Metallus Aktie

Good morning, and welcome to Metallus' First Quarter 2026 Conference Call. I'm Jennifer Beeman, Director of Communications and Investor Relations for Metallus. Joining me today is Mike Williams, Chief Executive Officer; Kris Westbrooks, President and Chief Operating Officer; John Zaranec, Executive Vice President and Chief Financial Officer; and Kevin Raketich, Executive Vice President and Chief Commercial Officer. You should have received a copy of our press release, which was issued last night.

During today's conference call, we may make forward-looking statements as defined by the SEC. Our actual results may differ materially from those projected or implied due to a variety of factors, which we describe in greater detail in yesterday's release. Please refer to our SEC filings, including our most recent Form 10-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.

With that, I'd like to turn the call over to Mike. Mike?

Good morning, and thank you for joining us today. I'm encouraged by our team's continued focus on operational priorities, which strengthened our performance in the first quarter. Demand continues to improve across our end markets, and our order book grew year-over-year, supported by overall industrial and defense demand, decreasing distribution inventory levels and onshoring. Section 232 tariffs continue to support our competitive position in the markets we serve. The April 2026 update to these tariffs apply only to downstream steel containing derivative products and do not affect our products, which are classified as primary steel. Most importantly, the 50% tariff on imported primary steel, including all long bar and tube products remains in place, reinforcing the long-term competitiveness of U.S. produced steel.

The capital investments and operational system improvements we implemented during the planned shutdown period in the fourth quarter contributed to higher melt utilization on both a sequential and year-over-year basis. Our strategic operational advancements achieved critical milestones during the quarter, highlighted by the safe and successful reheating and rolling of the first blooms from our new bloom reheat furnace. This achievement reflects the dedicated efforts of our internal teams and the support of the Department of War.

As a reminder, the new bloom reheat and roller furnaces facilitate more consistent reheating, improved product quality, and more efficient throughput. In fact, the bloom reheat furnace has recently demonstrated a run rate of approximately 150 tons per hour compared with approximately 100 tons per hour using our legacy assets, along with significant improvements in temperature uniformity. These modern and efficient assets position us to better serve growing customer demand across all end markets, and we anticipate they will also improve our operating leverage over time. We expect the bloom reheat furnace to be fully operational in early to mid-third quarter and the roller furnace to be fully operational in late third quarter.

We also continue to make meaningful progress in strengthening our operating systems, reinforcing consistent and efficient execution across the organization. These institutionalized systems help our teams identify issues faster and drive greater accountability. During the quarter, we expanded this framework into additional areas focusing on reliability and throughput. Safety remains a foundational priority for us and a critical factor in our long-term success. As always, we focus on eliminating serious injuries through stronger controls, training, and leadership accountability.

Our health and safety management system continues to mature with stronger proactive reporting, increased near miss identification, and targeted capability building in higher risk activities such as cranes, rigging, lockout tagout, and machine guarding. This shift towards leading indicators and the disciplined risk management reduces variability, lowers long-term costs and protects our most important asset, our people.

Turning to our first quarter performance. Shipments increased by 11% sequentially. Adjusted EBITDA for the quarter totaled $24.6 million, reflecting a 39% increase compared to the prior year's first quarter. Again, this strong improvement underscores our disciplined execution against key priorities and operational improvements. Lead times continue to expand, now reaching into the late third quarter for both bars and seamless mechanical tubing. This reflects strengthening demand for domestic steel and provides a clear signal of the momentum we expect to carry throughout 2026.

Turning to performance across our key end markets. We're seeing industrial customers take a more deliberate look at how and where they source steel as they navigate a challenging macro environment. Shifts in trade policy and the reassessing of supply chains are driving increased demand with domestic suppliers. With inventories low across the distribution channels and select products returning from offshore sourcing, we're seeing increased opportunities. We believe these dynamics position us well to strengthen new and existing customer relationships and continue gaining share as industrial markets stabilize.

Automotive demand remains steady with volumes up slightly compared to the prior year. Our automotive order book and key customer relationships remain strong, supported by our continued focus on light truck and SUV transmission programs and our success in winning new and emerging platforms. For example, during the quarter, we won 2 additional programs with existing customers, reinforcing our confidence in the strength of the automotive markets we serve and the importance of our automotive customers to our base business.

The energy markets we serve remain cautious as producers continue to seek greater confidence in long-term oil prices before materially increasing investments. Ongoing global conflicts and geopolitical uncertainty are contributing to volatility in energy markets. But favorable trade-related tailwinds reduced imports and a gradual increase in domestic oil and gas activity are creating incremental opportunities for Metallus.

Turning to aerospace & defense. This market continued to be a key source of strength during the quarter. Due to confidentiality, it's always difficult for us to call out new defense programs by name, but what I can say is that we were recently awarded an exciting contract with a new entrant in the defense supply chain to begin producing tubing for new rocket motors related to advanced weapon systems. Demand across defense programs continue to grow, supporting our near-term $250 million run rate revenue expectation and the longer-term strategic expansion in the market, allowing us to provide our expertise to existing and new customers in these critical applications.

While defense shipment timing can vary quarter-to-quarter based on program needs and downstream supply chains outside of our control, the underlying fundamentals remain strong in the foreseeable future. We continue to advance targeted investments and operational improvements to support higher defense volumes. Metallus is well positioned to benefit from growing defense spending and the continued focus on developing secure domestic supply chains.

