Thank you for standing by. My name is Tina, and I will be your conference operator today. At this time, I would like to welcome everyone to the Second Quarter 2025 Metallus Earnings Call. [Operator Instructions] It is now my pleasure to turn the call over to Jennifer Beeman. Jennifer, you may begin.

Good morning, and welcome to Metallus' Second Quarter 2025 Conference Call. I'm Jennifer Beeman, Director of Communications and Investor Relations for Metallus. Joining me today is Mike Williams, Chief Executive Officer; Kris Westbrooks, President and Chief Operating Officer; John Zaranec, 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 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 equivalents 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 we begin, I'd like to take a moment to welcome John Zaranec to the team. John is our new Executive Vice President and Chief Financial Officer and brings with him more than 20 years of financial leadership in the manufacturing and industrial sectors, along with a strong track record of engaging with the investment community. We're excited to have him on board, and I'm confident you'll enjoy working with him. Also, I'm excited that Kris recently assumed new responsibilities as President and Chief Operating Officer after serving as our CFO since 2018. Kris now has oversight of our safety, manufacturing operations and excellence and supply chain organizations. Now turning briefly to the trade environment. Section 232 steel tariffs remain firmly in place at 50% for most countries with little change resulting from the country-specific agreements currently under negotiation by the administration. A fair trade environment is very important for the long-term sustainability of the steel industry, an industry that is vital to our national defense and infrastructure. As a result of the recent trade actions, we anticipate growing demand for domestically produced steel. Before we dive into safety and the quarterly results, I want to take a moment to share how honored we were to recently host Vice President, J.D. Vance at our Faircrest plant in Canton, Ohio. He spoke to approximately 300 of our employees and local stakeholders, emphasizing the federal government's commitment to investing in American workers and businesses. He also acknowledged our role in supporting national defense, highlighting Metallus' investment in a new bloom reheat furnace and our support of the Army's increased artillery shell production. This visit left many of our employees energized and deeply proud of the vital role they play in strengthening our national's…

Thanks, Mike. Good morning, and thank you for joining our second quarter earnings call. During the quarter, our team delivered a sequential increase in shipments, net sales, melt utilization and profitability, consistent with our earnings guidance. We also continue to invest in the business to drive profitable growth while maintaining a strong balance sheet. From a top line revenue perspective, second quarter net sales totaled $304.6 million, a sequential increase of $24.1 million or 9%, primarily driven by higher shipments across all end markets. Net income was $3.7 million in the second quarter or $0.09 per diluted share. On an adjusted basis, net income was $8.4 million or $0.20 per diluted share in the quarter, more than double, first quarter levels. Adjusted EBITDA was $26.5 million in the second quarter, a sequential increase of 50%, primarily driven by higher shipments and continued improvement in melt utilization, driving better fixed cost leverage. During the second quarter, operating cash flow was $34.8 million, driven by profitability, lower inventory and the receipt of a $6.5 million federal income tax refund. At the end of the second quarter, the company's cash and cash equivalents balance was $190.8 million, inclusive of approximately $34 million of government-funded cash on hand for future investments. In the second quarter, capital expenditures totaled $17.8 million, including approximately $15 million of second quarter CapEx supported by previous government funding. Planned capital expenditures for the full year 2025 remain at approximately $125 million, consistent with previous guidance and inclusive of approximately $90 million of capital expenditures funded by the U.S. government. As it relates to government funding, during the second quarter, the company received $5.1 million of cash funding from the government as part of the previously announced nearly $100 million funding agreement in support of the U.S. Army's mission of…

