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. Please press the keypad to raise your hand and join the queue. 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 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. 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 remained 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, tagout, tryout 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 the prior year. Our corrective action completion rate related to potential serious injuries improved by 15% compared to 2023. Additionally, we improved our employee engagement in safety with a 36% increase in near-miss reporting and a 60% increase in proactive observations versus the prior year. These measures indicate that we're proactively and continuously addressing safety by maturing our safety management system, meaningfully engaging our employees, improving our hazard recognition skills, and enhancing our equipment. As you would imagine, we have been closely following the trade environment which substantially affects the industry's market behavior and global competitiveness. President Trump recently issued an executive order introducing a tariff of at least 25% on all steel long products, as well as certain derivative steel products while closing loopholes in existing steel tariffs. These changes are expected to take effect on March 12, 2025. We believe these actions will help level the playing field for the steel industry, reduce imports, and should boost domestic demand. In recent weeks, we've seen a meaningful increase in customer engagement from both new and existing customers as they proactively manage their supply chains to ensure a secure and stable supply of steel. We stand ready to serve our customers and believe this marks a significant shift in the landscape for the U.S. steel industry. These actions align with our long-standing advocacy for fair trade practices and correcting market distortions. We will continue to monitor developments in the trade environment closely. Turning to the results of the fourth quarter, net sales increased 6% sequentially, driven by higher shipments and strength in aerospace and defense product demand. Overall, aerospace and defense has been a bright spot for us in a year where we faced weaker demand in other end markets. Consolidated shipments increased 9% sequentially, again driven by higher aerospace and defense activity as well as energy and automotive shipments. Turning to our end markets, shipments to our industrial customers declined 6% sequentially, primarily driven by weakness in distribution and heavy equipment. On a positive note, we are seeing an increase in order activity across our distribution and broader industrial customer base in response to the trade environment. On a sequential basis, our shipments to energy customers increased 78%, albeit from a low base. However, we are encouraged by the coupling, stock, and drilling opportunities that we are seeing in the energy sector as customers look to reliable domestic supply to meet their drilling and production needs. I'd like to take a moment to talk about some newly launched programs for our energy customers. We have worked closely with offshore well design engineers to utilize our highly engineered material suitable for corrosive environments. Leveraging our advanced capabilities, later this year we plan to produce seamless mechanical tubing specifically for use in tieback casings and couplings for one of the highest producing natural gas wells in the world. As new wells are explored, this specialty product remains at the forefront of innovation. Secondly, we have deepened our relationship with major petrochemical companies and have committed to CapEx investments to expand our offerings. Our well-established supply chains and highly engineered and qualified steel support critical applications in this market, including high-pressure tubes for low-density polyethylene reactors. Metallus Inc. will soon be able to support 15-meter LDPE requirements as plants increase and upgrade their capacity. We've partnered with a highly regarded fabrication and operations partner to build a supply chain offering fully assembled LD reactors to the petrochemical industry. The high-pressure tubes that we provide are one of the very few globally qualified materials for this critical component. We are targeting $20 million in annual sales from these two important energy programs beginning in 2026. These programs demonstrate our commitment to staying connected with our customers in the spirit of collaborative innovation. Moving to automotive, shipments sequentially increased by 3%. Shipments in the back half of the year were negatively impacted by operational issues at our customers which have since been resolved. Overall, light vehicle sales remain relatively steady and we are targeting approximately 40% of our shipments to the automotive sector in 2025. On the topic of electric vehicles, it's widely known that many OEMs have backed off of their 2030 electric vehicle targets. However, we're encouraged to be continuously evolving alongside our customers as they refine their North American EV platforms. For one OEM in particular, we have two power transmission shafts on all nine of their EV models. As a reminder, given our established partnership with our automotive customers, we remain committed to supporting all platforms: internal combustion, hybrid, and electric vehicles. In aerospace and defense, fourth quarter shipments increased as expected to approximately 11,000 tons compared with approximately 3,000 tons in the third quarter. On a full-year basis, aerospace and defense sales increased by 17% to nearly $135 million in 2024. This significant sales increase resulted in aerospace and defense representing 12% of total sales in 2024 compared with 8% of the total in 2023. Related to specific projects within the defense sector, we continue to hit important milestones related to the installation of our Bloom reheat furnace. This asset is being designed to support the increase of capacity and finishing capability of high-quality bar-based products used in the production of artillery shells. In the meantime, we are actively developing partnerships in vital defense supply chains. As an example, we were recently awarded a $4 million purchase order for artillery shell canister tubing for the U.S. Army. Additionally, we are enthusiastic about expanding our participation in aerospace and defense and other sectors by leveraging vacuum arc remelt and vacuum induction melt steel combined with our unique downstream processing capability. With the support of trusted supply chain partners, we are targeting approximately $30 million of revenue in 2025 using outside bar and VIM products, combined with our rolling and piercing capabilities. Using this process path supports a large defense customer who supplies the U.S. military's missile programs. Given the high level of demand for specialty metals including bar and VIM products, Metallus Inc. is well-positioned to increase our participation in this area in the future. Through continued focus and prudent investments, we intend to capitalize on this sustained growth trend for higher value specialty metals used in demanding applications. As we stated last quarter, we expect to grow aerospace and defense sales to over $250 million by 2026. I'd like to provide a quick update on the status of our customer contracts. I am pleased that we've wrapped up our calendar year customer price agreement negotiations, which cover approximately 70% of our 2025 order book. Average base price per ton for customers covered by annual agreements is expected to decrease by low- to mid-single digits on a percentage basis in 2025, compared with average base price per ton for the full year 2024, mix dependent. For the remaining 30% of the order book with market spot pricing, we will continue to adjust pricing as demand evolves throughout the year. Our bar product lead times are currently at 10 to 12 weeks depending on size, and tube product lead times are at 10 weeks. Distribution inventory levels appear to be coming down and some restocking has begun. To wrap up, our focus will continue to be on safety, exceptional customer service, new product development, especially in aerospace and defense, and our CapEx investments, all of which continue to advance our strategic imperatives to drive sustainable profitability and cash flow in all market conditions. Now I'd like to turn the call over to Kris Westbrooks, who will provide more details on our financial performance and outlook.