Overall, we remain focused on disciplined execution in 2026. During the quarter, we improved operational performance, strengthened our internal systems, and safely advance strategic investments that support our long-term objectives. Our growing order book, improving operational execution, and U.S.-based manufacturing footprint provide a solid foundation as we move forward. We will continue to prioritize safety, operational discipline, and prudent capital allocation as we work to deliver consistent performance and long-term value for shareholders.

With that, I'll turn the call over to John to walk through our financial results in more detail.

Thanks, Mike. Good morning, and thank you for joining our first 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, first quarter net sales totaled $308.3 million, a year-over-year increase of $27.8 million or 10%, primarily driven by higher shipments across most end markets.

Net income was $5.4 million in the first quarter or $0.13 per diluted share. On an adjusted basis, net income was $7.7 million or $0.18 per diluted share in the quarter. Adjusted EBITDA was $24.6 million in the first quarter, a year-over-year increase of $6.9 million or 39%. The increased profitability was primarily driven by higher shipments across most end markets, better price/mix, higher raw material spread, and better fixed-cost leverage on higher production volume, slightly offset by an increase in utility costs and a partial quarter of the cost increase related to the ratified union contract. As a reminder, our previous favorable electricity contract expired in May of 2025. So the first quarter of 2025 included a full quarter of lower energy costs.

As we noted in February, we expected a usage of free cash flow during the first quarter, which is consistent with historical seasonality as the first quarter normally requires a larger amount of pension funding and working capital build. Additionally, this year, our CapEx spend to complete the government projects is the highest in Q1 and is expected to ramp down throughout 2026. In the first quarter, capital expenditures totaled $24.7 million, including approximately $18.3 million of first quarter CapEx partially funded by the U.S. government. Planned capital expenditures for the full year 2026 are expected to be approximately $70 million, inclusive of approximately $35 million of capital expenditures primarily funded by the U.S. government.

At the end of the first quarter, the company's cash and cash equivalents balance was $104 million. As it relates to government funding, during the first quarter, the company received $5.9 million of cash funding from the government, with an additional $9.5 million received during the month of April based on our successful completion of key milestones. As a reminder, these funds are part of the previously announced nearly $100 million funding agreement in support of the U.S. Army's mission of increasing munitions production.

Additional government funding of approximately $2 million is expected to be received in 2026 to complete the government funding arrangements contingent on the achievement of the final mutually agreed upon milestone. As a reminder, this funding substantially paid for both the new bloom reheat furnace at the company's Faircrest facility as well as the new roller furnace at the Gambrinus facility.

Now switching to pensions. In the first quarter, the company made $19.8 million of required pension contributions, of which the majority related to the U.S. bargaining plan and reflects roughly 2/3 of the expected full year 2026 pension contributions. Subsequent to the first quarter, the company made a required pension contribution of approximately $5 million in April, with an estimated $5 million of required pension contributions expected for the remainder of 2026. Consistent with our expectations in February, total 2026 required pension contributions are expected to decrease by nearly 60% compared to 2025.

As part of the USW contract ratified during the first quarter, employees who are currently accruing a pension benefit will have a onetime opportunity between March 30 and May 30 to freeze their pension accrual and begin receiving a market competitive benefit under the 401(k) plan. These actions will allow employees access to their retirement funds earlier while also providing competitive defined contribution benefits and derisking the long-term pension obligation. As we continue to actively manage the pension, we'll provide further updates as available.

In terms of shareholder return activities, in the first quarter, the company repurchased approximately 277,000 shares of common stock at a cost of $4.3 million. At the end of March, a balance of $85.4 million remained under our existing share repurchase authorization. Since the inception of common share repurchases in early 2022, combined with the convertible note repurchase activities, we've reduced diluted shares outstanding by a significant 26% or 13.8 million shares. These actions reflect the strength of the company's balance sheet and confidence in through-cycle cash flow generation. As it relates to liquidity, total liquidity remains strong at $375 million as of March 31, 2026. Additionally, as of March 31, 2026, the company had no outstanding borrowings.

Moving now to near-term business outlook. Commercially, second quarter shipments are sequentially expected to increase modestly in the low single digits on a percentage basis, supported by continued strength in the order book and normal seasonality. Through the first 4 months of 2026, we announced a series of targeted price actions across our bar and tube portfolios. In bar, we implemented 2 actions totaling $120 per ton phased in based on customer promise dates. In tube, pricing actions were differentiated by size and product types, averaging about $100 per ton across the product mix. As a reminder, these pricing actions apply only to business not sold under annual price agreements and to new business, which historically represents approximately 30% of our total annual volume.

We expect price realization to be gradual with greater impact towards the second half of the year. Based on lead times and product mix dependent, second quarter price and mix are expected to be similar to the first quarter, with improvement anticipated in the second half of 2026. From an operational perspective, the company anticipates a sequential increase in its second quarter average melt utilization rate, supported by a strong order book.

Manufacturing costs are expected to improve sequentially by approximately $2 million in the second quarter as a result of higher melt utilization, resulting in improved cost absorption and net of the full quarter run rate cost increase related to the ratified union contract. And finally, an adjusted effective income tax rate between 27% and 30% is expected for the full year 2026. Given these elements, the company expects second quarter 2026 adjusted EBITDA to be modestly higher sequentially and year-over-year.

To wrap up, thank you to all of our employees, customers, and suppliers for their support. We're well positioned as a high-quality U.S.-based specialty metals producer supporting critical markets. As we continue to move forward in 2026, our focus is on safe execution to meet continued rising customer demand. We remain committed to delivering shareholder value through disciplined capital allocation and sustained profitable growth. As always, thank you for your interest in Metallus.

