Universal Stainless & Alloy Products, Inc.

Good day and thank you for standing by. Welcome to the Universal's famous second quarter conference call. 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 one one on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, June Filingeri. Please go ahead.

Thank you, Jacinda. Good morning. This is June Filingeri of ComPartners, and I also would like to welcome you to the Universal Stainless Conference call and webcast. We are here to discuss the company's second quarter 2024 results reported this morning. With us from 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 again. After management has made formal remarks, we will take your questions. Our conference operator will instruct you 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 these 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, everyone. Thank you for joining us. The second quarter was a period of significant achievement for Universal. Sales reached a record $82.8 million. Gross margin hit an all-time high of 25.4% of sales. Record net income of $8.9 million or $0.90 per diluted share and adjusted EBITDA was a record $18.5 million or 22% of sales. Our ability to achieve this level of sales and profitability is the direct result of our strategic focus and capital investment in our aerospace market capacity and capabilities. namely in premium alloys and other critical products for commercial aircraft and defense applications. That focus has delivered a richer product mix and a broader base of customer approvals in a market with substantial growth potential for the foreseeable future. As evidence of our progress, we achieved record aerospace market sales of $68.6 million in the second quarter, representing 83% of total sales. with premium alloys at 25% of total sales, mainly driven by aerospace. An important profitability driver is the targeted and sustainable margin improvement projects we continue to put in place. These projects, combined with the change in our mix towards aerospace and premium products, represent a structural change in the level of margin we are achieving. The acceleration of our margins in the second quarter and the growth of our adjusted EBITDA, which increased 47% quarter over quarter and 135% year over year, are indicators of this new level of profitability. Additionally, our second quarter benefited from higher base selling prices along with stabilizing commodity prices. We continue to invest in our premium alloy capacity, and we are adding a second 18-ton furnace shell for the VIM at our North Jackson facility in the middle of 2025, and a new box furnace this quarter to support growth at the forge. We also remain fully focused on managing working capital and generating positive cash flow to fund our strategic capital expenditures, as well as paying down debt. In the second quarter, net cash generated by operating activities totaled $7.3 million, and total debt reduction was another $3 million, bringing the total debt reduction over the past four quarters to $15 million, a decrease of 16%. Backlog remains solid at $297 million at the end of the second quarter versus $325 million at the end of the first quarter. We are continuing to work with customers to manage order entries in order to pull in lead times, which better serves them while strengthening our competitiveness. From an operations standpoint, total production in the second quarter was up 4% sequentially. That follows a 12% sequential increase in the first quarter, as we further benefit from our capital modernization project throughout the plants. Through those projects, we are realizing process improvements and an increased ability in our manufacturing process, enabling our production levels to ramp. There was positive news on the workforce front earlier this month with the signing of a new five-year collective bargaining agreement with the hourly production and maintenance employees at our North Jackson facility. It's a good contract, serving the best interests of our employees, our customers, and our shareholders. The capabilities of our North Jackson facility and our capital investments there have an essential role in our growth strategy. A further positive development in the second quarter was the return of Universal Stainless to the Russell 2000 and 3000 indexes. We believe it reflects our substantial progress over the past year in achieving our growth objectives and in building value for our shareholders. Turning to our end markets, Let me begin with aerospace. Second quarter sales were a record $68.6 million, up 14% from the first quarter, and up 34% from the second quarter of 2023. Year-to-date sales increased 29% to $128.8 million. I've just returned from the Farnborough Air Show where the enthusiasm and optimism about the future of the aerospace market, demand, remained as strong as ever. The importance of the show for Universal was the opportunity to make further inroads in expanding our base of major customer approvals, as well as in deepening current customer relationships on both commercial, aerospace, and defense. We were successful on both fronts. As expected, Boeing and Airbus announced major deals at the show. They were encouraging wins for Boeing, including an order for 20 787 Dreamliners for Japan Airlines, an order for 20 777-9s from Qatar Airlines. Airbus also won orders, including one from Japan Airlines, for