NYSE:MTUS Metallus Q2 2023 Earnings Report $12.89 -0.13 (-0.98%) Closing price 05/7/2025 03:59 PM EasternExtended Trading$14.95 +2.06 (+15.96%) As of 04:44 AM Eastern Extended trading is trading that happens on electronic markets outside of regular trading hours. This is a fair market value extended hours price provided by Polygon.io. Learn more. Earnings History Metallus EPS ResultsActual EPS$0.60Consensus EPS $0.57Beat/MissBeat by +$0.03One Year Ago EPSN/AMetallus Revenue ResultsActual Revenue$356.60 millionExpected Revenue$357.50 millionBeat/MissMissed by -$900.00 thousandYoY Revenue GrowthN/AMetallus Announcement DetailsQuarterQ2 2023Date8/3/2023TimeN/AConference Call DateFriday, August 4, 2023Conference Call Time9:00AM ETUpcoming EarningsMetallus' Q1 2025 earnings is scheduled for Thursday, May 8, 2025, with a conference call scheduled on Friday, May 9, 2025 at 9:00 AM ET. Check back for transcripts, audio, and key financial metrics as they become available.Conference Call ResourcesConference Call AudioConference Call TranscriptSlide DeckPress Release (8-K)Quarterly Report (10-Q)Earnings HistoryCompany ProfileSlide DeckFull Screen Slide DeckPowered by Metallus Q2 2023 Earnings Call TranscriptProvided by QuartrAugust 4, 2023 ShareLink copied to clipboard.There are 6 speakers on the call. Operator00:00:00Good morning. My name is Chris, and I'll be your conference operator today. At this time, I'd like to welcome everyone to the TimkenSteel Corporation Q2 2023 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. Operator00:00:27Thank you. Jennifer Beaman, Director of Communications and Investor Relations, you may begin. Speaker 100:00:34Good morning, and welcome to TimkenSteel's Q2 2023 conference call. I'm Jennifer Beaman, Director of Communications and Investor Relations for Timken Joining me today is Mike Williams, President and Chief Executive Officer Chris Westbrooks, Executive Vice President and Chief Financial Officer and Kevin Rakitic, 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. Speaker 100:01:20Please refer to our SEC filings, including our most recent Form 10 ks and Form 10 Q and the list of factors included in our earnings release, all of which are available on the TimkenSteel website. Where non GAAP financial information is referenced, Additional details and reconciliation to its GAAP equivalent are also included in the earnings release. With that, I'd like to turn the call over to Mike. Mike? Speaker 200:01:47Good morning, everyone, and thank you for joining us today. First, I'd like to thank our employees for their hard work and unwavering dedication to TimkenSteel. Because of their ongoing focus on safety and enhancing productivity, The company generated continued positive momentum during the Q2. Thanks to these efforts, We realized sequential improvement in shipments and profitability. It's worth noting that our consistent positive operating cash flow trend remains strong, allowing us to strategically invest in the growth of our business and deploy our capital allocation strategy while maintaining a healthy balance sheet. Speaker 200:02:33As we progress on our journey to foster a culture deeply rooted in safety, We remain focused on bolstering machine guarding, fencing and our lockout tagout programs. Alongside an array of comprehensive training initiatives throughout the organization. When it comes to the safety of our employees, We believe we can never over communicate or over train anyone. One notable endeavor has been enhancing our job safety analysis training. Through this industry proven process, we map each job or task into individual steps, while identifying potential hazards and strategizing effective measures to mitigate these risks. Speaker 200:03:21This proactive approach empowers our team to carry out their responsibilities with a heightened sense of confidence, Awareness and readiness, ultimately reducing the likelihood of accidents or injuries. To underscore our commitment to safety, we have invested approximately $4,000,000 and various safety training and other investments through the first half of twenty twenty three. This allocation is part of our larger commitment as we have allocated approximately $7,000,000 for safety programs in 2023. Turning to our Q2 performance, we achieved sequential growth in net sales of 10%, driven by solid customer demand and base pricing. As anticipated, these results translated into improved profitability. Speaker 200:04:20We remain dedicated to sustaining this momentum and look forward to delivering on our commitments in the upcoming quarters. As anticipated, our melt utilization for the 2nd quarter was approximately 75%. This rate included the impact of a few days of planned downtime to proactively complete maintenance on the furnace transformer. We are encouraged by the ongoing positive macroeconomic trends that bode well for our company's growth in our targeted areas. Particularly promising is the continued upswing in electric and hybrid vehicle production, which represents a significant opportunity for us. Speaker 200:05:08Notably, our base sales and EV related products grew by 77% year over year. We have been awarded approximately 20 essential component parts for EVs from various customers, indicating our strong market presence. We anticipate that this momentum will persist and even strengthen as we continue to foster valuable partnerships with our customers. Given the market trend, we recently approved a $5,000,000 