We would now like to open the call for questions.

[Operator Instructions]

And our first question is from the line of John Franzreb with Sidoti.

I'd actually like to start with the recent results reported. You touched on it in your prepared remarks about it's typically a working capital outflow quarter. But I was just curious about the sizable rise in inventory. Is that illustrative of any particular end market demand? Or are you building inventory for any particular reason? I'm just curious about that.

Yes. Hello, John. Pretty much we built inventory in Q1 based on the order book demand going into Q2 and with our lead times up to mid to late Q3, depending on product, we can see. So we're positioning inventory to service our customers. And we continue to see higher demand, as we mentioned. Year-over-year, the order book is about over 40% greater, which if you -- in a year-over-year comparison is about 90,000 more tons in our order book than we had this year last time. So we're positioning the inventory to meet the order demand that we have.

And then sequentially, you're suggesting that revenue is going to be up in the low single-digit range. I'm kind of curious, does that suggest maybe one of your key end markets is maybe a little bit slower than you would have thought, say, 3 months ago, especially considering the visibility you have in A&D?

I mean I don't see anything slower. It's just the timing of when the orders are requested and when we need to ship them on time, align with our throughput capability.

And one last question, I'll get back in the queue. Regarding the operational improvement of $2 million, I just want to make sure I kind of understand that properly. Is that improvement above the increased cost from the new union contract? Or is it net of the increased cost?

Yes, it's net of the increased labor costs with the new agreement, the labor agreement.

That's offsetting the wages.

So it's a net positive of $2 million of the wages. I just want to make sure I understand that.

Correct. Correct.

Your next question is from Samuel McKinney with KeyBanc Capital Markets.

Your first quarter auto shipments were up slightly year-on-year despite the negative SAAR comp. Could you just give us a little more color on your ability to outpace that figure and what you're hearing from the SUV and heavy truck customers moving into the summer?

Yes. I mean those are the predominantly the platforms that we're on, and those are the platforms that are drawing the demand where we've seen year-over-year order increases. So we expect that to be fairly stable at this point throughout the year with some typical seasonality towards the end of the year. So it's a matter of -- it's all about the platforms that we're on and the pull rate that they're requesting for their build rates of the powertrain and transmission programs that we're on.

Okay. I just want to turn to A&D and the Army investments. Given other commentary during this earnings cycle, it appears that the Army's munitions partner doesn't plan to begin production at this facility until sometime during 2027. How does that impact the timing for you to hit your previously stated goal of $250 million in annualized A&D sales this year?

I mean it definitely has the impact -- the overall impact of them getting to the 100,000 shells per month production, which then, of course, affects us. But what we are seeing is we have seen them ramp up their other facilities as well as we've seen some non-U.S. demand, but most of it is still in North America, it's just not in the U.S. and then the offshore inquiries and orders that we're getting.

So it affects it, but then we're working diligently to offset that with other weapon system applications. And we mentioned the one new program we just got. It will most likely ramp up to its full demand in 2027, but it will ramp up throughout the year this year, but really hit the peak cycles in '27 and '28. But we continue to work hard to get other programs to kind of offset the original planning process with a new facility coming online for the particular 155-millimeter munitions. But as I said earlier, we're seeing increased demand from existing facilities because they're really trying to ramp it up.

If you look at the math, and we kind of calculate it based on what we sell in those particular grades, they're operating around 70,000 shells a month right now versus their 100,000 target. But that's up from 50,000, 6 months ago. So we do anticipate as they continue to push the other facilities to improve their throughput and capacity that that will continue to modestly increase throughout the year. And then depending on timing when that other facility gets up and running, it's a win-win for us.

So is there any change to the outlook of hitting $250 million in A&D sales this year?

No, we still have that expectation, as we said in our comments. Yeah, there is some variability that we're working towards in the second half to fill some gaps because we were anticipating some type of ramp-up out of that, the one facility that still is being worked on to get it up and operational. So -- but we're still confident that we're going to hit that expectation. At least that, we strive for higher, as you can imagine, internally. But right now, we're confident that we'll meet that expectation.

And that's a run rate expectation. I mean some of this is a little bit lumpy to supply chain and order timing. But as we talked about last year, that $250 million is a run rate that we expect to achieve in the year.

Your next question comes from the line of Dave Storms with Stonegate.

Just wanted to start with getting your thoughts around lead times. I know you mentioned they go to the third quarter. For -- with the ramping of the bloom reheat furnace, could this maybe be the high watermark and maybe lead times might start to come down throughout the year? Or does the order book indicate that they might continue to increase?

Right now, everything we can see, here we sit in early May, is the fact that we expect it to continue to have really good demand. Now we do expect that the seasonality that occurs in the fourth quarter is going to be there, our maintenance outage, et cetera. But yes, right now, what we see, we're halfway through the third quarter. So orders continue to come in at a pretty good rate per week, and we expect that to continue. We just got to focus on our execution and serve our customers.

And then just also looking at the order book, a lot of strength there. Are you seeing more of the growth coming from maybe price and -- excuse me, more from price or maybe more from mix? Or is it volume that's expected to drive that? Just any commentary on maybe some of the profile of the order book.

