Universal Stainless & Alloy Products, Inc.

Good day and thank you for standing by. Welcome to the Universal Stainless and Alloy Products Incorporated first quarter 2024 conference call and webcast. At this time, all participants are in the 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 one one on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your host today, June Filangieri. Please go ahead.

Thank you, Brittany. Good morning. This is June Filangieri of ComPartners. And I also would like to welcome you to the Universal Stainless Conference call. and webcast, we are here to discuss the company's first quarter 2024 results reported this morning. With us from management are Chris Zimmer, President and Chief Executive Officer, John Arminas, Vice President and General Counsel, and Steve 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. Brittany will instruct you again on procedures at that time. Also, please note that in this morning's call, management will make forward-looking statements. Under the Private Securities Litigation 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 Simmer. Chris, we are ready to begin.

Thank you, June. Good morning, everyone, and thank you for joining us. I'm pleased to report our earnings momentum continued in the first quarter, most evident in our gross margin, which reached 18.9%, the highest in 12 years. even with a $1.3 million raw material misalignment. Without it, our gross margin would have topped 20%. This is the fifth consecutive quarter of gross margin improvement, and we expect the momentum to continue in the coming quarters as sales ramp up, our base prices continue to increase, and raw material headwinds dissipate as commodity prices further stabilize. Operating income rose 51% to $7.3 million in the first quarter, and net income increased nearly 60%, reaching $4.1 million, or 43 cents per diluted share, compared with 27 cents in the fourth quarter. Our first quarter sales of $77.6 million were the second highest in our history, only exceeded by our record fourth quarter sales of $79.8 million. We expect to achieve record sales quarterly for the balance of the year based upon the strength of the aerospace market demand, which continues unabated. It's also supported by our backlog, which increased to $325 million from $318 million at year end on continued strong order entry. First quarter premium sales totaled $20.1 million, just shy of the record level in the fourth quarter. Our premium alloys, which are mainly for aerospace application, represented 26% of our total first quarter sales, and aerospace represented nearly 78% of sales in the quarter. Both continue to be the main drivers of our performance and growth. It's important to underscore that our strategy to focus on premium alloys has been transformational for our company and has yielded a broader base of customer approvals, a richer product mix, and increased earnings power. Total debt for the first quarter was reduced by another $4.3 million, while we also continue to invest in our premium alloy capabilities in North Jackson. That includes ordering a second 18-ton furnace for the VIM, which adds to efficiencies and capacity, as well as a new box furnace to support the forge. Additionally, we are further investing in upgrades of our process controls with more digital capability on equipment to utilize optimizing operating performance. We plan to continue to invest capital in our facilities while further reducing debt in 2024. Our total production in the first quarter was 12% higher than the fourth quarter of 2023, and our strongest since the first quarter of 2020. We are seeing the benefits of targeted capital modernization projects throughout our plants that have delivered process improvements and reliability to our manufacturing process, enabling our production levels to ramp. We have additional modernization projects underway to support our growth as the stability of our workforce continues to improve. Turning to our end markets, starting with aerospace, our largest. First quarter sales totaled $60.2 million compared to $61.9 million in the fourth quarter and $49 million in the first quarter of 2023. As I said, aerospace demand remains robust despite the current low build rates of Boeing resulting from the 737 MAX production issues and slower production of the 787. While that has curved the supply of Boeing airplanes to its customer, it has not curved Boeing's demand to its suppliers. Boeing's message to the supply chain. keep your foot on the gas, and keep to the master schedule production plan. Boeing is intent on ensuring supplier stability and allowing all suppliers to catch up in preparation for the increase in build rates planned for 2025 and 2026. On their call last week, Boeing said that production of MAX planes will remain below 38 per month in the first half of 2024, but they plan to ramp up to the 38 level in the second half of the year. Rate increases beyond that are predicated on their work with the FAA. The rate of 787 production