investment for 2 additional manufactured component machining lines to be installed at our facility in Southwest Ohio in late 2024. This investment will broaden our EV components to customers and allow us to keep pace with the projected growth. Speaker 200:06:00Currently, approximately 6% Of our mobile manufactured components portfolio is attributed to electric vehicle components versus internal combustion parts. And we anticipate that the EV mix will continue to grow in the future. In general, we experienced steady mobile shipments in the 2nd quarter As the industry continued to see an easing of supply chain issues, however, we are staying close to our customers and suppliers who continue to work through raw material shortages and labor issues. Moving to our industrial products, We are benefiting from the expansion of the U. S. Speaker 200:06:40Industrial supply base, particularly in support of major Department of Defense programs. In the Q2, our industrial shipments increased by 9% compared with the prior quarter, reflecting strength in defense and mining sectors. Our energy shipments in the 2nd quarter were relatively flat on a sequential basis. Concerns for weakening demand have slowed drilling activity. However, inventories remain relatively low for current and forecasted demand. Speaker 200:07:12We remain committed to our profitability improvement initiatives and work continues company wide to achieve our target of $80,000,000 by 2026. Again, our actions focus on commercial excellence, Manufacturing and reliability excellence and administrative process simplification with a strong balance sheet as our foundation. I look forward to continuing our positive momentum into the second half of twenty twenty three with an ongoing focus on safety, Manufacturing excellence, customer service and advancing our strategic imperatives to drive sustainable through cycle profitability and cash flows. I thank our customers for their trust, our suppliers for their partnership and our shareholders for their continued support. Now I'd like to turn the call over to Chris. Speaker 300:08:09Thanks, Mike. Good morning, everyone, and thanks for joining the call today. As expected, TimkenSteel's financial results in the 2nd quarter included sequential increases in melt utilization, shipments and profitability combined with positive operating cash flow. We're encouraged by this performance and the company's outlook. Turning to the Q2 financial results. Speaker 300:08:31Net sales totaled $356,600,000 with net income of $28,900,000 or $0.62 per diluted share. Comparatively, sequential Q1 of 2023 net sales were $323,500,000 with net income of $14,400,000 or $0.30 per diluted share. Net sales in last year's 2nd quarter were $415,700,000 with net income of $74,500,000 or $1.42 per diluted share. On an adjusted basis, the company reported net income in the Q2 of $27,600,000 or $0.60 per diluted share. Comparatively, the Q1 adjusted net income was $20,800,000 or $0.44 per diluted share. Speaker 300:09:16Adjusted net income in the Q2 last year was $67,400,000 or $1.29 per diluted share. Adjusted EBITDA was $50,500,000 in the 2nd quarter, a 40% increase from the 1st quarter. This $14,500,000 sequential improvement in adjusted EBITDA was driven by higher base sales prices on increased shipments combined with an increase in the raw material surcharge environment. Compared with record adjusted EBITDA of $84,200,000 in the 2nd quarter last year, Adjusted EBITDA decreased by $33,700,000 in the quarter. This year over year decrease was reflective of lower shipments given our finished goods inventory position as well as a market decline in the raw material surcharge environment, which was at peak levels during the Q2 of last year. Speaker 300:10:06Higher manufacturing and pension costs also contributed to the decline in adjusted EBITDA from the record Q2 of 2022. During the 1st and second quarters of 2023, the company had insurance recoveries of $9,800,000 $1,500,000 respectively. These recoveries related to the unplanned downtime in the second half of last year and have been excluded from 2023 adjusted EBITDA. Turning now to the details of the financial results in the Q2. Shipments were 177,500 tonnes in the quarter, an increase of 4,600 tons or 3% compared to the Q1 of 2023. Speaker 300:10:45In the industrial end market, Shipments totaled 78,400 tonnes in the 2nd quarter, a sequential increase of 6,200 tonnes or 9%. The sequential increase in industrial shipments was supported by an improving finished goods inventory position, driving the sequential increase in industrial shipments with steady demand across a wide range of sectors such as heavy equipment used in mining as well as strong demand for defense related products. Mobile customer shipments were 79,500 tonnes in the 2nd quarter, a slight sequential decrease of 900 tonnes or 1%. Shipments in the mobile end market represented 45% of the total portfolio in the 2nd quarter, a 2 percentage point reduction from the Q1 as planned. Mobile customers continue to pull hard to support demand and replenish inventories. Speaker 300:11:34Shipments to energy customers totaled 19,600 In the Q2, a sequential decrease of 700 tonnes or 3%. Of our total second quarter shipments, Approximately 24,000 shipped tons were sourced from 3rd party melt producers and then rolled finished and shipped by TimkenSteel. Given improvements in our melt productivity, we anticipate a sequential decrease in shipments