Metallus Inc.

My name is Audra, and I will be your conference operator today. At this time, I would like to welcome everyone to the Metallus fourth quarter 2024 and full year earnings call. Today's conference is being recorded. All lines have been placed on mute to prevent any background noise. 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 the star key, followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one again. At this time, I would like to turn the conference over to Jennifer Beeman, Director of Communications and Investor Relations. Please go ahead.

Good morning, and welcome to Metallis' fourth quarter and full year 2024 conference call. I'm Jennifer Beeman, Director of Communications and Investor Relations for Metallis. 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. 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. 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 earnings release. With that, I'd like to turn the call over to Mike. Mike?

Good morning, and thank you for joining us today. While I am proud of the progress we've made with several of our strategic imperatives, our financial results in 2024 were negatively affected by persistent weak market demand. Without the strategic structural changes to our business model over the past few years and a continuous improvement mindset, the market challenges in 2024 would have had a much more significant negative impact on profitability. In the face of these challenges, we remain focused on what was in our control by enhancing our strong customer relationships and investing in our people through additional training and development opportunities. We made improvements to our world class assets to enhance safety, quality and efficiency. We believe these efforts are key for our long term growth and will better position us in the long run. Additionally, we continue to provide value to our shareholders through our capital allocation strategy. including strategic investments in our business to drive profitable growth, as well as our ongoing share repurchase program. As we begin 2025, I'm encouraged by an improving order book and increase in shipments. But first, let me reflect on safety. In 2024, we strengthen our safety management system. which equips our teams with clear guidelines for risk management, defining roles and responsibilities, reducing hazards, handling incidents, training, and communications, all aimed at continuous improvement. Throughout the year, we dedicated resources to reinforce lockout, tagout, tryout procedures, and enhance our safe work permit processes for non-routine tasks. Our commitment to safety is evident in our investment of approximately $8 million in 2024 and plans to invest approximately $5 million in 2025. Although we recognize that achieving our safety objectives will be a journey, we have achieved some positive improvements. Our OSHA total recordable injury rate declined 7% over the prior year. Our corrective action completion rate related to potential serious injuries improved by 15% compared to 2023. Additionally, we improved our employee engagement in safety with a 36% increase in near-miss reporting and a 60% increase in proactive observations versus the prior year. These measures indicate that we're proactively and continuously addressing safety by maturing our safety management system, meaningfully engaging our employees, improving our hazard recognition skills, and enhancing our equipment. As you would imagine, we have been closely following the trade environment which substantially affects the industry's market behavior and global competitiveness. President Trump recently issued an executive order introducing a tariff of at least 25% on all steel long products, as well as certain derivative steel products, while closing loopholes in existing steel tariffs. These changes are expected to take effect on March 12th 2025. We believe these actions will help level the playing field for the steel industry, reduce imports, which should boost domestic demand. In recent weeks, we've seen a meaningful increase in customer engagement, both new and existing customers, as they proactively manage their supply chains to ensure a secure and stable supply of steel. We stand ready to serve our customers and believe this marks a significant shift in the landscape for the U.S. steel industry. These actions align with our longstanding advocacy for fair trade practices and correcting market distortions. We will continue to monitor developments in the trade environment closely. Turning to the results of the fourth quarter, Net sales increased 6% sequentially, driven by higher shipments and strength in aerospace and defense product demand. Overall, aerospace and defense has been a bright spot for us in a year where we faced weaker demand in other end markets. Consolidated shipments increased 9% sequentially, again, driven by higher aerospace and defense activity, as well as energy and automotive shipments. Turning to our end markets, shipments to our industrial customers declined 6% sequentially, primarily driven by weakness in distribution and heavy equipment. On a positive note, we are seeing an increase in order activity across our distribution and broader industrial customer base in response to the trade environment. On a sequential basis, our shipments to energy customers increased 78%. I'll bet from a low base. However, we are encouraged by the coupling stock and drilling tool opportunities that we are seeing in the energy sector as customers look to reliable domestic supply to meet their