both wide-body aircraft and the single-aisle 321neos. Boeing's focus at the airshow was on safety, quality, and their plan to meet customer commitments. While Boeing recently pushed back by a few months their production plans for the 737 MAX, COO Stephanie Pope told reporters at the air show that they are seeing significant improvement in the flow of their 737 factory, and she confirmed their production target of a steady rate of 38 737 MAX airplanes per month by the end of this year. They also plan to return to producing five 787s per month later this year as the supply of parts continues to improve. To date, Boeing has continued to work with the supply chain to ensure reliability and sufficient inventory for the ramp up in production rates. While our customers are closely monitoring the recent pushback in production target dates, we have only seen minimal order adjustments and there have been no cancellations. Confidence in aerospace demand is based on the fundamentals underpinning the commercial, airplane, and defense aerospace market, which point to an extraordinary and sustainable growth opportunity. Not only has air travel recovered to pre-COVID levels, but TSA screened a record 3 million passengers on July 7. The surge in air travel and forecasts of continued growth are driving up demand from airlines for new, more fuel-efficient planes to replace aging aircraft and support their fleet expansion plans. The need is increasingly urgent as airlines have had to postpone route expansions as they await overdue deliveries. Somewhat ironically, the delay in new planes is driving another aerospace segment, the parts aftermarket and MRO, which we estimate to be about 5 to 10% of our aerospace business. The potential size of the commercial aerospace market can be seen in the combined net bookings of Boeing and Airbus, which totals more than 14,000 aircraft. All of this translates into substantial need for premium alloys today and in the years to come. Strong fundamentals are also driving demand and defense. Ongoing geopolitical conflicts have resulted in record global military spending which reached $2.4 trillion in 2023, including increased military budgets at NATO countries. In the U.S., $884 billion defense budget for 2024 is aimed at modernizing weapons systems and technology and expanding capacities and capabilities for advanced jet fighters, military helicopters, drones, and combat vehicles, all require specialty and premium alloys. The defense industry is a growing and increasingly important part of our aerospace sales, representing 15 to 20 percent. That demand, combined with strength in commercial aerospace and the extensive number of new OEM approvals that we have received in recent years, are the primary drivers of our overall growth. Our company is in the strongest position we have been in to respond to the aerospace market opportunities. Turning to the balance of our markets, heavy equipment market sales were $5.2 million, or 6.3% of the second quarter sales, which is 11% lower than the first quarter. Customers remained hesitant to build inventory in the face of changing market demand for EVs versus hybrids and gas engine vehicles. GM, for example, saw second quarter sales strengthen in gas-powered vehicles while the pace of growth of their EV models slowed. Given the slowing pace of EV demand growth, they are pushing back plans for a new Buick electric vehicle, although they do plan to introduce other new EV models in the coming months. Model changeovers are a positive driver of tool steel demand, whether for gas-powered, hybrid, or electric vehicles. We expect our heavy equipment market sales to pick up later in the year and in 2025 demand to return to historic robust sales levels post-election once the automotive industry has better clarity and direction and the confidence to make substantial investments into new production lines. Energy market sales totaled $5.1 million in the second quarter or 6.2% of sales. which is 15% lower than the first quarter, but up 17% from the second quarter last year. The energy category combines our oil and gas and power generation sales, which we reported separately prior to 2024, and better reflects our strategy in the energy market as we have shifted production capacity to aerospace products in recent quarters. We plan to increase our energy market sales in future quarters as our production capacity continues to expand. General industrial markets totaled $3.3 million, or 4% of sales in the second quarter, which is 22% lower than the first quarter, but up 3% from the second quarter last year. We had expected our sales in this market to grow, which are mainly from semiconductor manufacturing, but general industry demand continues to remain modest. The long-term prospects in this market remain positive as U.S. semiconductor sales are continuing to gain traction amid the rampant development of AI and as semiconductor manufacturing returns to the U.S. with the help of the CHIPS Act. We expect our general industrial sales to improve post-election and remain poised to benefit from strengthening market dynamics in 2025. Looking at the balance of the year, our strong backlog puts us in a great position to increase sales next quarter and further expand our margins, generating more free cash flow from operations. Now let me turn the call over to Steve for his report on our financials.