Metallus Inc. (MTUS) Q4 2023 Earnings Report, Transcript and Summary

Good morning. My name is Krista, and I’ll be your conference operator today. At this time, I would like to welcome everyone to Metallus Fourth Quarter and Full Year 2023 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions] 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; Kris Westbrooks, Executive Vice President and Chief Financial Officer; and Kevin Raketich, 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 [ph] 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 remained relatively steady in 2023 compared with the prior year. Kris 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 a 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 end 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 bar 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. Kris 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 Kris.

Thanks, Mike. Good morning, and thank you all for joining our earnings call. We’re proud of our team’s accomplishments in 2023. Specifically, the organization advanced our safety management system in a positive manner, increased our participation in the high growth aerospace and defense market, and made important investments in our manufacturing facilities that will benefit future years. These accomplishments were achieved while continuing to return capital to shareholders and maintaining a strong balance sheet. Thanks to all of our employees, customers and suppliers who helped us achieve our objectives last year. Turning now to our full year 2023 financial results. Net sales totaled $1.4 billion in the year, an increase of $32.5 million or 2% from 2022. Net income was $69.4 million, or $1.47 per diluted share. Excluding certain items such as insurance recovery income and pension remeasurement losses, adjusted net income was $89.8 million in 2023, or $1.91 per diluted share. Additionally, adjusted EBITDA was $169 million for the year. As it relates to the insurance recovery process associated with the unplanned downtime in 2022, the claims process is now complete. In 2023, we recognized $31.3 million of insurance recoveries, of which $20 million was recognized in the fourth quarter. In total, the company recognized $64.3 million of insurance recoveries over the past two years. These cash recoveries have and will be used to reinvest in the business as well as return capital to shareholders via our share repurchase program. Now, turning to the fourth quarter of 2023 financial results. Net sales totaled $328.1 million with net income of $1.3 million or $0.03 per diluted share. Comparatively, sequential third quarter of 2023 net sales were $354.2 million with net income of $24.8 million or $0.51 per diluted share. Net sales in the fourth quarter of 2022 were $245.4 million with a net loss of $33.2 million or a loss of $0.75 per diluted share. On an adjusted basis, excluding the impact of a pension remeasurement loss, insurance recovery gain and certain other items, the company reported adjusted net income in the fourth quarter of $16.5 million or $0.36 per diluted share. Comparatively, third quarter adjusted net income was $24.9 million, or $0.52 per diluted share. The adjusted net loss in the fourth quarter of 2022 was $4.6 million or a loss of $0.10 diluted share. Adjusted EBITDA was $35.7 million in the fourth quarter, an $11.1 million sequential decline. As expected, the fourth quarter was negatively impacted by lower shipments. Also contributing to the sequential decline in adjusted EBITDA was planned lower melt utilization, higher annual shutdown maintenance costs, and a market driven decrease in the scrap and alloy raw material surcharge environment. Partially offsetting these items were higher base sales prices attributed to $11 million of retroactive pricing recognized during the fourth quarter on automotive manufactured components, as well as favorable aerospace and defense product mix. Compared with adjusted EBITDA of $11.9 million in the fourth quarter of 2022, adjusted EBITDA increased by $23.8 million in the quarter. Turning now to the details of the financial results in the fourth quarter. Shipments were 157,600 tons in the quarter, a decrease of 18,200 tons, or 10% compared with the third quarter. During the fourth quarter, we split the aerospace and defense end market out from the industrial end market for greater visibility going forward. Prior periods back to 2021 have been recast for comparability. In the industrial end market, shipments totaled 58,700 tons in the fourth quarter, a sequential decrease of 11,800 tons or 17%. The decrease was primarily driven by ongoing customer inventory rebalancing within industrial distribution. Automotive customer shipments were 67,400 tons in the fourth quarter, a sequential decrease of 11,700 tons, or 15%. We estimate approximately one-third of the sequential decrease in shipments was attributed to the previous automotive work stoppages, while the majority of the remaining decrease was a result of