Q1 2024 Universal Stainless & Alloy Products Inc Earnings Call

May 1, 2024

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Operator: Good day, and thank you for standing by. Welcome to the Universal Stainless & Alloy Products Incorporated first quarter 2024 conference call and webcast. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1-1 on your telephone. You will then hear an automated message advising that your hand is raised. So, to withdraw your question, please press star one one again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your host today, June Filingeri. Please go ahead.

Good day, and thank you for standing by.

June Filingeri: Go ahead. Thank you, Brittany.

Speaker Change: Welcome to the Universal stainless and alloy products incorporated first quarter 'twenty 'twenty four conference call and webcast.

Speaker Change: At this time all participants are in a listen only mode.

Speaker Change: After the speaker's presentation, there will be a question and answer session.

Speaker Change: Ask a question during the session you will need to press star one one on your telephone you will then hear an automated message if I see your hand is ready.

Speaker Change: So it was draw your question. Please press star one one again.

Please be advised that today's conference is being recorded.

Speaker Change: I would now like to hand, the conference I'll, let say the house today.

Speaker Change: June Phil and Jerry.

Speaker Change: Please go ahead. Thank you Britney Good morning. This is June Phil and Jerry Your Com partners and I also would like to welcome you to the Universal stainless conference call and webcast. We are here to discuss that.

June Filingeri: Good morning. This is June Filingeri of ComPartners, and I also would like to welcome you to the Universal Stainless conference call and webcast. We are here to discuss the company's first quarter 2024 results reported this morning. With us from management are Chris Zimmer, President and Chief Executive Officer, John Arminas, Vice President and General Counsel, and Steve DiTommaso, Vice President and Chief Financial Officer. Before I turn the call over to management, let me quickly review procedures.

Speaker Change: Company's first quarter 2024 results reported this morning with US from management are Chris Zimmer, President and Chief Executive Officer, John Armenia, Vice President and General Counsel and Steve teach math, So vice President and Chief Financial Officer, before I turn the call over to <unk>.

June Filingeri: After management has made formal remarks, we will take your questions. Brittany will instruct you again on procedures at that time. Also, please note that in this morning's call, management will make forward-looking Under the Private Securities Litigation Reform Act of 1995, I would like to remind you of the risks related to these statements, which are more fully described in today's press release and in the company's filings with the Securities and Exchange Commission. With the formalities complete, I would now like to turn the call over to Chris Zimmer. Chris, we are ready to begin.

Speaker Change: Management, Let me quickly review procedures. After management has made formal remarks, we will take your questions. Brittany will instruct you again on procedures at that time also please note that in this morning's call management will make forward looking statements under the private Securities litigation.

Speaker Change: And Reform Act of 1995, I would like to remind you of the risks related to these statements which are more fully described in today's press release and in the company's filings with the Securities and Exchange Commission.

Speaker Change: With the formalities complete I would now like to turn the call over to Chris Zimmer, Chris we are ready to begin.

Christopher M. Zimmer: Good morning, everyone, and thank you for joining us. I'm pleased to report our earnings momentum continued in the first quarter, most evident in our gross margin, which reached 18.9%, the highest in 12 years, even with a $1.3 million raw material misalignment. Without it, our gross margin would have topped 20%. This is the fifth consecutive quarter of gross margin improvement and we expect the momentum to continue in the coming quarters as sales ramp up, our base prices continue to increase, and raw material headwinds dissipate as commodity prices further stabilize. Operating income rose 51% to $7.3 million in the first quarter, and net income increased nearly 60%, reaching $4.1 million, or $0.43 per diluted share, compared with $0.27 in the fourth quarter.

Christopher M. Zimmer: Thank you June.

Christopher M. Zimmer: Good morning, everyone and thank you for joining us.

Christopher M. Zimmer: I'm pleased to report our earnings momentum continued in the first quarter most evident in our gross margin, which reached 18, 9% the highest in 12 years, even with a $1 3 million dollar raw material misalignment.

Christopher M. Zimmer: Without it our gross margin would have topped 20%.

Christopher M. Zimmer: This is the fifth consecutive quarter of gross margin improvement and we expect the momentum to continue in the coming quarters as sales ramp up our base prices continue to increase and raw material headwinds dissipate as commodity prices further stabilize.

Speaker Change: Operating income rose, 51% to $7 $3 million in the first quarter and net income increased nearly 60%, reaching $4 $1 million.

Speaker Change: Or <unk> 43 per diluted share compared with 27.

Speaker Change: In the fourth quarter.

Christopher M. Zimmer: Our first quarter sales of $77.6 million were the second highest in our history, only exceeded by our record fourth quarter sales of $79.8 million. We expect to achieve record sales quarterly for the balance of the year based upon the strength of the aerospace market demand, which continues unabated. It's also supported by our backlog, which increased to $325 million from $318 million at year-end on continued strong order entry. First quarter premium sales totaled $20.1 million, just shy of the record level in the fourth quarter.

Speaker Change: Our first quarter sales of $77 $6 million were the second highest in our history only exceeded by a record fourth quarter sales of $79 8 million.

Speaker Change: We expect to achieve record sales quarterly for the balance of the year based upon the strength of the aerospace market demand, which continues unabated.

