TimkenSteel Corporation

Good morning. My name is Krista and I'll be your conference operator today. At this time, I would like to welcome everyone to the Metallus fourth quarter and full year 2023 earnings conference call. 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 that time, simply press star followed by the number one on your telephone keypad. And if you would like to withdraw that question, again, press star 1. Thank you. I would now like to turn the conference over to Jennifer Beeman. Jennifer, you may begin.

Good morning and welcome to Metallus' fourth quarter and full year 2023 conference call. I'm Jennifer Beeman, Director of Communications and Investor Relations for Metallus. 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?

Thank you, Jennifer, and I appreciate everyone joining us this morning. First, let me begin by welcoming you to our first call as Metallus. Our exciting brand change reflects our expertise in high-performance specialty metals, and we believe this distinguishes us in the marketplace. As Metallus, we will continue to serve our valued customers and pursue growth in our established markets and beyond. As we embark on this new chapter, we remain committed to our core values. and unwavering commitment to safety, quality, collaboration, and the well-being of our employees. Turning to our financial performance in 2023, our teams diligently pursued our strategic imperatives with a strong focus on targeted markets, particularly the aerospace and defense end market. This strategic focus significantly contributed to our profitability supported by a solid pricing environment. Additionally, we continue to return capital to shareholders via our share repurchase program while maintaining a strong balance sheet. Safety remains a fundamental priority at Metallus. Over the past year, we have kept you informed about our continuous safety efforts, investing approximately $10 million in 2023 towards safety enhancements. This includes an important investment in a comprehensive company-wide safety training program with a specific emphasis on eliminating potential serious injuries. Looking ahead to 2024, our commitment to safety remains firm. We are building a safety culture that is achieved through clearly defined roles, responsibilities, and objectives. Our goal is to instill everyday safety practices to ensure that every employee ends their workday free from injury or incidents. Turning to the results, as expected, fourth quarter net sales declined 7% sequentially as a result of lower shipments, as well as lower scrap and alloy prices. On a full year basis, net sales increased 2%, largely driven by an increase in base sales prices. Shipments adjusted EBITDA and operating cash flow all remain relatively steady in 2023 compared with the prior year. Chris will cover the company's financial details shortly. Moving to our end market updates. I'm pleased to share an exciting development regarding the work we do in defense. We are honored to have entered into a funding agreement with the United States Army for nearly $100 million. half of which is currently committed with the balance subject to mutual agreement during subsequent phases after the final project details are presented to the Army. Specifically, this funding will enable the addition of a continuous bloom reheat furnace to help fulfill increased global demand for artillery shells. For perspective, the Army has recently stated a target run rate demand of 100,000 shells per month by late 2025 versus the 14,000 shells per month produced in 2022. Metallus is a critical specialty steel supplier to support this ramp-up in demand. The new reheat furnace is expected to increase capacity for our high-quality bar-based defense products and support approximately $60 million of incremental base sales annually. This agreement is a testament to our longstanding partnership with the Department of Defense and our ability to consistently produce high quality specialty grades of steel. We are targeting late 2025 for the new bloom reheat furnace to be operational. We are well positioned to capitalize on the momentum we've established in expanding our sales within the aerospace and defense and market. Our net sales for 2023 grew by 44% compared to 2022, representing an 8% of our consolidated net sales for 2023. In the fourth quarter, aerospace and defense net sales further increased on strong customer demand to 13% of the total company. In our industrial end market, shipments decreased by 17% compared with the prior quarter, as we saw a softening in the industrial distribution and expected seasonality. In line with PMI data, the industrial blended index is indicating some contraction from previous forecasts, down about 2.4% in 2024. Shipments to the distribution channel are off to a slower start in the first quarter of 2024, as distributors work through inventory on hand. We remain confident in the long-term prospects within the industrial markets and remain in active dialogue with our customers to support their requirements. Automotive shipments declined 15% compared with the third quarter as a result of the UAW strike and expected seasonality. However, we continue to actively support many internal combustion engine applications while making steady progress with hybrid and EV applications. While consumer preferences may not be perfectly aligned with the aggressive EV programs initiated by automakers, we are well positioned to support initiatives with the internal combustion engines, hybrid vehicles, or full electric platforms. Our energy shipments in the fourth quarter declined 9% on a sequential basis. With strict capital discipline remaining in focus for the energy sector, Customer demand was soft in the quarter and steel inventory levels remained elevated within the supply chain. We remain well positioned to support the energy market as North American production remains vital to global supply and energy security. Moving to customer contracts, I am pleased that we have wrapped up our annual customer price agreement negotiations. which now cover approximately 65% of our order book. Our 2024 average base price per ton for customers covered by annual agreements is expected to be similar to 2023. Lead times are relatively short at this time with our product lead times currently at four weeks and two product lead times at 11 weeks. Distribution inventory levels remain elevated but are beginning to trend down. We remain focused on maintaining a high level of customer service and quality to meet our customers' demanding requirements. Our dedication to enhancing profitability continues with ongoing efforts across the company aimed at reaching our $80 million profitability target by 2026. Our focus is on commercial excellence, manufacturing efficiency, and process simplification leveraging a solid balance sheet as our cornerstone. To date, we are about three-quarters of the way towards achieving our target. To support our safety as well as our operational improvements, we have budgeted approximately $60 million in capital expenditures for 2024. In addition to safety, sustainability-related projects, maintenance and tooling CAPEX, We're investing to complete other high-return projects which began in 2023, including adding automated grinding, finishing, and saw capabilities in our Harrison facility and investing in our Eaton, Ohio facility with two additional manufactured component machining lines. We remain committed to investing in our assets and our people while delivering value to our shareholders. Our capital allocation strategy also focuses on our ongoing share repurchase program. Chris will cover our repurchase program in detail in a moment. As we proceed in 2024, we are committed to prioritizing safety along with enhancing customer service and advancing our strategic imperatives to foster sustainable profitability and cash flows throughout all business cycles. We express our sincere gratitude to our employees for their collaboration and unwavering dedication, our valued customers for their trust, our suppliers for their partnership, and our shareholders for their enduring support. Now I would like to turn the call over to Chris.