normal seasonality. In aerospace and defense, continued strength in customer demand drove fourth quarter shipments of 18,500 tons, a sequential increase of 6,600 tons or 55%. Shipments to energy customers totaled 13,000 tons in the fourth quarter, a sequential decrease of 1,300 tons or 9% as energy customer demand remained soft in the fourth quarter. Compared with the fourth quarter of 2022, shipments in the quarter increased by 23% as a result of higher industrial and aerospace and defense shipments. As a reminder, shipments in the fourth quarter of 2022 were negatively impacted by the availability of inventory for shipment, following unplanned downtime in mid-2022. Net sales of $328.1 million in the fourth quarter decreased 7% sequentially. The decline in net sales was primarily due to lower shipments and a market driven 14% decline in the average raw material surcharge revenue per ton as a result of lower scrap and alloy prices. Partially offsetting these items were higher base sales prices attributed to incremental retroactive pricing realized in the fourth quarter and favorable aerospace and defense product mix. Regarding the aerospace and defense end market, net sales increased sequentially by 44% to $44.1 million in the fourth quarter, representing 13% of total company net sales in the quarter. On a full year basis, aerospace and defense net sales also increased by 44% to $115 million in 2023 or 8% of total company net sales. As Mike mentioned, aerospace and defense is a targeted area of growth for the company. We look forward to sharing further updates in the future. Turning now to manufacturing. Manufacturing costs increased sequentially by $9.9 million in the fourth quarter as a result of lower cost absorption combined with higher planned annual shutdown maintenance expense. Planned melt shop downtime in the fourth quarter for the shutdown maintenance and to balance inventory with demand resulted in a melt utilization rate of 58% in the quarter compared with 76% in the third quarter. Excluding the planned downtime, we estimate that the fourth quarter melt utilization would have been in the mid-70s on a percentage basis. Switching gears to income taxes, the company’s effective tax rate was 28% in 2023 and cash taxes totaled $25.3 million for the full year. In 2024, we estimate the company’s effective tax rate will be 25% to 28%. From a pension perspective, the accounting funded status of the company plans was 76% at the end of 2023 compared with a funded status of 82% at the end of 2022. Positive returns in the equity markets in the fourth quarter of 2023 helped partially offset asset losses experienced earlier in the year. Additionally, a decline in the discount rate also contributed to a reduction in the funded status. In 2024, we expect to make required pension contributions of approximately $40 million, which includes approximately $25 million of required contributions in the first quarter. Regarding pension and retiree medical expense, we anticipate total expense in 2024 to be similar to 2023, excluding the impact of remeasurement. In terms of ongoing pension derisking actions, we’re on track to annuitize the company’s previously terminated salary pension plan. At the end of 2023, the salary pension plan liability totaled $124 million. In mid-2024, we expect to transfer all remaining salary pension plan liabilities and the majority of the related assets to a highly rated insurance company. Shortly thereafter, the insurance company will assume responsibility for all future participant benefit payments. Moving on to cash flow and liquidity. During the fourth quarter, operating cash flow was $74.1 million driven by profitability and lower levels of working capital. This marks the company’s 19th consecutive quarter generating positive operating cash flow. For the full year, the company generated operating cash flow of $125.3 million. Capital expenditures totaled $15.4 million in the fourth quarter and $51.6 million for the full year, generally in line with previously stated guidance. Planned capital expenditures are approximately $60 million in 2024, as Mike previously mentioned. Looking at the components of the 2024 CapEx budget, we’ve allocated $5 million to important safety CapEx projects following a significant investment in 2023. Our growth CapEx in 2024 totals approximately $20 million to support the projects that Mike highlighted earlier, an automated grinding and finishing line at our Harrison facility, an automated inline saw also at our Harrison facility, and two new automotive manufactured components lines at our facility in Southwest Ohio. We expect to begin realizing benefits from these investments in late 2024 and early 2025, with rates of return in excess of our cost of capital. Lastly, maintenance and tooling CapEx represent the majority of the remainder of the 2024 CapEx budget. Additionally, our team is excited to launch the continuous bloom reheat furnace project as just announced. The total cost of this investment is approximately $90 million and will support the U.S. Army’s artillery shell production ramp. It’s our expectation that the government funding that Mike discussed will cover our 2024 CapEx requirements for this investment. As such, CapEx required for the Bloom Reheat Furnace is excluded from our CapEx guidance for 2024. We estimate this investment will support approximately $60 million of incremental base cells annually, demand dependent. Additionally, the investment will increase the efficiency of the Bloom Reheat process for all CAS products prior to rolling while reducing our carbon footprint. We’re targeting late 2025 for the new asset to be operational and look forward to providing updates on the significant growth project in future quarters. From a shareholder return perspective, I wanted to spend a moment to recap our share repurchase program activity over the past two years. As a reminder, our board authorized a $50 million share repurchases program in December 2021. This initial repurchases authorization reflected the board and senior leadership’s confidence in the company’s ability to generate sustainable through cycle profitability while maintaining a strong balance sheet and cash flow. That repurchase program was exhausted and an additional $75 million share repurchase program was authorized towards the end of 2022. Throughout 2023, the company continued to make progress on its share repurchase program. In total, during 2022 and 2023, the company repurchased 4.7 million shares of its common stock for $84.6 million, resulting in an average repurchase price of $17.85 per share. As of December 31, 2023, the company had a balance of $40.4 million remaining under its share repurchase authorization. When combined with convertible note repurchases in 2022 and 2023, the common stock and convertible note repurchase activity resulted in a significant 16.5% reduction in diluted shares outstanding compared to the fourth quarter of 2021. We continue to prefer the flexibility of the share repurchase program and are committed to exhausting the remaining authorization as we progress forward, as supported by the continued strength of our balance sheet and cash flow generation. At the end of 2023, the company’s cash and cash equivalents were $280.6 million and the cash balances generated nearly $10 million of interest income last year. We expect the strength of our balance sheet supported by $539.4 million of total liquidity at the end of 2023, combined with expected through-cycle profitability and positive operating cash flow to provide us the opportunity to continue to execute on our capital allocation strategy. This includes investing in profitable growth, maintaining a strong balance sheet and returning capital to shareholders through continued share repurchases. Turning now to the first quarter of 2024 outlook. From a commercial perspective, first quarter shipments are expected to be slightly lower than the fourth quarter. While distribution inventory levels remain elevated at the start of the year and the energy market remains soft, we expect continued strength in aerospace and defense demand and steady automotive shipments. Lead times for bar products currently extend to April and tube product lead times extend to May. As it relates to base selling prices, Mike commented on the outcome of our annual customer price agreement negotiations covering approximately 65% of the order book. Historically, the company targeted 70% plus of the order book being covered by annual pricing agreements. In 2024, we targeted 65% to be covered by annual price agreements to provide us flexibility to adapt to evolving market conditions. As a result of the completed negotiations, average base sales price per ton for 2024 price agreements are expected to be similar to average base sales price per ton for the full year 2023 mix dependent. Price mix in the first quarter of 2024 is expected to be unfavorable on a sequential basis given that the fourth quarter includes approximately $11 million of full year retroactive price increases. Additionally, surcharge revenue per ton is expected to be sequentially higher in the first quarter due to an increase in the number one Busheling scrap index. Operationally, melt utilization is expected to be approximately 70% in the first quarter. Manufacturing costs are expected to sequentially decline in the first quarter given completion of approximately $10 million of annual melt shop shutdown maintenance in the fourth quarter of 2023. Given these elements, the company anticipates first quarter adjusted EBITDA to be slightly lower than the fourth quarter. To wrap up, we remain very encouraged by our long-term business outlook under our new Metallus brand. We’re committed to actively pursuing targeted growth in aerospace and defense, while supporting all of our customers with a high level of service, strategically investing in our business and returning capital to shareholders. Thanks for your interest in Metallus. We’d now like to open the call for questions.