Speaker Change: It's also supported by our backlog, which increased to $325 million from $318 million at yearend on continued strong order entry.

Speaker Change: First quarter premium sales totaled $21 million, just shy of the record level in the fourth quarter.

Christopher M. Zimmer: Our premium alloys, which are mainly for aerospace applications, represented 26% of our total first quarter sales, and aerospace represented nearly 78% of sales in the quarter. Both continue to be the main drivers of our performance and growth. It's important to underscore that our strategy to focus on premium alloys has been transformational for our company and has yielded a broader base of customer approvals, a richer product mix, and increased earnings power. Total debt for the first quarter was reduced by another $4.3 million, while we also continue to invest in our premium alloy capabilities in North Jackson.

Speaker Change: Our premium alloys, which are mainly for aerospace application represented 26% of our total first quarter sales and aerospace represented nearly 78% of sales in the quarter.

Speaker Change: Both continue to be the main drivers of our performance and growth.

Speaker Change: It is important to underscore that our strategy to focus on premium alloys has been transformational for our company and has yielded a broader base of customer approvals, a richer product mix and increased earnings power.

Speaker Change: Total debt for the first quarter was reduced by another $4 3 million. While we also continued to invest in our premium alloy capabilities in North Jackson.

Christopher M. Zimmer: That includes ordering a second 18-ton furnace for the VIM, which adds to efficiencies and capacity, as well as a new box furnace to support the forge. Additionally, we are further investing in upgrades of our process controls with more digital capability on equipment to utilize optimizing operating performance. We plan to continue to invest capital in our facilities while further reducing debt in 2024. Our total production in the first quarter was 12% higher than the fourth quarter of 2023 and our strongest since the first quarter of 2020.

Speaker Change: That includes ordering a second 18 ton furnace for the Vim.

Speaker Change: Which adds to efficiencies and capacity as well as a new box furnished to support the forge.

Speaker Change: Additionally, we are further investing in upgrades of our process controls with more digital capability on equipment to utilize optimizing operating performance.

Speaker Change: We plan to continue to invest capital in our facilities, while further reducing debt in 2024.

Speaker Change: Our total production in the first quarter was 12% higher than the fourth quarter of 2023, and our strongest since the first quarter of 2020.

Christopher M. Zimmer: We are seeing the benefits of targeted capital modernization projects throughout our plants, that have delivered process improvements and reliability to our manufacturing process, enabling our production levels to ramp. We have additional modernization projects underway to support our growth as the stability of our workforce continues to improve. Turning to our end markets, starting with aerospace, our largest. First quarter sales totaled $60.2 million compared to $61.9 million in the fourth quarter and $49 million in the first quarter of 2023.

Speaker Change: We are seeing the benefits of targeted capital modernization projects throughout our plants.

Speaker Change: That have delivered process improvements and reliability to our manufacturing process enable enabling our production levels to ramp.

Speaker Change: We have additional modernization projects underway to support our growth as the stability of our workforce continues to improve.

Speaker Change: Turning to our end markets, starting with aerospace our largest.

Speaker Change: First quarter sales totaled $62 million.

Speaker Change: Compared to $61 9 million in the fourth quarter and $49 million in the first quarter of 2023.

Christopher M. Zimmer: As I said, aerospace demand remains robust despite the current low build rates at Boeing resulting from the 737 MAX production issues and slower production of the 787. While that has curbed the supply of Boeing airplanes to its customers, it has not curbed Boeing's demand for its suppliers. Boeing's message to the supply chain: keep your foot on the gas and keep to the master schedule production plan.

Speaker Change: As I said aerospace demand remains robust despite the current low build rates at Boeing resulting from the 737, Max production issues and slower production of the 787.

Speaker Change: While that has curbed the supply of Boeing airplanes to its customer it has not curbed boeing's demand to its suppliers.

Speaker Change: Boeing's message to the supply chain.

Speaker Change: Keep your foot on the gas and keep to the master schedule production plan.

Christopher M. Zimmer: Boeing is intent on ensuring supplier stability and allowing all suppliers to catch up in preparation for the increase in build rates planned for 2025 and 2026. On their call last week, Boeing said that production of the max planes will remain below 38 per month in the first half of 2024, but they plan to ramp up to the 38 level in the second half of the year. Rate increases beyond that are predicated on their work with the FAA.

Speaker Change: Boeing is intent on ensuring supplier stability and allowing all suppliers to catch up in preparation for the increase in build rates planned for 2025 and 2026.

Speaker Change: On their call last week, Boeing said that production of Max planes will remain below <unk> 38 per month in the first half of 2024, but they plan to ramp up to the 38 level in the second half of the year.

Speaker Change: Rate increases beyond that are predicated on their work with the FAA.

Christopher M. Zimmer: The rate of 787 production is expected to increase to 10 per month in 2026 and Boeing expects to make first delivery of the 777X in 2025. Boeing also reported that demand across its portfolio remains incredibly strong. Their net new orders in the first quarter totaled 125.

Speaker Change: The rate of 787 production is expected to increase to 10 per month in 2026, and Boeing expects to make first delivery of the triple seven X in 2025.

Speaker Change: Boeing also reported that demand across its portfolio remains incredibly strong.

