Good morning. My name is Audra and I will be your conference operator today. At this time, I would like to welcome everyone to the Metallus Inc. 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 speakers' remarks, there will be a question and answer session. Followed by the number one on your telephone keypad. At this time, I would like to turn the conference over to Jennifer Beeman. Please go ahead.

Good morning, and welcome to Metallus Inc.'s fourth quarter and full year 2024 Conference Call. I'm Jennifer Beeman, director of communications and investor relations for Metallus Inc. Joining me today is Mike Williams, president and chief executive officer, Kris Westbrooks, executive vice president and chief financial officer, and Kevin Brakatich, 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 Inc. 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.

Good morning, and thank you for joining us today. Well, 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 an increase in shipments. But first, let me reflect on safety. In 2024, we strengthened 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, tag out, try out 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…

Thanks, Mike. Morning, and thank you for joining our earnings call. During 2024, Metallus Inc. made significant strides in a variety of areas including advancing our safety management system, and workforce development programs, expanding our participation in high-growth aerospace and defense market, while continuing to support our automotive, industrial, and energy customers in a challenging demand environment, in investing in our manufacturing facilities and process to drive efficiency and future growth. These achievements were realized while continuing to return capital to shareholders and maintain a strong balance sheet. Now turning to the fourth quarter of 2024 financial results. From a top-line revenue perspective, fourth quarter net sales totaled $240.5 million, a sequential increase of $13.3 million or 6% primarily driven by a sequential increase in shipments of 10,300 tons. Mike previously covered the drivers of fourth quarter shipments by end market in his comments. The company reported a GAAP net loss of $21.4 million in the fourth quarter or a loss of $0.50 per diluted share inclusive of a $9.4 million loss on the repurchases of convertible notes and an $8.5 million non-cash mark to market pension remeasurement loss. On an adjusted basis, the company reported a net loss in the fourth quarter of $3.3 million or a loss of $0.08 per diluted share. Adjusted EBITDA was $8.3 million in the fourth quarter, a sequential increase of $2.2 million primarily driven by higher shipments and favorable product mix partially offset by higher manufacturing costs. The sequential increase in manufacturing costs of $10.3 million in the fourth quarter was a result of lower cost absorption, as well as the recognition of cost previously capitalized into inventory. Melt utilization declined to 56% in the fourth quarter from 60% in the third quarter as a result of planned annual shutdown maintenance, and additional…

Thank you. We will now begin the question and answer session. Keypad to raise your hand and join the queue. We'll take our first question from John Franzreb at Sidoti and Company.

Good morning, everybody, and thanks for taking the questions. I guess I'd like to start with the demand profile in the fourth quarter and coming into the first quarter. I'm curious how much you think of that is attributed to the, I don't know, the rebalancing of demand that you saw in the fourth quarter versus maybe the tariff impact that we may be seeing in the first quarter. Can you kind of walk us through what you're seeing there?

Sure, John. So, you know, I would very pleased to say that our order book is developing in a very healthy way. Situations that we haven't seen for two to three quarters, the development and the positive momentum in our order book is really being driven by a couple of factors. One is the I would call some recapture of automotive business. In that we've achieved in 2025. A much greater order increase coming from the industrial base kind of spread heavily orientated to aerospace and defense, but kind of spread across the heavy equipment, some rail, and other market segments within our industrial base. And then thirdly, what we're seeing is really a restocking coming out of distribution. Distribution really held off the second half of last year and I kind of a hand in mouth demand scenario, and inventory levels have gotten fairly low in a number of products. And what we're seeing is those customers come back in, and then I guess, the last item really is the trade environment where we're getting a significant number of inquiries from new customers. Old customers that we haven't serviced in a while, and new customers, and I believe that's pretty much attributed to the trade environment expectation going forward as these tariffs get implemented on March 12th.

So if I kinda wanna summarize what you just said, it sounds like it's a normal rebalance of demand is the first driver. And the anticipation of the trade environment, is this secondary driver. Is that the way to kinda look at it from your point of view?

Yeah. I would say the first part really is the recapture of market share, particularly in automotive. And then we have the distribution folks reloading. And then we're seeing much more activity coming out of the industrial base that was pretty weak second half of last year, where there's much more activity there.

