Metallus Inc. 2026 Q2 Earnings Call

Please go ahead. Good morning, and welcome to Metallus' second quarter 2026 conference call.

I'm Jennifer Beeman, senior manager, finance and investor relations for Metallus. Joining me today are Mike Williams, chief executive officer, Kris Westbrooks, president and chief operating officer, and John Zaranec, executive vice president and chief financial 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. 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-Q, which will be filed later today, as well as the risk factors included in our earnings release, all of which are available on the Metallus website.

Where non-GAAP financial information is referenced, additional details and reconciliations to its GAAP equivalent are included in the earnings release and the earnings presentation available on the investor page at metallus.com. I'll turn the call over to Mike Williams for his remarks.

Thank you, Jenna, and thank you all for joining us today. In the second quarter, we generated adjusted EBITDA of $29 million, improving profitability both sequentially and year-over-year. This is consistent with the expectations we outlined earlier this year. Increased shipments, higher melt utilization, improved pricing and product mix, and solid operating performance drove the improvement. We also continued to benefit from healthy demand across our end markets, with the order book up over 50% year-over-year, providing strong visibility heading into the second half of the year. Our second quarter results reflect the progress we continue to make against our strategic priorities and underscore the strength of our existing and diversifying end markets and customer relationships. As we entered 2026, our focus was simple. Improve profitability versus the prior year through consistent execution, commercial excellence, and operational improvement.

Our first half performance demonstrates the progress we are making toward that objective with safety remaining our top priority at Metallus. We continue to strengthen our safety culture across our facilities through targeted training, enhanced tools, and increased accountability. We also continue to make significant progress with our strategic capital investments, with early indicators suggesting these initiatives are positioned to deliver meaningful commercial and operational benefits over time. The bloom reheat furnace was fully commissioned in early July and is improving process consistency, enhancing downstream product flow, and increasing reliability across the facilities. These improvements are supporting stronger operational execution and positioning us for greater throughput and productivity gains. At the same time, commissioning of the roller furnace remains on track and is progressing as planned.

These investments, which were supported in part by U.S. government funding, are expected to improve throughput, quality, efficiency, and service levels for our customers once fully operational. Together, they represent an important step forward in strengthening Metallus' manufacturing capabilities, enhancing our ability to serve critical aerospace and defense programs, and strengthening our ability to meet increasing customer demand across industrial, automotive, and energy markets. In the third quarter, we look forward to celebrating these investments at our ribbon cutting ceremony and hosting representatives from the U.S. government, key defense customers, and industry partners as we mark this important milestone for the company. The event will highlight the successful partnership between Metallus and the U.S. government in supporting the defense industrial base. Strong customer demand and a continued growing backlog provide confidence as we begin the second half of the year.

Lead times for both our engineered SBQ bar and seamless mechanical tubing products have extended into late fourth quarter 2026, reflecting healthy demand across all markets and ongoing inventory replenishment activity. Turning to the end markets, our diversified end market portfolio continues to provide balance across market cycles while creating opportunities for profitable growth and increasing participation in attractive growing markets. Automotive remains a core market for Metallus and an important contributor to our long-term growth strategy. Auto shipments during the second quarter grew 12% sequentially and 8% year-over-year. Demand across targeted light truck and SUV applications have remained steady, reflecting the value our longstanding customers place on our quality, technical expertise, and reliability. We are also pleased to announce that we secured a new multi-year award for ring gears on a leading automaker's hybrid transmission platform. Production is expected to begin in 2028.

This award further demonstrates our ability to win strategic business on key vehicle platforms while positioning Metallus to benefit from continued hybrid vehicle adoption. While industrial shipments in the quarter were down slightly sequentially and year-over-year due to balancing customer requirements with order and shipment timing, industrial markets remain strong and represent one of the largest portions of our order book growth. Our industrial backlog has nearly doubled compared with the prior year, providing strong visibility into future demand. We look forward to delivering for our customers to meet the growing industrial demand in the second half of 2026 as we advance our operational improvements and assets throughput initiatives. In energy, demand remains stable despite a cautious capital spending environment. While geopolitical and commodity price uncertainty has moderated activity levels, reduced import competition, and improving domestic production are supporting demand for our seamless tubing products.

These market conditions are helping improve utilization of our seamless tube assets and create additional opportunities moving forward. Aerospace and defense remains one of our most attractive growth opportunities, and that momentum was evident in the second quarter when we delivered record shipment tons and sales for these products. Demand continues to be supported by new defense initiatives and existing program replenishment efforts, driving backlog growth. This momentum supports our confidence in achieving our targeted $250 million revenue run rate and highlights the increasingly important role Metallus plays in serving critical defense markets. We were also pleased to achieve AS9100D certification during the quarter, an important and widely recognized quality standard in the aerospace and defense industries. This certification gives customers added confidence in our ability to deliver the quality, reliability, and consistency required for mission-critical applications.

It also strengthens our competitive position, supporting our VAR growth strategy and expanding opportunities in high-value markets. I'd like to congratulate our team on this achievement. Earning the AS9100D certification was a significant cross-functional effort that required dedication, collaboration, and discipline across the organization. Most importantly, it reflects the culture of continuous improvement and operational excellence that is embedded throughout Metallus. In closing, Metallus is a stronger and more resilient company today than it was just a few years ago. We are continuing to maintain a strong balance sheet, improve our operating performance, invest in key manufacturing capabilities, enhance partnerships with existing customers while broadening our customer portfolio, and sharpen our focus on the most attractive opportunities within the specialty metals market. Our priorities remain clear: operate safely, serve our customers reliably, execute our strategic initiatives, and deliver sustainable value to our shareholders.

I am proud of what our team accomplished during the second quarter, and I am encouraged by the opportunities ahead. With that, I'll turn the call over to John to review our second quarter financial results in more detail.

Thanks, Mike. Good morning, and thank you for joining our second quarter 2026 earnings call. During the quarter, our team delivered improvements in shipments, net sales, and profitability on both a sequential and year-over-year basis, consistent with our expectations. As Mike noted, we also safely advanced operational and strategic investments to support near and long-term business growth while maintaining a strong balance sheet. From a top-line revenue perspective, second quarter net sales totaled $341 million, a year-over-year increase of $36.4 million or 12%, primarily driven by higher shipments in aerospace and defense and automotive. Net income was $8.9 million in the second quarter, or $0.21 per diluted share. On an adjusted basis, net income was $11.1 million, or $0.26 per diluted share. Adjusted EBITDA was $29 million in the second quarter, a year-over-year increase of $2.5 million, or 9%.

The increased profitability was primarily driven by improved prices, improved mix, and higher shipments, partially offset by manufacturing performance as melt utilization improved but fell short of plan to fully offset the known increases in energy cost and the first full quarter of labor related to the newly ratified union contract. In the second quarter, operating cash flow totaled $12.8 million, driven by profitability and lower inventory, partially offset by higher accounts receivable at the end of the quarter from increased sales and lower accounts payable due to the timing of raw material purchases. In the second quarter, capital expenditures totaled $15.2 million, including approximately $9.5 million related to the projects primarily funded by the U.S. government.