Q2 2024 Metallus Inc Earnings Call

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Regina: Hello, and thank you for standing by. My name is Regina, and I will be your conference operator today. At this time, I would like to welcome everyone to the Metallus, Inc. Second Quarter 2024 Earnings Conference Call. All lines have been placed on mute to prevent any background noise.

Regina: Hello, and thank you for standing by. My name is Regina, and I will be your conference operator today. At this time, I would like to welcome everyone to the Metallus, Inc. Second Quarter 2024 Earnings Conference Call.

Regina: After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star, then the number 1 on your telephone keypad. I would now like to turn the conference over to Jennifer Beeman. Please do so.

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

Speaker Change: After the speaker's remarks, there will be a question-and-answer session. If you would like to ask a question during this time, simply press star, then the number one on your telephone keypad. I would now like to turn the conference over to Jennifer Beeman. Please go ahead.

Jennifer Beeman: Good morning and welcome to Metallus's second 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 Rakitic, Executive Vice President and Chief Commercial Officer. You all should have received a copy of our press release, which was issued last night.

Speaker Change: Good morning and welcome to Metallus' second quarter 2024 conference call. I'm Jennifer Beeman, Director of Communications and Investor Relations for Metallus.

Speaker Change: Joining me today is Mike Williams, President and Chief Executive Officer, Chris Westbrooks, Executive Vice President and Chief Financial Officer, and Kevin Rakitic, Executive Vice President and Chief Commercial Officer.

Speaker Change: You all should have received a copy of our press release, which was issued last night.

Jennifer Beeman: During today's conference call, we may make forward-looking statements as defined by the SEC. However, our actual results may differ materially from those projected or implied due to a variety of factors, which we describe in greater detail in yesterday's release. Please refer to our SEC filings, including our most recent Form 10-K and Form 10-Q and the list of factors included in our earnings release, all of which are available on the Metallus website. Where non-GAAP financial information is referenced, additional details and reconciliations to its GAAP equivalent are also included in the release. With that, I'd like to turn the call over to Mike. Okay?

Speaker Change: 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.

Speaker Change: Please refer to our SEC filings, including our most recent Form 10-K and Form 10-Q , and the list of factors included in our earnings release, all of which are available on the Metallus website.

Speaker Change: Where non-GAAP financial information is referenced, additional details and reconciliation to its GAAP equivalent are also included in the release.

Speaker Change: With that, I'd like to turn the call over to Mike. Mike?

Mike Williams: Good morning, everyone, and thank you for joining us. During the second quarter, we focused on what we can control to mitigate the impact of challenging market conditions. Our shipments to the aerospace and defense market remain strong, and our automotive shipments were steady. Unfortunately, the sluggishness in the industrial and energy markets seen in the first quarter extended into the second quarter. This weakness is attributed to softening global economic conditions. Elevated Import.

Mike: Good morning, everyone, and thank you for joining us.

Mike: During the second quarter, we focused on what we can control to mitigate the impact of challenged market conditions.

Mike: Our shipments to the aerospace and defense end market remained strong, and our automotive shipments were steady.

Mike: Unfortunately, the sluggishness in the industrial and energy and markets seen in the first quarter extended into the second quarter.

Mike: This weakness is attributed to softening global economic conditions.

Mike Williams: Customer and Supply Chain Inventory Position, as well as scrap price uncertainty. Despite some unfavorable end markets, we remain committed to managing what's in our control by aligning our production with demand. Carefully Managing Our Working Capital and Costs while investing in our assets and employees for future growth. During the quarter, we maintained positive profitability and operating cash flow, a testament to our business model and disciplined financial management. I am confident that as market dynamics evolve, we are well positioned to take advantage of the demand recovery and anticipate improved profitability. At Metallus, safety is not just a priority; it's a core value.

Mike: Elevated Imports,

Mike: Customer and Supply Chain Inventory Positions.

Mike: as well as scrap price uncertainty.

Mike: Despite some unfavorable land markets, we remain committed to managing what's in our control by aligning our production with demand.

Mike: carefully managing our working capital and costs while investing in our assets and employees for future growth.

Mike: During the quarter, we maintained positive profitability and operating cash flow, a testament to our business model and disciplined financial management.

Mike: I am confident that as market dynamics evolve, we are well positioned to take advantage of the demand recovery and anticipate improved profitability.

Speaker Change: At Metallus, safety is not just a priority, it's a core value.

Mike Williams: We believe that a safe workplace is a productive and successful one. We have established a comprehensive safety strategy and have set ambitious goals to ensure the well-being of our employees, contractors, and guests. We have made considerable progress in executing our safety strategy, which involves enhancing our safety processes and systems, as well as our physical environment, our cultural environment, and our safety capabilities with a strong focus on serious injury and fatality prevention.

Speaker Change: We believe that a safe workplace is a productive and successful one.

Speaker Change: We have established a comprehensive safety strategy and have set ambitious goals to ensure the well-being of our employees, contractors, and guests.

Speaker Change: We have made considerable progress in executing our safety strategy, which involves enhancing our safety processes and systems.

Regina: Hello, and thank you for standing by. My name is Regina, and I will be your conference operator today. At this time, I would like to welcome everyone to the Metallus Inc.

Speaker Change: as well as our physical environment, our cultural environment, and our safety capabilities with a strong focus on serious injury and fatality prevention.

Regina: 2nd quarter, 2024 earnings conference call. All lines have been placed on new to prevent any background noise. After the speakers remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star, then the number one on your telephone keypad.

Mike Williams: In the second half of the year, we will continue executing our safety strategy with a focus on comprehensive pre-job safety planning and inspection, maturing our Serious Injury and Fatality Prevention Program, continuing to invest in our physical equipment and equipment guarding upgrades, and targeted injury reduction strategies related to hand injuries and ergonomics. Our safety strategy is having a positive impact, as we are observing positive indicators in employee engagement, hazard identification, and incident prevention.

Speaker Change: In the second half of the year, we will continue executing our safety strategy with a focus on comprehensive pre-job safety planning and inspections.

Speaker Change: Maturing or Serious Injury and Fatality Prevention Programs.

Jennifer Beeman: I would now like to turn the conference over to Jennifer Beeman. Please go ahead.

Speaker Change: continuing to invest in our physical equipment and equipment guarding upgrades and targeted injury reduction strategies related to hand injuries and ergonomics.

Jennifer Beeman: Good morning and welcome to Metallus's 2nd 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 Rackettich, Executive Vice President and Chief Commercial Officer. You all should have received a copy of our press release. During today's conference call, we may make forward-looking statements as defined by the SEC.

Speaker Change: Our safety strategy is having a positive impact as we are observing positive indicators in our employee engagement, hazard identification, and incident prevention.

Mike Williams: To date, we have allocated $4.5 million towards safety initiatives. As a reminder, our projection for the total annual safety investment was approximately $7 million. Turning to our end markets, as I mentioned earlier, demand in our industrial and energy markets remains weak. For example, we believe agricultural machinery investments are being delayed in the face of higher prices and interest rates. Industrial distribution inventory levels remain elevated due to lower end customer demand, short lead times, and scrap price uncertainty. Lastly, rail and mining markets are expected to remain soft for the year.

Speaker Change: To date, we have allocated $4.5 million towards safety initiatives.

Speaker Change: As a reminder, our projection for the total annual safety investment was approximately $7 million.

Jennifer 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 our most recent form 10K and form 10Q, and the list of factors included in our earnings release, all of which are available on the Metallus website. Where non-gap financial information is referenced, additional details and reconciliation to its gap equivalent are also included in the release.

Speaker Change: Turning to our end markets, as I had mentioned earlier, demand in our industrial and energy markets remain weak. For example, we believe agricultural machinery investments are being delayed in the face of higher prices and interest rates.

Speaker Change: Industrial distribution inventory levels remain elevated due to lower end customer demand, short lead times, and scrap price uncertainty.

Speaker Change: Lastly, rail and mining markets are expected to remain soft for the year.

Mike Williams: Looking at our automotive performance, we saw a sequential 2% increase in shipment. Although there have been, and continue to be, periodic disruptions in the automotive supply chain, demand has remained resilient. We are pleased to provide our automotive customers with high-quality bar and tube products, as well as manufactured components for internal combustion, hybrid, and electric vehicles.

Jennifer Beeman: With that, I'd like to turn the call over to Mike. Mike?

Speaker Change: Looking at our automotive performance.

Michael Williams: Good morning, everyone, and thank you for joining us. During the 2nd quarter, we focused on what we can control to mitigate the impact of challenged market conditions. Our shipments to the aerospace and defense and market remain strong, and our automotive shipments were steady.

Speaker Change: We saw a sequential 2% increase in shipments.

Speaker Change: Although there have been and continue to be periodic disruptions in the automotive supply chain, demand has remained resilient.

Speaker Change: We are pleased to provide our automotive customers with high-quality, bar-and-tube products, as well as manufactured components for internal combustion, hybrid, and electric vehicles.

Michael Williams: Unfortunately, the sluggishness in the industrial and energy and markets seen in the 1st quarter extended into the 2nd quarter. This weakness is attributed to softening global economic conditions, elevated imports, customer and supply chain inventory positions, as well as scrap price uncertainty. Despite some unfavorable end markets, we remain committed to managing what's in our control by aligning our production with demand, carefully managing our working capital and costs while investing in our assets and employees for future growth.

