Metallus Announces Fourth-Quarter and Full-Year 2023 Results

• Net sales of $328.1 million in the fourth quarter and $1.4 billion for the full year
• Fourth-quarter net income of $1.3 million and full-year net income of $69.4 million with adjusted EBITDA⁽¹⁾ of $35.7 million in the fourth quarter and $169.0 million for the full year
• Operating cash flow of $74.1 million in the fourth quarter with $125.3 million for the full year
• For the full year, the company deployed $51.6 million of cash for capital investments and $32.6 million to repurchase common shares
• Cash and cash equivalents totaled $280.6 million with total liquidity⁽²⁾ of $539.4 million at the end of 2023

CANTON, Ohio, Feb. 27, 2024 /PRNewswire/ -- Metallus (NYSE: MTUS), a leader in high-quality specialty metals, manufactured components and supply chain solutions, today reported fourth-quarter 2023 net sales of $328.1 million and net income of $1.3 million, or $0.03 per diluted share. On an adjusted basis⁽¹⁾, the fourth-quarter 2023 net income was $16.5 million, or $0.36 per diluted share, and adjusted EBITDA was $35.7 million.

This compares with the company's sequential third-quarter 2023 net sales of $354.2 million and net income of $24.8 million, or $0.51 per diluted share. On an adjusted basis⁽¹⁾, the third-quarter 2023 net income was $24.9 million, or $0.52 per diluted share, and adjusted EBITDA was $46.8 million.

Fourth-quarter 2022 net sales were $245.4 million with net loss of $33.2 million, or a loss of $0.75 per diluted share. On an adjusted basis⁽¹⁾, the fourth-quarter 2022 net loss was $4.6 million, or a loss of $0.10 per diluted share, and adjusted EBITDA was $11.9 million.

"Throughout the year, our teams actively pursued our strategic imperatives with a focus on targeted growth markets, specifically aerospace and defense. Our continued profitability was driven by strong aerospace and defense demand coupled with increased base pricing. We remain committed to delivering value to our shareholders, as demonstrated by progress in our capital allocation strategy which includes strategic reinvestment in our business and our ongoing share repurchase program," stated Mike Williams, president and chief executive officer.

"As announced in early January, we're excited to introduce our new name, Metallus. This change reflects our expertise in high-performance metals and distinguishes us in the marketplace. It positions us for growth beyond carbon steel and comes at the right time, following a decade of being a standalone company. While we eagerly are looking ahead to our future, our core values and commitment to safety, quality, collaboration, and employee well-being remain unchanged," said Williams.

FOURTH-QUARTER 2023 FINANCIAL SUMMARY

• Net sales of $328.1 million decreased 7 percent compared with $354.2 million in the third quarter 2023. The decrease in net sales was primarily driven by lower shipments and a market decline in average raw material surcharge revenue per ton as a result of lower scrap and alloy prices. Partially offsetting these items were higher base sales⁽¹⁾ prices attributable to incremental retroactive pricing and favorable aerospace & defense product mix. Compared with the fourth quarter of 2022, net sales increased by 34 percent on higher shipments and base sales⁽¹⁾ prices.
• Ship tons of 157,600 decreased 18,200 tons sequentially, or 10 percent, driven by seasonally lower automotive and industrial shipments and the impact of automotive work stoppages. Compared with the fourth quarter of 2022, ship tons increased 23 percent as a result of higher industrial and aerospace & defense shipments. Fourth-quarter 2022 shipments were negatively impacted by the availability of inventory for shipment following unplanned downtime in mid-2022.
• Manufacturing costs increased by $9.9 million on a sequential basis as a result of lower cost absorption combined with higher annual shutdown maintenance expense in the fourth quarter. Melt utilization declined to 58 percent in the fourth quarter from 76 percent in the third quarter. Fourth-quarter melt utilization was impacted by the planned annual shutdown maintenance as well as additional planned downtime to balance inventory with demand. Compared with the prior-year fourth quarter, manufacturing costs decreased by $4.2 million. The decrease was primarily driven by better cost absorption given the 58 percent melt utilization rate compared with 47 percent in the same quarter last year.
• Other income included an insurance recovery of $20.0 million in the fourth quarter of 2023 related to costs associated with 2022 unplanned downtime. Given that the insurance recovery related to 2022 operations, the recovery was excluded from fourth-quarter of 2023 adjusted EBITDA. In the first quarter of 2024, the company collected the $20.0 million and the 2022 insurance claims were closed.