Speaker Change: Our net new orders in the first quarter totaled 125 include.

Christopher M. Zimmer: Including 85-737-10700, 28777 X-Planes At quarters end, Boeing's net backlog stood at more than 5,600 planes, including approximately 4,800 max planes, nearly 800 787s, and around 480 777Xs. Meanwhile, Airbus reported a total of 170 new orders in the first quarter, while their single-aisle production is running below plan at about 50 planes per month due to supply chain issues. Airbus has reaffirmed their production goal of 75 A320s per month in 2025, as well as their target of raising A350 output to 10 per month in 2026.

Speaker Change: Including $85 737 tenths.

Speaker Change: <unk> 2008, Triple seven X claims.

Speaker Change: At quarter's end Boeing's net backlog stood at more than 5600 claims, including approximately 4800 Max planes.

Speaker Change: 800, 780 Sevens.

Speaker Change: And around 480 Triple <unk>.

Speaker Change: Meanwhile, Airbus reported a total of 170, new orders in the first quarter.

Speaker Change: While there are single aisle production is running below plan at about 50 claims per month due to supply chain issues are.

Speaker Change: Airbus has reaffirmed their production goal of 75 <unk> hundred <unk> per month in 2025.

Speaker Change: As well as their target of raising <unk> hundred 50 output to 10 per month in 2026.

Christopher M. Zimmer: The surge in air travel is driving demand for new airplanes with Delta, United, Alaska, and American Airlines, all reporting strong first quarter growth and bullish second quarter outlook. Delta's Ed Bastian described market travel conditions as the most constructive in his career, with consumers in a healthy position, travel remaining a top priority, and corporate travel accelerating. Other airlines echoed the same. One limiting factor for the airlines is the slowed production and delivery of new generation airplanes, causing them to reduce schedules during the peak flying season and rely on older aircraft.

Speaker Change: The surge in air travel is driving demand for new airplanes with Delta United United.

Speaker Change: Lascar at American Airlines, all reporting strong first quarter growth and bullish second quarter outlooks.

Speaker Change: Delta is Ed Bastian described market travel conditions as the most constructive and his career with.

Speaker Change: With consumers in a healthy position travel remaining a top priority and corporate travel accelerating.

Speaker Change: Other airlines echoed the same.

Speaker Change: One limiting factor for the airlines is the slowed production and delivery of new generation airplanes, causing them to reduce schedules during the peak flying season and rely on order of older aircraft.

Christopher M. Zimmer: On the plus side, that has generated demand in the MRO business, which benefits supply chain demand. In the defense sector, the President just signed into law a $95 billion aid package for Ukraine, Israel, and Taiwan amid the increasing intense conflicts in those regions. That follows passage of the long-delayed $825 billion defense spending bill for fiscal 2024 in March. Increased defense spending can translate into added market demand for the type of premium and specialty alloys we produce.

Speaker Change: On the plus side that has generated demand in the MRO business.

Speaker Change: Which benefits supply chain demand.

Speaker Change: In the defense sector. The President just signed into law, a $95 billion aid package for Ukraine, Israel, and Taiwan amid the increasing intense conflicts in those regions.

Speaker Change: That follows passage of the long delayed 825 billion defense spending bill for fiscal 2024 and March <unk>.

Speaker Change: Increased defense spending can translate into added market demand for the type of premium and specialty alloys, we produce.

Christopher M. Zimmer: The defense market is an increasingly important market for us, and it currently represents 15-20% of our total aerospace sales. Overall, I would echo the sentiment that this is the most constructive aerospace market environment I've ever seen. The feedback from customers indicates that they are fully in a pull mode, replenishing their inventories on strong demand.

Speaker Change: The defense market is an increasingly important market for us and it currently represents 15% to 20% of our total aerospace sales.

Speaker Change: Overall I would echo the sentiment that this is that this is the most constructive aerospace market environment I've ever seen.

Speaker Change: The feedback from customers indicates that they are fully in a pull mode replenishing their inventories on strong demand.

Christopher M. Zimmer: Our company is also in the strongest position it's ever been to respond to that demand as a result of our multi-year capital investment in premium alloy capabilities and capacity. Turning to our remaining markets, Beginning this quarter, we are reporting a new market category, Energy, which combines our oil and gas and power generation sales and better reflects our strategy in the energy market. We have been deemphasizing PowerGen in recent quarters as we focus capacity on the aerospace industry.

Speaker Change: Our company is also in the strongest position we've ever been to respond to that demand as a result of our multiyear capital investment and premium alloy capabilities and capacity.

Speaker Change: Turning to our remaining markets.

Christopher M. Zimmer: In fact, PowerGen sales contributed just $1.1 million to total energy market sales of $6 million in the first quarter. Oil and gas sales of $4.9 million, made up the rest. Energy market sales were up 29% sequentially and up 3% from the first quarter last year, representing 7.7% of total sales. Although we have temporarily shifted much of our premium alloy production and finishing capacity to aerospace, we plan to increase our energy market sales in future quarters as our production capacity continues to expand.

Speaker Change: Beginning this quarter, we are reporting a new market category energy, which combines our oil and gas and power generation sales and better reflects our strategy in the energy market.

Speaker Change: We have been deemphasizing power Gen in recent quarters as we focus capacity on the aerospace industry.