Mike Williams: The aerospace and defense market remains strong in the second quarter, despite our initial expectation of a sequential decline due to the timing of customers' orders. That anticipated decline, however, has been delayed by one quarter, and we now expect third quarter shipments in this end market to be lower than those in the second quarter. Earlier, I mentioned the negative impact of imports on our business. To put this in perspective, SBQ imports constituted roughly 10% of the market from 2020 to mid-2022.

Speaker Change: The aerospace and defense market remained strong in the second quarter.

Speaker Change: despite our initial expectation of a sequential decline due to the timing of customer's orders.

Speaker Change: That anticipated decline, however, has been delayed by one quarter, and we now expect third quarter shipments in this end market to be lower than those in the second quarter.

Speaker Change: Earlier, I mentioned the negative impact of imports on our business.

Speaker Change: to put this in perspective.

Speaker Change: SBQ imports constituted roughly 10% of the market from 2020 to mid-2022, but this number rose to about 17% from the fourth quarter of 2023 through the first half of this year.

Michael Williams: During the quarter, we maintained positive profitability and operating cash flow, a testament to our business model and disciplined financial management. I am confident that as market dynamics evolved, we are well positioned to take advantage of the demand recovery and anticipate improved profitability.

Mike Williams: But this number rose to about 17% from the fourth quarter of 2023 through the first half of this year. Similarly, we continue to be pressured by an elevated level of tubing imports. Turning to our capital investors, we are making significant progress by investing in assets to drive growth, as well as improved product quality, asset reliability, customer service, and cost structure. Earlier this week, we held a groundbreaking ceremony at our Faircrest steelmaking plant to celebrate the building of a bloom reheat furnace. The event was attended by numerous local, state, and federal officials, including Ohio's Lieutenant Governor, John Huston.

Speaker Change: Similarly, we continue to be pressured by an elevated level of tubing imports.

Speaker Change: Turning to our capital investments.

Michael Williams: At Mattalis, safety is not just a priority, it's a core value. We believe that a safe workplace is a productive and successful one. We have established a comprehensive safety strategy and have set ambitious goals to ensure the well-being of our employees, contractors, and guests. We have made considerable progress in executing our safety strategy, which involves enhancing our safety processes and systems, as well as our physical environment, our cultural environment, and our safety capabilities with a strong focus on serious injury and fatality prevention.

Speaker Change: We are making significant progress by investing in assets to drive growth.

Speaker Change: as well as improved product quality, asset reliability, customer service, and cost structure.

Michael Williams: In the second half of the year, we will continue executing our safety strategy with a focus on comprehensive, pre-job, safety planning, and inspections, maturing our serious injury and fatality prevention programs, continuing to invest in our physical equipment and equipment guarding upgrades, and targeted injury reduction strategies related to hand injuries and ergonomics. Our safety strategy is having a positive impact as we are observing positive indicators in our employee engagement, hazard identification, and infinite prevention. To date, we have allocated $4.5 million towards safety initiatives. As a reminder, our projection for the total annual safety investment was approximately $7 million.

Speaker Change: Earlier this week we marked a groundbreaking ceremony at our Faircrest steelmaking plant to celebrate the building of a bloom reheat furnace.

Speaker Change: The event was attended by numerous local, state, and federal officials, including Ohio's Lieutenant Governor John Hustedt.

Mike Williams: It was announced that we have been awarded $3.5 million in grants from JobsOhio to support the planned expansion of our steelmaking facility. These grants are intended to facilitate training, modernize equipment, and enhance skills for deploying cutting-edge steelmaking technology. The installation of a continuous bloom reheat furnace will help us meet growing demand from both existing and new customers. We are grateful for the support from the community. The State of Ohio, and our federal government, which will enable us to enhance and optimize our assets, increase our capacity for high-quality defense products, and support key training initiatives focused on safety and technology through a workforce development grant.

Speaker Change: It was announced that we have been awarded $3.5 million in grants from JobsOhio to support the planned expansion of our steelmaking facilities.

Speaker Change: These grants are intended to facilitate training, modernize equipment, and enhance skills for deploying cutting-edge steelmaking technologies.

Speaker Change: The installation of a continuous bloom reheat furnace will help us meet growing demand from both existing and new customers.

Speaker Change: We are grateful for the support from the community.

Speaker Change: The State of Ohio and our federal government, which will enable us to enhance and optimize our assets.

Speaker Change: increase our capacity of high-quality defense products and support key training initiatives focused on safety and technology through a workforce development grant.

Mike Williams: As a reminder, in February, we announced an agreement for up to $99 million in funding from the United States Army to support our national defense efforts. As a reminder, we expect the bloom reheat furnace to be operational in late 2025. During the quarter, we invested $14 million in capital expenditures with further progress on the installation of an automated grinding line, inline saw technology, and new camera inspection technology. These initiatives are part of our broader strategy to achieve significant cost reduction, generate free cash flow, and improve our profitability. While the current demand environment has some challenges, we remain confident in our strategic imperatives and our ability to navigate market volatility.

Speaker Change: As a reminder, in February , we announced an agreement for up to $99 million in funding from the United States Army to support our national defense efforts.

Michael Williams: Turning to our end-markets, as I had mentioned earlier, demand in our industrial and energy markets remain weak. For example, we believe agricultural machinery investments are being delayed in the face of higher prices and interest rates. Industrial distribution inventory levels remain elevated due to lower end customer demand shortly times and scrap price uncertainty.

Speaker Change: As a reminder, we expect the Bloom reheat furnace to be operational in late 2025.

Speaker Change: During the quarter, we invested $14 million in capital expenditures, with further progress on the installation of an automated grinding line, in-line saw technology, and new camera inspection technologies.

Michael Williams: Lastly, rail and mining markets are expected to remain soft for the year.

Speaker Change: These initiatives are part of our broader strategy to achieve significant cost reductions, generate free cash flow, and improve our profitability.

Michael Williams: Looking at our automotive performance, we saw a sequential 2% increase in shipment. Although there have been and continue to be periodic disruptions in the automotive supply chain, demand has remained resilient. We are pleased to provide our automotive customers with high quality, bar and two products, as well as manufactured components for internal combustion, hybrid, and electric vehicles.

Speaker Change: While the current demand environment has some challenges,

Speaker Change: We remain confident in our strategic imperatives and our ability to navigate market volatility.

Chris Westbrooks: We are committed to driving growth, enhancing profitability, and delivering value to our shareholders. Now, I will turn the call over to Chris Westbrooks, who will provide more details on our financial performance. Thanks, Mike.

Speaker Change: We are committed to driving growth, enhancing profitability, and delivering value to our shareholders.

Kristopher Westbrooks: Now I will turn the call over to Chris Westbrooks, who will provide more details on our financial performance.

Chris Westbrooks: Good morning, and thank you for joining Metallus' second quarter of 2024 earnings call. Throughout the quarter, we continue to navigate challenging market conditions, demonstrating the resilience of our business model and the strength of our team. From a financial perspective, second quarter net sales totaled $294.7 million, a sequential decrease of 8%. The decline in net sales was primarily due to lower shipments, an unfavorable price mix, and a 12% market-driven decline in the average raw material surcharge revenue per ton as a result of lower scrap prices. Net income in the second quarter was $4.6 million, or $0.10 per diluted share.

Michael Williams: The aerospace and defense market remains strong in the second quarter, despite our initial expectation of a sequential decline due to the timing of customer's orders. That anticipated decline, however, has been delayed by one quarter, and we now expect third quarter shipments in this end market to be lower than those in the second quarter.

Kristopher Westbrooks: Thanks, Mike. Good morning and thank you for joining Metallus' second quarter of 2024 earnings call.

Chris Westbrooks: Throughout the quarter, we continue to navigate challenging market conditions, demonstrating the resilience of our business model and the strength of our team.

Chris Westbrooks: From a financial perspective, second quarter net sales totaled $294.7 million, a sequential decrease of 8%.

Michael Williams: Earlier, I mentioned the negative impact of imports on our business. To put this in perspective, SBQ imports constituted roughly 10% of the market from 2020 to mid-2022, but this number rose to about 17% from the fourth quarter of 2023 through the first half of this year. Similarly, we continue to be pressured by an elevated level of tubing imports.

Chris Westbrooks: The decline in net sales was primarily due to lower shipments, unfavorable price mix, and a 12% market-driven decline in the average raw material surcharge revenue per ton as a result of lower scrap prices.

Chris Westbrooks: Net income in the second quarter was $4.6 million, or $0.10 per diluted share.

Chris Westbrooks: Comparatively, sequential first quarter net sales were $321.6 million, with net income of $24 million, or 52 cents per diluted share. Net sales in last year's second quarter were $356.6 million, with net income of $28.9 million, or 62 cents per diluted share. On an adjusted basis, net income in the second quarter of 2024 was $6.7 million, or 15 cents per diluted share. Comparatively, first quarter adjusted net income was $26.1 million, or $0.56 per diluted share. Adjusted net income in the second quarter of last year was $27.6 million, or $0.60 per diluted share.

Chris Westbrooks: Comparatively, sequential first quarter net sales were $321.6 million with net income of $24 million or 52 cents per diluted share.

Michael Williams: Edwards.

