Metallus Inc.

Good morning and welcome to Metallis' first quarter 2026 conference call. I'm Jennifer Beeman, Director of Communications and Investor Relations for Metallis. Joining me today is Mike Williams, Chief Executive Officer, Chris Westbrooks, President and Chief Operating Officer, John Zerenik, Executive Vice President and Chief Financial Officer, and Kevin Rakitic, Executive Vice President and Chief Commercial Officer. You 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 FCC. 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 FCC filings, including our most recent Form 10-Q, which will be filed later today, as well as the risk 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 included in the earnings release and the earnings presentation available on the investor page at metallus.com. With that, I'd like to turn the call over to Mike. Mike?

Good morning and thank you for joining us today. I'm encouraged by our team's continued focus on operational priorities, which strengthened our performance in the first quarter. Demand continues to improve across our end markets, and our order book grew year over year, supported by overall industrial and defense demand, decreasing distribution inventory levels, and onshoring. Section 232 tariffs continue to support our competitive position in the markets we serve. The April 2026 updates to these tariffs applied only to downstream steel containing derivative products and do not affect our products, which are classified as primary steel. Most importantly, the 50% tariff on imported primary steel, including all long bar and tube products, remains in place, reinforcing the long-term competitiveness of U.S. produced steel. The capital investments and operational system improvements we implemented during the planned shutdown period in the fourth quarter contributed to higher melt utilization on both a sequential and year-over-year basis. Our strategic operational advancements achieved critical milestones during the quarter, highlighted by the safe and successful reheating and rolling of the first blooms from our new bloom reheat furnace. This achievement reflects the dedicated efforts of our internal teams and the support of the Department of War. As a reminder, the new bloom reheat and roller furnaces facilitate more consistent reheating improved product quality, and more efficient throughput. In fact, the Bloom reheat furnace has recently demonstrated a run rate of approximately 150 tons per hour compared with approximately 100 tons per hour using our legacy assets, along with significant improvements in temperature uniformity. These modern and efficient assets position us to better serve growing customer demand across all end markets and we anticipate they will also improve our operating leverage over time we expect the bloom reheat furnace to be fully operational in early to mid third quarter and the roller furnace to be fully operational to late third quarter we also continue to make meaningful progress in strengthening our operating systems reinforcing consistent and efficient execution across the organization. These institutionalized systems help our teams identify issues faster and drive greater accountability. During the quarter, we expanded this framework into additional areas focused on reliability and throughput. Safety remains a foundational priority for us and a critical factor in our long-term success. As always, we focus on eliminating serious injuries through stronger controls, training, and leadership accountability. Our health and safety management system continues to mature with stronger proactive reporting, increased near-miss identification, and targeted capability building in higher risk activities such as cranes, rigging, lockout, tagout, and machine guarding. This shift towards leading indicators in the discipline risk management reduces variability, lowers long-term costs, and protects our most important asset, our people. Turning to our first quarter performance, shipments increased by 11% sequentially. Adjusted EBITDA for the quarter totaled $24.6 million. reflecting a 39% increase compared to the prior year's first quarter. Again, this strong improvement underscores our disciplined execution against key priorities and operational improvements. Lead times continue to expand, now reaching into the late third quarter for both bars and seamless mechanical tubing. This reflects strengthening demand for domestic steel and provides a clear signal of the momentum we expect to carry throughout 2026. Turning to performance across our key end markets. We're seeing industrial customers take a more deliberate look at how and where they source steel as they navigate a challenging macro environment. Shifts in trade policy and the reassessing of supply chains are driving increased demand with domestic suppliers. With inventories low across the distribution channels and select products, returning from offshore sourcing, we're seeing increased opportunities. We believe these dynamics position us well to strengthen new and existing customer relationships and continue gaining share as industrial markets stabilize. Automotive demand remains steady with volumes up slightly compared to the prior year. Our automotive order book and key customer relationships remain strong. supported by our continued focus on light truck and SUV transmission programs, and our success in winning new and emerging platforms. For example, during the quarter, we won two additional programs with existing customers, reinforcing our confidence in the strength of the automotive markets we serve and the importance of our automotive customers to our base business. The energy markets we serve remain cautious. as producers continue to seek greater confidence in long-term oil prices before materially increasing investment. Ongoing global conflicts and geopolitical uncertainty are contributing to volatility in energy markets. But favorable trade-related tailwinds, reduced imports, and a gradual increase in domestic oil and gas activity are creating incremental opportunities for Metallus. Turning to aerospace and defense, this market continued to be a key source of strength during the quarter. Due to confidentiality, it's always difficult for us to call out new defense programs by name, but what I can say is that we were recently awarded an exciting contract with a new entrant in the defense supply chain to begin producing tubing for new rocket motors related to advanced weapon systems. Demand across defense programs continue to grow, supporting our near-term $250 million run rate revenue expectation and the longer-term strategic expansion in the market, allowing us to provide our expertise to existing and new customers in these critical applications. While defense shipment timing can vary quarter to quarter based on program needs and downstream supply chains outside of our control, The underlying fundamentals remain strong in the foreseeable future. We continue to advance targeted investments and operational improvements to support higher defense volumes. The TALIS is well positioned to benefit from growing defense spending and the continued focus on developing secure domestic supply chains. Overall, we remain focused on discipline execution in 2026. During the quarter, we improved operational performance, strengthened our internal systems, and safely advanced strategic investments that support our long-term objectives. Our growing order book, improving operational execution, and U.S.-based manufacturing footprint provide a solid foundation as we move forward. We will continue to prioritize safety, operational discipline, and prudent capital allocation as we work to deliver consistent performance and long-term value for shareholders. With that, I'll turn the call over to John to walk through our financial results in more detail.