FULL-YEAR FINANCIAL SUMMARY

Net income for the full-year 2023 was $69.4 million, or $1.47 per diluted share, compared with net income of $65.1 million, or $1.30 per diluted share, for the full-year 2022. On an adjusted basis⁽¹⁾, full-year 2023 net income was $89.8 million, or $1.91 per diluted share, and adjusted EBITDA was $169.0 million. In comparison, full-year 2022 net income on an adjusted basis⁽¹⁾ was $94.2 million, or $1.87 per diluted share, and adjusted EBITDA⁽¹⁾ was $172.2 million.

• Net sales of $1,362.4 million increased 2 percent compared with the full-year 2022, driven largely by an increase in base sales⁽¹⁾ prices, partially offset by lower average raw material surcharge revenue per ton and shipments. Within the aerospace & defense end-market, net sales increased by 44 percent to $115.0 million compared with the full-year 2022 and represented 8 percent of consolidated net sales in 2023.
• Ship tons were 683,800, a decrease of 1 percent from 2022 on relatively steady customer demand. Strong demand resulted in a 71 percent increase in aerospace & defense shipments in 2023.
• Manufacturing costs increased by $21.2 million compared with 2022 primarily driven by cost inflation and higher maintenance expenses, partially offset by improved cost absorption. Melt utilization improved to 70 percent in 2023 compared with 63 percent in 2022.
• Other income included insurance recoveries of $31.3 million in 2023 related to costs associated with 2022 unplanned downtime. Given that the insurance recoveries related to 2022 operations, the recoveries were excluded from 2023 adjusted EBITDA.

CASH, LIQUIDITY AND REPURCHASE ACTIVITY

As of December 31, 2023, the company's cash and cash equivalents balance was $280.6 million. In the fourth quarter, operating cash flow was $74.1 million, primarily driven by profitability and lower working capital. For the full-year 2023, the company generated operating cash flow of $125.3 million driven by profitability, partially offset by higher working capital. Capital expenditures totaled $51.6 million in 2023. Total liquidity⁽²⁾ was $539.4 million as of December 31, 2023.

In the fourth quarter, the company repurchased 0.2 million common shares in the open market at an aggregate cost of $4.1 million. In total during 2023, the company repurchased 1.7 million common shares at an aggregate cost of $32.6 million. As of December 31, 2023, the company had $40.4 million remaining on its existing share repurchase program.

OUTLOOK
Given the elements outlined in the outlook below, the company expects first-quarter of 2024 adjusted EBITDA to be slightly lower than the fourth quarter of 2023.

Commercial:

• First-quarter shipments are expected to be slightly lower than the fourth quarter of 2023 with continued strength in aerospace & defense demand.
• Lead times for bar products currently extend to April and tube product lead times extend to May.
• Annual price agreement negotiations covering approximately 65 percent of the order book are complete with 2024 average base price per ton for customers covered by annual agreements expected to be similar to average base price per ton for the full-year 2023, mix dependent.
• Price/mix is expected to be unfavorable on a sequential basis in the first quarter given that the fourth quarter of 2023 included approximately $11 million of full-year retroactive price increases.
• Surcharge revenue per ton is expected to be sequentially higher in the first quarter.

Operations:

• The company expects the average melt utilization rate to be approximately 70 percent in the first quarter.
• Manufacturing costs are expected to sequentially decline in the first quarter given the completion of approximately $10 million of annual melt shop shutdown maintenance in the fourth quarter of 2023.

Other matters:

• Planned capital expenditures are approximately $60 million in 2024.
• An effective income tax rate of approximately 25 to 28 percent is expected in 2024.
• Pension expense in 2024 is anticipated to be similar to 2023, excluding the impact of remeasurements. Required cash pension contributions are approximately $40 million in 2024, with approximately $25 million of contributions required in the first quarter.
• As previously mentioned, insurance recoveries of $20.0 million were collected in the first quarter of 2024 (recognized as income in the fourth quarter of 2023), closing out the 2022 insurance claims.

METALLUS EARNINGS WEBCAST INFORMATION
Metallus will provide live Internet listening access to its conference call with the financial community scheduled for Wednesday, February 28, 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 1,840 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; and (17) the potential impact of pandemics, epidemics, widespread illness or other health issues. 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 December 31, 2023, December 31, 2022, and September 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 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 year ended December 31, 2023 and December 31, 2022:

Adjusted net income (loss), adjusted diluted earnings (loss) per share and other adjusted items referred to below 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 natural gas 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 natural gas 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.

In the fourth quarter of 2023, the company split the aerospace & defense end-market out from the industrial end-market for greater visibility into a targeted area of growth for the company. These changes have been retrospectively applied and prior periods have been included for comparability in the following tables.

Calculation of Total Liquidity⁽¹⁾:

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

SOURCE Metallus Inc.