Yes. I mean, overall, it's volume, okay? But our team does a pretty good job trying to manage and maximize the highest return value creation in mix as we can. I think the thing that we -- the area we see, automotive continue to be steady. We continue to expect growth in A&D and we expect energy, we've seen positive improvement in energy because of the trade environment and what we class it, call it reshoring, but it's really domestic sourcing of supply. So we expect that to potentially continue to modestly grow. As you can imagine, there's a lot of volatility with all the uncertainty, the global conflict, et cetera, affecting the energy market. So we have to watch that very closely and align with our customers the best way we can. I think the biggest area of opportunity we see the remainder of this year is really steady growth in the industrial end markets.

[Operator Instructions] Our next question is from the line of Aaron Reed with Northcoast Research.

One of the questions or the question I really have is, you mentioned that your old energy contract was expiring and you have a new one. I was wondering if you could give us any more insights into the terms around that. And is that something that's typically paid on spot? Or are those longer-term contracts?

Okay. So we did have a long-term contract that expired at the end of last May. So the contracts that we currently operate on, 70% of our electrical demand is fixed under a 2-year agreement, which we actually just began year well, the second 6 months of year 1, that will exist for 2 years. The other 30% is spot purchased.

And the other question I had is one of the things that we saw was the new tariffs that went into place here on May 1 for automotive. Do you expect that to have a meaningful impact on automotive demand? I know it's typically not what we're importing from Europe. Is there a real lot of overlap with what you're supplying to. But I just wasn't sure in the past, how has that impacted you? And does that give any insights on what the market might look like here going forward?

Well, we're heavily influenced based on build rates and platforms. So predominantly, most of our steel applications go into powertrains, particularly transmissions, crank shafts, et cetera. And we've heavily focused on SUVs and trucks. And those are the vehicles that are selling. That's why we're seeing good steady demand all last year throughout the volatility of the market regardless of imports. And this year, we see the same thing with incremental improvement.

What we are seeing is the move away from the high expected volume of EVs and what we are seeing is more hybrid demand, which is good for us because it has a combustion engine and has a transmission as well as electric motors. So that's kind of the move we've seen. I think it still plays good to us because we can play in all 3 of those platforms, ICE, hybrid, or EV. So I think we're in a good spot. Our team has done a pretty decent job of going after the right applications where typically the consumer price effect isn't as influenced based on price movements because these tend to all be high-end vehicles.

I'll now hand the call back over to Metallus as we have no further questions in queue.

Great. Thank you so much. And that concludes our call for today.

Thank you again for joining us today. This does conclude today's conference call. You may now disconnect.

Thank you for standing by, and welcome to the Metallus Inc. Fourth Quarter and Full Year 2025 Earnings Conference Call. [Operator Instructions] Thank you.

I'd now like to turn the call over to Jennifer Beeman. You may begin.

Good morning, and welcome to Metallus' fourth quarter and full year 2025 conference call. I'm Jennifer Beeman, Director of Communications and Investor Relations for Metallus. Joining me today is Mike Williams, Chief Executive Officer; Chris Westbrooks, President and Chief Operating Officer; and John Zanarec, Executive Vice President and Chief Financial Officer; and Kevin Raketich, Executive Vice President and Chief Commercial Officer. You should have received a copy of our press release which was issued last night.

During today's conference call, we may make forward-looking statements as defined by the SEC. Our actual results may differ materially from those projected or implied due to a variety of factors, which we describe in greater detail in yesterday's release. Please refer to our SEC filings, including our most recent Form 10-Q, our Form 10-K, which will be filed later today and the list of factors included in our earnings release, all of which are available on the Metallus webcast.

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 investors page at metallus.com.

With that, I'd like to turn the call over to Mike. Mike?

Good morning, and thank you for joining us today.

In 2025, our specialty steel and multi-metal solutions saw a commercial recovery after market headwinds in the prior year. Demand improved across our end markets and a supportive fair trade environment reinforced the importance of domestically produced steel. On a year-over-year basis, shipments improved by 14%. Throughout the year, we expanded our aerospace and defense presence, including multiple new product offerings and strong growth in vacuum arc remelt or VAR steel. With an increased focus on downstream processing and the support of supplier partnerships, we met higher VAR demand and secured new A&D and industrial customers.

VAR sales totaled approximately $28 million last year, almost doubling from 2024. And Additionally, we maintained our intense focus on safety with initiatives like 0 incident planning, crew safety meetings, and our standup for safety program, actively involving more than 1,000 employees. Results included 0 serious injuries, a 35% reduction in days away or restricted cases and our injury frequency improved 11% year-over-year. A focus on strong leading indicators underscores a more proactive prevention-focused safety culture.

Furthermore, we received industry recognition for our commitment to safety, earning the Safety Culture Improvement Award from the Metals Service Center Institute. We will continue investing in safety training, prioritizing injury prevention through targeted programs such as cranes, rigging and fall protection. We also continue to invest in our people by building the skills we need for a changing industry.

Over the year, we strengthened both [indiscernible] and leadership skills, and expanded our co-op and the apprenticeship programs. To meet increased demand, we are actively increasing hourly staffing levels in targeted areas such as seamless mechanical to production. In parallel, we made organizational leadership changes to better align strategic priorities and support our growing order book across our Canton based assets.

In February, we reached a new 4-year contract with our local United Steel Workers Union. This contract reflects our shared commitment to safety, innovation and long-term competitiveness. It reinforces our strategic priorities and aligns with our disciplined focus on strong cash generation and sustained profitability across all market cycles. The contract offers our Canton based bargaining unit employees annual increases to base wages for the duration of the contract, competitive health care and retirement benefits for all members and a continued focus on employee well-being.