of 3rd party melt in the 3rd quarter. Net sales of $356,600,000 in the 2nd quarter increased 10% sequentially. The sequential increase in net sales was driven by higher base sales prices and shipments. Speaker 300:12:13Additionally, contributing to the increase in net sales was a market driven 22% increase in average raw material surcharge per ton as a result of higher scrap and alloy prices. Base sales prices increased by approximately $100 per ton or 8% on average in the 2nd quarter across our end markets in comparison to the full year 2022 average. Turning to manufacturing, as anticipated, melt utilization was 75% in the 2nd quarter compared with 73% in the Q1. Manufacturing costs increased sequentially by $6,800,000 as a result of higher first quarter plant costs being recognized in the Q2 as inventory was sold. Additionally, we pulled forward $1,200,000 of planned annual shutdown work into the 2nd quarter from the second half of the year as the operating schedule permitted. Speaker 300:13:05Switching gears to income taxes. The company's effective tax rate was 27% in the 2nd quarter and 25% for the first half of the year. This higher than expected effective tax From a cash taxes perspective, we spent approximately $13,000,000 on income taxes in the 2nd quarter. Moving on to cash flow and liquidity. During the Q2, operating cash flow was $13,300,000 driven by quarterly net income and insurance recoveries, partially offset by use of cash to fund working capital requirements. Speaker 300:13:48This marks the company's 17th consecutive quarter generating positive operating cash flow. Capital expenditures totaled $8,100,000 in the 2nd quarter. The company now forecasts CapEx to be approximately $50,000,000 in 2023, an increase from the previous $45,000,000 guidance. The higher CapEx forecast includes down payments for 2 recently approved manufactured component machining as well as new automated grinding and finishing investments discussed last quarter. From a share repurchase perspective, The company repurchased 650,000 common shares during the 2nd quarter at a total cost of $11,400,000 As of June 30, the company had $52,200,000 remaining on its share repurchase program. Speaker 300:14:34Since the inception of the program early last year Through the end of June 2023, we've repurchased 4,200,000 shares at a total cost of $73,000,000 In total, these common share repurchases plus the 2022 And 15.5% reduction in diluted shares outstanding compared with the Q4 of 2021. The company's cash and cash equivalents totaled $221,900,000 and total liquidity was approximately $530,000,000 as of June 30, 2023. As we progress forward, we expect the strength of our balance sheet, consistent cash flow generation and positive business outlook provide us the opportunity to continue to execute on our capital allocation strategy. This includes investing in profitable growth, maintaining a strong balance sheet and returning capital to shareholders. Turning now to the outlook. Speaker 300:15:30From a commercial perspective, 3rd quarter shipments are expected to supported by steady demand across our end markets as evidenced by orders currently booking into the 4th quarter. Base sales price per ton is anticipated to remain strong for the remainder of the year with fluctuations driven by changes in product mix. Operationally, melt utilization is expected to sequentially increase in the 3rd quarter. Additionally, we're in the process of completing our annual shutdown maintenance for the second half of the year with an expected remaining cost of approximately $12,000,000 At this time, we're planning for 1 third of the spend in the 3rd quarter and the remaining 2 thirds of the spend in the 4th quarter with the Melchop shutdown maintenance planned early in the 4th quarter. Given these elements, the company expects adjusted EBITDA to remain strong and operating cash flow to be positive in the Q3 of 2023. Speaker 300:16:24To wrap up, thanks to all of our employees who keep safety top of mind on a daily basis and help the company deliver a solid second quarter. We appreciate your interest in Timken Steel and look forward to sharing our continued progress in the future. We'd now like to open the call for questions. Operator00:16:47The first question is from John Franzreb with Sidoti and Co. Your line is open. Speaker 400:16:53Good morning, everyone, and thanks for taking the questions and Congratulations on a good quarter. Speaker 500:16:58Good morning. Speaker 400:16:58I'd like to start on demand profile. I was kind of Impressed with the industrial growth in the quarter. You called out defense and mining. I'm curious about what that Outlook looks like in the second half of the year, it would seem that could be pretty volatile. Are there any kind of changes in the demand profile in the second half versus the first half? Speaker 400:17:21And I guess you could also apply that to the mobile business. We seem to be seeing a lot of tick up in the production rates versus what we were seeing say 3 months ago. Speaker 200:17:32Sure, John. So, I think if we the profile that we would expect Let's see, we'd be modest increases in our industrial sales and some modest increases in mobile. I think the larger part is going to come in industrial, particularly around the defense area or sector. Speaker 400:17:55So I Speaker 200:17:55think energy is going to be fairly flat quarter over quarter. So as the build rates or the sales rates and the build rates