Thanks, Mike. Good 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 the high-growth aerospace and defense market, while continuing to support our automotive, industrial, and energy customers in a challenging demand environment, and investing in our manufacturing facilities and processes 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 planned downtime to balance inventory with demand. The company's manufacturing assets and team are well-positioned to run at a higher rate of utilization beginning in the first quarter as demand begins to recover. Now switching gears to pensions. In the fourth quarter, the company made $5.3 million of required pension contributions, resulting in total required contributions of approximately $43 million in 2024. With the benefit of previous annuitization activities, the pension and retiree medical benefit liability has declined by approximately $150 million since the end of 2023 and declined by approximately $800 million since the end of 2021. As of December 31, 2024, the underfunded position of the company's pension and retiree medical plans totaled $171 million. As a result of the current underfunded position, funding rules and year-end actuarial assumptions, the estimate for required pension contributions in 2025 is approximately $65 million with a higher proportion of required contributions in the first quarter. Following this elevated level of required pension contributions in 2025, the company is estimating a significant reduction in required contributions in future years based on assumed investment performance. Moving to cash flow and liquidity. During the fourth quarter, operating cash flow was $13.9 million driven by lower levels of working capital. For the full year, the company generated operating cash flow of $40.3 million. Capital expenditures totaled $15.2 million in the fourth quarter and $64.3 million for the full year in line with previously stated guidance. Approximately $8 million of the company's capital expenditures in 2024 were supported by government funding. Other important CapEx spending included safety upgrades such as furnace leak detection and automated testing equipment. Additionally, automated grinding line construction and installation at the Harrison facility was a significant project in 2024. This $18 million investment, which is currently being commissioned, will significantly improve the efficiency of our finishing capabilities and is expected to generate over $3 million in savings per year. Additionally, new gauging at one of our seamless mechanical tube piercing mills was upgraded last year. Lastly, we continue to invest in maintenance CapEx across our manufacturing footprint including items such as rolling mill rolls, tooling, and electrical upgrades. These investments help ensure the reliability and integrity of the company's assets. As it relates to government funding, during the fourth quarter, the company received $8 million of cash funding from the government as part of the previously announced $99.75 million funding agreement in support of the U.S. Army's mission of increasing munitions production. In total, during 2024 the company received $53.5 million of the approximate $103 million of total committed funding. Receipt of the remaining $50 million of committed funding is expected throughout 2025 and into 2026 as mutually agreed-upon milestones are achieved. As a reminder, this funding will substantially pay for both the new Bloom reheat furnace at the company's Faircrest facility as well as the new roller furnace at the Gambrina facility. Once commissioned, these investments will support the company's targeted growth in aerospace and defense product sales as well as support all Metallus Inc. customers with more efficient and modern assets. From a total capital expenditure forecast perspective, we're targeting approximately $125 million this year, inclusive of approximately $90 million of CapEx funded by the U.S. government. We've included a slide in the latest investor presentation available on our website to show the timing of anticipated government funding in advance of related CapEx spending. In terms of base CapEx for 2025, our focus includes important safety and maintenance investments, completion of prior year automation projects, and growth CapEx to support anticipated energy product demands that Mike previously highlighted. Switching gears to shareholder return activities. Throughout 2024, the company continued to make progress on its share repurchase program. In total, the company repurchased 2 million shares of its common stock for $37.6 million last year, reducing outstanding shares by nearly 5%. At the end of 2024, the company had a balance of $102.8 million remaining under its current share repurchase authorization. As it relates to convertible notes, during the fourth quarter we repurchased $7.8 million of outstanding