We are pleased with the collaborative outcome of these negotiations and thank the United Steelworkers and our Canton based employees for their constructive engagement. Moving to operations. We made significant progress in advancing our manufacturing capabilities and supporting our long-term growth strategy by completing the ramp-up for the new automated grinding mine.

Utilizing robotic technology, this new asset supports growing demand from our customers for high-quality SBQ products. We remain on track for the scheduled commissioning of the new bloom reheat furnace, roller hearth furnace and automated saw lines in the first half of 2026. These state-of-the-art assets will strengthen our ability to serve all our customers with high-quality specialty metals, enhanced production capability and improve first-time quality.

Turning to our fourth quarter financial results. Shipments declined by 15,100 tons or 9% sequentially. As expected, seasonality was a factor behind the decreased volumes with lower shipments across all end markets. Adjusted EBITDA for the fourth quarter was $2.4 million, below expectation due to lower volumes in addition to compressed raw material spread. Results were also negatively affected by a slower ramp up following our annual maintenance shutdown.

While we are not satisfied with our fourth quarter performance, we acted decisively throughout the quarter and into early 2026 to strengthen our operational foundation and position the business for improved execution going forward. During the planned shutdown period, we accelerated several long-term operational improvements, including extending select outages to ensure our facilities are prepared to ramp efficiently in 2026 with minimal disruption.

These actions support our ability to meet the growing demand reflected in our expanding order book. We also implemented targeted organizational and leadership changes to better align strategic priorities and sharpen our operational focus across all assets. In addition, we are increasing hourly staffing levels in the areas experiencing the most accelerated demand increases.

Finally, we are continuing to invest in the next stage of our operational capabilities through a standardized efficiency initiative, supported by an external expert partner aimed at enhancing throughput and improving high-quality steel output. These steps collectively position us to execute with greater consistency, capture growth opportunities, and we expect to deliver stronger performance in the year ahead.

Our lead times have extended reaching into mid-second quarter for bars and mid-third quarter for seamless mechanical tubing, and our order book has increased more than 50% year-over-year. This underscores the growing demand for domestic steel and serves as a clear indicator of improved momentum we expect to carry throughout 2026.

Turning to performance across our key markets. While industrial markets remain soft, the global trade environment is creating new opportunities as our customers reevaluate supply chains. Our distribution partners are also signaling concern about supply availability as inventories remain low, an environment that we believe will generate additional demand for reliable domestic suppliers like Metallus.

We believe we will continue to take market share in 2026. As we enter 2026, auto sales and production are both expected to be down slightly. And pricing pressure persists as OEMs prioritize margins and pass along tariff costs. Although affordability challenges, interest rates, tight credit and an EV slowdown could impact demand, our order book remains strong. This is supported by our solid position in light truck and SUV transmission programs, which have remained stable despite macroeconomic headwinds.

Energy shipments remain at a lower level sequentially, though we are beginning to see signs of improvement. Favorable trade-related tailwinds are helping us offset continued softness in drilling activity, creating opportunities for incremental sales. Aerospace and Defense outlook continues to be robust, with strong growth expected through 2026, driven both by expansion of existing programs and new platforms.

We will remain focused on safety, outstanding customer service, product development in aerospace and defense, and completing our ongoing government-funded capital investments. These priorities support our strategy for sustainable growth as we expect a much more robust 2026.

Now I'll turn the call over to John, who will provide more details on our financial performance and outlook.

Thanks, Mike. During 2025, our team delivered year-over-year improvements in shipments, net sales and melt utilization. We also advanced our transformative capital investments safely, on time and on budget, allowing us to continue to expand upon our strong foundation to drive further profitable growth while maintaining a healthy balance sheet.

Despite fourth quarter results coming in below expectations, as Mike mentioned, the underlying headwinds were temporary. During the last few months, we took decisive actions to implement operational enhancements that lay a solid foundation for 2026.

From a top line revenue perspective, fourth quarter net sales totaled $267.3 million, a sequential decrease of $38.6 million, mainly driven by normal seasonality, but also impacted by a slower-than-expected ramp-up following annual shutdown maintenance. The fourth quarter GAAP net loss was $14.3 million or a loss of $0.34 per diluted share. On an adjusted basis, the net loss was $7.7 million or a loss of $0.18 per diluted share in the quarter.

Adjusted EBITDA was $2.4 million in the fourth quarter, primarily impacted by higher manufacturing costs due to a $10 million sequential increase in annual shutdown costs and lower fixed cost leverage as expected due to planned shutdown exercises during the fourth quarter.

Shipments were lower than our expectations by around 10,000 tons due to several factors, including customers managing year-end inventory, certain customer logistics challenges, and a slower ramp-up following our annual maintenance shutdown, which included accelerating several long-term operational improvements.

In addition, as a result of compressed scrap market prices, we experienced lower raw material surcharge revenue than expected of approximately $4 million. At the end of the fourth quarter, the company's cash and cash equivalents balance was $156.7 million. During 2025, we generated $16 million of operating cash flow. And when excluding pension contributions, operations produced $80 million in cash in 2025. This marks the second consecutive year in which operational cash generation exceeded $80 million on this basis.

These results provide compelling evidence of the structural transformation of Metallus demonstrating our ability to consistently deliver strong cash flows through the cycle. In the fourth quarter, capital expenditures totaled $35.3 million, including approximately $30 million of fourth quarter CapEx, related to government expenditures. Planned capital expenditures for the full year 2026 are expected to be approximately $70 million, inclusive of approximately $35 million of government-related capital expenditures, of which we are contributing approximately $15 million to $20 million of our own money as part of the collaborative partnership.