continue to increase, we may also see some Increased demand tied to potential UAW work stoppage with the automotive OEMs. So we're going to watch that very closely And see how that develops over the next couple of months. Speaker 400:18:22Fair enough. And can you talk a little bit about your ability to You're tracking new business. I know that's been part of the growth profile, kind of an update on new customer captures? Speaker 200:18:37Yes. I mean, I don't know that we've had a whole lot of new customer captures. I mean, there's always customers that come In and out, depending on what product requirements they need. But what we continue to see is Solid growth in the EV products that we manufacture. We've been informed of Several uplifts by the automotive OEMs on various EV platforms that we participate in. Speaker 200:19:07We expect that mining continues to be pretty solid in the industrial space. And then we expect The demand for defense products that we produce to continue to increase in the 3rd quarter. Speaker 400:19:27Got it. And the changes of the lack of utilization of third party Producers in the coming quarter, what's driving that? Speaker 200:19:37Well, there's I would say the predominant thing is that our melt utilization is increasing. So As you can understand, our internal costs are cheaper to manufacture than it is to procure it. So we expect to see margin improvement as we continue to ramp up our melt utilization and use our own melt For our sales versus 3rd party. There is also a second component there as well. We can only apply 3rd party MEL Where it makes financial sense. Speaker 200:20:12So that's still we're working on some projects that Could work out to be very positive for us. I'm not going to get into great details on those because those are in the trial stages right now. But there's some opportunities to maybe do a little bit product diversification with 3rd party melt. We just need to make sure that financially it makes Very positive sense to do so. Speaker 400:20:40Got it. And one last question and I'll get back into queue. On the raw material spread, Looks like it was a little bit more of a headwind than we thought maybe 3 months ago, at least more than I was looking at. Can you talk a little bit about your Expectations for that going into the Q3? Speaker 200:20:57Yes. I mean, again, scrap prices are somewhat at times very volatile. They changed from month to month. So from a forecasting standpoint, it can become a little difficult. However, we do expect further compression on the spread in Q3. Speaker 400:21:19Great. Thanks guys. I'll get back into queue. Speaker 200:21:22Thanks Operator00:21:27The next question is from Dave Storms with Stonegate Capital Markets. Your line is open. Speaker 500:21:34Hi, everyone. Thanks for taking my questions. John stepping in for Dave here. Speaker 200:21:40Okay. Speaker 500:21:40I guess, you touched on melt utilization. Could we see that 80% mark in Q3? What steps would it take to get there? And is an 80% average over Q4 still reasonable? Speaker 200:21:54I think in that the 80% to 80 4 is somewhat reasonable. I mean, we're off to a pretty good start for the quarter already. We have 1 month So the quarter completed and we're seeing positive improvement from our 75 in Q2. John, when you Speaker 300:22:12get into Q4, we do have our planned downtime. So we're expecting to be down for about 10 days. That will be about 30,000 tons of melt. So I would expect that utilization rate to trend down in Q4 just based on the typical annual schedule. Speaker 500:22:29All right. Got it. Very helpful. Very helpful. And with the 2 new machine lines, Can you provide any additional color? Speaker 500:22:37How do you expect those support increasing demand going forward? Will it even or do you see Additional lines being open sometime in the future? Speaker 200:22:46Yes. So those lines the investment in those lines is directed specifically at the EV market. We've been informed by several OEMs that their demand for the EV components that we manufacture is going to increase. So we're just aligning our capability with the demand with this investment. And what we will do going forward, we stay close to our customers as we see Opportunity with our customers for increased demand, we'll make the appropriate investments to make sure we support our customers. Speaker 200:23:16John, to Speaker 300:23:16add to that, we do expect modest incremental revenue and EBITDA from those investments. And from a timing perspective, it's likely going to be late 2024 Once production commences on those assets. Speaker 500:23:30Got it. Thank you for taking my questions. Speaker 300:23:33Thanks, John. Operator00:23:36We have no further questions at this time. I'll turn it back to the presenters for any closing remarks. Speaker 100:23:43I think that concludes our call today. Thanks everyone for joining and we look forward to updating you next quarter. Thank you. Operator00:23:50This concludes today's conference call. Thank you for participating.Read morePowered by Conference Call Audio Live Call not available Earnings Conference CallMetallus Q2 202300:00 / 00:00Speed:1x1.25x1.5x2x Earnings DocumentsSlide DeckPress Release(8-K)Quarterly report(10-Q) Metallus Earnings HeadlinesMetallus Announces First-Quarter 2025 Earnings Webcast DetailsApril 17, 2025 | gurufocus.comMetallus Announces First-Quarter 2025 Earnings Webcast DetailsApril 17, 2025 | prnewswire.comAltucher: Turn $900 into $108,000 