Michael Williams: Turning to our capital investments, we are making significant progress by investing in assets to drive growth, as well as improve product quality, asset reliability, customer service, and cost structure.

Chris Westbrooks: Net sales in last year's second quarter were $356.6 million, with net income of $28.9 million, or 62 cents per diluted share.

Chris Westbrooks: On an adjusted basis, net income in the second quarter of 2024 was $6.7 million, or 15 cents per diluted share.

Michael Williams: Earlier this week, we marked a groundbreaking ceremony that our Faircrest still making plan to celebrate the building of a bloom reheat furnace. The event was attended by numerous local, state, and federal officials, including Ohio's lieutenant governor, John Houston. It was announced that we have been awarded $3.5 million in grants from Jobs Ohio to support the plan expansion of our still making facilities. These grants are intended to facilitate training, modernize equipment, and enhance skills for deploying cutting-edge steel and technology.

Chris Westbrooks: Comparatively, first quarter adjusted net income was $26.1 million, or $0.56 per diluted share. Adjusted net income in the second quarter of last year was $27.6 million, or $0.60 per diluted share.

Chris Westbrooks: Adjusted EBITDA was $19.9 million in the second quarter of 2024, a sequential decline primarily driven by the impact of lower melt utilization as we balance production with demand. Other drivers of the sequential decline in adjusted EBITDA were modestly lower shipments, a reduction in price mix, and a market-driven decrease in the raw material scrap surcharge environment. Turning now to the details of the financial results in the second quarter, shipments were 150,100 tons in the quarter, a decrease of 5,100 tons or 3% compared with the first quarter.

Chris Westbrooks: Adjusted EBITDA was $19.9 million in the second quarter of 2024, a sequential decline primarily driven by the impact from lower melt utilization as we balance production with demand.

Chris Westbrooks: Other drivers of the sequential decline in adjusted EBITDA were modestly lower shipments, a reduction in price mix, and a market-driven decrease in the raw material scrap surcharge environment.

Michael Williams: The installation of a continuous bloom reheat furnace will help us be growing demand for both existing and new customers. We are grateful for the support from the community, the state of Ohio and our federal government, which will enable us to enhance and optimize our assets, increase our capacity of high quality defense products, and support key training initiatives focused on safety and technology through a workforce development grant.

Chris Westbrooks: In the industrial end market, shipments totaled 56,400 tons in the quarter, a sequential decrease of 4,400 tons, or 7%. Industrial shipments remain soft, with distribution customers resistant to stock inventory given short lead times, the current interest rate environment, and uncertainty in scrap prices. Automotive shipments were 67,800 tons in the second quarter, up 2% from the first quarter on steady customer demand, and Aerospace and Defense, or A&D for short, shipments totaled 16,400 tons in the quarter, relatively in line with the first quarter as demand continued to remain strong. We expected a decline in AMD shipments from the first to second quarter based on customer order timing.

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

Chris Westbrooks: Shipments were 150,100 tons in the quarter, a decrease of 5,100 tons or 3% compared with the first quarter.

Chris Westbrooks: In the industrial end market, shipments totaled 56,400 tons in the quarter, a sequential decrease of 4,400 tons, or 7%.

Chris Westbrooks: Industrial shipments remain soft with distribution customers resistant to stock inventory given short lead times, the current interest rate environment, and uncertainty in scrap prices.

Michael Williams: As a reminder in February, we announced an agreement for up to $99 million in funding from the United States Army to support for national defense efforts. As a reminder, we expect the bloom reheat furnace to be operational in late 2025. During the quarter, we invested $14 million in capital expenditures with further progress on the installation of an automated grinding line, inline saw technology, and new camera inspection technologies. These initiatives are part of our broader strategy to achieve significant cost reductions, generate free cash flow, and improve our profitability. While the current demand environment has some challenges, we remain confident in our strategic comparatives and our ability to navigate market volatility. We are committed to driving growth, enhancing profitability, and delivering value to our shareholders.

Chris Westbrooks: Automotive shipments were 67,800 tons in the second quarter, up 2% from the first quarter on steady customer demand.

Chris Westbrooks: In Aerospace and Defense, or A&D for short, shipments totaled 16,400 tons in the quarter, relatively in line with the first quarter as demand continued to remain strong.

Chris Westbrooks: However, that expected decline was pushed out one quarter, and we're now anticipating third-quarter AMD shipments to be sequentially lower than the second quarter. We expect A&E shipments to increase in the fourth quarter from the third, with continued strength into 2025. Compared to the prior year quarter, A&E shipments doubled in the second quarter of 2024. However, Shiven's shipments to energy customers remain soft at 9,500 tons in the quarter, a sequential decrease of 1,900 tons.

Chris Westbrooks: We expected a decline in A&E shipments from the first to second quarter based on customer order timing. However, that expected decline was pushed out one quarter, and we're now anticipating third quarter A&E shipments to be sequentially lower than the second quarter.

Chris Westbrooks: We expect A&D shipments to increase in the fourth quarter from the third, with continued strength into 2025. Compared to the prior year quarter, A&D shipments doubled in the second quarter of 2024.

Chris Westbrooks: Shipments to energy customers remain soft at 9,500 tons in the quarter, a sequential decrease of 1,900 tons.

Chris Westbrooks: Turning now to manufacturing, as expected, alignment of production with demand drove unfavorable cost leverage during the quarter. In May, we took approximately one week of downtime to install new technology on our electric arc furnace to drive higher levels of acid reliability and safety performance. Additionally, in June, the melt shop was down for approximately one week for electricity supplier infrastructure upgrades.

Chris Westbrooks: Turning now to manufacturing.

Chris Westbrooks: As expected, alignment of production with demand drove unfavorable cost leverage during the quarter.

Chris Westbrooks: Now, I will turn the call over to Chris Westbrooks, who will provide more details on our financial performance. Thanks, Mike.

Chris Westbrooks: In May, we took approximately one week of downtime to install new technology on our electric arc furnace to drive higher levels of acid reliability and safety performance.

Chris Westbrooks: Good morning, and thank you for joining the Dallas 2nd quarter of 2024 earnings call. Throughout the quarter, we continue to navigate challenging market conditions, demonstrating the resilience of our business model and the strength of our team. From a financial perspective, 2nd quarter net sales totaled $294.7 million. The sequential decrease of 8%. The decline in net sales was primarily due to lower shipments, unfavorable price mix, and a 12% market-driven decline in the average raw material surcharge revenue per ton as a result of lower scrap prices.

Chris Westbrooks: Additionally, in June , the melt shop was down approximately one week for electricity supplier infrastructure upgrades.

Chris Westbrooks: As a result of these actions, and the continued balancing of production with demand, the melt utilization rate was 53% in the second quarter, compared to 72% in the first quarter and 75% in the same quarter last year. That said, our manufacturing team is carefully managing variable costs given the lower levels of production. Now switching gears to pensions, in the second quarter, the company made $5.9 million of required contributions to the bargaining pension plan. Including previous required contributions from the first quarter, as well as planned required contributions of $3 million in the third quarter and $5 million in the fourth quarter, we expect a total of approximately $43 million of required pension contributions this year. This forecasted level of required pension contributions is $2 million lower than previous guidelines.

Chris Westbrooks: As a result of these actions and the continued balancing of production with demand, the melt utilization rate was 53% in the second quarter compared to 72% in the first quarter and 75% in the same quarter last year.

Chris Westbrooks: That said, our manufacturing team is carefully managing variable costs given the lower levels of production.

Chris Westbrooks: Now switching gears to pensions, in the second quarter, the company made $5.9 million of required contributions to the bargaining pension plan.

Chris Westbrooks: Neat income in the second quarter was $4.6 million or $10 cents per diluted chair. Comparatively, the first quarter net sales were $321.6 million with net income of $24 million or $52 cents per diluted chair. Neat sales in last year's second quarter were $356.6 million with net income of $28.9 million or $62 cents per diluted chair. On an adjusted basis, net income in the second quarter of 2024 was $6.7 million or $15 cents per diluted chair.

Chris Westbrooks: Including previous required contributions from the first quarter, as well as planned required contributions of $3 million in the third quarter and $5 million in the fourth quarter, we expect a total of approximately $43 million of required pension contributions this year.

Chris Westbrooks: This forecasted level of required pension contributions is $2 million lower than previous guidance.

Chris Westbrooks: As it relates to the Salary Pension Plan, during the second quarter, we successfully completed the transfer of $121 million of Salary Pension Plan liabilities to a highly rated insurance company. As I mentioned last quarter, the salaried pension annuitization, as well as a similar bargaining pension annuitization of $256 million in 2022, represents significant steps towards further strengthening our balance sheet and de-risking our legacy pension plan. At the end of June, the company's remaining pension liabilities totaled approximately $550 million, a significant reduction from the $1.3 billion of total pension liabilities at the end of 2021.

Chris Westbrooks: As it relates to the salary pension plan, during the second quarter, we successfully completed the transfer $121 million of salary pension plan liabilities to a highly rated insurance company.

Chris Westbrooks: Comparatively, the first quarter adjusted net income was $26.1 million or $56 cents per diluted chair. Adjusted net income in the second quarter of last year was $27.6 million or $60 cents per diluted chair. Adjusted EBITDA was $19.9 million in the second quarter of 2024. A sequential decline primarily driven by the impact from lower mill utilization as we balance production with demand. Other drivers of the sequential decline in adjusted EBITDA were modestly lower shipments or reduction in price mix and a market-driven decrease in the raw material scraps or charge environment.