As it relates to government funding, during the fourth quarter, the company received $4.1 million of cash from the government, as part of the previously announced nearly $100 million funding arrangement in support of the U.S. Army's mission of increasing munitions production. To date, through the end of December, the company has received $85.6 million of government funding, of which $32.1 million was received in 2025. Additional payments of approximately $70 million are expected to be received in the first half of 2026, contingent on the achievement of mutually agreed upon milestones. As a reminder, this funding has substantially paid for both the new bloom reheat furnace at the company's Faircrest facility as well as a new roller furnace at the [indiscernible] facility.

Now switching to pensions. In the fourth quarter, the company made a required pension contribution of $3.5 million related to the U.S. bargaining plan, as previously guided. During the first quarter of 2026, the company expects to make required pension contributions of approximately $15 million to $18 million related to the U.S. bargaining plan, a significant reduction compared to the first quarter of 2025.

Full year 2026 required pension contributions are expected to total approximately $27 million, representing a nearly 60% reduction from 2025 total pension contributions. We continue to actively manage the pension within our balanced capital allocation approach, and we'll provide further updates as available. In terms of shareholder return activities, in the fourth quarter, the company repurchased approximately 71,000 shares of common stock from $1.2 million.

At the end of December, a balance of $89.7 million remained under our share repurchase authorization. Since the inception of common share repurchases in early 2022, combined with the convertible note settlement activities, we've reduced diluted share outstanding by a significant 25% or [ 13.5 ] million shares compared to the fourth quarter of 2021. These actions reflect the strength of the company's balance sheet and confidence in through-cycle cash flow generation.

As it relates to liquidity, total liquidity remained strong at $389 million as of December 31, 2025, with no outstanding borrowings. We do expect a slight usage of free cash flow during the first quarter of 2026, which is consistent with historical seasonality as the first quarter normally requires a larger amount of pension and bonus funding.

Additionally, this year, our CapEx spend to complete the government projects is the highest in Q1 and ramps down throughout 2026. After the first quarter, we expect quarterly free cash flow to be positive for the remainder of 2026. As we look to the near-term business outlook, commercially, first quarter shipments are expected to increase by approximately 10% compared with the fourth quarter, primarily due to strength in the order book and a step-up in operational performance after the fourth quarter shutdown set us up for a strong start to 2026.

As Mike mentioned, our order book continues to build and is up 50% compared to the same time last year. Annual price agreement negotiations, which cover approximately 70% of the order book are substantially complete. Average base price per ton is anticipated to increase slightly year-over-year, mix dependent. The company recently implemented spot price increases on both bar and seamless mechanical tubing products not covered by an annual pricing agreement.

These increases are effective throughout the second quarter and early third quarter, product dependent. Based on lead times, pricing benefit and product mix improvements are expected to ramp each quarter of 2026.

From an operational perspective, the company anticipates a sequential increase in its average melt utilization rate, supported by limited planned shutdown activity during the first quarter, greater stability and reliability across key assets, along with steady customer demand.

As a result, manufacturing costs are expected to sequentially improve by approximately $10 million in the first quarter, following the completion of planned shutdown maintenance in the fourth quarter and improved cost absorption from higher first quarter melt utilization.

Additionally, as Mike just mentioned, United Steelworkers recently ratified a new 4-year labor agreement with Metallus. The new labor agreement provides an increase in wages of 5% per year as well as additional premiums for specialized roles, which allows us to attract the right talent for our growing business demand.

The agreement also adds flexibility to manage future pension obligations while offering competitive defined contribution plan alternatives. As part of the agreement, a onetime payment of approximately $2 million will be paid in the first quarter.

Taking these factors into account, we expect first quarter adjusted EBITDA to be above fourth quarter levels, reflecting our typical seasonality and supported by a solid order book. For the full year, we expect continued market demand for our solutions, flat depreciation and amortization expense and a low single-digit increase in SG&A expense. While we remain mindful of external variables, we currently anticipate delivering year-over-year adjusted EBITDA growth in each quarter of 2026.

To wrap up, thank you to all of our employees, customers and suppliers for their support. We are firmly positioned as a high-quality U.S. specialty metals producer, serving critical end markets. As we head into 2026, with a growing order book, our focus is on safe execution to meet rising customer demand. We remain committed to delivering shareholder value through disciplined capital allocation and sustained profitable growth. As always, thank you for your interest in Metallus.

We would now like to open the call for questions.

[Operator Instructions] Your first question comes from the line of John Franzreb from Sidoti & Company.

I'd like to start in the fourth quarter, there was an expectation of $3 million to $5 million of costs flowing through the P&L from labor negotiations. I'm curious how much you incurred in the -- not only the fourth quarter but have already incurred into the first quarter of 2026?

We didn't really occur any additional costs from the outcome of the labor negotiations because the agreement was not settled until early February. However, there is a payment due, which John outlined for about $2 million this quarter, plus they are starting to get the new wage increase that was agreed to in the first year of the contract.

So we will see higher labor costs going forward compared to 2025, and then there's that one payment that they earned throughout the negotiation process.

Reference -- that $2 million reference for Q1 was -- could have been timing impacted in Q4, but it is...

Yes. We would have had the contract settled last year, but it wasn't.

Right. So that $2 million is still going to flow to the P&L, it's not going to be a onetime item, correct?