Speaker Change: In fact power Gen sales contributed just $1 1 million to total energy market sales of $6 million in the first quarter.

Speaker Change: Oil and gas sales of $4 9 million made up the rest.

Speaker Change: Energy market sales were up 29% sequentially and up 3% from the first quarter last year, representing seven 7% of total sales.

Speaker Change: Although we are temporarily shifted much of our premium alloy production and finishing capacity to aerospace we plan to increase our energy market sales in future quarters as our production capacity continues to expand.

Christopher M. Zimmer: Heavy equipment market sales totaled $5.8 million, or 5.7% of first quarter sales. Sales were down 9% sequentially as our customers continue to balance inventories and digest the changing market demand for EVs versus hybrids versus gas engine vehicles. Both Ford and GM did report increased EV sales in the first quarter with GM reporting a sharp rise in EV production and deliveries and Ford emphasizing its record hybrid sales. However, automakers are modifying the mix of their planned model offerings and the timing of new model introductions as they adjust to current customer preferences.

Speaker Change: Heavy equipment market sales totaled $5 8 million or five 7% of first quarter sales.

Speaker Change: Sales were down 9% sequentially as our customers continue to balance inventories and digest, the changing market demand for evs versus hybrids versus gas engine vehicles.

Speaker Change: Both Ford and GM did report increased EV sales in the first quarter with GM reporting a sharp rise in EV production and deliveries and forward emphasizing its record hybrid sales.

Speaker Change: However, automakers are modifying the mix of their plan to model offerings and the timing of new model introductions as they adjust to current customer preferences.

Christopher M. Zimmer: Even so, model changeovers are a positive driver of tool steel demand and we expect our sales to pick up in the second half of the year. General industrial market sales totaled $4.3 million in the first quarter compared to $5.6 million in the fourth quarter and $3.5 million in the first quarter last year. First quarter results were in line with our expectations as discussed on our last call.

Speaker Change: Even so model changeovers are a positive driver of tool steel demand and we expect our sales to pick up in the second half of the year.

Speaker Change: General industrial market sales totaled $4 $3 million in the first quarter compared to $5 6 million in the fourth quarter and $3 5 million in the first quarter last year.

Speaker Change: <unk> first quarter results were in line with our expectations as discussed on our last call.

Christopher M. Zimmer: We expect our sales in this market, which are mainly for semiconductor manufacturing, to resume growth in the second quarter. The U.S. semiconductor market is benefiting from the CHIPS Act, which aimed at on-shoring semiconductor manufacturing. Commerce Department recently announced a deal with Samsung, providing up to $6.4 billion in incentives to support their manufacturing operation in Texas. The Commerce Department previously announced incentives for TSMC, Intel, Global Foundries, Microchip Technology, and BAE Systems. Additionally, AI-related demand is also driving the market. We remain very optimistic about this market in 2024, especially during the second half of the year. Now let me turn the call over to Steve for his report on our financials.

Speaker Change: We expect our sales in this market, which are mainly for semiconductor manufacturing to resume growth in the second quarter.

Speaker Change: The U S semiconductor market is benefiting from the chips Act, which aimed at onshoring semiconductor manufacturing.

Speaker Change: Commerce Department recently announced a deal with Samsung, providing up to $6 $4 billion in incentives to support their manufacturing operation in Texas.

Speaker Change: The Commerce Department previously announced incentives for TSMC, Intel Globalfoundries micro trip technology and systems.

Speaker Change: Additionally, AI related demand is also driving the market.

Speaker Change: We remain very optimistic about this market in 2024, especially during the second half of the year.

Speaker Change: Now, let me turn the call over to Steve for his report on our financials.

Steven V. DiTommaso: Thanks, Chris. Good morning, everyone.

Steven V. DiTommaso: Thanks, Chris.

Steven V. DiTommaso: Sales of $77.6 million in Q1 were nearly $12 million higher than the first quarter a year ago and second only to our record Q4 2023. Gross margin totaled $14.7 million in the first quarter, or 18.9% of sales, compared to 16.4% last quarter and 11.7% in the first quarter of last year. When compared with Q4 2023, The margin improvement was driven first by higher base prices on shipments and also cost reductions delivered by specific margin improvement projects executed during 2023.

Steven V. DiTommaso: Good morning, everyone.

Steven V. DiTommaso: Sales of $77 6 million in Q1 were nearly $12 million higher than the first quarter, a year ago and second only to our record Q4 2023.

Steven V. DiTommaso: The margin increase was partially offset by a raw materials misalignment headwind in the quarter that totaled approximately $1.3 million. When compared to the first quarter of last year, About $7 million of the increased sales fell through to margin, representing about a 60% pull-through and demonstrating the impact of our higher base prices, our volume recovery, and our cost improvement efforts. Selling General and Administrative costs totaled $7.4 million compared with $8.3 million last quarter and $6.3 million in the first quarter of last year. The 2023 fourth quarter SG&A was higher due to the timing of employee-related costs, which then decreased in Q1. Higher business insurance expenses and higher audit and accounting support expenses continue in 2024.

Steven V. DiTommaso: Gross margin totaled $14 $7 million in the first quarter or 18, 9% of sales compared to 16, 4% last quarter and 11, 7% in the first quarter of last year.

