capital.
John: We produce to the orders that we get.
John: So.
John: If they're ordering it right and make it and ship it.
Michael S. Williams: If they're ordering it, we're going to make it and ship it. But we're not doing any hedging on putting inventory on the ground for any automotive customer.
John: But we're not doing any hedging on putting inventory on the ground for any automotive customer.
John: Okay fair enough and on the <unk>.
John Edward Franzreb: Okay, fair enough. And on the industrial side, you referenced that the distributors continue to cut the window down on inventory. Any sense when we're going to reach equilibrium and that trend reverses?
John: <unk> side, you referenced that the distributors continue to.
John: Dwindle down on inventory any sense, when we're going to reach equilibrium in that trend reverses.
John: Well, we just we just got the MSCI shipment numbers for the month of March and.
Michael S. Williams: Well, you know, we just got the MSCI shipment numbers for the month of March, and we've had them for a couple weeks. And, you know, we see their shipments declining year over year. So, hard to forecast.
John: Well, we've had them for a couple of weeks and we see their shipments declining year over year.
John: So hard to forecast there if you look at the bar products, it's about three and a half months of inventory in the distribution supply chain and on the tubular.
Michael S. Williams: If you look at the bar products, it's about three and a half months of inventory in the distribution supply chain. And on the tubular, on the seamless mechanical tubing, it's about eight months. So those are historically tubing is probably lower than its historical average, but the bar products are up, but we like to see that around 2.8 months to three. I believe it's going to take a quarter or two to work that off.
John: The seamless mechanical tubing.
John: It's about eight months.
John: So.
John: Those are historically tubing is probably lower than historical average, but the bar products are up well, we'd like to see that around two eight months to three.
John: I believe it's going to take a quarter or two to work that off.
John: Yes.
John Edward Franzreb: Okay, makes sense. And in the quarter itself, SG&A was up 15% year-on-year. I recognize that in part due to the rebranding. I wonder if you could maybe, how much the rebranding was that increase on a year-over-year basis? Maybe what we should be thinking about as ongoing SG&A numbers on a go-forward basis.
Speaker Change: Okay makes sense.
Speaker Change: And on the quarter itself.
Speaker Change: <unk> was up 15% year on year.
Speaker Change: I recognised in part.
Speaker Change: Due to the rebranding I wonder if you could maybe how much the rebranding.
Speaker Change: What does that increase on a year over year basis, maybe what we should be thinking about as ongoing SG&A number as we go forward basis.
Speaker Change: Well I'll give you my two cents and then I'll turn it over to Chris from the rebranding perspective, it's a modest increase in our SG&A.
Michael S. Williams: I'll give you my two cents and then I'll turn it over to Chris. From the rebranding perspective, you know, it's a modest increase in our SG&A. We have an implementation plan for rebranding from signs and etc, etc, etc, but I don't think that's the major driver of the increase. Chris, do you have any further insight?
Speaker Change:
Chris: We have our implementation plan on rebranding from signs and et cetera, et cetera et cetera.
Chris: But I don't think Thats the major driver of the increase Chris you have any further insight.
Kristopher R. Westbrooks: There are really two components. It's annual merit increases, which generally hit and begin to be realized in the beginning of the year. And then the other component is stock-based compensation. So there is a higher level of awards out there that are driving expense, and we do not eliminate that for our non-GAAP reporting that's included. And to Mike's point, the rebranding, it's a modest cost, and most of it is behind us at this point.
Chris: Two components its annual merit increases, which generally hit.
Chris: And begin to be realized.
Chris: Beginning of the year and then the other component of stock based compensation. So there is a higher level of awards out there that are driving expense and we do not eliminate that for our non-GAAP reporting that's included.
Chris: And to Mike's point, the rebranding it as a modest cost and most of it's behind us at this point.
John Edward Franzreb: Okay, and I guess one last question; I'll get back into queue. You mentioned that you're about 75% done with your profit enhancement programs. I'm just curious about the remaining 25% which still remains to be done, and what are the general thoughts on the timeline for that?