drilling and production needs. I'd like to take a moment to talk about some newly launched programs for our energy customers. we have worked closely with offshore well design engineers to utilize our highly engineered material suitable for corrosive environments. Leveraging our advanced capabilities, later this year we plan to produce seamless mechanical tubing specifically for use in tieback casings and couplings for one of the highest producing natural gas wells in the world. As new wells are explored, this specialty product remains at the forefront of innovation. Secondly, we have deepened our relationship with major petrochemical companies and have committed to CapEx investments to expand our offerings. Our well-established supply chains and highly engineered and qualified steel supports critical applications in this market, including high-pressure tubes for low density polyethylene reactors. The TALIS will soon be able to support 15 meter LDPE requirements as plants increase and upgrade their capacity. We've partnered with a highly regarded fabrication and machining operation to build a supply chain with our supply chain partner offering fully assembled LDPE reactors to the petrochemical industry. The high pressure tubes that we provide are one of the very few globally qualified materials for this critical component. We are targeting $20 million in annual sales from these two important energy programs beginning in 2026. These programs demonstrate our commitment to staying connected with our customers in the spirit of collaborative innovation. Moving to automotive. Shipments sequentially increased by 3%. Shipments in the back half of the year were negatively impacted by operational issues at our customers, which have since been resolved. Overall, light vehicle sales remain relatively steady, and we are targeting approximately 40% of our shipment to the automotive sector in 2025. On the topic of electric vehicles, it's widely known that many OEMs have backed off of their 2030 electric vehicle targets. However, we're encouraged to be continuously evolving alongside our customers as they refine their North American EV platforms. For one OEM in particular, we have two power transmission shafts on all nine of their EV models. As a reminder, given our established partnership with our automotive customers, we remain committed to supporting all platforms, internal combustion, hybrid, and electric vehicles. In aerospace and defense, fourth quarter shipments increased as expected to approximately 11,000 tons compared with approximately 3,000 tons in the third quarter. On a full year basis, aerospace and defense sales increased by 17% to nearly $135 million in 2024. This significant sales increase resulted in aerospace and defense representing 12% of total sales in 2024 compared with 8% of the total in 2023. Related to specific projects within the defense sector, we continue to hit important milestones related to the installation of our bloom reheat furnace. This asset is being designed to support the increase of capacity and finishing capability of high quality bar based products used in the production of artillery shells. In the meantime, we are actively developing partnerships in vital defense supply chains. As an example, we were recently awarded a $4 million purchase order for artillery shell canister tubing for the US Army. Additionally, we are enthusiastic about expanding our participation in aerospace and defense and other sectors by leveraging vacuum arc remount and vacuum induction melt steel combined with our unique downstream processing capability. With the support of trusted supply chain partners, we are targeting approximately $30 million of revenue in 2025 using outside VAR and VIM products combined with our rolling and piercing capabilities. Using this process path supports a large defense customers who supply the US military's missile programs. Given the high level of demand for specialty metals, including VAR and VIM products, Metallus is well positioned to increase our participation in this area in the future. Through continued focus and prudent investments, we intend to capitalize on this sustained growth trend for higher value specialty metals used in demanding applications. As we stated last quarter, we expect to grow aerospace and defense sales to over $250 million by 2026. I'd like to provide a quick update on the status of our customer contracts. I am pleased that we've wrapped up our calendar year customer price agreement negotiations, which cover approximately 70% of our 2025 order book. Average base price per ton for customers covered by annual agreements is expected to decrease by low to mid single digits on a percentage basis in 2025 compared with average base price per ton for the full year 2024 mixed dependent. For the remaining 30% of the order book with market spot pricing, we will continue to adjust pricing as demand evolves throughout the year. Our bar product lead times are currently at 10 to 12 weeks, depending on size, and two product lead times are at 10 weeks. Distribution inventory levels appear to be coming down, and some restocking has begun. To wrap up, our focus will continue to be on safety, exceptional customer service, new product development, especially in aerospace and defense, and our CapEx investments, all of which continue to advance our strategic imperatives to drive sustainable profitability and cash flow in all market conditions. Now I'd like to turn the call over to Chris, who will provide more details on our financial performance and outlook.