Chris Westbrooks: As I mentioned last quarter, the salaried pension annuitization, as well as a similar bargaining pension annuitization of $256 million in 2022, represents significant steps towards further strengthening our balance sheet and de-risking our legacy pension plans.

Chris Westbrooks: At the end of June , the company's remaining pension liabilities totaled approximately $550 million, a significant reduction from the $1.3 billion of total pension liabilities at the end of 2021.

Chris Westbrooks: Moving on to cash flow and liquidity, during the second quarter, operating cash flow was $8.3 million, driven by profitability and lower working capital, partially offset by required pension contributions. Capital expenditures totaled $14.1 million in the second quarter. We estimate full-year CapEx to be approximately $55 million, a $5 million reduction from the previous guidance. This 2024 CAPEX guidance does not include government-funded investment.

Chris Westbrooks: Moving on to cash flow and liquidity.

Chris Westbrooks: Turning now to the details of the financial results in the second quarter. Shipments were 150,100 tons in the quarter, a decrease of 5,100 tons or 3% compared with the first quarter. In the industrial and market, shipments totaled 56,400 tons in the quarter as the sequential decrease of 4,400 tons or 7%. Industrial shipments remained soft with distribution customers resistant to stock inventory given shortly times the current interest rate environment and uncertainty and scrap crisis.

Chris Westbrooks: During the second quarter, operating cash flow was $8.3 million, driven by profitability and lower working capital, partially offset by required pension contributions.

Chris Westbrooks: Capital expenditures totaled $14.1 million in the second quarter.

Chris Westbrooks: We estimate full-year CapEx to be approximately $55 million, a $5 million reduction from the previous guidance.

Chris Westbrooks: This 2024 CapEx guidance does not include government-funded investments.

Chris Westbrooks: As a reminder, in February, the company entered into an agreement with the U.S. Army for up to $99.75 million in funding to support the Army's mission of ramping up munitions production. Specifically, the funding is expected to substantially pay for a new bloomery heat furnace at our Faircrest facility. As Mike mentioned earlier this week, we broke ground on this new investment and we're targeting late 2025 to be operational. The New Bloom Reheat Furnace is expected to increase throughput of high-quality bar-based products and support approximately $60 million of incremental defense product-based sales annually. During the second quarter, we received an initial payment of $10 million from the government.

Speaker Change: As a reminder, in February , the company entered into an agreement with the U.S. Army for up to $99.75 million in funding to support the Army's mission of ramping up munitions production.

Chris Westbrooks: Automotive shipments were 67,800 tons in the second quarter, up 2% in the first quarter on steady customer demand. In aerospace and defense or A&D for short, shipments totaled 16,400 tons in the quarter relatively in line with the first quarter as demand continued to remain strong. We expected a decline in A&D shipments from the first to second quarter based on customer order timing. However, that expected decline was pushed at one quarter and were now anticipating third quarter A&D shipments to be sequentially lower than the second quarter.

Speaker Change: Specifically, the funding is expected to substantially pay for a new balloon reheat furnace at our Faircrest facility.

Speaker Change: As Mike mentioned earlier this week, we broke ground on this new investment. We're targeting late 2025 to be operational.

Speaker Change: The new Blum Reheat Furnace is expected to increase throughput of high quality bar-based products and support approximately $60 million of incremental defense product based sales annually.

Speaker Change: During the second quarter, we received an initial payment of $10 million from the government.

Chris Westbrooks: In July, we received a payment of $20 million. Additional funding is expected to be provided as mutually agreed upon milestones are achieved throughout the project. Through the end of June, project spending has been minimal. We look forward to providing updates on this significant growth project in future quarters. Switching gears, the Shareholder Return Act. Given progress on previous common share repurchase programs, as summarized last quarter, the company's Board of Directors authorized an additional $100 million common share repurchase program in May. During the second quarter, the company repurchased 440,000 shares at a cost of $9.6 million. To date, through the end of July, Sherry purchases totaled $836,000 at a cost of $17.9 million.

Chris Westbrooks: We expect A&D shipments to increase in the fourth quarter from the third with continued strength into 2025 compared to the prior year quarter A&D shipments doubled in the second quarter of 2024. Shipments to energy customers remained soft at 9,500 tons in the quarter as the sequential decrease of 1,900 tons.

Speaker Change: In July , we received a payment of $20 million.

Speaker Change: Additional funding is expected to be provided as mutually agreed upon milestones are achieved throughout the project. Through the end of June , project spending has been minimal.

Speaker Change: We look forward to providing updates on this significant growth project in future quarters.

Chris Westbrooks: Turning now to manufacturing as expected, alignment of production with demand drove unfavorable cost leverage during the quarter. In May, we took approximately one week of downtime to install the new technology on our electric arc furnace to drive higher levels of asset reliability and safety performance. Additionally, in June, the mill chop was down approximately one week for electricity supplier infrastructure upgrades. As a result of these actions and a continued balancing of production with demand, the mill utilization rate was 53% in the second quarter compared to 72% in the first quarter and 75% in the same quarter last year, that said our manufacturing team is carefully managing variable costs given the lower levels of production.

Speaker Change: Switching gears to shareholder return activities.

Speaker Change: Given progress on previous common share repurchase programs, as summarized last quarter, the company's Board of Directors authorized an additional $100 million common share repurchase program in May.

Speaker Change: During the second quarter, the company repurchased 440,000 shares at a cost of $9.6 million.

Sherry: To date, in 2024 through the end of July , Sherry purchases totaled $836,000 at a cost of $17.9 million.

Chris Westbrooks: In total, as of July 31st, the company had $122,500,000 remaining under its authorized share repurchase program. We remain 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 second quarter, the company's cash and cash equivalents totaled $272.8 million, and total liquidity was $512.1 million.

Sherry: In total, as of July 31st, the company had $122,500,000 remaining under its authorized share repurchase program.

Sherry: We remain committed to exhausting this authorization as we progress forward, as supported by the continued strength of our balance sheet and cash flow generation.

Chris Westbrooks: Now switching gears to pensions in the second quarter, the company made $5.9 million of required contributions to the bargaining pension plan, including previous required contributions from the first quarter, as well as planned required contributions of $3 million in the third quarter and $5 million in the fourth quarter. We expected total of approximately $43 million of required pension contributions this year. This forecasted level of required pension contributions is $2 million lower than previous guidance.

Sherry: At the end of the second quarter, the company's cash and cash equivalents totaled $272.8 million and total liquidity was $512.1 million.

Chris Westbrooks: We expect the strength of the company's balance sheet, combined with expected through-cycle profitability and positive operating cash flow, to provide us the opportunity to continue to execute on our capital allocation strategy, which includes investing in profitable growth, maintaining a strong balance sheet, and returning capital to shareholders through continued share repurchase. Turning now to The Outlook. Third quarter shipments are expected to be lower than the second quarter. From an end market perspective, automotive shipments are expected to remain relatively steady, while industrial and energy demand remains soft, while long-term aerospace and defense demand is expected to remain strong.

Sherry: We expect the strength of the company's balance sheet, combined with expected through-cycle profitability and positive operating cash flow, to provide us the opportunity to continue to execute on our capital allocation strategy.

Sherry: This includes investing in profitable growth, maintaining a strong balance sheet, and returning capital to shareholders through continued share repurchases.

Chris Westbrooks: As relates to the salary pension plan, during the second quarter, we successfully completed the transfer $121 million of salary pension plan liabilities to a highly rated insurance company. As I mentioned last quarter, this salary pension annuitization, as well as a similar bargaining pension annuitization of $256 million in 2022, represents significant steps towards further strengthening our balance sheet and derisking our legacy pension plans. At the end of June, the company's remaining pension liabilities total approximately $5.50 million, a significant reduction from the $1.3 billion of total pension liabilities at the end of 2021.

Chris Westbrooks: We anticipate a sequential decline in third-quarter A&E shipments based on customer order timing. Base price per ton is anticipated to remain relatively steady in the third quarter, while product mix is expected to be less favorable than the second quarter, given lower A&E shipments. Operationally, annual shutdown maintenance is planned for the second half of the year at a total cost of approximately $13 million, split relatively evenly between the third and fourth quarters.

Sherry: Turning now to The Outlook.

Speaker Change: Third quarter shipments are expected to be lower than the second quarter. From an end market perspective, automotive shipments are expected to remain relatively steady while industrial and energy demand remains soft.

Speaker Change: While long-term aerospace and defense demand is expected to remain strong, we anticipate a sequential decline in third-quarter A&E shipments based on customer order timing.

Speaker Change: Base price per ton is anticipated to remain relatively steady in the third quarter, while product mix is expected to be less favorable than the second quarter given lower AND shipments.

Chris Westbrooks: Moving on to cash flow and liquidity. During the second quarter, operating cash flow was $8.3 million driven by profitability and lower working capital, partially offset by required pension contributions. Capital expenditures totaled $14.1 million in the second quarter. We estimate full-year CAPEX to be approximately $55 million, a $5 million reduction from the previous guidance. This 2024 CAPEX guidance does not include government-funded investments.

Speaker Change: Operationally, annual shutdown maintenance is planned for the second half of the year at a total cost of approximately $13 million, split relatively evenly between the third and fourth quarters.

