Metallus Announces Second-Quarter 2024 Results

• Net sales of $294.7 million with net income of $4.6 million and adjusted EBITDA⁽¹⁾ of $19.9 million
• Operating cash flow of $8.3 million with ending cash and cash equivalents of $272.8 million
• Invested $14.1 million in capital expenditures and deployed $9.6 million to repurchase common shares
• Received initial payment from the U.S. government to fund additional capacity to support the Army's mission of ramping up munition production

CANTON, Ohio, Aug. 8, 2024 /PRNewswire/ -- Metallus (NYSE: MTUS), a leader in high-quality specialty metals, manufactured components and supply chain solutions, today reported second-quarter 2024 net sales of $294.7 million and net income of $4.6 million, or $0.10 per diluted share. On an adjusted basis⁽¹⁾, the second-quarter 2024 net income was $6.7 million, or $0.15 per diluted share, and adjusted EBITDA was $19.9 million.

This compares with the sequential first-quarter 2024 net sales of $321.6 million and net income of $24.0 million, or $0.52 per diluted share. On an adjusted basis⁽¹⁾, the first-quarter 2024 net income was $26.1 million, or $0.56 per diluted share, and adjusted EBITDA was $43.4 million.

In the same quarter last year, net sales were $356.6 million and net income was $28.9 million, or $0.62 per diluted share. On an adjusted basis⁽¹⁾, the second-quarter 2023 net income was $27.6 million, or $0.60 per diluted share, and adjusted EBITDA was $50.5 million.

"During the quarter, automotive shipments were steady, and the aerospace & defense end market remained strong. However, we continue to face softness in the industrial and energy end markets given global economic conditions and elevated imports, customer and supply chain inventory positions, and scrap price uncertainty. Nonetheless, we remain focused on what we can control by balancing production with demand, prudently managing our working capital and costs, and investing in our assets and employees for the future. When market dynamics shift, we are well-positioned to capitalize on the demand recovery and anticipate improved profitability," stated Mike Williams, president, and chief executive officer.

"We continue to make significant progress in our capital investments aimed at improving safety, quality, reliability, customer service, and cost structure. These include the installation of an automated grinding line, in-line saw, and new camera inspection technologies. Additionally, our previously announced government-funded investment in a bloom reheat furnace will support the U.S. Army's expanded munitions program. Our capital investment strategy not only enhances our capacity and efficiency, but reflects the confidence placed in us by the Department of Defense, establishing our role as a key materials supplier. We continue to generate positive operating cash flow, maintain an active share repurchase program, and uphold a strong balance sheet, all of which position us for success," stated Williams.

SECOND-QUARTER 2024 FINANCIAL SUMMARY

• Net sales of $294.7 million decreased 8 percent compared with $321.6 million in the first quarter 2024. The decrease in net sales was primarily driven by lower shipments, unfavorable price/mix and a market decline in average raw material surcharge revenue per ton as a result of lower scrap prices. Compared with the prior-year second quarter, net sales decreased by 17 percent on lower shipments and a reduction in raw material surcharge revenue per ton partially offset by favorable price/mix.
• Ship tons of 150,100 decreased 5,100 tons sequentially, or 3 percent, driven by lower shipments in the industrial and energy end markets, partially offset by higher automotive shipments. Compared with the prior-year second quarter, ship tons decreased 15 percent as a result of lower industrial, automotive, and energy shipments, partially offset by higher aerospace & defense shipments.
• Manufacturing costs increased by $13.1 million on a sequential basis and $19.3 million compared with the prior-year second quarter. The increases in manufacturing costs were primarily driven by lower fixed cost leverage on decreased production volume, as the company balanced production with demand during the second quarter. Melt utilization declined to 53 percent in the second quarter from 72 percent in the first quarter and 75 percent in the same quarter last year.

CASH, LIQUIDITY AND REPURCHASE ACTIVITY

As of June 30, 2024, the company's cash and cash equivalents balance was $272.8 million. In the second quarter, operating cash flow was $8.3 million, primarily driven by profitability and lower working capital, partially offset by required pension contributions. Total liquidity⁽²⁾ was $512.1 million as of June 30, 2024.