convertible notes for total cash of $17.2 million. The repurchase premium was driven by an increase in the company's stock price, which was significantly in excess of the instrument's conversion price. As a result of the fourth quarter convertible note repurchases, diluted shares outstanding will decrease by approximately 1 million shares in the first quarter of 2025. The outstanding principal balance of the remaining convertible notes is $5.5 million and the balance will be settled at or in advance of the December 2025 maturity date. Since the inception of common share repurchases in early 2022, combined with the convertible note repurchase activities, we've reduced diluted shares outstanding by a significant 22% compared to the fourth quarter of 2021. These actions reflect the strength of the company's balance sheet and confidence in through-cycle cash flow generation. Switching gears now in support of achieving our long-term through-cycle financial targets that were announced in early 2022. As you may recall, our previously communicated objective is to deliver sustainable profitability and cash flow in all business cycles. 2024 has proven out the business model in a challenging market environment. Over the last several years, the company has implemented the necessary manufacturing, commercial, and process improvement actions to realize its $80 million profitability improvement target. Although it's difficult to see the impact of these actions in a weak demand environment like 2024, these investments and process improvements position the company for profitability improvement in the future. Turning now to the outlook. We anticipate first quarter adjusted EBITDA to be higher than the fourth quarter. Commercially, first quarter shipments are expected to increase on a sequential basis as our order book continues to strengthen, particularly within the industrial end market. We also expect continued strength in aerospace and defense demand and steady shipments across the automotive and energy end markets in the first quarter. Additionally, raw material surcharge revenue per ton is expected to sequentially increase in the first quarter driven by a $50 per ton increase in the number one bushelan scrap index in February which will impact March surcharge revenue. Given the outcome of the annual customer price agreement negotiations Mike summarized earlier, combined with weakness in spot pricing carried over from last year, we expect sequentially unfavorable price mix in the first quarter. Operationally, melt utilization is expected to increase to approximately 70% in the first quarter resulting in improved fixed cost leverage and sequentially lower manufacturing costs. Contributing to the expected sequentially lower first quarter manufacturing costs is approximately $5 million of planned annual shutdown maintenance that occurred in the fourth quarter. In terms of additional assumptions for the full year 2025, depreciation and amortization expense is expected to be approximately $58 million in 2025; SG&A expense is anticipated to be approximately $85 to $90 million excluding IT transformation costs and amortization expense. Net interest income is expected to be lower than last year driven by an anticipated decline in the company's cash balance this year and lower market interest rates. From an income taxes perspective, the rate is expected to be approximately 25% this year. And in terms of the share count, we estimate diluted shares to be approximately 44 million in 2025, adjusted for any share repurchases and equity compensation activity. Regarding cash drivers, in addition to the approximately $65 million of estimated required pension contributions that were discussed earlier, which are more heavily weighted to the first quarter of the year, we expect working capital to be a use of cash in the first quarter driven by higher accounts receivable and inventory given the improving customer order book. As a result, we expect the first quarter of 2025 to be operating cash flow negative with an anticipated improvement in operating and free cash flow as the year continues. Additionally, the timing of approximately $125 million of CapEx is more heavily weighted to the second half of the year. Also, we expect to receive approximately $37 million of government funding this year to support our CapEx investments with the cash funding more heavily weighted to the first half of the year. As we progress through the first quarter of 2025, we're optimistic about the opportunities that lie ahead. We remain committed to delivering value to our shareholders by driving profitable growth and executing our capital allocation strategy. Thanks to all of our employees, customers, and suppliers for their continued support in achieving our shared objectives. To wrap up your interest in Metallus Inc., we would now like to open the call for questions.