Chris Westbrooks: Additionally, the third quarter melt utilization rate is expected to sequentially increase while the company continues to balance production with demand. With lead times currently in the late 3rd to early 4th quarter and melt shop shutdown maintenance planned for October, much of the 3rd quarter melt production will support 4th quarter shipments. Given these elements, the company anticipates third quarter adjusted EBITDA to be lower than the second quarter.

Speaker Change: Additionally, the third quarter melt utilization rate is expected to sequentially increase while the company continues to balance production with demand.

Speaker Change: With lead times currently in the late 3rd to early 4th quarter and melt shop shutdown maintenance planned for October , much of the 3rd quarter melt production will support 4th quarter shipments.

Chris Westbrooks: As a reminder, in February, the company answered into an agreement with the U.S. Army for up to $99.75 million in funding to support the Army's mission of ramping up munitions production. Specifically, the funding is expected to substantially pay for a new bloom reheat furnace at our Faircrest facility. As Mike mentioned earlier this week, we broke ground on this new investment and were targeting late 2025 to the operational. The new bloom reheat furnace is expected to increase throughput of high-quality bar-based products and support approximately $60 million of incremental defense product-based sales annually.

Speaker Change: Given these elements, the company anticipates third quarter adjusted EBITDA to be lower than the second quarter.

Jennifer Beeman: To wrap up, thanks to our employees for their daily collaboration while focusing on finishing each and every day incident and injury free. We remain committed to controlling what we can control in a challenging market environment while investing in the future and returning capital to shareholders. The hard work of our team to deliver on our strategic imperatives has positioned us well to capitalize as demand recovers, and we expect to realize a significant improvement in future profitability.

Speaker Change: To wrap up, thanks to our employees for their daily collaboration while focusing on finishing each and every day incident and injury-free.

Speaker Change: We remain committed to controlling what we can control in a challenging market environment while investing in the future and returning capital to shareholders.

Speaker Change: The hard work of our team to deliver on our strategic imperatives has positioned us well to capitalize as demand recovers and expect to realize significant improvements in future profitability.

Jennifer Beeman: Thanks for your interest in Metallus. We would now like to open the call for questions. At this time, if you'd like to ask a question, simply press star followed by the number one on your telephone keypad.

Speaker Change: Thanks for your interest in Metallus. We would now like to open the call for questions.

Chris Westbrooks: During the second quarter, we received an initial payment of $10 million from the government. In July, we received a payment of $20 million. Additional funding is expected to be provided as mutually agreed upon milestones are achieved throughout the project. Through the end of June, project spending has been minimal. We look forward to providing updates on the significant growth project in future quarters.

Speaker Change: At this time, if you'd like to ask a question, simply press star followed by the number one on your telephone keypad. Our first question will come from the line of John Franzreb with Sidoti. Please go ahead.

John Franzreb: Our first question will come from the line of John Franzreb with Sidoti. Please go ahead. Good morning, everyone, and thanks for taking the questions. I'd like to just talk about the second quarter. When you look back, what were the biggest surprises in the puts and takes on both a revenue and a cost basis relative to what you were thinking, say, three months ago? Well, good morning, John. I think probably the biggest surprise for us on the revenue side was the lack of demand, particularly from the spot market.

Speaker Change: Good morning everyone and thanks for taking the questions. I'd like to just talk about the second quarter. When you look back, what were the biggest surprises and the puts and takes on both a revenue and a cost basis relative to what you were thinking say three months ago?

Chris Westbrooks: Switching gears to shareholder return activities. Given progress on previous common share repurchase programs as summarized last quarter, the company's Board of Directors authorized an additional $100 million common share repurchase program in May. During the second quarter, the company repurchased 440,000 shares at a cost of $9.6 million. Williams. To date, in 2024, through the end of July, Sherry purchases totaled $836,000 at a cost of $17.9 million. In total, as of July 31, the company had $122,000,000,000 remaining under its authorized Sherry purchase program.

Speaker Change: Well, good morning, John . I think probably one of the biggest surprise for us on the revenue side was the lack of demand, particularly from the spot market.

John Franzreb: As you recall, we went into 2024 with around a 60-65% contractual mix and the remainder spot. Our view is that the high interest rates and economic uncertainty are weighing on people, and they're just not buying at the levels, not only in order quantities but, you know, buying in total much less and really operating at a hand in mouth perspective.

Speaker Change: As you recall, we went into...

Speaker Change: 2024 with around a 60-65% contractual mix and the remainder spot.

Speaker Change: You know, our view is the fact that the high interest rates.

Speaker Change: The Economic Uncertainty are weighing on people and they're just not buying at the levels Not not only in the order quantities, but you know buying

Chris Westbrooks: We remain 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 second quarter, the company's cash and cash equivalence totaled $272.8 million, and total liquidity was $512.1 million. We expect the strength of the company's balance sheet combined with expected through-cycle profitability and positive operating cash flow to provide us the opportunity to continue to execute on our capital allocation strategy. This includes investing in profitable growth, maintaining a strong balance sheet, and returning capital to shareholders through continued Sherry purchases.

Speaker Change: In total, much less, and really operating at a hand-in-mouth perspective. So, from a volume standpoint, that was a large influence in Q2 compared to what

Mike Williams: So, from a volume standpoint, that was a large influence in Q2 compared to what our expectation was going into Q2. Secondly, it's really the mix of customers that affected base price, where those spot customers tend to pay a higher per ton base price versus our contractual customers, and the lack of that demand from the spot customers influences our ASP, our average selling price.

Speaker Change: Our expectation was going into Q2. Secondly, it's really the mix of customers.

Speaker Change: that affected base pricing.

Speaker Change: where those spot customers tend to pay a higher per ton base price versus our contractual customers and the lack of that demand from the spot customers influences our ASP, our average selling price.

Mike Williams: I would say from a revenue standpoint, those two things. Additionally, the fact that our electrical supplier came in and wanted to upgrade their distribution facility that feeds our Faircrest Steel plant. And based on the order-demand pattern, we agreed to go ahead and allow them to make all the upgrades to reduce voltage loss and increase reliability for our long-term benefit. So that took a week of operations that heavily influenced our fixed-cost leverage. Mike, if I could add one thing to the automotive space.

Speaker Change: I would say from a revenue standpoint, those two things.

Chris Westbrooks: Turning now to the outlook. Third quarter shipments are expected to be lower than the second quarter. From an end market perspective, automotive shipments are expected to remain relatively steady while industrial and energy demand remains soft. While long-term aerospace and defense demand is expected to remain strong, we anticipate a sequential decline in third quarter A&D shipments based on customer order timing. Base price per ton is anticipated to remain relatively steady in the third quarter, while product mix is expected to be less favorable than the second quarter given lower A&D shipments.

Speaker Change: wanted to upgrade their distribution facility that feeds our Faircrest Steel plant.

Speaker Change: And based on the order-demand pattern,

Speaker Change: We agreed to go ahead and allow them to make all the upgrades to reduce voltage loss, increase reliability for our long-term benefit. So that took a week of operations that heavily influenced our fixed cost leverage.

Kevin Rakitic: We did have a couple of customers that experienced downtime during the quarter, so that was unplanned on their part, and that impacted about 5,000 tons that we expected to ship in Q2, and now they're back and operating again, but that uncertainty creates some disruption. Okay, so the electrical upgrade was an unplanned downtime in the quarter, and the auto downtime, is that expected to be recaptured in the third quarter? Can you just walk me through those two puts and takes?

Mike: Mike, if I could add one thing. Sure. On the automotive space, we did have a couple customers that experienced downtime during the quarter, so that was unplanned. On their part, and that impacted, it was about 5,000 tons that we expected to ship in Q2, and now they're back and operating again, but that uncertainty created some disruption.

Chris Westbrooks: Operationally, annual shutdown maintenance is planned for the second half of the year at a total cost of approximately $13 million, split relatively evenly between the third and fourth quarters. Additionally, the third quarter melt utilization rate is expected to sequentially increase while the company continues to balance production with demand. With lead times currently in the late third to early fourth quarter and melt shop shutdown maintenance planned for October, much of the third quarter melt production will support fourth quarter shipments. Given these elements, the company anticipates third quarter adjusted EBITDA to be lower than the second quarter.

Mike: i

Speaker Change: Okay, so the electrical upgrade was an unplanned downtime in the quarter, and the auto downtime

Speaker Change: Is that expected to be recaptured in the third quarter? Can you walk me through those two puts and takes?

Mike Williams: Well, actually, yeah, the customers that were affected by their unplanned downtime will recover in the third quarter. But unfortunately, we've been informed by at least two large OEMs that they are one of them trying to optimize their supply chain inventory, so that will reduce demand from that OEM.

Speaker Change: Well, actually, actually, yeah, the customers that were affected with their unplanned downtime, that will recover in the third quarter. But unfortunately, we've been informed by at least two large OEMs.

Michael Williams: To wrap up, thanks to our employees for their daily collaboration while focusing on finishing each and every day incidents and injury-free. We remain committed to controlling what we can control in a challenging market environment while investing in the future in returning capital as shareholders. The hard work of our team to deliver on our strategic imperatives has positioned us well to capitalize as the man recovers and expect to realize significant improvement in future profitability. Thanks for your interest in Metallis.

