Universal Stainless & Alloy Products, Inc.

Good day, and thank you for standing by. Welcome to the Universal Stainless fourth quarter 2023 conference call and webcast. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1-1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1-1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today. June Fillingeri, please go ahead.

Good morning. Thank you for joining us. This is June Fillingeri of ComPartners, and I'd also like to welcome you to the Universal Stainless Conference call-in webcast. We are here to discuss the company's fourth quarter results reported this morning. With us for management are Chris Simmer, President and Chief Executive Officer, John Arminas, Vice President and General Counsel, and Steve DiTomaso, Vice President and Chief Financial Officer. Before I turn the call over to management, let me quickly review procedures. After management has made formal remarks, we will take your questions. The conference operator will instruct you on procedures at that time. Also, please note that this morning's call, management will make forward-looking statements. Under the Private Securities Litigation Reform Act of 1995, I would like to remind you of the risks related to these statements, which are more fully described in today's press release and in the company's filings with the Securities and Exchange Commission. With the formalities complete, I would now like to turn the call over to Chris Zimmer. Chris, we are ready to begin.

Thank you, June. Good morning, and thank you for joining us. Our 2023 financial audit is now complete. The 10-K will be filed tomorrow, and I'm pleased to report that our financial results show our strategy to accelerate profitable growth is gaining traction. Here are some highlights. Fourth quarter sales were up 12% sequentially to a record $80 million. That's the fifth consecutive quarter of sales growth. Full year sales were up 42% to a record $286 million. Premium alloy sales also reached record levels, climbing to $21 million in the fourth quarter and jumping 74% for the full year to $68 million, or 24% of sales. Gross margin has improved each quarter in 2023, reaching 16.4% in the fourth quarter, the highest level since 2018, despite a $1.6 million raw material misalignment headwind. Sixteen base price increases over the last three years, including the latest on February 12th, continue to benefit sales and gross margin while offsetting negative surcharge misalignment on commodity prices that have been falling. We expect to realize more of these price increase benefits as we move through 2024. Commodities have stabilized over the past few months, which should ease the raw material misalignment by the end of the second quarter. Operating income rose 9% sequentially to $4.8 million in the fourth quarter, despite higher SG&A expense on employee-related and insurance costs. Net income reached 27 cents per diluted share in the fourth quarter and 53 cents per share for the year, representing a marked turnaround from losses in 2022. Backlog remained strong at $318 million at year end, and order entry continues to be healthy. Premium alloys constitute 36% of our backlog. Our debt was reduced by $13 million in 2023, even with our strategic spend, which has added two new vacuum-marked remelt furnaces in North Jackson. We plan to continue to reduce that in 2024. The new VAR furnaces were released into production last month. This new capacity, in combination with capacity expansion of our VIM furnace, will accelerate our premium alloys ramp, which is key to our strategy of accelerating profitable growth. Turning to our end markets, starting with aerospace, fourth quarter sales rose 15% sequentially to a record $62 million. Full year aerospace sales increased 57% to a record $216 million or 76% of sales. As I said in January, aerospace demand was robust in the fourth quarter and that continues today. The dynamics of that demand remain the same. global recovery and air traffic, the demand from airlines for new, more fuel-efficient planes amid capacity constraints due to resilient demand and to replacing aging aircraft. Huge order backlogs at Airbus and Boeing extending into the next decade, even with Boeing's current challenges. Since our call in January, Boeing's challenges which were precipitated by the plug door blowout on an Alaska Air MAX 9 have continued, including investigations by the FAA, NTSB, and Justice Department into the accident and also into Boeing's production procedures. The FAA has capped production of the MAX airplanes at 38 per month, and they've set a 90-day period for the company to develop a plan to address quality control issues. At a conference last week, Boeing CFO underscored their objective to increase quality and to drive supplier stability. The airlines have been pressing for changes given how critical