in just 12 months?We are entering the final Trump Bump of our lives. But the biggest returns will not be in the stock market.May 8, 2025 | Paradigm Press (Ad)U.S. steelmakers urge Trump to resist tariff exclusionsMarch 7, 2025 | msn.comMetallus' (NYSE:MTUS) Soft Earnings Don't Show The Whole PictureMarch 6, 2025 | finance.yahoo.comMetallus May Realize Growth Through Higher Volume ShipmentsMarch 4, 2025 | seekingalpha.comSee More Metallus Headlines Get Earnings Announcements in your inboxWant to stay updated on the latest earnings announcements and upcoming reports for companies like Metallus? Sign up for Earnings360's daily newsletter to receive timely earnings updates on Metallus and other key companies, straight to your email. Email Address About MetallusMetallus (NYSE:MTUS) manufactures and sells alloy steel, and carbon and micro-alloy steel products in the United States and internationally. The company offers special bar quality (SBQ) bars, seamless mechanical tubes, precision steel components, and billets that are used in gears, hubs, axles, crankshafts and motor shafts, oil country drill pipes, bits and collars, bearing races and rolling elements, bushings, fuel injectors, wind energy shafts, anti-friction bearings, artillery and mortar bodies, and other applications. It also provides custom-make precision steel components. It offers its products and services to the automotive, energy, industrial equipment, mining, construction, rail, aerospace and defense, heavy truck, agriculture, and power generation sectors. The company was formerly known as TimkenSteel Corporation and changed its name to Metallus Inc. in February 2024. 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There are 6 speakers on the call. Operator00:00:00Good morning. My name is Chris, and I'll be your conference operator today. At this time, I'd like to welcome everyone to the TimkenSteel Corporation Q2 2023 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. Operator00:00:27Thank you. Jennifer Beaman, Director of Communications and Investor Relations, you may begin. Speaker 100:00:34Good morning, and welcome to TimkenSteel's Q2 2023 conference call. I'm Jennifer Beaman, Director of Communications and Investor Relations for Timken Joining me today is Mike Williams, President and Chief Executive Officer Chris Westbrooks, Executive Vice President and Chief Financial Officer and Kevin Rakitic, 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. Speaker 100:01:20Please refer to our SEC filings, including our most recent Form 10 ks and Form 10 Q and the list of factors included in our earnings release, all of which are available on the TimkenSteel website. Where non GAAP financial information is referenced, Additional details and reconciliation to its GAAP equivalent are also included in the earnings release. With that, I'd like to turn the call over to Mike. Mike? Speaker 200:01:47Good morning, everyone, and thank you for joining us today. First, I'd like to thank our employees for their hard work and unwavering dedication to TimkenSteel. Because of their ongoing focus on safety and enhancing productivity, The company generated continued positive momentum during the Q2. Thanks to these efforts, We realized sequential improvement in shipments and profitability. It's worth noting that our consistent positive operating cash flow trend remains strong, allowing us to strategically invest in the growth of our business and deploy our capital allocation strategy while maintaining a healthy balance sheet. Speaker 200:02:33As we progress on our journey to foster a culture deeply rooted in safety, We remain focused on bolstering machine guarding, fencing and our lockout tagout programs. Alongside an array of comprehensive training initiatives throughout the organization. When it comes to the safety of our employees, We believe we can never over communicate or over train anyone. One notable endeavor has been enhancing our job safety analysis training. Through this industry proven process, we map each job or task into individual steps, while identifying potential hazards and strategizing effective measures to mitigate these risks. Speaker 200:03:21This proactive approach empowers our team to carry out their responsibilities with a heightened sense of confidence, Awareness and readiness, ultimately reducing the likelihood of accidents or injuries. To underscore our commitment to safety, we have invested approximately $4,000,000 and various safety training and other investments through the first half of twenty twenty three. This allocation is part of our larger commitment as we have allocated approximately $7,000,000 for safety programs in 2023. Turning to our Q2 performance, we achieved sequential growth in net sales of 10%, driven by solid customer demand and base pricing. As anticipated, these results translated into improved profitability. Speaker 200:04:20We remain dedicated to sustaining this momentum and look forward to delivering on our commitments in the upcoming quarters. As anticipated, our melt utilization for the 2nd quarter was approximately 75%. This rate included the impact of a few days of planned downtime to proactively complete maintenance on the furnace transformer. We are encouraged by the ongoing positive macroeconomic trends that bode well for our company's growth in our targeted areas. Particularly promising is the continued upswing in electric and hybrid vehicle production, which represents a significant