Thanks, Kris. I'm excited to be part of the Metallus team, and I look forward to engaging more deeply with our shareholders and analysts in the near future. In terms of the near-term business outlook, commercially, third quarter shipments are expected to be similar to the second quarter, with lead times currently extending to October for both bar and tube products. Additionally, base price per ton is anticipated to remain relatively steady in the third quarter, dependent on our mix in the quarter. Effective November 1, we expect base price per ton to begin to benefit from the recently announced $100 per ton spot price increase on seamless mechanical tubing products. This price increase is reflective of the improving demand environment for domestically produced products. From an operational perspective, melt utilization is expected to increase sequentially in the third quarter on improved operational performance. Consistent with prior years, planned annual shutdown maintenance will be completed in the second half of the year at a total cost of approximately $15 million. From a timing perspective, about $5 million of the planned shutdown maintenance will occur in the third quarter for non-melt shop assets. The balance of approximately $10 million of planned shutdown maintenance will occur in the fourth quarter and include the melt shop. We are also expecting a full quarter of higher electricity costs starting in the third quarter as the previous long-term electricity contract expired midway through the second quarter. Additionally, as Mike mentioned, we're beginning negotiations with the United Steelworkers regarding the labor agreement, which is set to expire in late September. We anticipate incremental nonrecurring labor agreement negotiation costs of $3 million to $5 million in the second half of 2025, which we plan to report as an operational cost and not exclude from adjusted EBITDA, consistent with treatment in prior years. Given these elements, the company expects third quarter adjusted EBITDA to be modestly lower than the second quarter. To combat some of these cost pressures and in the spirit of continuous operational improvement, we have engaged external resources to accelerate process optimization efforts, which include improving manufacturing efficiency within targeted facilities. The engagement began in July and will progress until targeted operational efficiencies are realized. We expect to realize annual savings of approximately $10 million as a result of this initiative, with savings ramping up throughout the first half of 2026. To wrap up, thank you to all of our employees, customers and suppliers for their support in the first half of the year. I'm looking forward to partnering with all of you during this exciting time for Metallus, and I'm optimistic about the opportunities that lie ahead. We are well positioned as a high-quality U.S.-based specialty metals producer supporting critical markets. We remain committed to delivering value to our shareholders by driving profitable growth and executing our capital allocation strategy. As always, thank you for your interest in Metallus. We would now like to open the call for questions.

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

Congratulations, Kris, and welcome to the call, John. I'd like to start with maybe the new market share gains or new customers you're grabbing as a result of maybe the change in the tariff environment. Can you talk a little bit about the magnitude of the increased bidding for your products relative to what you maybe would have saw a year ago?

Sure, John. I would say that a majority of the increase in the share gain was gaining back some industrial and automotive business that we had lost in prior years, not necessarily to imports, but to domestic competitors. However, we do see a modest increase in new customer inquiries and orders tied to the tariff environment. But I have to qualify the fact that until the agreements are signed, there's a lot of people sitting on the sidelines waiting to see what is the final tariff and what is the impact to their supply chain. I will tell you they are inquiring to get domestic supply, but they haven't pulled the trigger yet until those agreements are really finalized with the signature on those agreements with both parties.

Okay. Okay. So this is probably, I don't know, maybe a fourth quarter event if it happens that you're thinking, right?

Well, I'm not going to try to speculate my expertise on forecasting the Trump administration. So as they are finalized, yes, we do expect to continue to see, as we said in our comments, increased demand. That's what's being signaled to us. And that's actually what we're expecting going forward.

And in A&D, can you talk a little bit about the supply chain issues? It's kind of been, I don't know, an overhang for a couple of quarters now. When do you expect that to be resolved?

Actually, we've been receiving good news recently that things are starting to potentially improve in demand, and we've actually seen some increased orders, just not at the rate we expected. These were investments being made by the supply chain to ramp up the munitions production. And they've had start-up and commissioning issues that have delayed that at least by sometimes 6 months to a year. So we have -- we are getting word that things -- we expect to see additional orders in the fourth quarter of this year.

Great. Great. That's good to see. And it's interesting, one of my prepared questions was about melt utilization. We had that north of 80% target. It sounds like now you're bringing somebody in to achieve that number. Can you talk a little bit about maybe what's held back -- how is you back from hitting that number and your confidence in hitting that $10 million -- was it $10 million in savings in 2026?

Efficiency savings, yes. So we had a couple of percents of melt utilization impacted in Q2 by electrical supply interruptions because of -- we have interruptible power supply. It's a benefit to us because it actually provides us with a lower electricity if the electrical company when the grid is under extreme demand that we can idle and allow them to provide the electricity into the residential community to provide. So they have air conditioning and they keep the lights on. So we had a couple of percent utilization there. We had a couple of percent utilization tied to some reliability on auxiliary equipment, primarily cranes is the one thing that we're focused on. We have engaged a third party to help us improve our crane reliability, but that's not the company we're referring to. We're referring to a company that is looking from how we schedule, how we plan and how we execute on the shop floor and really drive a higher performance of efficiency in our execution. And that will be anything from culture to what tools, data, et cetera, of what we should have. This is an industry-based expertise, and they bring a global best practice approach to shop floor, particularly for the steel industry execution.