Thank you. [Operator Instructions] Your first question comes from the line of John Franzreb from Sidoti. Please go ahead.

Good morning, everyone, and thanks for taking the questions. I’d like to start with the fourth quarter. Could you provide a little bit of color on why the reconstructed industrial segment was down so much sequentially? Can you give us maybe the layer of depth of what was going on in demand profile?

Sure, John. Thanks for asking the question. Predominantly, where we’re seeing – slowdown is in the distribution channels to service the industrial market. Our direct OEM business was pretty steady. The distribution – if you look at the number of days of inventory or months of inventory, they’re high compared to the historical average. So typically what we see with these cycles like this is the distributors will work the inventory off and then you’ll start to see the volume activity return at more normal rates. The other aspect that we saw – is that we saw some price deterioration in certain competitors, chasing some volume purchases for lower prices, and we chose not to participate in that activity.

Fair enough. Well, I got a bunch of questions, but I think I’m going to shift gears here to the aerospace and defense segment. Can you just provide some context? How much of artillery business did you actually finish 2023 in total revenue? Maybe context to how the margin contribution of that business is relative to the rest of the other end markets and also about capacity currently in production of the artillery business. And there’s a lot there.

I can give you some color there, but I do have to be forthright and say, there is some confidentiality between this partnership with the U.S. army. So we have to be very careful about what information we share and what we don’t share. What I will tell you is the majority of our aerospace and defense sales is around defense and predominantly artillery shells. Actually, it’s not the shell itself, it’s the warhead that we’re manufacturing, very complex, difficult to manufactured specialty grades to service those products. In regards to the capacity, the funding that the federal government or the U.S. Army Department of Defense is providing is really for us to debottleneck our operations from rolling through finishing, to be able to make more of these very complex, difficult grades of manufacture. So it’s purely – I use the word investment to debottleneck to get the capacity to meet the supply chain demand to satisfy the U.S. Army’s defense strategy long-term.

Okay, so it’s fair to say you’re at capacity now. We shouldn’t assume a sizable growth in that business in 2024. Is that what I’m hearing?

Again, if you look – on the call, when you look, Kris provided the statistics that the percent of growth that we’ve seen around the defense products and what our full run rate for 2024 is expected to be, the $60 million in additional revenue, will not occur until we get the investments made, the assets in place or upgraded assets to get the debottlenecking, which we are seeing would happen at the end of 2025 as those assets ramp up.

Perfect. And I guess one last question and I’ll get back into queue. Given the slow start that you expect for the year, what are your thoughts about hitting your targeted melt rate of 80% to 84%? Is that something that’s still achievable in 2024? Or has that been maybe pushed to the right given current conditions?

I think it’s achievable. Our assets are in really good shape. Our workforce has been well trained. It’s just that right now, commercially, the demand is not there for us. We could run at that rate right now, if the demand was there. Our utilization rate is really aligned to customer demand.

Okay, thanks. I’ll get back into queue.Thanks for taking the questions.

Thanks, John.

Your next question comes from the line of Phil Gibbs from KeyBanc Capital Markets. Please go ahead.

Hey, good morning.

Good morning, Phil.

Can you talk a little bit about the CapEx budget this year, the $60 million? I think you alluded to the safety expenditures perhaps being somewhat equivalent to the 2023 spend. But maybe break out what’s become core and then maybe some of the growth investments that you’re making in the business.

Sure. So our CapEx plan for this year around – safeties around is actually less than last year, because of the investment, the significant investment we made last year. So it’s about probably half of what we spent last year around focus on safety. There’s some modest sustainability investments that we’re making to achieve our ongoing sustainability targets. I think majority around 30 is about maintenance CapEx, and then the rest is really targeted to growth in regards to lowering manufacturing costs, improving yields, improving quality, improving productivity. That’s where the remainder of the balance of the CapEx is focused towards.

Thank you. And then I wanted to ask a question on the retroactive pricing adjustments. Pretty heavy in the fourth quarter, I think maybe even a little bit heavier than you experienced in the third quarter. Is the majority of that first question in the mobile business? And then secondly, what is the outlook for mobile in 2024? So firstly on the retroactive adjustments, and then secondly, just on the demand outlook.