Well, it's a onetime item, but it will flow through the P&L in Q1.

Right. Got it. Okay. Understood. And regarding your expectations of melt utilization improving through the balance of the year, is that solely volume dependent? Or are you baking in any expectations from that third-party advisory program into that expectation?

Both -- we're relying on both. We have a much stronger order book entering 2026 than we had last year. And everything we're hearing from our customers, with our annual contract negotiations pretty much settled. Things look fairly robust and continue to build throughout 2026, both from a demand volume perspective and our execution.

That's actually a perfect segue into my next question. I was just curious about with the order book up 50% year-over-year. How would you characterize the 2026 demand relative to what you thought it was going to be, say, 3 months ago?

Well, we got signals as we went through the 3- to 4-month process of annual negotiations that there were separate from the A&D. The A&D is going to continue to go through -- grow throughout the year, and I'll give you a little color on that. But the automotive programs that we're on really around our transmission offerings and the platforms that we're on, we see our auto business being steady compared to 2025 -- the second half of 2025 throughout 2026 at this point.

We are seeing some increased demand compared to last year. And I would say, on a certain isolated focus base in the industrial end markets. I think we just got to see how the overall economic activity for the United States develops throughout the year. And we do expect isolated improvements in demand on some of our very large industrial customers throughout 2026.

Energy, really, as we said in our opening comments, a favorable trade -- a favorable and fair trade environment is driving some opportunity in the energy space, even though the drilling activity, which is a majority of where our applications go, is not increasing, it's been fairly stable. It's really the A&D that's going to drive a lot of the growth for us in 2026.

A number of our large A&D OEMs have already place full year POs with us. And so we can see the future rising of that demand. However, there is some dependency, particularly in the munition side where the down -- our OEM customers have made major investments to increase their capacity, that capacity has to ramp up all the signaling we get is that's going to happen, but it's about 1.5 years, 2 years late.

So -- but we do expect to see that, that's going to drive further demand growth throughout 2026 in our A&D, with that dependency on that capacity ramping up to take our product offerings. And then thirdly, in the A&D space, it's really we've gotten over 5 -- half a dozen new customers in the fourth quarter for programs in 2026. Majority of that is the bar material that we spoke about earlier in our comments. But we're also continuing to work on getting new platforms and working with new customers.

So we're pretty excited about what -- where we're positioning, how we're positioning the successes that we've had in getting new programs and how that's going to help drive profitability growth for us in 2026.

Just to follow-up to what you said. Is there any change in your expectations in the A&G contributions in 2026 versus your initial expectations?

No, I think we kind of -- we're assuming where our A&D pricing's been is just going to continue to roll forward. But the higher mix influence of that in our sales revenue will drive profitability -- improved profitability growth for us in 2026.

Okay. I'll get back in the queue.

All right. Thanks, John.

Your next question comes from the line of Phil Gibbs from KeyBanc Capital Markets.

And Mike can you just curious on where you expect A&D sales in 2026. I know prior, you thought you'd be above a $250 million run rate on sales by mid-2026, and then also the status of your key capital investments and when those are going to be commissioned and deployed?

Sure, sure, sure. So it's early in the year, but like I said to John earlier, we've already gotten several POs from our largest A&D OEM customers. So we see their full year demand. We still are believing that we're going to hit that run rate, but it is dependent on the new capacity ramping up for the munitions manufacturing downstream from us. So as that ramps up, which were being signaled that, that's going to continue to ramp up throughout this year. we still expect to hit that at some time, either early second half. It could move based on their ramp-up success, but we still believe we're on target to hit that $250 million run rate at this point in the year.

And then just regarding the status...

Yes. Things are going pretty good there. We did have some weather delays between late in the fourth quarter, early this quarter. But we're pretty much on target. The bloom reheat furnace, we've lit the furnace. We've cycled and simulated pushing blooms through the furnace. We expect to start to put that in operation in the next month to 5 to 6 weeks to get that, and we'll start to ramp that up throughout the remainder of the first quarter and early second quarter.

The rotary or the -- the roller hearth furnace, we are on time with that. We expect to like that furnace up towards the end of the first quarter, early second quarter. We expect to have both assets up and -- ramped up to production by late second quarter, early third quarter.

And then a question for John, just on the share count and also the DNA. So on the diluted share count, it looked like they were down about over 1 million shares quarter-on-quarter. I know buybacks were limited. So anything that would have driven that over that buyback number. So just curious in terms of what we should be using moving forward? And then also on the D&A, you said flattish year-over-year, but you do have commissioning of new assets. So just curious why that would be flat and not increasing as you're putting more assets to use.

Yes. No, good questions, Phil. So on the dilutive shares impact, it will be up a little bit, maybe about 1 million or so in 2026 because of the net loss position on the U.S. GAAP basis. So the number to use would be a little bit. If you're looking at GAAP versus non-GAAP. But we do plan to continue to do share buyback to offset equity comp dilution. So it would be fairly flat if you're using an adjusted basis. But our GAAP net losses sometimes makes that a little bit interesting to look at our diluted shares. As far as the depreciation and amortization.

Recall, it's only $15 million to $20 million of our own money. And so as that's actually hitting our depreciation, the -- the depreciation and amortization for the government funding, there is none. There's no depreciation and amortization. So as we have some assets falling off every year, the new capital spend for our base business, which is pretty consistent, we'll just replace that. So that's basically why D&A will stay flat.