Speaker Change: One of them is trying to optimize their supply chain inventory, so that will reduce demand from that OEM, and the other one has other issues where we were informed that their plant is going down.

Mike Williams: And the other one has other issues where we were informed that their plant is going down for an unspecified period of time to correct a number of issues. So that will affect us in Q3. Combine that with the lack of our expectations is a number of our large defense customers. We thought it was going to happen in Q2, but now we believe it's going to happen in Q3. They have ramped up for commissioning new equipment with advanced orders.

Speaker Change: for an unspecified period of time to correct a number of issues. So that will affect us in Q3.

Regina: We would now like to open the call for questions. At this time, if you'd like to ask a question, simply press star followed by the number one on your telephone keypad.

Speaker Change: Combine that with the lack of our expectation is a number of our large defense customers

John Franzreb: Our first question will come from the line of John Brands Red with Sedotti. Please go ahead. Good morning, everyone, and thanks for taking the questions. I'd like to just talk about the second quarter. When you look back, what are the biggest surprises and the puts and takes on both a revenue and a course basis relative to what you were thinking say to me months ago. Good morning, John. I think the probably one of the biggest surprise for us on the revenue side was the lack of demand, particularly from the spot market.

Speaker Change: You know, we've said we thought it was going to happen in Q2, but now we believe it's going to happen in Q3, that they had ramped up for commissioning new equipment with advanced orders.

Mike Williams: They have all the supplies they need, so we don't expect those orders to repeat until they get all that equipment commissioned later this year. Okay, but you actually walked into one of my other questions about AMD.

Speaker Change: They have all the supply they need, so we don't expect those orders to repeat until they get all that equipment commissioned later this year.

Speaker Change: i

Speaker Change: Okay, you actually walked into one of my other questions about AMD. What's the magnitude of the drop-off you expect in the third quarter, and is that reset back to this current sales level in the fourth quarter? How should we think about that on a go-forward basis?

Mike Williams: What's the magnitude of the drop off you expect in the third quarter? And is that going to reset back to this current sales level in the fourth quarter? How should we think about that and go forward from here? Yeah, I think it's going to reset to prior year levels.

John Franzreb: As you recall, we went into 2024 with around a 60, 65% contractual mix and the remainder spot. Our view is the fact that the high interest rates, the economic uncertainty, are weighing on people and they're just not buying at the levels, not only in the order quantities, but buying in total much less and really operating at a hand in my perspective. So, from a volume standpoint, that was a large influence in Q2 compared to what our expectation was going into Q2.

Mike Williams: If you look at our comparison of Q2 of last year to Q2 of this year, it's going to drop back to those prior levels. That's our expectation, but it's day by day, John, to be honest with you. And how much do you expect it to fall off in Q3? It's going to be a rather significant drop in Q3, just given how well they're positioned right now. And that's what's going to drive that price mix.

Speaker Change: I think it's going to reset to prior year levels. If you look at our comparison of Q2 of last year to Q2 of this year, it's going to drop back to those prior levels.

Speaker Change: That's our expectation, but it's day by day, John , to be honest with you.

Speaker Change: And how much do you expect it to fall off in Q3?

Speaker Change: Yeah, John , it's going to be a rather significant drop in Q3, just given how well they're positioned right now, and that's what's going to drive that price mix. If you look at the comparison between Q2 of 2023 to Q2...

Mike Williams: If you look at the comparison between Q2 of 2023 and Q2 of 2024, I think we're up about 10,000 tons, quarter over quarter. That's what we expect potentially will drop, and Keith Thurston. Our next question comes from the line of Dave Storms with Stonegate. Please go ahead, morning.

John Franzreb: Secondly, it's really the mix of customers that affected base pricing, where those spot customers tend to pay a higher ton base price versus our contractual customers. And the lack of that demand from the spot customers influences our ASP, our average selling price. I would say from a revenue standpoint, those two things. Additionally, the fact that our electrical supplier came in and wanted to upgrade their distribution facility that feeds our fair crest steel plant.

Speaker Change: I think we're up about 10,000 tons, order of a quarter, that's what we expect potentially it will drop.

Keith Thurston: and Keith Thurston.

Keith Thurston: Our next question comes from the line of Dave Storms with Stonegate. Please go ahead.

John Franzreb: And based on the order demand pattern, we agreed to go ahead and allow them to make all the upgrades to reduce voltage loss, increase reliability for our long term benefit. So, that took a week of operations that it heavily influenced our leverage, a fixed cost leverage. Mike, if I could add one thing, on the automotive space, we did have a couple customers experience downtime during the quarter. So, that was unplanned on their part and that impacted about 5,000 tons that we expected to ship in Q2.

Dave Storms: Thank you for taking my question. I just wanted to get a sense of this market softness, maybe cut costs further, and any levers you could potentially pull there. Yeah, I mean, look, we're being very disciplined in our financial management. You know, we've already reduced, which we put in the earnings release, some of the CapEx spending for this year. And, you know, we're optimizing our costs the best we can with the current demand levels.

Dave Storms: Morning and thank you for taking my questions. Just wanted to get a sense of if this market softness gives you an opportunity to maybe cut costs further and any levers you

Speaker Change: You could tell me.

Speaker Change: Michael Beeman, Kristopher Westbrooks, Michael Williams

Speaker Change: Yeah, I mean, look, we're being very disciplined in our financial management. You know, we've already reduced, which we put in the earnings release, some of the CapEx spending.

Speaker Change: for this year, and, you know, we're optimizing our costs the best we can with the current demand levels.

Dave Storms: But at the same time, what we're really focused on is implementing and accelerating our strategic imperatives, around our automated grinding line, installing our inline saws, and getting the new camera technology to drive higher yields and higher quality and lower costs. And that's what we're focused on. We're also focused on taking the opportunity to increase the training of our employees, cross-training them to be multi-taskers to be able to run multiple pieces of equipment, and be more mobile, moving throughout the plant to operate equipment to optimize our workforce. So those are the things that are in our control, and that's what we're focused on. That's very helpful.

Speaker Change: But at the same time, what we're really focused on is implementing and accelerating our strategic imperatives on our key strategic investments.

John Franzreb: And now they're back in operating again, but that uncertainty created some disruption. Okay, so the electrical upgrade was an unplanned downtime in the quarter and the auto downtime. Is that expected to be recaptured in the third quarter? Can you walk me through those two puts and takes? Well, actually, actually, yeah, the customers that were affected with their unplanned downtime, that is recover in the third quarter. But unfortunately, we've been informed by at least two large OEMs that they are one of them trying to optimize their supply chain inventory.

Speaker Change: around our automated grinding line are installing our inline saws getting the new camera technology to drive higher yields and higher quality and and lower cost

Speaker Change: And that's what we're focused on. We're also focused on taking the opportunity to increase the training of our employees, cross-training to make them multi-crafted to be able to run multiple pieces of equipment.

Speaker Change: Be more mobile and moving throughout the plant to operate equipment to optimize our workforce.

Speaker Change: So those are the things that are in our control, and that's what we're focused on.

Chris Westbrooks: And then you mentioned CAPEX and that. I know you produce CAPEX guidance. Is that a specific program or initiative that you're taking off the table? And, as you're thinking about catbacks, you know, kind of what's the split? Maybe maintenance versus hardware purchases versus IT. Automation. Well, it's not affecting the IT transformation project that we're doing. It's twofold.

Speaker Change: [inaudible]

Speaker Change: Understood. That's very helpful. Thank you. And then you mentioned CapEx and that. I know you produce CapEx guidance. Is that a specific program or initiative that you're taking off the table? And as you're thinking about CapEx, you know, kind of what's the split between maybe maintenance versus hardware purchases versus, you know, IT and automation?

John Franzreb: So, that will reduce demand from that OEM and the other one has other issues where we were informed that their plant is going down. Or an unspecified period of time to correct a number of issues. So, that will affect us in Q3. Combine that with the lack of our expectation is a number of our large defense customers. You know, we've said we thought it was going to happen in Q2, but now we believe it's going to happen in Q3 that they had ramped up for commissioning new equipment with advanced orders. Thank you very much, they have all the supply they need so we don't expect those orders to repeat until they get all that equipment commissioned later this year.

Chris Westbrooks: Dave, it's some maintenance that we're delaying, but most of it is certain projects that we've just, you know, have become a lower priority at this time as we focus on the bigger, beneficial projects to get them implemented while we have the time to accelerate them when we don't have the demand level as high as, you know, as we usually expect. And if I could ask just one more, you mentioned that you reached a milestone on the Bloom Project.

Speaker Change: Well, it's not affecting the IT transformation project that we're doing. It's two-fold. Dave, it's some maintenance that we're deferring.

David: But most of it is certain projects that we've just, you know, have become a lower priority at this time as we focus on

David: The bigger beneficial projects to get them implemented while we have the time to accelerate them when we don't have the demand level as high as You know you as we usually expect

John Franzreb: Okay, but you actually walked into one of my other questions about AND. What's the magnitude of the drop off you expect in the third quarter? And is that reset back to this current sales level in the fourth quarter? How should we be thinking about that on both both basis? I think it's going to reset to prior year levels. Okay. If you look at our comparison of Q2, yeah, Q2 of last year, Q2 of this year, it's going to drop back to those prior levels.