Steven V. DiTommaso: When compared with Q4 2023.

Steven V. DiTommaso: The margin improvement was driven first by higher base prices on shipments and also cost reductions delivered by specific margin improvement projects executed during 2023.

Steven V. DiTommaso: The margin increase was partially offset by raw materials misalignment headwind in the quarter that totaled approximately $1 3 million.

Steven V. DiTommaso: When compared to the first quarter of last year.

Steven V. DiTommaso: About $7 million of the increase sales fell through to margin.

Steven V. DiTommaso: Presenting about a 60% pull through and demonstrating the impact of our higher base prices or volume recovery and our cost improvement efforts.

Steven V. DiTommaso: Selling general and administrative costs totaled $7 $4 million.

Steven V. DiTommaso: Compared with $8 3 million last quarter and six three in the first quarter of last year.

Steven V. DiTommaso: The 2023 fourth quarter SG&A was higher due to the timing of employee related cost, which then decreased in Q1.

Steven V. DiTommaso: Higher business insurance expenses, and higher audit and accounting support expenses continue in 2024.

Steven V. DiTommaso: We expect SG&A expense to range between $7.5 million and $8 million per quarter as we move through the year. Our operating income of $7.3 million was at its highest level since Q2 2012 and was $2.5 million better than last quarter. A month ago on our call, I said that we plan to drive meaningful growth in operating income in 2024. This is step one on that path and demonstrates our profitability potential in the coming quarters as we continue to execute our plan.

Steven V. DiTommaso: We expect SG&A expense to range between $7 $5 million and $8 million per quarter as we move through the year.

Steven V. DiTommaso: Our operating income of $7 3 million was at its highest level since Q2 2012.

Steven V. DiTommaso: <unk> was $2 $5 million better than last quarter.

Steven V. DiTommaso: A month ago on our call I said that we plan to drive meaningful growth in operating income in 2024.

Steven V. DiTommaso: This is step one on that path and demonstrates our profitability potential in the coming quarters as we continue to execute our plan.

Steven V. DiTommaso: Total interest expense for the quarter was $2 million, compared to $2.2 million in the fourth quarter of 2023. Average debt was about $5 million lower in the first quarter compared to the fourth quarter of last year. Term SOFR, which drives our interest rate for the majority of our debt, was flat for both quarters, and our effective interest rate for both periods was about 9.5% on all debt.

Steven V. DiTommaso: Total interest expense for the quarter was $2 million.

Steven V. DiTommaso: Compared to $2 2 million in the fourth quarter of 2023.

Steven V. DiTommaso: Average debt was about $5 million lower than the first quarter compared to the fourth quarter of last year.

Steven V. DiTommaso: Terms sofa, which drives our interest rate for the majority of our debt was flat for both quarters and our effective interest rate for both periods was about nine 5% on all that.

Steven V. DiTommaso: Due to our financial performance in the last few quarters, we achieved a 25 basis point reduction in our spread above SOFR on our bank debt near the end of the first quarter. This will benefit interest expense in Q2 and going forward. And we have the opportunity to reduce the rate by another 25 basis points in Q3 if we achieve our financial plan. We recorded an income tax expense of $1.1 million during the first quarter, resulting in an effective tax rate of 20.4%.

Steven V. DiTommaso: Due to our financial performance. The last few quarters, we achieved a 25 25 basis point reduction in our spread above so far on our bank debt.

Steven V. DiTommaso: Near the end of the first quarter.

Steven V. DiTommaso: This will benefit interest expense in Q2 and going forward.

Steven V. DiTommaso: And we have the opportunity to reduce the rate by another 25 basis points in Q3, if we achieve our financial plan.

Steven V. DiTommaso: We recorded income tax expense of $1 $1 million during the first quarter.

Steven V. DiTommaso: Resulting in an effective tax rate of 24%.

Steven V. DiTommaso: The effective tax rate includes the impact.., of the federal statutory rate of 21% and state income taxes offset by the impact of our Research and Development Tax Credit, which decreased income tax expense for the period. Other elements of the rate calculation, and discrete items in the quarter, are not significant.

Steven V. DiTommaso: The effective tax rate includes the impact of.

Steven V. DiTommaso: The federal statutory rate of 21%.

Steven V. DiTommaso: And state income taxes, offset by the impact of our research and development tax credits, which decreased income tax expense for the period.

Steven V. DiTommaso: Other elements of the rate calculation and discrete items in the quarter are not significant.

Steven V. DiTommaso: Discrete items resulted in less than $100,000 of tax expense in the quarter, and the estimated annual effective tax rate for 2024 is 19.7%. Net income for the quarter was $4.1 million, or $0.43 per diluted share. This represents an increase in EPS of $0.16, or nearly 60%, versus last quarter, despite the calculation of diluted shares increasing by 137,000 shares in the same period due to our higher stock price. Our first quarter EBITDA was $12.2 million compared to $9.6 million last quarter. Our adjusted EBITDA includes an add-back for non-cash share compensation and was $12.6 million, or 16.2% of sales. Highest since Q1, 2012.

Steven V. DiTommaso: Discrete items resulted in less than $100000 of tax expense in the quarter and the estimated annual effective tax rate for 2024 is 19, 7%.