Thanks, Mike. Good morning, and thank you for joining our first quarter 2026 earnings call. During the quarter, our team delivered improvements in shipments, net sales, and profitability on both a sequential and year-over-year basis, consistent with our expectations. As Mike noted, we also safely advanced operational and strategic investments to support near and long-term business growth, while maintaining a strong balance sheet. From a top-line revenue perspective, first quarter net sales totaled $308.3 million. a year-over-year increase of $27.8 million, or 10%, primarily driven by higher shipments across most end markets. Net income was $5.4 million in the first quarter, or 13 cents per diluted share. On an adjusted basis, net income was $7.7 million, or 18 cents per diluted share in the quarter. Adjusted EBITDA was $24.6 million in the first quarter, a year-over-year increase of $6.9 million, or 39%. The increased profitability was primarily driven by higher shipments across most end markets, better price mix, higher raw material spread, and better fixed cost leverage on higher production volume. slightly offset by an increase in utility costs and a partial quarter of the cost increase related to the ratified union contract. As a reminder, our previous favorable electricity contract expired in May of 2025. So the first quarter of 2025 included a full quarter of lower energy costs. As we noted in February, we expected a usage of free cash flow during the first quarter, which is consistent with historical seasonality as the first quarter normally requires a larger amount of pension funding and working capital build. Additionally, this year, our capex spend to complete the government projects is the highest in Q1 and is expected to ramp down throughout 2026. In the first quarter, capital expenditures totaled $24.7 million, including approximately $18.3 million of first quarter CapEx partially funded by the U.S. government. Planned capital expenditures for the full year 2026 are expected to be approximately $70 million, inclusive of approximately $35 million of capital expenditures primarily funded by the US government. At the end of the first quarter, the company's cash and cash equivalence balance was $104 million. As it relates to government funding, during the first quarter, the company received $5.9 million of cash funding from the government, with an additional $9.5 million received during the month of April, based on our successful completion of key milestones. As a reminder, these funds are part of the previously announced nearly $100 million funding agreement in support of the U.S. Army's mission of increasing munitions production. Additional government funding of approximately $2 million is expected to be received in 2026 to complete the government funding arrangements contingent on the achievement of the final mutually agreed upon milestone. As a reminder, this funding substantially paid for both the new bloom reheat furnace at the company's Faircrest facility, as well as the new roller furnace at the Gambrinus facility. Now switching to pensions. In the first quarter, the company made $19.8 million of required pension contributions. of which the majority related to the U.S. bargaining plan and reflects roughly two-thirds of the expected full-year 2026 pension contributions. Subsequent to the first quarter, the company made a required pension contribution of approximately $5 million in April, with an estimated $5 million of required pension contributions expected for the remainder of 2026. Consistent with our expectations in February, total 2026 required pension contributions are expected to decrease by nearly 60% compared to 2025. As part of the USW contract ratified during the first quarter, employees who are currently accruing a pension benefit will have a one-time opportunity between March 30th and May 30th to freeze their pension accrual. and begin receiving a market competitive benefit under the 401 plan. These actions will allow employees access to their retirement funds earlier while also providing competitive defined contribution benefits and de-risking the long-term pension obligation. As we continue to actively manage the pension, we'll provide further updates as available. In terms of shareholder return activities, In the first quarter, the company repurchased approximately 277,000 shares of common stock at a cost of $4.3 million. At the end of March, a balance of $85.4 million remained under our existing share repurchase authorization. Since the inception of common share repurchases in early 2022, Combined with the convertible note repurchase activities, we've reduced diluted shares outstanding by a significant 26% or 13.8 million shares. These actions reflect the strength of the company's balance sheet and competence in through cycle cash flow generation. As it relates to liquidity, total liquidity remains strong at $375 million as of March 31, 2026. Additionally, as of March 31, 2026, the company had no outstanding borrowings. Moving now to near-term business outlook, commercially, second quarter shipments are sequentially expected to increase modestly in the low single digits on a percentage basis supported by continued strength in the order book and normal seasonality. Through the first four months of 2026, we announced a series of targeted price actions across our bar and tube portfolios. In bar, we implemented two actions totaling $120 per ton, phased in based on customer promise dates. In tube, pricing actions were differentiated by size and product types, averaging about $100 per ton across the product mix. As a reminder, these pricing actions apply only to business not sold under annual price agreements and to new business, which historically represents approximately 30% of our total annual volume. We expect price realization to be gradual, with greater impact toward the second half of the year. Based on lead times and product mix dependent, second quarter price and mix are expected to be similar to the first quarter, with improvement anticipated in the second half of 2026. From an operational perspective, the company anticipates a sequential increase in its second quarter average melt utilization rate. supported by a strong order book. Manufacturing costs are expected to improve sequentially by approximately $2 million in the second quarter as a result of higher melt utilization resulting in improved cost absorption and net of the full quarter run rate cost increase related to the ratified union contract. And finally, an adjusted effective income tax rate between 27 and 30% is expected for the full year 2026. Given these elements, the company expects second quarter 2026 adjusted EBITDA to be modestly higher sequentially and year over year. To wrap up, thank you to all of our employees, customers, and suppliers for their support. We're well positioned as a high quality U.S.-based specialty metals producer supporting critical markets. As we continue to move forward in 2026, our focus is on safe execution to meet continued rising customer demand. We remain committed to delivering shareholder value through disciplined capital allocation and sustained profitable growth. As always, thank you for your interest in Metallus. We would now like to open the call for questions.