Thank you. We will now begin the question-and-answer session. Please press the keypad to raise your hand and join the queue. We'll take our first question from John Franzreb of Sidoti & Company.

Good morning, everybody, and thanks for taking the questions. 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 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 walk us through what you're seeing there?

Sure, John. I am 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 a recapture of automotive business, where we've achieved in 2025 a much greater order increase coming from the industrial base, somewhat heavily oriented to aerospace and defense, but spread across heavy equipment, some rail, and other market segments within our industrial base. Secondly, we are seeing a restocking coming out of distribution. Distribution really held off in the second half of last year in a hand-to-mouth demand scenario, and inventory levels have gotten fairly low in a number of products. We are seeing those customers come back in. And then the last item is the trade environment where we're getting a significant number of inquiries from new customers and old customers that we haven't serviced in a while. 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 want to summarize what you just said, it sounds like a normal rebalance of demand is the first driver, and the anticipation of the trade environment is the secondary driver. Is that the way to 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. Then we have distribution reloading. And we're seeing much more activity coming out of the industrial base that was pretty weak in the second half of last year, where there's much more activity there.

Understood. It's encouraging. We now have a pretty good order backlog and much longer visibility. Our lead times have almost doubled from where they were in the fourth quarter. I think this is more of a normal environment that we haven't experienced in 2024. We're still somewhat in a wait-and-see mode 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. Due to severe cold weather in our region, we had power interruptions early in January. However, we expect to fully run with our normal every-other-week outage maintenance activity. No additional planned downtime is expected.

Got it. You mentioned some of this and Kris mentioned it in his remarks about that $80 million target. There are two things. The way Kris phrased it sounded like all the upgrades were finished and it's really just a matter of volume coming back. But later he mentioned some expected IT upgrades in 2025. Are those items independent of each other, or are all the necessary upgrades for the $80 million target already in place?

Predominantly, the IT transformation upgrades are independent of the other investments. However, the other investments—particularly the new automated grinding line and some of the new inspection technology—do require support from the IT discipline. So IT is involved in those projects, but the IT transformation project Mike and Kris referenced is separate from the other capital investments.

One last question and I'll let others ask questions. I'm curious about the share repurchase and the one million share decrease. Is that from the average count of 2024 or is that from the fourth quarter number? I thought I heard 44 million shares is the number we should use for the full year. Just want to make sure I got that right.

Yeah John, this is Kris. It's down from the fourth quarter. That activity happened toward the end of the fourth quarter, so there's a little bit of impact in Q4. On a weighted-average basis, 44 million shares is a good estimate for 2025.