Steven V. DiTommaso: Net income for the quarter was $4 1 million or <unk> 43 per diluted share.

Steven V. DiTommaso: This represents an increase in EPS of <unk> 16, or.

Steven V. DiTommaso: Or nearly 60% versus last quarter. Despite the calculation of diluted shares increasing by 137000 shares in the same period due to our higher stock price.

Steven V. DiTommaso: Our first quarter EBITDA was $12 2 million compared to $9 six last quarter.

Steven V. DiTommaso: Our adjusted EBITDA includes an add back for noncash share compensation and was $12 6 million.

Steven V. DiTommaso: Or 16, 2% of sales.

Steven V. DiTommaso: Highest since Q1 2012.

Steven V. DiTommaso: Our income adjusted for non-cash items generated $10.6 million in cash during the quarter. We invested $300,000 of that in net working capital and other assets, and used our remaining cash flow to fund capital expenditures of $5.5 million and decrease our net debt by $4.8 million. We expect full year 2024 capital expenditures to total approximately $18 million. And we plan to generate free cash flow each quarter and pay down debt each quarter in 2024. This concludes the financial update. I'll hand the call back to Chris. Thanks, Steve.

Steven V. DiTommaso: Our income adjusted for noncash items generated $10 $6 million in cash during the quarter we.

Steven V. DiTommaso: We invested $300000 of that in net working capital and other assets.

Steven V. DiTommaso: And used our remaining cash flow to fund capital expenditures of $5 5 million and decrease our net debt by $4 8 million.

Steven V. DiTommaso: We expect full year 2020 for capital expenditures to total approximately $18 million and.

Steven V. DiTommaso: And we plan to generate free cash flow each quarter and pay down debt each quarter in 2024.

Steven V. DiTommaso: This.

Steven V. DiTommaso: <unk> the financial update.

Steven V. DiTommaso: Hand, the call back to Chris.

Christopher M. Zimmer: Thanks, Steve.

Christopher M. Zimmer: In summary, we achieved the highest profitability in 12 years in the first quarter as our gross margin continued its upward trajectory, reaching 18.9%, even after a $1.3 million material misalignment, and our net income reached $0.43 per share on near record sales. Unabated aerospace demand continues to drive our premium alloy sales, as well as our increased backlog and strong order entry. Our strategic focus on premium alloys has been transformational, expanding our base of customer approvals, giving us a richer product mix, and increasing our earnings power.

Christopher M. Zimmer: In summary, we achieved the highest profitability in 12 years in the first quarter as our gross margin continued its upward trajectory, reaching 18, 9%.

Christopher M. Zimmer: Even after a $1 $3 million material Miss alignment and our net income reached 43 per share our near record sales.

Christopher M. Zimmer: Unabated aerospace demand continues to drive our premium alloy sales as well as our increased backlog and strong order entry.

Christopher M. Zimmer: Our strategic focus on premium alloys has been transformational expanding our base of customer approvals, giving us a richer product mix and increasing our earnings power.

Christopher M. Zimmer: We continue to invest in our premium alloy capabilities and capacities in the first quarter, ordering a second 18-ton furnace for the VIM in North Jackson and a new box furnace to support the forge there. At the same time, we reduced net debt by another $4.8 million in the quarter.

Christopher M. Zimmer: We continue to invest in our premium alloy capabilities and capacities.

Christopher M. Zimmer: In the first quarter ordering a second 18 ton furnace for the Vim in North Jackson, and a new box furnace to support the forwards there.

Christopher M. Zimmer: At the same time, we reduced net debt by another $4 $8 million in the quarter.

Christopher M. Zimmer: We plan to continue to invest capital in our facilities in 2024, while also further reducing our debt through a focus on managed working capital, and generating positive cash flow. With a strong start to 2024, we are focused on achieving record quarterly sales and increasing profitability for the rest of the year. As I said in today's release, we remain highly optimistic about our growth momentum and strategy for the foreseeable future. That concludes our formal remarks. Operator, we're ready for questions. Thank you. At this time, please find your seat.

Christopher M. Zimmer: We plan to continue to invest capital in our facilities in 2024, while also further reducing our debt through a focus on managing working capital and.

Christopher M. Zimmer: And generating positive cash flow.

Christopher M. Zimmer: With a strong start to 2024, we are focused on achieving record quarterly sales and increasing profitability for the rest of the year.

Christopher M. Zimmer: As I said in today's release, we remain highly optimistic about our growth momentum and strategy for the foreseeable future.

Speaker Change: That concludes our formal remarks, operator, we're ready for questions.

Speaker Change: Thank you.

Operator: At this time, we will conduct the question and answer session. As a reminder, to ask a question, you will need to press star 1 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Please stand by while we compile the Q&A roster, are... First question, will come from the line of Michael Leshock with Key Bank Capital Markets. Michael, your line is now open.

Speaker Change: At this time, we will conduct a question and answer session. As a reminder to ask a question you will need to press star one one or your telephone and wait for your name to be announced so draw. Your question. Please press star one one again.

Speaker Change: Please standby, while we compile the Q&A roster.

Speaker Change: Alright.

Speaker Change: First question.

Speaker Change: Will come from the line of.