During the second quarter, the company received its first payment of $10.0 million from the U.S. Army as part of the previously announced funding agreement for up to $99 million to support the U.S. Army's mission of ramping up munitions production in the coming years for national security. The company expects the funding to be provided as mutually agreed upon milestones are achieved throughout the project.

Additionally, during the second quarter the company repurchased approximately 440,000 common shares in the open market at an aggregate cost of $9.6 million.

2024 OUTLOOK

Given the elements outlined in the outlook below, the company expects adjusted EBITDA to decline sequentially in the third quarter of 2024 on weaker market demand.

Commercial:

• Third-quarter shipments are expected to be lower than the second quarter.
• Lead times remain short with bar product lead times in early September and tube product lead times in early October.
• Third-quarter product mix is expected to be less favorable compared with the second quarter while base price per ton is anticipated to remain relatively steady.

Operations:

• The company expects the third-quarter average melt utilization rate to sequentially increase while the company continues to balance production with demand.
• Annual shutdown maintenance is planned for the second half of 2024 at a cost of approximately $13 million, split relatively evenly between the third and fourth quarters.

Other matters:

• Planned capital expenditures are approximately $55 million in 2024, a $5 million reduction from previous guidance. The capital expenditure guidance excludes government-funded investments to support munitions capacity expansion.
• Required pension contributions are approximately $3 million in the third quarter with an estimated additional $5 million of required pension contributions in the fourth quarter of 2024.
• An effective income tax rate of approximately 25 percent is expected for the full-year 2024.

METALLUS EARNINGS WEBCAST INFORMATION
Metallus will provide live Internet listening access to its conference call with the financial community scheduled for Friday, August 9, 2024 at 9:00 a.m. ET. The live conference call will be broadcast at investors.metallus.com. A replay of the conference call will also be available at investors.metallus.com.

ABOUT METALLUS INC.
Metallus (NYSE: MTUS) manufactures high-performance specialty metals from recycled scrap metal in Canton, OH, serving demanding applications in industrial, automotive, aerospace & defense and energy end-markets. The company is a premier U.S. producer of alloy steel bars (up to 16 inches in diameter), seamless mechanical tubing and manufactured components. In the business of making high-quality steel for more than 100 years, Metallus' proven expertise contributes to the performance of our customers' products. The company employs approximately 1,890 people and had sales of $1.4 billion in 2023. For more information, please visit us at www.metallus.com.

NON-GAAP FINANCIAL MEASURES
Metallus reports its financial results in accordance with accounting principles generally accepted in the United States ("GAAP") and corresponding metrics as non-GAAP financial measures. This earnings release includes references to the following non-GAAP financial measures: adjusted earnings (loss) per share, adjusted net income (loss), EBIT, adjusted EBIT, EBITDA, adjusted EBITDA, free cash flow, base sales, and other adjusted items. These are important financial measures used in the management of the business, including decisions concerning the allocation of resources and assessment of performance. Management believes that reporting these non-GAAP financial measures is useful to investors as these measures are representative of the company's performance and provide improved comparability of results. See the attached schedules for definitions of the non-GAAP financial measures referred to above and corresponding reconciliations of these non-GAAP financial measures to the most comparable GAAP financial measures. Non-GAAP financial measures should be viewed as additions to, and not as alternatives for, Metallus' results prepared in accordance with GAAP. In addition, the non-GAAP measures Metallus uses may differ from non-GAAP measures used by other companies, and other companies may not define the non-GAAP measures Metallus uses in the same way.