Sure. Yes. I mean the retroactive pricing predominantly is over with there is – I think there’s one other customer out there that we’re still engaged, but it’s pretty small in nature. Then we do have the second quarter agreements that we’re in negotiation right now. But again, as we said in our outlook, we basically expect pricing to be flat year-over-year. We do – from an automotive perspective, it’s pretty steady. I would say that most of the impact in the fourth quarter was around the strike effect for the several weeks that they were out, but we see that pretty steady. You look at their forecasted build rates around 15.8 million units this year. The mix of that, we think is very positive because strong ice demand still is there. The EV programs are still launching, but at a slower rate. And then now there’s this big focus on hybrid, and we play in all three of those. So we think automotive is going to be good this year. I refrain from using the word great good because interest rates are high and what the customer demand seems to still be there, and we watch it closely.

Thank you.

Your next question comes from the line of Dave Storms from Stonegate Capital Markets. Please go ahead.

Good morning.

Good morning, Dave.

Just hoping we could start with some of the cost savings initiatives. I know you mentioned you’re about 75% of the way there. Should we think of the remainder of the cost savings initiatives on kind of a linear trajectory, or are there some plans there that would make this look a little lumpier?

Actually, I would say it’s fairly linear because I would say most of the majority of the remaining – to achieve the remaining target is tied to these CapEx investments that we’re making that will materialize by the end of this year. Now, we have other efforts around productivity and cost of quality reduction. That’s more – I guess that’s more hard work, not so much CapEx investment. So we’re working – that will continue to work throughout this year. I think majority of the remaining savings is coming out of these investments, these large CapEx investments for us.

Understood. Thank you. And then just you kind of just touched on it, but with the remainder of the order book, should we expect maybe hitting that 70% goal by next quarter? Is this kind of a waiting game for the overall inventory to decline? How should we be thinking about that?

Yes. So the way I kind of describe it, Dave is, there’s higher levels of inventory in the supply chain, specifically in the distribution channels. We’ve been here before over many decades of being in this industry. I’d say we’re approximately about a month over inventory in the months of supply. That will work off their short lead time so customers can get what they – distribution customers can get what they want, when they need it within a very short lead time. And they’ll work those inventories down. We already see that starting to happen. So as they work that down, they’ll go back to what I would say are their historical ordering patterns and demand requirements going forward.

That’s very helpful. Thank you for taking my questions.

Thank you, Dave.

[Operator Instructions] Your next question comes from the line of John Franzreb from Sidoti. Please go ahead.

Yes. Just a couple of quick follow-ups. I’m curious about the decision to take the targeted pre-negotiated pricing level from 70% down to 65%. What was behind that decision?

Again there was – in the fourth quarter, there was some price pressure out there for the spot market, which then was trying to be rolled into annual agreements, and we chose not to chase those declining prices. So we ended up with 65% under contract, and the remainder will be spot pricing through the rest of the year.

Okay. Got it. And but year – about a year ago today, there was discussion about being more active in the M&A market. I believe the original timeline was 12 months to 18 months. Can you give us maybe an update on that process? Should we expect something in the coming six months? Any kind of additional color be helpful.

Yes. Like I can – my crystal ball doesn’t forecast what’s going to happen in regards to M&A activity. What we did do is we have an individual that’s primarily focused on M&A. We’ve built the tools and the processes for the analytics required to assess M&A targets. We have – we’re involved in pipelines of getting the published opportunities of certain possibilities that are aligned with our strategic comparatives, which is really focused around expanding our aerospace and defense capability or products. I can’t give you a firm commitment of when it’s going to happen, but I will tell you that it will be strategic aligned with our strategic imperatives. It’ll be aligned with our footprint. It’ll be aligned with the end markets that we want to grow in with, particularly specialty metals, and it will not threaten our balance sheet in any way.

Okay. You took my follow-up to that. I was curious how willing you are to lever up to do an acquisition.

Well, John, you’ve been – you and I have been talking for about a year now. I think you got an idea of the type of conservative person I am because I constantly talk about protecting our strong balance sheet.

Okay. Fair enough. Thanks for taking the follow-ups.

Thanks, John.

We have no further questions in our queue at this time. I will now turn the call back over to Jennifer Beeman for closing remarks.

Thanks, everyone, for joining us today, and that concludes our call.

This concludes today’s conference call. Thank you for your participation. And you may now disconnect.