Understood. It looks pretty funny. I mean, it just yeah. We're pretty pleased because we now have we have a pretty good order backlog. We have much longer visibility. Our lead times have almost doubled from where they were in the fourth quarter. So, you know, I think this is more of a normal environment that, you know, we haven't experienced in 2024. So right. You know, we're still somewhat in a wait and see how the demand evolves over the next two quarters.

Got it. And I might have missed this, but is there any expected downtime in the first quarter?

Actually, we've already experienced downtime. We had due to the rare the severe cold weather, in our region, we had power interruptions early on in January. However, we expect to fully run just with our normal every other week outage activity. Maintenance outage activity. But no expected or planned downtime.

Got it. And you mentioned some of this at I guess, Kris mentioned it in his closing remarks about that $80 million target. You know, I guess, I guess there's two things. Because the first, the way Kris phrased it, it sounded like all the upgrades were finished, and it's really just a matter of volume coming back. But then later on, he mentioned that there's some expected IT upgrades that are gonna incur in 2025. So I'm curious. Are those items independent of each other, or is all the necessary upgrades that you plan for the $80 million target been put in place already?

So, predominantly, the IT transformation upgrades are independent of the other investments. However, all the other investments particularly the new AGL line, some of the new inspection technology that we've installed that all require support from the IT discipline. So they are involved in those projects, but what Kris is referring to is really the IT transformation project, which is totally separate from those other investments.

One last question. I'll let somebody else ask some questions. I'm kind of curious about the share repurchase and the million-dollar lower share count because I guess, a point of clarification, is that from the average count of 2024 or is that from the fourth quarter number? Because I thought I heard 44 million shares is the number we should use for the full year. So just wanna make sure I got that right.

Yeah. It's John, this is Kris. It's down from the fourth quarter. That activity happened towards the end of the fourth quarter, so there's a little bit of impact in Q4. It's hard to see in the fourth quarter given that we were in a net loss position from a GAAP standpoint, but I think 44 on average on a weighted average basis is a good estimate for 2025.

Okay. Thank you. So I'll get back into queue. Thank you, Mike.

Thank you.

We'll move next to Dave Storms at Stonegate.

Morning. Morning, Dave.

Morning. Just hoping we could start with seasonality of 2025. Are you expecting anything unusual? Should we plan for maybe a bit of a Q1 bump as customers try to get ahead of some of these tariffs? Anything like that would be very helpful.

Well, I think the restocking is a little bit of a bubble. But then should level out. I still think that people were still waiting to see whether the tariffs get implemented as stated today. And how long they last, or will they last? So I somewhat expect that there's further demand development in a positive way potentially out there. As people look to consume their current inventories that are foreign imported and look to secure domestic demand going forward.

And, Dave, if I could add to that from a timing standpoint, aerospace and defense, we are expecting that to ramp throughout the year as our customers bring their capacity online or ramp up their production. So we're optimistic that we're gonna have a strong year in aerospace defense, but it's going to continue to grow throughout 2025 and into 2026.

Understood. So then with that expected increase in demand, you know, and lead times currently sitting around three months. Should we expect that to increase? And are you seeing any customers maybe ordering a little bit extra to get ahead of those lead times? Does that feel pretty normal for the industry?

Right now, it feels fairly normal. It's very hard for us to decipher whether people were over-ordering for security reasons and future demand. But, again, you know, I don't think we're back to the we're not totally back to the 2021, 2022, 2023 type demand from an order book and an order backlog standpoint. But we sure are on our way there. So you know, my crystal ball is not that clear beyond the order book that we have today. And the positive conversations that we're having with our customers and the hard work the sales team's putting forth as well as the business development team in securing additional new product applications in aerospace and defense. As well as, you know, we've gotten some gain recapture in energy as well. And, you know, that's all, you know, we're 60 days into the year. That's all at least, you know, send strong positive messages to us right now. But we're gonna have to wait and see how it evolves.