Boeing is to their fleet expansion plans. Ultimately though, the airlines are holding their slots for Boeing aircraft because their growth plans require it. In fact, Boeing recently described Demand is robust, noting new 737 orders from American Airlines, a Thai Airlines order for 787s, and an Ethiopian order for the 777X. At the end of February, Boeing's gross backlog of the 737 MAX airplanes totaled 4,752. Wide-body demand has increased with recovery and international travel. Boeing has reached a build rate of five Dreamliners per month and is working towards 10 per month by 2016. Their 787 backlog stood at almost 800 at the end of February, while total backlog was 5,900 planes or nearly nine years of production. For Airbus, the main challenge to reaching their build rate goals has been the supply chain. Despite that, Airbus expects the A320 build rate to reach 56 per month in 2024 and recently reported progress well towards their goal of 75 aircraft per month in 2026. Airbus' backlog of A320s at year end totaled nearly 7,200 aircraft. As to widebodies, Airbus is working towards a monthly rate of four aircraft for the A330 in 2024 and a rate of 10 in 2026 for the A350. Total year-end backlog at Airbus was 8,600 aircraft. The sustained recovery in air traffic is a major factor driving aircraft demand. IATA estimates global air traffic will grow more than 3% per year over the next 20 years, even with the constraints of infrastructure, delays in aircraft delivery, and supply chain issues. Heavy air traffic and the delivery delays of new aircraft are also fueling demand in the MRO market. In the defense sector, worsening world conflicts, increasing threats from Russia, China, and North Korea, and the step-up in military spend by NATO countries are driving increased market demand on a global basis. In the US, the DOD budget for 2024 prioritizes modernization of the fighter force and air defense, benefiting domestic demand for materials. The administration has now proposed an increase to the 2025 defense budget to $895 billion. As a major supplier of the premium and specialty alloys required for defense applications, our participation in that market is growing. We estimate 15 to 20% of our aerospace sales are going to defense. Overall, the aerospace market remains robust and the supply chain remains in a full pull mode based upon our channel checks. Supply chain challenges since COVID have compelled the primes to strengthen and diversify their supplier sources and we have benefited. This has been evident by the pace of our approvals that we are receiving and the new business that we're winning. We expect strong growth in our aerospace sales, including premium alloys, to continue as we move through 24 and into 25 and 26. Fourth quarter heavy equipment market sales were $6.4 million, a decrease of 28% from the third quarter, but up 14% year over year. Full year sales increased 15% to $31.2 million, or 8% of sales. As we discussed last time, customers grew cautious in the fourth quarter as the outlook for EV sales weakened, and we are seeing that near-term caution in the first quarter as well. Even so, the carmakers are continuing to introduce new models requiring retooling and tool steel. We do expect demand to improve in the second half of the year. General industrial sales increased 68% sequentially to 5.6 million in the fourth quarter. Full year sales of 2023 rose 43% to 15.7 million, or 7% of sales. Our general industrial sales are mainly for semiconductor manufacturing. Our latest results show the growing strength of that market. The Semiconductor Industry Association has projected double-digit growth for 2024. Given the need for increased chip manufacturing and the move to onshore, we remain very optimistic about 2024, especially in the second half of the year and beyond. Looking at our energy markets, oil and gas market sales totaled $3.6 million in the fourth quarter, which is 38% higher than the third quarter, although 32% lower than the fourth quarter of 2022. reflecting our shift of production to higher margin aerospace products in 2023. That shift is also reflected in full year oil and gas sales that totaled $14 million, a decline of 22% from 2022. Oil and gas sales were 4% of total 2023 sales. We plan to temporarily continue to strategically shift our production assets to aerospace in 2024. That same shift especially for finishing capacity, is evident in our power generation market sales, which were $1.1 million in the fourth quarter. While that's up 51% from the third quarter, full-year 2023 sales were down 31% from a year ago to $4.2 million, or just 1% of sales. I noted last time that as we continue to ramp our production levels, we remain very well positioned to expand our sales into the energy markets in the future. Now let me turn the call over to Steve for his report on our financials.