Speaker Change: Okay, Alright, and I guess, one last question I'll get back into queue, you mentioned that.
You are about 75% done in your profit enhancement programs I'm, just curious about the remaining 25%, which still remains to be done and what's the general thoughts on the timeline on that.
Speaker Change: Yes.
Kristopher R. Westbrooks: Yeah, that remaining 25% is really going to be accomplished through the investment that we are making with the automatic grinding line, the inline saw, other investments that we're making in the. We announced that we're going to take some downtime for the EAF. So as those investments are constructed and commissioned, we expect that to happen throughout this year and probably the first half of next year. We'll see the full run rate realization of the remaining 25%, but it's all centered around manufacturing.
Speaker Change: That remaining 25% is really going to be accomplished through the investments.
Speaker Change: We are making with the automatic grinding line in lines saw.
Speaker Change: Other investments that we're making in the.
Speaker Change: We announced that we're going to take some downtime for the Eas. So as those investments are constructed commission, we expect that to happen throughout this year and probably the first half of next year.
Speaker Change: We will see the full run rate realization realization of the remaining 25%, but it's all centered around manufacturing improvements and one additional piece. We're working on is our it transformation. So that's going to drive some efficiency as well. So we're about midway through that we will do more.
Kristopher R. Westbrooks: And one additional piece we're working on is our IT transformation, so that's going to drive some efficiency as well. So we're about midway through that. We'll do more lives here later this year and next year. And once that's complete, we believe that that'll drive some additional cost reduction from the efficiency of our historical legacy system.
Speaker Change: Our lives here later this year and next year and once that's complete we believe that that will drive some additional cost reduction from an efficiency of our historical legacy systems.
Speaker Change: Great. Thanks for taking my questions I'll get back into queue.
John Edward Franzreb: Great. Thanks, Jake. My questions are in the back of the queue. Thanks, John.
Speaker Change: Thanks, John.
Speaker Change: Your next question comes from the line of Philip Gibbs with Keybanc capital markets. Please go ahead.
Philip Ross Gibbs: Your next question comes from the line of Philip Gibbs with KeyBank Capital Markets. Please go ahead.
Philip Ross Gibbs: Hey, good morning.
Philip Ross Gibbs: Good morning, Phil.
Philip Ross Gibbs: Hey, Chris based on your commentary was are we to take away that there were no further retroactive pricing adjustments in the first quarter and automotive components. It was just a rich mix in the quarter.
Philip Ross Gibbs: Hey, Chris, based on your commentary, are we to take away that there were no further retroactive pricing adjustments in the first quarter for automotive components? It was just a rich mix in the quarter? I think that's pretty spot on, Phil.
Kristopher R. Westbrooks: I think that's pretty spot on, Phil. The retro pricing that hit in Q4, and the average pricing negotiated will continue throughout 2024. And we had a richer mix coming out of higher manufactured component shipments to the automotive industry.
Chris: I think thats pretty spot on Phil.
Chris: The retro pricing.
Chris: In Q4.
Chris: The average pricing negotiated will continue throughout 2024, and we had a richer mix coming out of higher manufacturer component shipments to the automotive.
Chris: And market.
Chris: Okay.
Philip Ross Gibbs: And then on the share repurchase, you gave a lot of numbers. What's the implied share repurchase quarter to date? You gave it through May, through early May. So April and through early May, what's that number?
Chris: And then on the share repurchase you gave a lot of numbers.
Chris: The implied shares repurchase quarter to date, you gave but through may.
Chris: Through early May number so April and through early may what's that what's that number.
Speaker Change: Yes, so it's around 100000 shares.
Kristopher R. Westbrooks: Yeah, so it's around 100,000 shares and Q2.
Speaker Change: In that range. So the month of March if you look at the key we bought back about $3 million April is a similar amount in a bit more in may so were $3 nine I believe is what we purchased in dollar terms your quarter to date in Q2.
Speaker Change: So your your current share count is diluted share count is somewhere somewhere around $45 five is that correct.