Speaker Change: Michael Lee shock with Keybanc capital markets. Michael Your line is now open.

Michael David Leshock: Hey, good morning. I wanted to start with the Boeing impact of their lower production. Wondering how long you could mitigate some of those issues before it starts to have a larger impact, assuming nothing changes at Boeing. Just thinking about supply chain inventory levels and elevated backlogs and trying to get a sense for how much buffer there is if 737 production remained subdued longer than Boeing's expectations.

Speaker Change: Hey, good morning.

Speaker Change: Wanted to start with the <unk>.

Speaker Change: Boeing impact their lower production.

Michael David Leshock: Wondering how long you could mitigate some of those issues before it starts to have a larger impact assuming nothing changed at Boeing.

Michael David Leshock: Thinking about supply chain inventory levels and elevated backlogs in and trying to get a sense for how much buffer there is.

Michael David Leshock: 737 production remaining subdued longer than boeing's expectations.

Christopher M. Zimmer: Yeah, good morning Mike. So the best information that we have, and a lot of this is coming from a conference that we attended about four to five months ago, a supplier conference out that way and recent correspondence that we've had. The supply chain issues that have persisted, this is an opportunity for the supply chain to continue to catch up, to support that 38 per month level that they were trying to achieve.

Speaker Change: Yes, good morning, Mike So the best information that we have in a lot of this is coming from a conference that we attended about four to five months ago with supplier conference.

Speaker Change: <unk>.

Speaker Change: Out that way and recent correspondence is that we've had.

Speaker Change: The supply chain issues.

Speaker Change: That have persisted this is an opportunity for the supply chain to continue to catch up to support that 38 per month level that they were trying to achieve.

Christopher M. Zimmer: There's an idea out there that it would have been difficult for them to achieve that level at the current rate that the supply chain was able to support it. So this is an opportunity for the supply chain to continue to get caught up and get Boeing in the position to be able to realize that 38 rate count. So, what we're seeing and what we're seeing in the industry right now has not been a push out or a cancellation of any of the schedules.

Speaker Change: There is an idea out there that it would have been difficult for them to achieve that level at the current rate that the supply chain was able to support. It. So this is an opportunity for the supply chain to continue to get caught up and get Boeing in the position to be able to realize that 38 rate count. So what we're seeing and what we're seeing in the <unk>.

Christopher M. Zimmer: They remain committed to their word and what they said they would do, which is to continue to keep all of the schedules in place and continue to pull in through the supply chain. From a timing standpoint, I believe that if we go out beyond the late June, July time period, and they don't have resolution with the FAA to get back on track going beyond the 38 per month rate, I think at that point, then we need to reassess what the environment looks like.

Speaker Change: History, right now has not been a push out or a cancellation of any of the schedules. They remain committed to their word and what they said they would do which is to continue to keep all of the schedules in place and they've continued to pull into the supply chain.

Speaker Change: From a timing standpoint, I believe that if we go out beyond the late June July time period, and they don't have resolution with the FAA to get back on track going beyond the 38 per month rate I think at that point, then we need to reassess what.

Christopher M. Zimmer: But I believe that their current plan right now that they've got in place that the FAA is going to be reviewing and ultimately signing off on at the end of a three month period that began a month or so ago. I believe that if this persists beyond July, then we need to talk about potential impacts. But until that point, we feel comfortable with the demand and the pull in the supply chain continuing to be strong, even with them tapping the brakes on the build right here in the first half of the year.

Speaker Change: The environment looks like.

Speaker Change: But I believe that their current plan right now that they've got in place that the FAA is going to be reviewing and ultimately signing off found at the end of a three months period that began a month or so ago.

Speaker Change: I believe that.

Speaker Change: If this if this persists beyond July then we need to talk about potential impacts, but until that point, we feel comfortable with the demand and the poll in the supply chain continuing to be strong even with them tapping the brakes on the build rate here in the first half of the year.

Christopher M. Zimmer: Got it, that's very helpful. And then in the quarter, you had very strong margins despite the raw material misalignment. And I think three months ago, you had said this would begin to maybe moderate in 2Q, and then behind us by the end of the second quarter. So is this still your view, or has anything changed given some of the moving pieces? Yeah.

Speaker Change: Got it Thats very helpful.

Speaker Change: And then in the quarter.

Speaker Change: You had very strong margin despite the raw material mix alignment and I think three months ago. You had said this would begin to maybe moderate in <unk>.

Speaker Change: And then behind us by the end of the second quarter. So just failure view or has anything changed given some of the moving pieces.

Christopher M. Zimmer: Yeah, we still stand by that. I think that we'll still have a little bit of misalignment here in the second quarter, but roughly only about 40 to 50 percent of what we experienced in the first quarter. We've had stability now for a few months, and actually nickel is starting to show a little life. It is up slightly over the past four to five weeks. I don't know where that's going to go or if that's just a near-term move, but what we're currently seeing in the commodities market is stability to a slight upward bias.

Speaker Change: Yes, we still standby that and I think that we'll still have a little bit of misalignment here in the second quarter, but roughly only about 40% to 50% of what we experienced in the first quarter.

Speaker Change: We've had stability now for a few months and actually nickel is starting to show a little life.

