Thank you for standing by. My name is Mark, and I will be your conference operator today. At this time, I would like to welcome everyone to Metallus Inc. First Quarter 2024 Earnings Call. [Operator Instructions] I would now like to turn the call over to Jennifer Beeman.

Good morning, and welcome to Metallus' first quarter 2024 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 described in greater detail in yesterday's release. Please refer to our SEC filings, including the 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. Before I cover our performance in the first quarter, I wanted to reflect on the progress we've made over the past several years. If you've been following us, you know that we have significantly transformed our business with a focus on through-cycle profitability and positive operating cash flow in all business cycles. We recognize the need to build a model capable of withstanding volatility, whether substantial or minor in any of our markets were the broader macroeconomic landscape. Our performance in the first quarter of 2024 is evidence that our efforts have proven effective given the sequential increase in profitability and continued solid cash generation despite the softer demand environment primarily from our industrial distribution and energy customers. Additionally, we continue to return capital to shareholders via our share repurchase program. In fact, our Board just authorized an additional $100 million share repurchase program, which reinforces our Board's confidence in our ability to generate through-cycle profitability and positive operating cash flow, while maintaining a strong balance sheet. Our efforts to further diversify our portfolio are also yielding results as we continue to identify new opportunities for growth in the aerospace and defense end market where we have also won significant programs and continue to build our portfolio of offerings. Turning to safety. Our mission remains firm to be recognized as having the safest specialty metals operation in the world. Our goal is for all employees to finish each and every day injury and incident free. In 2024, we anticipate investing approximately $7 million for continued safety training and equipment enhancements. In fact, our dedicated focus on preventing potential serious injuries has yielded positive results with our team completing corrective actions related to near miss incidents in a timely manner. This is…

Thanks, Mike. Good morning, and thank you all for joining Metallus' first quarter 2024 earnings call. I'm pleased that we started off the year with a sequential improvement in profitability and strong operating cash flow. We also continue to invest in the business, returning capital to shareholders through our share repurchase program, while maintaining a strong balance sheet. During the first quarter, net sales totaled $321.6 million and net income was $24 million or $0.52 per diluted share. Comparatively, sequential fourth quarter of 2023 net sales were $328.1 million with net income of $1.3 million or $0.03 per diluted share. Net sales in last year's first quarter were $323.5 million with net income of $14.4 million or $0.30 per diluted share. On an adjusted basis, the company reported net income in the first quarter of 2024 of $26.1 million or $0.56 per diluted share. Comparatively, fourth quarter adjusted net income was $16.5 million or $0.36 per diluted share. Adjusted income in the first quarter of last year was $20.8 million or $0.44 per diluted share. Adjusted EBITDA was $43.4 million in the first quarter, a $7.7 million sequential increase, resulting in a 13.5% adjusted EBITDA margin for the quarter. First quarter performance exceeded guidance driven by higher than planned shipments of aerospace and defense products with a strong price mix. Additionally, the first quarter benefited from sequentially higher melt utilization, lower shutdown maintenance costs and a market-driven increase in the raw material scrap surcharge environment. Partially offsetting these items were $11 million of full year 2023 retroactive price increases on automotive manufactured components recognized during the fourth quarter. Compared with adjusted EBITDA of $36 million in the first quarter of last year, adjusted EBITDA increased by $7.4 million in the quarter. Turning now to the details of the financial results…

[Operator Instructions] Your first question comes from the line of John Franzreb with Sidoti & Company.

I'd like to start with some of your end market expectations on a go-forward basis. 2 things I'm curious about. One, on the automotive side of the business. It seems like production rates are actually gradually improving, except for maybe one large OEM. I'm curious, if you're over-exposed to that one large OEM that may find itself excess inventory?

I don't believe we are, John. We are heavily focused on our working capital and we produce to the orders that we get. So if they're ordering it, we're going to make it and ship it. But we're not doing any hedging on putting inventory on the ground for any automotive customer.

Okay. Fair enough. And on the industrial side, you referenced that the distributors continue to dwindle down on inventory. Any sense when we're going to reach equilibrium and debt trend reverses?

Well, we just got the MSCI shipment numbers for the month of March and we've had them for a couple of weeks. And we see their shipments declining year-over-year. So hard to forecast. If you look at the bar products, it's about 3.5 months of inventory in the distribution supply chain. And on the tubular -- on the seamless mechanical tubing, that's about 8 months. So those are historically -- tubing is probably lower than its historical average, but the bar products are -- we like to see that around 2.8 months to 3. I believe it's going to take a quarter or 2 to work that off.

Okay. Makes sense. And on the quarter itself, SG&A was up 15% year-on-year. I recognize in part that's due to the rebranding. I wonder if you could maybe -- how much the rebranding -- what's that increase on a year-over-year basis? Maybe what we should be thinking about as an ongoing SG&A number on a go-forward basis?