is expected to increase to 10 per month in 2026, and Boeing expects to make first delivery of the 777X in 2025. Boeing also reported that demand across its portfolio remains incredibly strong. Their net new orders in the first quarter totaled 125. including 85 737-10s, 28 777X planes. At quarter's end, Boeing's net backlog stood at more than 5,600 planes, including approximately 4,800 MAX planes, nearly 800 787s, and around 480 777Xs. Meanwhile, Airbus reported a total of 170 new orders in the first quarter. While their single aisle production is running below plan at about 50 planes per month due to supply chain issues, Airbus has reaffirmed their production goal of 75 A320s per month in 2025, as well as their target of raising A350 output to 10 per month in 2026. The surge in air travel is driving demand for new airplanes with Delta, Unita, United, Alaska, and American Airlines, all reporting strong first quarter growth and bullish second quarter outlooks. Delta's Ed Bastian described market travel conditions as the most constructive in his career, with consumers in a healthy position, travel remaining a top priority, and corporate travel accelerating. Other airlines echoed the same. One limiting factor for the airlines is the slowed production and delivery of new generation airplanes, causing them to reduce schedules during the peak flying season and rely on older aircraft. On the plus side, that has generated demand in the MRO business, which benefits supply chain demand. In the defense sector, the president just signed into law a $95 billion aid package for Ukraine, Israel, and Taiwan amid the increasing intense conflicts in those regions. That follows passage of the long-delayed $825 billion defense spending bill for fiscal 2024 in March. Increased defense spending can translate into added market demand for the type of premium and specialty alloys we produce. The defense market is an increasingly important market for us, and it currently represents 15 to 20 percent of our total aerospace sales. Overall, I would echo the sentiment that this is the most constructive aerospace market environment I've ever seen. The feedback from customers indicates that they are fully in a pull mode, replenishing their inventories on strong demand. Our company is also in the strongest position we've ever been to respond to that demand as a result of our multi-year capital investment in premium alloy capabilities and capacity. Turning to our remaining markets. Beginning this quarter, we are reporting a new market category, energy, which combines our oil and gas and power generation sales and better reflects our strategy in the energy market. We have been de-emphasizing power gen in recent quarters as we focus capacity on the aerospace industry. In fact, power gen sales contributed just $1.1 million to total energy market sales of $6 million in the first quarter. Oil and gas sales of 4.9 million made up the rest. Energy market sales were up 29% sequentially and up 3% from the first quarter last year, representing 7.7% of total sales. Although we have temporarily shifted much of our premium alloy production and finishing capacity to aerospace, we plan to increase our energy market sales in future quarters as our production capacity continues to expand. Heavy equipment market sales totaled $5.8 million, or 5.7% of first quarter sales. Sales were down 9% sequentially as our customers continue to balance inventories and digest the changing market demand for EVs versus hybrids versus gas engine vehicles. Both Ford and GM did report increased EV sales in the first quarter, with GM reporting a sharp rise in EV production and deliveries, and Ford emphasizing its record hybrid sales. However, automakers are modifying the mix of their planned model offerings and the timing of new model introductions as they adjust to current customer preferences. Even so, model changeovers are a positive driver of tool steel demand, and we expect our sales to pick up in the second half of the year. General industrial market sales totaled $4.3 million in the first quarter compared to $5.6 million in the fourth quarter and $3.5 million in the first quarter last year. First quarter results were in line with our expectations as discussed on our last call. We expect our sales in this market, which are mainly for semiconductor manufacturing, to resume growth in the second quarter. The U.S. semiconductor market is benefiting from the CHIPS Act, which aimed at onshoring semiconductor manufacturing. The Commerce Department recently announced a deal with Samsung, providing up to $6.4 billion in incentives to support their manufacturing operation in Texas. The Commerce Department previously announced incentives for TSMC, Intel, Global Foundries, MicroTrip Technology, and BAE systems. Additionally, AI-related demand is also driving the market. We remain very optimistic about this market in 2024, especially during the second half of the year. Now let me turn the call over to Steve for his report on our financials.