Speaker Change: Understood. And if I could ask just one more. You mentioned that you reached a milestone on the Bloom Project. You know, that was announced back in February . Is this maybe a typical pacing for the milestones every, call it, two quarters or so? Just how should we be thinking about those?

Chris Westbrooks: You know, that was announced back in February. Is this maybe a typical pacing for the milestones every, call it two quarters or so, or just how should we be thinking about that? Well, in the arrangement with the Department of Defense and the U.S. Army, there are certain milestones that we have to meet to receive the funding step-by-step throughout the project. So we've met a number of those that will receive that funding

Speaker Change: Well, in the arrangement with the Department of Defense and the U.S. Army, there are certain milestones that we have to meet.

John Franzreb: That's our expectation, but it's, you know, day by day, John, to be honest with you. Okay, and how much do you expect it to fall off in Q3? Yeah, John, it's going to be a rather significant drop in Q3 just given how well they're positioned right now. Yeah, and that's going to drive that price mix. If you look, if you look at the comparisons between Q2 of 2023 to Q2 of 2024, I think we're up about 10,000 tons of order of recorder, that's what we expect potentially it will drop in Q3. Okay. All right. I think I'm not polite to call enough. I'll get back into here. Thank you for taking the questions. All right. Thanks, John.

Speaker Change: to receive the funding, you know, step-by-step throughout the project.

Chris Westbrooks: What has recently happened is we just did the groundbreaking ceremony where we actually put a couple shovels in the ground and started. The beginning of the execution of the excavation for the foundations, the new building, and everything to begin the erection of the new facility. Thank you for taking my questions and good luck in the third quarter. Again, for any questions, please press star one on your telephone keypad, and our next question will come from the line of Phil Gibbs with KeyBank Capital Markets. Please go ahead. Hey, good morning. Good morning.

Speaker Change: So, we've met a number of those that received that funding. What recently happened, we just did the groundbreaking ceremony where we actually put a couple shovels in the ground and started.

Speaker Change: The beginning of the execution of the excavation for the foundations, the new building, and everything to begin the erection of the new facility.

Speaker Change: i

David Storms: Our next question comes from the line of Dave Storms with Stonegate. Please go ahead. Morning, and thank you for taking my questions.

Speaker Change: Thank you for taking my questions and good luck in the third quarter.

Speaker Change: All right, thank you

Speaker Change: Again, for any questions, please press star 1 on your telephone keypad and our next question will come from the line of Phil Gibbs with KeyBank Capital Markets. Please go ahead. Okay. Good morning.

David Storms: Just wanted to get a sense of if this market softness gives you an opportunity to maybe cut cost further and any levers you could potentially pull there. Yeah. Yeah, I mean, look, we're being very disciplined in our financial management. You know, we've already reduced which we put in the earnings release some of the CapEx spending for this year. And, you know, we're optimizing our cost the best we can with the current demand levels.

Phil Gibbs: Thank you. The step-up in absolute costs sequentially in the second quarter, I think, was a bit surprising to us. You guys mentioned the two outages in the quarter, one in May and one in June, but you also have your planned outages in the third quarter. Does that sort of mute that?

Phil Gibbs: Good morning.

Phil Gibbs: The step up in absolute costs sequentially in the second quarter, I think, was a bit surprising to us. You guys mentioned the two outages.

Phil Gibbs: um in in the quarter one in May and one in June but you also have your planned outages in the third quarter so does that sort of mute that sequential pickup or that would be sequential pickup given you already had some some downtime in the second quarter?

David Storms: But at the same time, what we're really focused on is are implemented and accelerating our strategic comparatives on our key strategic investments around our automated grinding line. Our installing our inline saws getting the new camera technology to drive higher yields and higher quality and lower cost. And that's what we're focused on. We're also focused on taking the opportunity to increase the training of our employees cross training to make them multi crafted to be able to run multiple pieces of equipment.

Chris Westbrooks: Sequential pickup, or that would be sequential pickup given you already had some downtime in the second quarter. Well, the first extended downtime was for us to install technology on our EAF for safety, reliability, and improved quality. And, you know, we would have done that project in the October, early November time frame. However, with the lack of demand, we had the opportunity, and it's such a beneficial improvement to our EAF and our efficiencies and costs.

Speaker Change: Well, the first extended downtime was for us to install technology on our EAF.

Speaker Change: for safety, reliability and improved quality. And, you know, we would have done that, that project.

Speaker Change: in the October , early November timeframe. However, with the lack of demand, we had the opportunity, and it's such a beneficial improvement to our EAF and our efficiencies and costs.

David Storms: Be more mobile and moving with without the throughout the plants to operate equipment to optimize our workforce. So those are things that are in our control, and that's what we're focused on. Understood. That's very helpful. Thank you.

Chris Westbrooks: We decided to do it in Q2. The other extended downtime, Phil, was that the electrical company approached us, and we would have done this in the October timeframe as well. Okay, they approached us; they had reliability issues that we've experienced over the last couple of years. They were in a position to totally upgrade their whole delivery system to our Fair Crest facility. At the same time, they were also experiencing significant voltage loss on that equipment.

Speaker Change: We decided to do it in Q2.

Speaker Change: The other extended downtime, Phil, was the electrical company approached us, and we would have done this in the October timeframe as well.

David Storms: And then you mentioned CapEx on that. I know you produce CapEx guidance. Is that a specific program or initiative that you're taking off the table? And as you're thinking about CapEx, you know, kind of what's the split between maybe maintenance first hardware purchases first, you know, IT and automation. Yes, yes. Well, it's not affecting the IET transformation project that we're doing. It's twofold. Some maintenance that we're deferring, but most of it is certain projects that we've just become a lower priority at this time, as we focus on the bigger beneficial projects to get them implemented, what we don't have the demand level as high as we usually expect. Understood.

Speaker Change: They approached us. They had reliability issues that we've experienced over the last couple of years. They were in a position to totally upgrade their whole delivery system into our Faircrest facility.

Speaker Change: At the same time, they were also experiencing significant voltage loss on that equipment. So, actually, it was a win-win for both companies, and we just decided to go ahead and do it because pretty much lack of spot demand.

Chris Westbrooks: So, actually, it was a win-win for both companies, and we just decided to go ahead and do it because of the pretty much lack of spot demand. But that doesn't, wouldn't, that doesn't change the timeframe in which our outage in October and early November is going to occur, because that was all a part of it in parallel with what we're doing during that timeframe. And what's more, there were other projects

Speaker Change: But that doesn't change the time frame in which our outage in October , early November is going to occur because that was all a part of it in parallel with what we're doing during that time frame.

Chris Westbrooks: So, they were all going to be tucked in within the overall long lead time planning schedule for the outage in October. Does that make sense to you? Yes, it does make sense.

Speaker Change: There were other projects that had longer...

Speaker Change: are large, longer execution times in the planning schedule. So they were all going to be tucked in within the overall long lead time planning schedule for the outage in October . That makes sense to you.

David Storms: And if I could ask just one more, you mentioned that you've reached a milestone on the Bloom project. That was announced back in February. Is this maybe a typical pacing for the milestones every call it two quarters or so, or just how should we be thinking about those? Well, in the arrangement with the Department of Defense, US Army, there are certain milestones that we have to meet to receive the funding step-by-step throughout the project.

Chris Westbrooks: I'm more so asking about the typical maintenance. I think you said $13 million split equally between the third and fourth quarter, but you did have some things in the second quarter that may be, I wouldn't say one time, but less routine in nature. Is it fair to just add the cost associated with the split of that 13 in the third quarter, or should we take into account the fact that you carried some slightly more elevated costs in the second quarter? I guess that is my question.

Speaker Change: No, it does make sense. I'm more so asking about the typical maintenance. I think you said $13 million split equally between the third and fourth quarter, but you did have some things in the second quarter that may be

Speaker Change: I wouldn't say one time, but less routine in nature.

Speaker Change: Is it fair to just add the cost associated with the split of that 13 in the third quarter? Or should we take into account the fact that you carried a little bit more elevated cost in the second quarter, I guess, is my question.

David Storms: So, we've met a number of those that received that funding. What recently happened, we did the ground breaking ceremony where we actually put a couple of shovels in the ground and started the beginning of the execution of the excavation for the foundations, the new building, and everything to begin the erection of the new facility.

Chris Westbrooks: Yeah, we did carry a little bit of an elevated cost for the first project I talked about, but the second project, which was really the a or the electrical providers, we had very little cost except for the fixed cost leverage effect of the downtime for seven days to add to that figure.

Speaker Change: Yeah, we did carry a little bit of elevated cost for the first project I talked about. But the second project, which was really the electrical...

Speaker Change: providers that we had very little cost except for the fixed cost leverage effect of the downtime for seven days.

Chris Westbrooks: It was about 60,000 tons lower in Q2 versus Q1, a sizable step down from a cost leveraged. Okay, and then in the third quarter, you're saying you're picking up your melt rates to meet the demand in the third and fourth quarters.

Speaker Change: To add to that, it was about 60,000 tons lower in Q2 versus Q1.

David Storms: Thank you for taking my questions and good luck in the third quarter. Thank you.

Speaker Change: That was a, you know, a sizable step down from a cost leverage standpoint.