Understood. And if I could just ask one more around end markets. You mentioned in the prepared remarks that you're targeting 40% of shipments for auto. 2025, looks to be down a little bit year over year at holds up. Is that a product of a weaker expected OEM market? Or maybe a stronger than expected, you know, stronger than historical, aerospace and defense industry for industrial?

Yeah. I mean, it's I mean, you know, when you have weak markets, automotive is pretty steady. So they became a larger share of our total shipments in 2024. Going forward, we save 40% because of our view and our understanding of the industrial demand heavily driven by aerospace and defense, and then the activity that we're seeing in energy. Increasing modestly, you know, again, from a very low level, but increasing. And some of that's driven by we recaptured some market share there. But energy is heavily affected by imports. So as the import the consumption of our end customers working through the import inventories they have should drive higher demand from the domestic market.

And, Dave, to add a little bit there, our overall view of shipments in 2025 is stronger than 2024. So part of that is the denominator in that calculation. By far, driving the percentage lower, but our participation is still being strong.

That's all very helpful. Thank you for taking my questions, and good luck with the year.

Thanks, Dave.

Star one. We'll go next to Phil Gibbs at KeyBanc Capital Markets.

Hey. Good morning.

Hey, Phil.

Question is just on the bridge in Q1. You talked about unfavorable price mix. Is that an absolute impact or a per I guess, a per ton impact or both?

It's really in Kris can probably give you a little bit more clarity, but it's really driven by what we refer to as a mix within the mix. It's really we had more carbon SBQ sales than we did on the alloy products that we sell. So you tend to see, you know, your surcharges are gonna be lower, affecting your overall revenue. And then, you know, the base prices are lower on the what I would call the more commodity carbon versus the specialty alloys. We expect as in the industrial base continues to improve and the aerospace and defense demand continues to increase. That'll drive a richer mix for us on the alloy products versus the more the vanilla carbon products.

That makes sense. I'm thinking about the, you know, the standard bridge that you all provide in your release in this quarter, like, price mix was positive. I can't remember, but maybe $5 million or so. And then you have the manufacturing and you have all those components. Is that price mix expected when you make those comments? Is that piece of it expected to be down relative to Q4? You obviously volumes getting better, spread getting better on the raw material piece, but is that price mix should we expect that piece to be on an absolute basis down based on the comments?

Yeah.

Okay. That's helpful. And the pension contribution that you talked about, Kris, the $65 million, a lot of that weighted in Q1. Is there any does that include OPEB as well? I can't remember.

No. It does not. OPEB typically leverages the assets is how we pay most of those. So there's a withdraw and you pay the contribution. So it's truly the bargaining plan driving the majority of that contribution in 2025.

Is there anything that we should be modeling for OPEB cash contributions?

Just kind of a normal level of activity there.

And then on the newer products that you all talked about, on the Seamless side, did you say that that was seamless mechanical tubing or seamless OCTG?

No. It's mechanical tubing. It's basically the missile liner shells and then the specialized canisters that are for, you know, smoke artillery shells.

And then lastly, there was a kind of a certainly a soft patch in automotive in the back half. Some of the big three, one in particular, trying to take their inventory down. There's a couple right now that have that do have pretty elevated inventories and maybe some reduction plans in the first half. Are you thinking about the year just in general within automotive? It feels like we've been in general, as a steel industry, underserving that market the last couple quarters, but part of which is related to just inventory rebalancing and seems like to me that they're all else equal should be some sort of pick up all else equal in auto, maybe Q2, Q3. I don't know. But I guess help us think through kind of what you all see going on there. Thank you.

Yeah. So we kinda right now, our view is you look at the platforms that we're on and the applications within those platforms, we're well-positioned. We see modest increases in automotive demand in 2025. And I think it's really gonna be, you know, how interest rates evolve, how people their buying habits and patterns on new vehicles. But, you know, I just saw a report earlier this morning, I think, one of the other banks saying that they believe the SAR rate is gonna go up slightly. Maybe a couple hundred thousand units based on early assumptions of activity in February.

Thanks, everyone. Appreciate it.

Thanks, Phil. Thanks.

And that concludes our Q&A session. We'll now turn the conference back over to Jennifer Beeman for closing remarks.

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

And again, this does conclude today's call. Thank you for your participation. You may now disconnect.