I'll give you my two cents and then I'll turn it over to Kris. From the rebranding perspective, it's a modest increase in our SG&A. We have an implementation plan on rebranding from signs and et cetera, et cetera, et cetera. But I don't think that's the major driver of the increase. Kris, do you have any further insight?

There's really 2 components. It's annual merit increases, which generally hit and begin to be realized in beginning of the year. And then the other component is stock-based compensation. So there's a higher level of awards out there that are driving expense. And we do not eliminate that for our non-GAAP reporting, that's included. And to Mike's point, the rebranding, it's a modest cost and most of it is behind us at this point.

Okay. All right. And I guess, one last question and I'll get back into queue. You mentioned that you're about 75% done on your profit enhancement programs. I'm just curious about the remaining 25%, which still remains to be done? And what's the general thoughts on the timeline on that?

Yes. That remaining 25% is really going to be accomplished through the investments that we are making with the automatic grinding line, the in-line saw, other investments that we're making in the -- we announced that we're going to take some downtime for the EAF. So as those investments are constructed, commissioned, we expect that to happen throughout this year and probably the first half of next year before we'll see the full run rate realization of the remaining 25%. But it's all centered around manufacturing improvements.

And one additional piece we're working on is our IT transformation. So that's going to drive some efficiency as well. So we're about midway through that. We'll do more lives here later this year and next year. And once that's complete, we believe that that will drive some additional cost reduction from an efficiency of our historical legacy systems.

Your next question comes from the line of Philip Gibbs with KeyBanc Capital Markets. Kris, based on your commentary, are we to take away that there were no further retroactive pricing adjustments in the first quarter in automotive components, it was just a rich mix in the quarter?

I think that's pretty spot on, Phil. The retro pricing that hit in Q4 -- the average pricing negotiated will continue throughout 2024. And we had a richer mix coming out of higher manufactured component shipments to the automotive end market.

Okay. And then on the share repurchase, you gave a lot of numbers. What's the implied shares repurchased quarter-to-date? You gave it through May -- through early May number. So April and through early May, what's that number?

Yes. It's around 100,000 shares in that range. So the month of March, if you look at the key, we bought back about 3 million. April is a similar amount and a bit more in May. So we're -- 3.9 million I believe is what we purchased in dollar terms quarter-to-date in Q2.

So your current share count is -- diluted share count is somewhere around 45.5%. Is that correct?

Sorry, Q1 share count is, I'll pull that up real quick. I think you're close. Let me take a look at that, Phil. Similar to Q1, I would imagine the main adjustments is just ongoing share repurchases and then any equity comp adjustments that you would had from that. So Q1 was 46.8 million was the diluted share count.

Okay. So I might be a little high then on that. Okay. I don't think I took into account the stock compensation as an offset -- a partial offset. And then the net working capital outlook for the second quarter or just maybe the balance of the year. How are you thinking about net working capital?

We continue to manage that closely with discipline. The receivables and payables tend to offset with a lower level of production in Q2. We're going to be buying a bit less similar level of shipments in Q2, but a little bit lesser mix. Receivables could be down a little bit. And then from an inventory standpoint, you tend to see that trend down a little bit as you produce less as well. So some puts and takes there, but not a significant move one way or the other. So it's really profitability. The other things we have going on in Q2 is we do have tax payments that have gone out in April. We talked about that in the 10-Q, it's around $21 million and then about $6 million of pension contributions in the quarter as well.

So did you not have any tax payments in the first quarter then? Is that -- was that part of the timing there?

Very minimal payments in Q1.

Okay. And then lastly for me, just on the cost side. I know it's difficult for us to model it based on mix, different mix points that you have. Generally speaking, though, when you have less utilized mill as you're talking about in the second quarter, does that lead to some absorption issues relative to Q1 or is that not something we're going to see until Q3 because of inventory?

No, you're going to see it in Q2. And potentially, whatever is left in inventory or on the balance sheet, you may see a little bit of that in Q3. But yes, cost will go up because our utilization rate is aligned with the market demands from our customers.

Your next question comes from the line of Dave Storms with Stonegate Securities.

This is Justin sitting in for Dave. Just a couple. Just wanted to see what kind of melt utilization level should we expect for the rest of 2024? And then what's kind of the reliance on third-party melt utilization?

Very little reliance on melt utilization. Hard to predict the rest -- the remaining part of 2024 on a melt utilization standpoint. With lead times so short, our visibility is short. So we stay in alignment with our customers. We're doing the best to serve, provide them the best service and the best quality and we'll continue to do that. And if the market demands improve, so will our utilization rate.

And then I guess kind of order book, do you have any kind of visibility on your order book for the remainder of the year and/or kind of price mix?

From my perspective, I think our prices are going to remain steady. 65% of our order book is contractual. So those prices are set for the remainder of the year. The spot market has softened a little bit, but we're not seeing a lot of spot business right now.

[Operator Instructions] There are no questions at this time. I will now turn the conference back over to Jennifer Beeman for closing remarks.

Thank you all for joining today, and that concludes our call, and thank you again for your support of Metallus.

Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.