Our next question comes from the line of Chris Olin with Northcoast Research.

You might have answered my question here a bit, but I was wondering on the SBQ bar side, are there any price increases on the books, on that side? And then I guess, if not, and to your thoughts on kind of this customer apprehension, how does that impact your contract discussions for 2026? Is that going to be complicate things?

Yes. I mean I don't want to really publicly talk about price. We haven't seen price increases since really earlier this year. It was a modest one. That's stuck. We really haven't seen that. Do I expect as demand continues to grow, typically, historically, price follows and increasing to support that higher demand. In regards to the traded situation and people are awaiting to see what the final tariff environment is going to be. I just think the small -- what I see is the smaller companies have already taken action to move. The larger companies are more -- the larger steel consuming companies are a little bit of more of a wait and see. They're inquiring to make sure that they have the ability to get supply when they decide to make that decision. And you also have to keep it in perspective, there was a fair amount of import inventory already in the United States prior to the tariffs going into play. And we're definitely aware that, that inventory still exists, but it is being consumed. So we expect that inventory to be somewhat exhausted by the end of this quarter, early fourth quarter. And that will also play into the increasing demand for the domestic supply. Did I answer your question, Chris?

Yes. I was just -- I guess the other question I would have is just in terms of the contracts, can you remind us like in terms of what would come up for renewal or...

Yes. So if you look at 2025, as we've said, 70% of our demand is under contract and about 30% is spot-based. The contract discussions haven't really begun yet. There's a couple that have inquired, but we're basically -- that will pick up in activity and discussion late September through October through November into early December. So probably the next time we have a call, we'll have a better look at how that's developing.

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

With the planned downtime coming up, are you going to be able to use this as a chance to implement more technology into your operations? Or is this going to be more of a maintenance update?

I would say the majority of it is maintenance, but there is some technology upgrades that we're planning to implement. But I would say the majority of it is really maintenance-related infrastructure, reliability-oriented investments in our shutdowns.

Perfect. And then I guess, double clicking on that. Could you maybe spend a little bit of time talking about any tech improvements you're planning on implementing your operations? Or will that maybe come after your previously stated operation efficiencies?

Yes. I think -- well, I think these are more focused on reliability. So we do expect to see melt shop utilization to improve on some of our key investments, our key maintenance investments. But really, I think from a go forward, it's really going to be this optimization and efficiency of shop floor execution that's really going to net at least $10 million in savings in our manufacturing costs. And then as we -- some of these big CapEx investments come on later this year, the reheat bloom furnace and then early next year, the roller furnace, there's significant cost efficiency and improvements that we're going to get out of these investments that really will materialize in 2026.

Understood. Very helpful. And then just switching gears a little bit here. With order books -- or excuse me, with lead times out to October, is there anything you can kind of tell us about the texture of the order book that you're seeing, maybe indications on the price to mix texture that you're seeing?

Sure. So our lead times are out to the second half of October. We have -- if you look at our order book, it's double the size it was a year ago at this time. So we have a much longer-term view, allows us to optimize our scheduling and increase some of our efficiencies in that regard. Defense is going to continue to be fairly stable. Automotive looks like it's going to continue to be very stable. And really, what's going to develop in that order book, we do see -- expect some price appreciate, modest price appreciation to continue to develop throughout the year as the prior announced price increases work into the shipments that we actually make from a timing standpoint. So things look a hell of a lot better than they did in the second half of last year, I could just tell you that. And then as this tariff environment becomes much more clear, then we expect demand to continue to grow.

[Operator Instructions] And with no further questions in queue, I will now hand the call back to Jennifer for closing remarks.

Thanks, everyone, for joining us this morning, and that concludes our call today. Thank you.

Thank you again for joining us today. This does conclude today's conference call. You may now disconnect.