Philip Ross Gibbs: So your current share count, diluted share count, is somewhere around 45 and a half, is that correct? So our Q1 share count
Speaker Change: So our Q1.
Kristopher R. Westbrooks: So our Q1 share families, pull that up real quick. Let me take a look at that, Phil. You know, similar to Q1, I would imagine the main adjustments would be just ongoing share repurchases and then any equity comp adjustments that you'd have from that. So Q1 was 46.8 was the diluted share count.
Speaker Change: Share count is pull that up real quick.
Speaker Change: Yes.
Speaker Change: Yeah.
Speaker Change: I think your question, let me take a look at that Phil.
Speaker Change: Similar to Q Q1, I would imagine the main adjustments as just ongoing share repurchases and then any equity comp adjustments that you would have from that.
Speaker Change: So Q1 was $46 eight was the diluted share count.
Speaker Change: Okay, So I might be I might be a little higher than that okay.
Philip Ross Gibbs: Okay, so I might be, I might be a little high then on that. Okay.
Speaker Change: I don't think I took into account the stock the stock compensation.
Philip Ross Gibbs: But I don't, I don't think I took into account the stock, the stock compensation as an offset, a partial offset. [inaudible] and then the networking capital. Outlook for the second quarter, or just maybe the balance of the year. How are you thinking about net working capital?
Speaker Change: A partial offset.
Speaker Change: And then the net working capital.
Speaker Change: Outlook for the second quarter.
Speaker Change: Or just maybe in the balance of the year, how are you thinking about networking capital.
Speaker Change: We continue to manage that closely with discipline, the receivables and payables tend to offset with a lower level of production in Q2, we're going to be buying a bit less.
Kristopher R. Westbrooks: We continue to manage that closely with discipline, you know, the receivables and payables tend to offset each other with a lower level of production in Q2. We're going to be buying a bit less, you know, a similar level of shipments in Q2, but a little bit less mix. Receivables could be down a little bit. And then from an inventory standpoint, you tend to see that trend down a little bit as you produce less as well.
Speaker Change: Similar level of shipments in Q2, but a little bit lesser mix receivables could be down a little bit and then from an inventory standpoint, you tend to see that trend down a little bit as you produce less as well so.
Speaker Change: Some puts and takes there, but not a significant move one way or the other so it's really profitability. The other things we have going on in Q2 as we do have tax payments that have gone out in April we talked about that in the 10-Q, it's around $21 million and then about 6 million of pension contributions in the quarter as well.
Kristopher R. Westbrooks: So some puts and takes there, but not a significant move one way or the other. So it's really profitability. The other things we have going on in Q2 are we do have tax payments that have gone out in April. We talked about that in the 10-Q. It's around $21 million, and then about $6 million of pension contributions in the quarter as well.
Speaker Change: Yeah.
Philip Ross Gibbs: So did you not have any tax payments in the first quarter then, or was that part of the...
Speaker Change: So did you not have any tax payments in the first quarter that is that was that part of the.
Speaker Change: Part of the timing there.
Kristopher R. Westbrooks: Very minimal payments in Q1.
Speaker Change: Very minimal payments in Q1.
Speaker Change: Okay.
Philip Ross Gibbs: And then lastly, for me, just on the cost side, I know it's difficult for us to model it based on mix, different mix points that you have. But, generally speaking, though, when you have less, less utilized millage you're talking about in the second quarter, does that lead to some some absorption issues relative to Q1? Or is that not something we're going to see until Q3 because of inventory? Now you're going to see it.
Speaker Change: And then lastly for me just on the cost side I know I know, it's difficult for us to model it based on mix.
Speaker Change: Different mix points that you have.
Speaker Change: General generally speaking, though when you when you have less.
Speaker Change: Less utilized mill as Youre talking about it in the second quarter does that lead to some some some absorption.
Speaker Change: She is relative to Q1 or is that does that not something we're going to see until Q3 because of inventory.
Kristopher R. Westbrooks: Now you're going to see it in Q2, and potentially whatever's left in inventory or on the balance sheet, you may see a little bit of that in Q3. But yeah, costs will go up because our utilization rate is aligned with the market demands from our customers.