Philip Gibbs: Again, for any questions, please press star one on your telephone keypad and our next question will come from the line of fill gifts with key bank capital markets. Please go ahead. Good morning. The step-up in absolute cost sequentially in the second quarter, I think was a bit surprising to us. You guys mentioned the two outages in the quarter one in May and one in June, but you also have your planned outages in the third quarter.

Speaker Change: Okay, and then in the third quarter, you're saying you're picking up your melt rates.

Chris Westbrooks: So should we expect a pickup in your inventory then in the third quarter, given that? Again, the melt rates are going to increase because the electrical outage isn't going to occur, and later this quarter, or very soon, we'll start to melt for quarter orders. Can we do pickup and mount utilization? And then the last one I have is just on the Bloomcaster, excuse me, the Bloomer.

Speaker Change: Ummm...

Speaker Change: to meet the demand in the third and fourth quarters. So should we expect a pickup in your inventory then in the third quarter given that?

Speaker Change: Yeah, again, the melt rates are going to increase because the electrical outage isn't going to occur. And, you know, later this quarter, or very soon, we'll start to melt for quarter orders.

Speaker Change: We do expect a pickup and melt utilization.

Philip Gibbs: So, does that sort of mute that sequential pickup or that would be sequential pickup given you already had some down time in the second quarter? Well, the first that extended down time was for us to install technology on our EAF for safety reliability and improved quality. And we would have done that project in the October and early November timeframe. However, with the lack of demand we had the opportunity and it's such a beneficial improvement to our EAF and our efficiencies and costs, we decided to do it in Q2.

Speaker Change: And then the last one I have is just on the bloom caster it excuse me the bloomer So it sounds like you have have already received

Chris Westbrooks: So it sounds like you have already received through July about $30 million from the government, if I heard your remarks correctly. The $55 million in CapEx does not include anything that you may have to spend this year. It doesn't really sound like... You may spend anything this year given the lead times for the equipment, so. So we should expect basically next year's CapEx numbers to, on a gross basis, reflect this investment and then some receipt this year from the government and then some receipt next year from the government? Is that the thought process?

Speaker Change: through July , about $30 million from the government, if I heard your remarks correctly. The $55 million in CapEx does not include anything that you may have to spend this year. It doesn't really sound like

Speaker Change: You may spend anything this year, given the lead times of the equipment.

Speaker Change: So we should expect basically next year's CapEx numbers to, on a gross basis, reflect this investment and then some receipt this year from the government and then some receipt next year from the government? Is that the thought process?

Chris Westbrooks: Yes, we expect based on the milestone agreements that we have that there will be some additional payments later this year. There will be down payments that we have to put in place for ordering a lot of the equipment, but yeah, the cash inflows are going to outpace the cash outflows, and then you'll start to see all that cash outflow occur next year. Got it. Makes perfect sense.

Philip Gibbs: The other extended down time fill was the electrical company approached us and we would have done this in the October timeframe as well. They approached us, they had reliability issues that we've experienced over the last couple of years. They were in a position to totally upgrade their whole delivery system into our Faircrest facility. At the same time, they were also experiencing significant voltage loss on that equipment. So, actually it was a win-win for both companies and we just decided to go ahead and do it because pretty much lack of spot demand, but that doesn't change the time frame in which our outage in October or early November is going to occur because that was all a part of it in parallel with what we're doing during that time frame and what there are other projects that had longer, longer execution times in the planning schedules. So they were all going to be tucked in within the overall long lead time planning schedule for the outage in October. Does that make sense to you?

Speaker Change: Yes, we expect, based on the milestone agreements that we have, that there will be some additional payments later this year.

Speaker Change: There will be down payments that we have to put in place for ordering a number of the equipment, but yeah, the cash inflows are going to outpace the cash outflows.

Speaker Change: And then you'll start to see all that cash outflow occur next year.

Phil Gibbs: Thank you. Thank you, Phil. Our next question is a follow-up from the line of John Franzreb with Sidoti. Please go ahead. Yeah, I apologize if I missed this, but how much was the melt utilization impacted in the quarter by the downtime in the electrical upgrade? You have a breakdown. Yeah, it was between 7 and 10 days, so.

Speaker Change: Okay. Got it. Makes perfect sense. Thank you.

Chris Westbrooks: 7 to 10% honestly, it's a percent a day, essentially. Okay. And Chris, if I heard your comments properly, I think you used the words exhaust our share authorization. How aggressively should we be considering share repurchases as we model out for the balance of the year?

Phil Gibbs: Thank you, Phil.

Speaker Change: Our next question is a follow-up from the line of John Franzreb with Sidoti. Please go ahead.

John Franzreb: Yeah, I apologize if I missed this, but how much was the melt utilization impacted in the quarter by the downtime in the electrical upgrade?

Speaker Change: Do you have a breakdown of that?

Speaker Change: Yeah, it was between 7 and 10 days, so...

Speaker Change: No.

Speaker Change: Seven to ten percent, honestly. It's a percent a day, essentially.

Speaker Change: Okay, decently satisfying.

Speaker Change: And Chris, if I heard your comments properly, I think you used the words exhaust our share authorization. How aggressively should we be considering share repurchases as we as we model out for the balance of the year?

Philip Gibbs: No, it does make sense. I'm more so asking about the typical maintenance. I think you said 13 million split equally between the third and fourth quarter, but you did have some things in the second quarter that may be, I wouldn't say one time, but less routine and nature and so is it fair to just add the cost associated with the split of that 13 in the third quarter or should we take into account the fact that you carried some a little bit more elevated costs in the second quarter, I guess is my question.

Chris Westbrooks: We're going to maintain flexibility there. We're committed to exhausting it, not over a specific time frame. But we are going to continue to do that as the prices allow, and at lower prices, you buy a bit more. So we'll continue to provide updates on that on a quarterly basis going forward. Okay, thank you for taking my follow-up. No problem. Thanks, John. And that will conclude our question and answer session today. I'll turn the call back to Jennifer Beeman for her closing remarks. All right. Thanks, everyone, for joining us today, and that concludes our call. Thank you all for joining us. You may now disconnect.

Speaker Change: We're going to maintain flexibility there. We're committed to exhausting it, not over a specific time frame, but we are going to continue to do that as the prices allow and at lower prices you buy a bit more. We'll continue to provide updates on that on a quarterly basis going forward.

Speaker Change: Okay, thank you for taking my follow-ups.

John: No problem. Thanks, John .

John: And that will conclude our question and answer session today. I'll turn the call back to Jennifer Beeman for closing remarks.

Philip Gibbs: Yeah, we did carry a little bit of elevated costs for the first project I talked about, but the second project, which was really the eight or the electrical providers that we had very little costs except for the fixed cost leverage effect of the downtime for seven days. Add to that, it was about 60,000 tons lower in Q2 versus Q1. That was a size will step down from a cost leverage standpoint. Okay, and then in the third quarter you're saying you're picking up your your melt rates to meet the demand in the third and fourth quarter.

Jennifer Beeman: Great, thanks everyone for joining us today and that concludes our call.

Speaker Change: Thank you all for joining. You may now disconnect.

Philip Gibbs: So should we expect to pick up in your in your inventory then in the in the third quarter given that? Yeah, again, the melt rates are going to increase because the electrical outage isn't going to occur and you know later this quarter will have very soon will be start the melt for quarter orders. Can we do effect a pick up and melt utilization? And then the last one I have is just on the bloomcaster, excuse me, the bloomer.

Speaker Change: [inaudible]

Philip Gibbs: So it sounds like you have have already received through July about 30 million dollars from the government if I heard your your your remarks correctly. The 55 million in CAPEX does not include anything that you may have to spend this year. It doesn't really sound like you may spend anything this year given the lead time to the equipment. So so we should expect basically next year's CAPEX numbers to on a growth basis reflect this investment and then some receipt this year from the government and then some receipt next year from the government.

Philip Gibbs: Is that the thought process? Yes, we expect based on the milestone agreements that we have that there would be some additional payments later this year there will be down payments that we have to put in place for ordering a number of the of the equipment. But yeah, the cash inflows are going to outpace the cash. The cash inflows are inflows are going to outpace the cash outflows and then you'll start to see all that cash outflow per next year. Okay.

Philip Gibbs: Scott, it makes perfect sense. Thank you.

Philip Gibbs: Thank you, Phil.

John Franzreb: Our next question is a follow-up from the line of John Franzreb with Sedotti. Please go ahead. Yeah, I apologize if I missed this, but how much was the melt utilization impacted in the quarter by the downtime in the electrical upgrade? Do you have a breakdown event? Yeah, it was between seven to ten days, so you know, seven to ten percent, honestly, because I present the day essentially. Okay, at these points. And Chris, if I heard your comments properly, I think you use the words exhaust or share authorization.

John Franzreb: How aggressively should we be considering share repurchases as we model out for the balance of the year? We're going to maintain flexibility there. We're committed to exhausting it, not over a time frame, but we are going to continue to do that as the prices allow and at lower prices you buy a bit more. We'll continue to provide updates on that on a quarterly basis, going forward.

John Franzreb: Okay, thank you for taking my follow-ups. Rob, thanks John.

Regina: And that will conclude our question and answer session today.

Jennifer Beeman: I'll turn the call back to Jennifer Beeman for closing remarks.

Jennifer Beeman: Great, thanks everyone for joining us today and that concludes our call. Thank you all for joining.

Regina: You may now disconnect.