opportunity for us. Speaker 200:05:08Notably, our base sales and EV related products grew by 77% year over year. We have been awarded approximately 20 essential component parts for EVs from various customers, indicating our strong market presence. We anticipate that this momentum will persist and even strengthen as we continue to foster valuable partnerships with our customers. Given the market trend, we recently approved a $5,000,000 investment for 2 additional manufactured component machining lines to be installed at our facility in Southwest Ohio in late 2024. This investment will broaden our EV components to customers and allow us to keep pace with the projected growth. Speaker 200:06:00Currently, approximately 6% Of our mobile manufactured components portfolio is attributed to electric vehicle components versus internal combustion parts. And we anticipate that the EV mix will continue to grow in the future. In general, we experienced steady mobile shipments in the 2nd quarter As the industry continued to see an easing of supply chain issues, however, we are staying close to our customers and suppliers who continue to work through raw material shortages and labor issues. Moving to our industrial products, We are benefiting from the expansion of the U. S. Speaker 200:06:40Industrial supply base, particularly in support of major Department of Defense programs. In the Q2, our industrial shipments increased by 9% compared with the prior quarter, reflecting strength in defense and mining sectors. Our energy shipments in the 2nd quarter were relatively flat on a sequential basis. Concerns for weakening demand have slowed drilling activity. However, inventories remain relatively low for current and forecasted demand. Speaker 200:07:12We remain committed to our profitability improvement initiatives and work continues company wide to achieve our target of $80,000,000 by 2026. Again, our actions focus on commercial excellence, Manufacturing and reliability excellence and administrative process simplification with a strong balance sheet as our foundation. I look forward to continuing our positive momentum into the second half of twenty twenty three with an ongoing focus on safety, Manufacturing excellence, customer service and advancing our strategic imperatives to drive sustainable through cycle profitability and cash flows. I thank our customers for their trust, our suppliers for their partnership and our shareholders for their continued support. Now I'd like to turn the call over to Chris. Speaker 300:08:09Thanks, Mike. Good morning, everyone, and thanks for joining the call today. As expected, TimkenSteel's financial results in the 2nd quarter included sequential increases in melt utilization, shipments and profitability combined with positive operating cash flow. We're encouraged by this performance and the company's outlook. Turning to the Q2 financial results. Speaker 300:08:31Net sales totaled $356,600,000 with net income of $28,900,000 or $0.62 per diluted share. Comparatively, sequential Q1 of 2023 net sales were $323,500,000 with net income of $14,400,000 or $0.30 per diluted share. Net sales in last year's 2nd quarter were $415,700,000 with net income of $74,500,000 or $1.42 per diluted share. On an adjusted basis, the company reported net income in the Q2 of $27,600,000 or $0.60 per diluted share. Comparatively, the Q1 adjusted net income was $20,800,000 or $0.44 per diluted share. Speaker 300:09:16Adjusted net income in the Q2 last year was $67,400,000 or $1.29 per diluted share. Adjusted EBITDA was $50,500,000 in the 2nd quarter, a 40% increase from the 1st quarter. This $14,500,000 sequential improvement in adjusted EBITDA was driven by higher base sales prices on increased shipments combined with an increase in the raw material surcharge environment. Compared with record adjusted EBITDA of $84,200,000 in the 2nd quarter last year, Adjusted EBITDA decreased by $33,700,000 in the quarter. This year over year decrease was reflective of lower shipments given our finished goods inventory position as well as a market decline in the raw material surcharge environment, which was at peak levels during the Q2 of last year. Speaker 300:10:06Higher manufacturing and pension costs also contributed to the decline in adjusted EBITDA from the record Q2 of 2022. During the 1st and second quarters of 2023, the company had insurance recoveries of $9,800,000 $1,500,000 respectively. These recoveries related to the unplanned downtime in the second half of last year and have been excluded from 2023 adjusted EBITDA. Turning now to the details of the financial results in the Q2. Shipments were 177,500 tonnes in the quarter, an increase of 4,600 tons or 3% compared to the Q1 of 2023. Speaker 300:10:45In the industrial end market, Shipments totaled 78,400 tonnes in the 2nd quarter, a sequential increase of 6,200 tonnes or 9%. The sequential increase in industrial shipments was supported by an improving finished goods inventory position, driving the sequential increase in industrial shipments with steady demand across a wide range of sectors such as heavy equipment used in mining as well as strong demand for defense related products. Mobile customer shipments were 79,500 tonnes in the 2nd quarter, a slight sequential decrease of 900 tonnes or 1%. Shipments in the mobile end market represented 45% of the total portfolio in the 2nd quarter, a 2 percentage point reduction from the Q1 as planned. Mobile customers continue to