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

Thank you.

We'll move next to Dave Storms at Stonegate.

Morning. Hoping we could start with seasonality for 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 helpful.

I think the restocking is a bit of a bubble and then should level out. People are still waiting to see whether the tariffs get implemented as stated today and how long they will last. I somewhat expect there could be further demand development in a positive way as customers look to consume their current imported inventories and secure domestic supply going forward.

From a timing standpoint, aerospace and defense we expect to ramp throughout the year as our customers bring their capacity online or ramp up production. We're optimistic we'll have a strong year in aerospace and defense, but it will continue to grow throughout 2025 and into 2026.

Understood. With that expected increase in demand and lead times currently around three months, should we expect lead times to increase? Are you seeing customers ordering extra to get ahead of those lead times? Does that feel normal for the industry?

Right now, it feels fairly normal. It's hard to decipher whether customers are over-ordering for security reasons and future demand. We're not back to 2021–2023 type demand from an order backlog standpoint, but we are on our way. My crystal ball isn't clear beyond the order book we have today and the positive conversations we're having with customers. The sales and business development teams are securing new product applications in aerospace and defense, and we've captured some energy market share. We're 60 days into the year and the signals are positive, but we will have to see how demand evolves.

Understood. One more around end markets. You mentioned targeting 40% of shipments to auto in 2025, and 2025 looks to be down a little year-over-year. Is that due to a weaker expected OEM market or stronger than expected aerospace and defense or industrial activity?

When you have weak markets, automotive is relatively steady, so it became a larger share of total shipments in 2024. Going forward, we're at 40% because of our view of improving industrial demand driven heavily by aerospace and defense and modest increases in energy. Some of that energy increase is driven by recaptured market share, and energy is heavily affected by imports. As customers work through imported inventories, demand for domestic supply should increase.

To add a bit, our overall view of shipments in 2025 is stronger than 2024. The percentage change is partly driven by the denominator in that calculation. Our participation is still strong.

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

Thanks, Dave.

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

Hey, good morning.

Hey, Phil.

Question on the first-quarter bridge. You talked about unfavorable price mix. Is that an absolute impact or a per-ton impact or both?

It's driven by mix within the mix. We had more carbon and standard-grade sales than we did on the alloy products we sell. Surcharges will be lower and base prices are lower on the more commodity carbon products versus specialty alloys. As the industrial base improves and aerospace and defense demand increases, that will drive a richer mix toward alloys versus commodity carbon products.

That makes sense. In the standard bridge provided in your release, price mix was positive last quarter. Should we expect the price-mix component to be down relative to Q4? Volumes are getting better and raw-material surcharge dynamics are improving, but should that piece be down on an absolute basis based on your comments?

Yes.

The pension contribution you discussed, the $65 million estimate—does that include OPEB as well?

No, it does not include OPEB. OPEB typically leverages plan assets for payments, so the required pension contribution is truly driven by the bargaining plan in 2025.

Is there anything we should model for OPEB cash contributions?

Just model a normal level of activity there.

On the newer seamless products you talked about, did you say seamless mechanical tubing or seamless OCTG?

Mechanical tubing. It's for missile liner shells and specialized canisters used for smoke artillery shells.

Lastly, there was a soft patch in automotive in the back half, and some OEMs were taking inventory down. A couple of them have elevated inventories and may have reduction plans in the first half. Are you thinking about auto for the year generally? It feels like the steel industry has been underserving that market the last couple of quarters partly due to inventory rebalancing. Should we expect some pickup in auto in Q2 or Q3 if conditions are stable?

We look at the platforms we're on and the applications within those platforms. We're well-positioned and see modest increases in automotive demand in 2025. Ultimately it's influenced by interest rates and consumer vehicle buying habits. I saw a report earlier this morning suggesting vehicle sales could be up slightly based on early activity in February, which aligns with our modestly positive view.

Thanks, everyone. Appreciate it.

Thanks, Phil. Thanks.

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.

This concludes today's call. Thank you for your participation. You may now disconnect.