FORWARD-LOOKING STATEMENTS
This news release includes "forward-looking" statements within the meaning of the federal securities laws. You can generally identify the company's forward-looking statements by words such as "will," "anticipate," "aspire," "believe," "could," "estimate," "expect," "forecast," "outlook," "intend," "may," "plan," "possible," "potential," "predict," "project," "seek," "target," "should," "would," "strategy," or "strategic direction" or other similar words, phrases or expressions that convey the uncertainty of future events or outcomes. The company cautions readers that actual results may differ materially from those expressed or implied in forward-looking statements made by or on behalf of the company due to a variety of factors, such as: (1) the effects of fluctuations in customer demand on sales, product mix and prices in the industries in which the company operates, including the ability of the company to respond to rapid changes in customer demand including but not limited to changes in customer operating schedules due to supply chain constraints or unplanned work stoppages, the ability of customers to obtain financing to purchase the company's products or equipment that contains its products, the effects of customer bankruptcies or liquidations, the impact of changes in industrial business cycles, and whether conditions of fair trade exist in U.S. markets; (2) changes in operating costs, including the effect of changes in the company's manufacturing processes, changes in costs associated with varying levels of operations and manufacturing capacity, availability of raw materials and energy, the company's ability to mitigate the impact of fluctuations in raw materials and energy costs and the effectiveness of its surcharge mechanism, changes in the expected costs associated with product warranty claims, changes resulting from inventory management, cost reduction initiatives and different levels of customer demands, the effects of unplanned work stoppages, availability of skilled labor and changes in the cost of labor and benefits; (3) the success of the company's operating plans, announced programs, initiatives and capital investments, the consistency to meet demand levels following unplanned downtime, and the company's ability to maintain appropriate relations with the union that represents its associates in certain locations in order to avoid disruptions of business; (4) whether the company is able to successfully implement actions designed to improve profitability on anticipated terms and timetables and whether the company is able to fully realize the expected benefits of such actions; (5) the company's pension obligations and investment performance; (6) with respect to the company's ability to achieve its sustainability goals, including its 2030 environmental goals, the ability to meet such goals within the expected timeframe, changes in laws, regulations, prevailing standards or public policy, the alignment of the scientific community on measurement and reporting approaches, the complexity of commodity supply chains and the evolution of and adoption of new technology, including traceability practices, tools and processes; (7) availability of property insurance coverage at commercially reasonable rates or insufficient insurance coverage to cover claims or damages; (8) the availability of financing and interest rates, which affect the company's cost of funds and/or ability to raise capital; (9) the effects of the conditional conversion feature of the convertible notes due December 1, 2025, which, if triggered, entitles holders to convert the notes at any time during specified periods at their option and therefore could result in potential dilution if the holder elects to convert and the company elects to satisfy a portion or all of the conversion obligation by delivering common shares instead of cash; (10) the impacts from any repurchases of our common shares, including the timing and amount of any repurchases; (11) competitive factors, including changes in market penetration, increasing price competition by existing or new foreign and domestic competitors, the introduction of new products by existing and new competitors, and new technology that may impact the way the company's products are sold or distributed; (12) deterioration in global economic conditions, or in economic conditions in any of the geographic regions in which the company conducts business, including additional adverse effects from global economic slowdown, terrorism or hostilities, including political risks associated with the potential instability of governments and legal systems in countries in which the company or its customers conduct business, and changes in currency valuations; (13) the impact of global conflicts on the economy, sourcing of raw materials, and commodity prices; (14) climate-related risks, including environmental and severe weather caused by climate changes, and legislative and regulatory initiatives addressing global climate change or other environmental concerns; (15) unanticipated litigation, claims or assessments, including claims or problems related to intellectual property, product liability or warranty, employment matters, regulatory compliance and environmental issues and taxes, among other matters; (16) cyber-related risks, including information technology system failures, interruptions and security breaches; (17) the potential impact of pandemics, epidemics, widespread illness or other health issues; and (18) with respect to the equipment investments to support the U.S. Army's mission of ramping up munitions production in the coming years, whether the funding awarded to support this investment is received on the anticipated timetable, whether the company is able to successfully complete the installation and commissioning of the new assets on the targeted budget and timetable, and whether the anticipated increase in throughput is achieved. Further, this news release represents our current policy and intent and is not intended to create legal rights or obligations. Certain standards of measurement and performance contained in this news release are developing and based on assumptions, and no assurance can be given that any plan, objective, initiative, projection, goal, mission, commitment, expectation or prospect set forth in this news release can or will be achieved. Inclusion of information in this news release is not an indication that the subject or information is material to our business or operating results.

Additional risks relating to the company's business, the industries in which the company operates, or the company's common shares may be described from time to time in the company's filings with the SEC. All of these risk factors are difficult to predict, are subject to material uncertainties that may affect actual results and may be beyond the company's control. Readers are cautioned that it is not possible to predict or identify all of the risks, uncertainties and other factors that may affect future results and that the above list should not be considered to be a complete list. Except as required by the federal securities laws, the company undertakes no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.