pull hard to support demand and replenish inventories. Speaker 300:11:34Shipments to energy customers totaled 19,600 In the Q2, a sequential decrease of 700 tonnes or 3%. Of our total second quarter shipments, Approximately 24,000 shipped tons were sourced from 3rd party melt producers and then rolled finished and shipped by TimkenSteel. Given improvements in our melt productivity, we anticipate a sequential decrease in shipments of 3rd party melt in the 3rd quarter. Net sales of $356,600,000 in the 2nd quarter increased 10% sequentially. The sequential increase in net sales was driven by higher base sales prices and shipments. Speaker 300:12:13Additionally, contributing to the increase in net sales was a market driven 22% increase in average raw material surcharge per ton as a result of higher scrap and alloy prices. Base sales prices increased by approximately $100 per ton or 8% on average in the 2nd quarter across our end markets in comparison to the full year 2022 average. Turning to manufacturing, as anticipated, melt utilization was 75% in the 2nd quarter compared with 73% in the Q1. Manufacturing costs increased sequentially by $6,800,000 as a result of higher first quarter plant costs being recognized in the Q2 as inventory was sold. Additionally, we pulled forward $1,200,000 of planned annual shutdown work into the 2nd quarter from the second half of the year as the operating schedule permitted. Speaker 300:13:05Switching gears to income taxes. The company's effective tax rate was 27% in the 2nd quarter and 25% for the first half of the year. This higher than expected effective tax From a cash taxes perspective, we spent approximately $13,000,000 on income taxes in the 2nd quarter. Moving on to cash flow and liquidity. During the Q2, operating cash flow was $13,300,000 driven by quarterly net income and insurance recoveries, partially offset by use of cash to fund working capital requirements. Speaker 300:13:48This marks the company's 17th consecutive quarter generating positive operating cash flow. Capital expenditures totaled $8,100,000 in the 2nd quarter. The company now forecasts CapEx to be approximately $50,000,000 in 2023, an increase from the previous $45,000,000 guidance. The higher CapEx forecast includes down payments for 2 recently approved manufactured component machining as well as new automated grinding and finishing investments discussed last quarter. From a share repurchase perspective, The company repurchased 650,000 common shares during the 2nd quarter at a total cost of $11,400,000 As of June 30, the company had $52,200,000 remaining on its share repurchase program. Speaker 300:14:34Since the inception of the program early last year Through the end of June 2023, we've repurchased 4,200,000 shares at a total cost of $73,000,000 In total, these common share repurchases plus the 2022 And 15.5% reduction in diluted shares outstanding compared with the Q4 of 2021. The company's cash and cash equivalents totaled $221,900,000 and total liquidity was approximately $530,000,000 as of June 30, 2023. As we progress forward, we expect the strength of our balance sheet, consistent cash flow generation and positive business outlook provide us the opportunity to continue to execute on our capital allocation strategy. This includes investing in profitable growth, maintaining a strong balance sheet and returning capital to shareholders. Turning now to the outlook. Speaker 300:15:30From a commercial perspective, 3rd quarter shipments are expected to supported by steady demand across our end markets as evidenced by orders currently booking into the 4th quarter. Base sales price per ton is anticipated to remain strong for the remainder of the year with fluctuations driven by changes in product mix. Operationally, melt utilization is expected to sequentially increase in the 3rd quarter. Additionally, we're in the process of completing our annual shutdown maintenance for the second half of the year with an expected remaining cost of approximately $12,000,000 At this time, we're planning for 1 third of the spend in the 3rd quarter and the remaining 2 thirds of the spend in the 4th quarter with the Melchop shutdown maintenance planned early in the 4th quarter. Given these elements, the company expects adjusted EBITDA to remain strong and operating cash flow to be positive in the Q3 of 2023. Speaker 300:16:24To wrap up, thanks to all of our employees who keep safety top of mind on a daily basis and help the company deliver a solid second quarter. We appreciate your interest in Timken Steel and look forward to sharing our continued progress in the future. We'd now like to open the call for questions. Operator00:16:47The first question is from John Franzreb with Sidoti and Co. Your line is open. Speaker 400:16:53Good morning, everyone, and thanks for taking the questions and Congratulations on a good quarter. Speaker 500:16:58Good morning. Speaker 400:16:58I'd like to start on demand profile. I was kind of Impressed with the industrial growth in the quarter. You called out defense and mining. I'm curious about what that Outlook looks like in the second half of the year, it would seem that could be pretty volatile. Are there any kind of changes in the demand profile in the second half versus the first half? Speaker 400:17:21And I guess you could also apply that to the mobile business. We seem to be seeing a lot of tick up in the production rates versus what we were seeing say 3 months ago. Speaker 