Speaker Change: It is up slightly.

Speaker Change: The past four to five weeks I don't know where thats going to go or if that's just a near term move but what we're currently seeing in the commodities market is stability to a slight upward bias.

Christopher M. Zimmer: So again, less misalignment in the second quarter, and at the rate we're going right now, I don't think we'll have misalignment in the second half of the year, but we'll wait and see what the commodities do and talk about it more then.

Speaker Change: So again.

Speaker Change: Les mis alignment in the second quarter and at the rate, we're going right now I don't think we'll have misalignment in the second half of the year, but.

Speaker Change: We'll wait and see what the commodities do and talk about it more then.

Christopher M. Zimmer: What impacts are you seeing within the aerospace aftermarket? It sounds to us like MRO demand is going to be strong for several years. And just wondering if there are any new opportunities or any way to think about the impact of maybe a more prolonged aftermarket strength.

Speaker Change: And what impacts are you seeing within aerospace aftermarket.

Speaker Change: It sounds to us like MRO demand going to be strong for several years and just wondering if there is any new opportunity is there any way to think about the impact of a maybe a more prolonged aftermarket strength.

Christopher M. Zimmer: It's hard for us to quantify simply because of the majority of our product that flows through service centers and forgers. It's hard to know where that metal is going for new builds or MRO. But that is definitely a positive balance when we look at a slower build rate happening at Boeing. And again, that's not impacting us yet. But the airlines had a plan to retire their legacy planes and get these new fuel-efficient planes into service.

Speaker Change: It's hard for us to quantify simply because of the majority of our product that flows through service centers and forgers, it's hard to know where that metal is going to for new builds or MRO.

Speaker Change: But that is.

Speaker Change: Definitely a positive balance when we look at a slower build rate happening at Boeing and again, that's not impacting us yet.

Speaker Change: But the carriers had a plan to retire their legacy claims and get these new fuel efficient planes into service Theyre, having to continue the life of these legacy claims, which I know is increasing their.

Christopher M. Zimmer: They're having to continue the life of these legacy planes, which I know is increasing their maintenance side of operation and is helping us from an MRO standpoint. I know that that's happening, but it's hard for us to quantify just how much of that shows up and is impacted in our numbers.

Speaker Change: Maintenance side of operation and is helping us from an MRO standpoint.

Speaker Change: I know that that's happening, but it's hard for us to quantify just how much of that shows up in and is impacted in our numbers.

Michael David Leshock: Then lastly, for me, just a clarification, you had mentioned you expect record quarterly sales and increased profitability for the rest of the year. Just want to make sure I understand that's implying sequential increases each quarter.

Speaker Change: Then lastly for me just a clarification you had you had mentioned you expect to record quarterly sales and increased profitability for the rest of the year.

Speaker Change: Just wanted to make sure I understand thats, implying sequential increases each quarter.

Christopher M. Zimmer: That's right, and a lot of that's predicated upon the continued march that we have to ramp production. We're taking a number of targeted initiatives to modernize our plant, really giving assistance to the labor force that we have and the leadership throughout the plants to enable us to continue that march, ramp up volume. And then from that, we continue to expect sequential improvement as we move through the year.

Speaker Change: That's right and a lot of that is predicated upon the continued March that we have to ramp production.

Speaker Change: We're taking a number of targeted initiatives to modernize our plant.

Speaker Change: Really giving assistance to the Labor force do we have in the leadership throughout the plants.

Speaker Change: To enable us to continue that March ramping volume and then from that we continue to expect sequential improvement as we move through the year.

Michael David Leshock: Great, thank you. I appreciate all the color.

Speaker Change: Great. Thank you I appreciate all the color.

Christopher M. Zimmer: No problem. Thanks, Mike. Have a good day.

Speaker Change: No problem. Thanks, Mike have a good day.

Operator: Thank you so much for that. And as a reminder, everyone, to ask a question, you will need to press star 11 on your telephone and wait for your name to be announced. To draw your question, please press star 1-1 again. Please stand by while we compile the Q&A roster. One moment. Okay, I'm showing no further questions at this time. I would now like to turn it back to Chris Zimmer for his closing remarks.

Speaker Change: Okay.

Speaker Change: Thank you so much.

Speaker Change: For that.

Speaker Change: And as a reminder, everyone.

Speaker Change: A question you will need to press star one one on your telephone and wait for your name to be announced.

Speaker Change: Draw. Your question. Please press star one one again.

Speaker Change: Please standby, while we compile the Q&A roster.

Speaker Change: Okay.

Speaker Change: Showing no further questions at this time I would.

Speaker Change: I'd now like to turn it back to Chris Zimmer for closing remarks.

Christopher M. Zimmer: Thank you again for joining us this morning. 2024 got off to a strong start, and we expect increasing traction in our growth plan during the rest of the year. We look forward to updating you on our progress on our second quarter call. Have a good day.

Christopher M. Zimmer: Thank you again for joining US. This morning, 2024 got off to a strong start and we expect increasing traction in our growth plan during the rest of the year.

Christopher M. Zimmer: We look forward to updating you on our progress on our second quarter call have a good day.

Operator: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.

Speaker Change: Alright. Thank you for your participation in today's conference. This does conclude the program you may now disconnect.