Reconciliation of Free Cash Flow⁽¹⁾ to GAAP Net Cash Provided (Used) by Operating Activities:

This reconciliation is provided as additional relevant information about the company's financial position. Free cash flow is an important financial measure used in the management of the business. Management believes that free cash flow is useful to investors because it is a meaningful indicator of cash generated from operating activities available for the execution of its business strategy.

Reconciliation of adjusted net income (loss)⁽²⁾ to GAAP net income (loss) and adjusted diluted earnings (loss) per share⁽²⁾ to GAAP diluted earnings (loss) per share for the three months ended June 30, 2024, June 30, 2023, and March 31, 2024:

Adjusted net income (loss) and adjusted diluted earnings (loss) per share are financial measures not required by, or presented in accordance with GAAP. These Non-GAAP financial measures should be considered as a supplement to, and not as a substitute for, the financial measures prepared in accordance with GAAP, and a reconciliation of these financial measures to the most comparable GAAP financial measures is presented. Management believes this data provides investors with additional useful information on the underlying operations and trends of the business and enables period-to-period comparability of the company's financial performance.

Reconciliation of adjusted net income (loss)⁽²⁾ to GAAP net income (loss) and adjusted diluted earnings (loss) per share⁽²⁾ to GAAP diluted earnings (loss) per share for the six months ended June 30, 2024 and June 30, 2023:

Adjusted net income (loss) and adjusted diluted earnings (loss) per share are financial measures not required by, or presented in accordance with GAAP. These Non-GAAP financial measures should be considered as a supplement to, and not as a substitute for, the financial measures prepared in accordance with GAAP, and a reconciliation of these financial measures to the most comparable GAAP financial measures is presented. Management believes this data provides investors with additional useful information on the underlying operations and trends of the business and enables period-to-period comparability of the company's financial performance.

Reconciliation of Earnings (Loss) Before Interest and Taxes (EBIT)⁽²⁾, Adjusted EBIT⁽⁴⁾, Earnings (Loss) Before Interest, Taxes, Depreciation and Amortization (EBITDA)⁽³⁾ and Adjusted EBITDA⁽⁵⁾ to GAAP Net Income (Loss):

This reconciliation is provided as additional relevant information about the company's performance. EBIT, Adjusted EBIT, EBITDA and Adjusted EBITDA are important financial measures used in the management of the business, including decisions concerning the allocation of resources and assessment of performance. Management believes that reporting EBIT, Adjusted EBIT, EBITDA and Adjusted EBITDA is useful to investors as these measures are representative of the company's performance. Management also believes that it is appropriate to compare GAAP net income (loss) to EBIT, Adjusted EBIT, EBITDA and Adjusted EBITDA.

Reconciliation of Base Sales by end-market to GAAP Net Sales by end-market:

The tables below present net sales by end-market, adjusted to exclude surcharges, which represents a financial measure that has not been determined in accordance with GAAP. We believe presenting net sales by end-market, both on a gross basis and on a per ton basis, adjusted to exclude raw material and energy surcharges, provides additional insight into key drivers of net sales such as base price and product mix. Due to the fact that the surcharge mechanism can introduce volatility to our net sales, net sales adjusted to exclude surcharges provides management and investors clarity of our core pricing and results. Presenting net sales by end-market, adjusted to exclude surcharges including on a per ton basis, allows management and investors to better analyze key market indicators and trends and allows for enhanced comparison between our end-markets.

When surcharges are included in a customer agreement and are applicable (i.e., reach the threshold amount), based on the terms outlined in the respective agreement, surcharges are then included as separate line items on a customer's invoice. These additional surcharge line items adjust base prices to match cost fluctuations due to market conditions. Each month, the company will post on the surcharges page of its external website, as well as our customer portal, the scrap, alloy, and energy surcharges that will be applied (as a separate line item) to invoices dated in the following month (based upon shipment volumes in the following month). All surcharges invoiced are included in GAAP net sales.

Calculation of Total Liquidity⁽¹⁾:

This calculation is provided as additional relevant information about the company's financial position.