200:17:32Sure, John. So, I think if we the profile that we would expect Let's see, we'd be modest increases in our industrial sales and some modest increases in mobile. I think the larger part is going to come in industrial, particularly around the defense area or sector. Speaker 400:17:55So I Speaker 200:17:55think energy is going to be fairly flat quarter over quarter. So as the build rates or the sales rates and the build rates continue to increase, we may also see some Increased demand tied to potential UAW work stoppage with the automotive OEMs. So we're going to watch that very closely And see how that develops over the next couple of months. Speaker 400:18:22Fair enough. And can you talk a little bit about your ability to You're tracking new business. I know that's been part of the growth profile, kind of an update on new customer captures? Speaker 200:18:37Yes. I mean, I don't know that we've had a whole lot of new customer captures. I mean, there's always customers that come In and out, depending on what product requirements they need. But what we continue to see is Solid growth in the EV products that we manufacture. We've been informed of Several uplifts by the automotive OEMs on various EV platforms that we participate in. Speaker 200:19:07We expect that mining continues to be pretty solid in the industrial space. And then we expect The demand for defense products that we produce to continue to increase in the 3rd quarter. Speaker 400:19:27Got it. And the changes of the lack of utilization of third party Producers in the coming quarter, what's driving that? Speaker 200:19:37Well, there's I would say the predominant thing is that our melt utilization is increasing. So As you can understand, our internal costs are cheaper to manufacture than it is to procure it. So we expect to see margin improvement as we continue to ramp up our melt utilization and use our own melt For our sales versus 3rd party. There is also a second component there as well. We can only apply 3rd party MEL Where it makes financial sense. Speaker 200:20:12So that's still we're working on some projects that Could work out to be very positive for us. I'm not going to get into great details on those because those are in the trial stages right now. But there's some opportunities to maybe do a little bit product diversification with 3rd party melt. We just need to make sure that financially it makes Very positive sense to do so. Speaker 400:20:40Got it. And one last question and I'll get back into queue. On the raw material spread, Looks like it was a little bit more of a headwind than we thought maybe 3 months ago, at least more than I was looking at. Can you talk a little bit about your Expectations for that going into the Q3? Speaker 200:20:57Yes. I mean, again, scrap prices are somewhat at times very volatile. They changed from month to month. So from a forecasting standpoint, it can become a little difficult. However, we do expect further compression on the spread in Q3. Speaker 400:21:19Great. Thanks guys. I'll get back into queue. Speaker 200:21:22Thanks Operator00:21:27The next question is from Dave Storms with Stonegate Capital Markets. Your line is open. Speaker 500:21:34Hi, everyone. Thanks for taking my questions. John stepping in for Dave here. Speaker 200:21:40Okay. Speaker 500:21:40I guess, you touched on melt utilization. Could we see that 80% mark in Q3? What steps would it take to get there? And is an 80% average over Q4 still reasonable? Speaker 200:21:54I think in that the 80% to 80 4 is somewhat reasonable. I mean, we're off to a pretty good start for the quarter already. We have 1 month So the quarter completed and we're seeing positive improvement from our 75 in Q2. John, when you Speaker 300:22:12get into Q4, we do have our planned downtime. So we're expecting to be down for about 10 days. That will be about 30,000 tons of melt. So I would expect that utilization rate to trend down in Q4 just based on the typical annual schedule. Speaker 500:22:29All right. Got it. Very helpful. Very helpful. And with the 2 new machine lines, Can you provide any additional color? Speaker 500:22:37How do you expect those support increasing demand going forward? Will it even or do you see Additional lines being open sometime in the future? Speaker 200:22:46Yes. So those lines the investment in those lines is directed specifically at the EV market. We've been informed by several OEMs that their demand for the EV components that we manufacture is going to increase. So we're just aligning our capability with the demand with this investment. And what we will do going forward, we stay close to our customers as we see Opportunity with our customers for increased demand, we'll make the appropriate investments to make sure we support our customers. Speaker 200:23:16John, to Speaker 300:23:16add to that, we do expect modest incremental revenue and EBITDA from those investments. And from a timing perspective, it's likely going to be late 2024 Once production commences on those assets. Speaker 500:23:30Got it. Thank you for taking my questions. Speaker 300:23:33Thanks, John. Operator00:23:36We have no further questions at this time. I'll turn it back to the presenters for any closing remarks. Speaker 100:23:43I think that concludes our call today. Thanks everyone for joining and we look forward to updating you next quarter. Thank you. Operator00:23:50This concludes today's conference call. Thank you for participating.Read morePowered by