Speaker Change: Now youre going to see it in Q2.
Speaker Change: Potentially whatever is left in inventory are on.
Speaker Change: Our balance sheet, you may see a little bit of that in Q3.
Speaker Change: But yes cost will go up because our utilization rate.
Speaker Change: This is aligned with the market demands from our customers.
Speaker Change: Thank you guys appreciate it.
Philip Ross Gibbs: Thank you guys, I appreciate it. Hey, thanks, Phil.
Philip Ross Gibbs: Hey, thanks, Phil. Thank you.
Speaker Change: Hey, Thanks, Bill Thank you.
Speaker Change: Your next question comes from the line up Dave storms with Stonegate Securities. Please go ahead.
Dave Storms: Your next question comes from the line of Dave Storms with Stonegate Securities. Please go ahead.
Speaker Change: Good morning, this is Justin sitting in for Dave.
Justin: Good morning, this is Justin sitting in for Dave. How are you guys? We're hanging in there. I just wanted to see what kind of melt utilization level we should expect for the rest of 2024 and then what kind of reliance on third-party melt utilization we have.
Justin: Hey, just a couple of however, you guys. This morning.
Justin: We're hanging in there.
Justin: Just wanted to see what kind of milk.
Justin: Utilization levels should we expect for the rest of 2024, and then whats kind of the reliance on third party melt utilization.
Speaker Change: Oh, very little reliance on third melt utilization.
Michael S. Williams: Very little reliance on third mount utilization. Hard to predict the rest of the remaining part of 2024 from a mount utilization standpoint.
Speaker Change: Hard to predict the rest of the remaining part of 2024 on our melt utilization standpoint.
Speaker Change: With lead times are short our visibility is short so.
Michael S. Williams: You know, with lead times so short, our visibility is short. So, you know, we stay in alignment with our customers. We're doing the best to serve, providing the best service and the best quality. And we'll continue to do that. If market demands improve, so will our utilization rate.
Speaker Change: We stay in alignment with our customers.
Speaker Change: We're doing the best to serve providing the best service and the best quality and we will continue to do that and.
If the market if the market demands improve so our utilization rate.
Speaker Change: Thanks for that and then I guess kind of.
Justin: Thanks for that!
Speaker Change: Do you have any kind of visibility on your order book for the remainder of the year.
Speaker Change: Kind of price mix.
Speaker Change:
Michael S. Williams: From my perspective, I think our prices are going to remain steady. You know, 65% of our order book is contractual, so those prices are set for the remainder of the year. The spot market has softened a little bit, but we're not seeing a lot of spot business right now.
Speaker Change: From my perspective, I think our prices are going to remain steady.
Speaker Change: 65% of our order book is contractual so those prices are set for the remainder of the year the.
Speaker Change: Spot market has softened a little bit.
But we're not seeing a lot of spot business right now.
Speaker Change: Thanks, guys Thats it for me.
Justin: That's it. All right, thank you.
Speaker Change: Alright, thank you.
Speaker Change: Again, if you would like to ask a question simply press star one on your telephone keypad to raise their hand in China Q.
Operator: Again, if you would like to ask a question, simply press star 1 on your telephone keypad to raise your hand and join the queue. There are no questions at this time. I will now turn the conference back over to Jennifer Beeman for closing remarks. Thank you all for joining us today, and that concludes our call, and thank you again for your support of Metallus. Ladies and gentlemen, that concludes today's call. Thank you all for joining us. You may now disconnect.
Speaker Change: There are no question.
Speaker Change: There are no question at this time I will now turn the conference back over to Jennifer Beeman for closing remarks.
Jennifer K. Beeman: Thank you all for joining today and that concludes our call and thank you again for your support of Entellus.
Jennifer K. Beeman: Ladies and gentlemen that concludes today's call. Thank you all for joining you may now disconnect.
Jennifer K. Beeman: Okay.
Yeah.
Jennifer K. Beeman: Yeah.
Jennifer K. Beeman: Yeah.
Jennifer K. Beeman: Yeah.