[Operator Instructions] Your next question comes from the line of Dave Storms from Stonegate.

So I want to go back to some of the customers -- want to go back to some of the customer growth you've seen in VAR. Is there anything more you can tell us about maybe the types of customers here with them being new customers to sort of potential to expand within their operations, just anything more you can give us there?

Well, if you look at the VAR -- majority of the VAR goes into a variety of aerospace and defense, more defense than aircraft, let's say, but it's a variety, and it's a growing product line for us. So we really can't talk about the customers themselves or the end applications on a variety of weapon systems and military technologies that these products are going into due to the confidentiality requirements, but we're pretty excited about it.

That we've also won new -- some new customers and applications with VAR in the industrial space. So these are high-end equipment applications that the VAR materials specifically designed for. And we're pretty excited to the fact that now we're expanding outside of the A&D with this product offering. And we just expect it's going to continue to grow. We have a great supplier partner, and we're building a very credible customer base with some pretty exciting end applications.

Understood. Appreciate that color. And then just one more on lead times. It looks like about 3 to 6 months on lead times right now, or maybe a little bit longer. Would you expect that to come in as you ramp the new assets as you just laid out? And I guess is there a potential then to increase sales and maybe get those lead times to stay the same.

Yes. If you look at our seamless mechanical tubing, that's the one that's out the furthest, that's early August. We are adding an additional crew and we naturally -- and we are making some investments in some of the key assets involved with our tube making process. And so as those investments ramp up and the additional shift comes on here in early March, we do expect to bring those lead times in because our availability of product and customers will increase.

The bar is -- it is what it is. We've seen a pretty good increase in demand, and we're going to try to keep our lead times as competitive as possible. We do believe the new assets are going to help with better quality, right the first time, higher efficiency and throughput. And as those assets ramp up, we specifically believe that. That will also make sure that we have competitive lead times, and we really -- right now, as we see a much larger order book, it allows us to be more efficient with our planning and scheduling across our key bottleneck assets.

So things are looking very positive for us, and we expect to deliver, as I said, much better results throughout 2026.

And that concludes our question-and-answer session. I will now turn the call back over to Jennifer Beeman for closing remarks.

Thank you all for joining us today. We look forward to updating you in the future. And that concludes our call.

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

Hello, and thank you for standing by. My name is Tiffany, and I will be your conference operator today. At this time, I would like to welcome everyone to the third quarter 2025 Metallus Inc. Earnings Call. [Operator Instructions]

I would now like to turn the call over to Jennifer Beeman. Jennifer, please go ahead.

Good morning, and welcome to Metallus' Third Quarter 2025 Conference Call. I'm Jennifer Beeman, Director of Communications and Investor Relations for Metallus. Joining me today is Mike Williams, Chief Executive Officer; Kris Westbrooks, President and Chief Operating Officer; John Zanarec, Executive Vice President and Chief Financial Officer; and Kevin Raketich, 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. Please refer to our SEC filings including our most recent Form 10-K and Form 10-Q and the list of factors included in our earnings release, all of which are available on the Metallus website. Where non-GAAP financial information is referenced, additional details and reconciliations to its GAAP equivalent are also included in the earnings release.

With that, I'd like to turn the call over to Mike. Mike?

Good morning, and thank you for joining us today. I want to start with safety. Throughout the year, we've been dedicated to our mission of being recognized as having the safest specialty metals operation in the world. In line with this mission, we continue to make substantial investments in the safety of our people.

We remain on track to spend $5 million to further enhance our safety management systems and critical equipment this year. To date, in 2025, we've had 0 serious injuries. These are events which are life-threatening or life altering. We have also had a 15% reduction in days away and restorative work cases and a 34% reduction in lost and restricted work days compared to the same period a year ago.

In October, we successfully completed our planned annual maintenance shutdown at the Faircrest facility. These shutdowns are highly coordinated efforts involving collaboration between our teams and external contractors. Over the course of 9 days, we performed essential maintenance to ensure the 2026 reliability and performance of our melt shop assets. Most importantly, I'm proud that the Faircrest shutdown was completed without any serious safety incidents. As a reminder, we will see additional shutdown activities in our other facilities in the late fourth quarter.

Customer feedback continues to reaffirm the strength of our service and quality. We recently wrapped up our annual customer survey. And I'm pleased that over 97% of respondents said they would recommend Metallus products to others, a testament to the exceptional work our teams deliver every day. As expected, the survey showed that most customers prefer buying steel made in the United States, and it's a key factor in their purchasing decision.

We're seeing continued interest from both new and long-standing customers who are actively shifting toward domestic supply chain solutions. So far in 2025, we successfully sold to over 2 dozen new customers, which will contribute to the future business growth. In addition, we saw a substantial year-over-year increase in our overall order backlog. Specifically, aerospace and defense backlog is up approximately 80% compared to a year ago.

As we enter the final quarter of the year, we've begun our annual commercial contract negotiations. Our goal remains to secure approximately 70% of our long products business through annual agreements. While we're in the midst of negotiations, customer conversations have been encouraging for 2026.

Now turning to business results. for the third quarter. Despite shipments being down slightly from the second quarter, sales increased as a result of favorable product mix with continued expansion in the aerospace and defense end market. On a year-over-year basis, shipments in the third quarter improved by 36%, driven by broad-based improvements across all end markets.

Our current lead times extend to late January for our SBQ bars and February for our seamless mechanical tubing products. Adjusted EBITDA rose sequentially to $29 million, driven by our growing participation in the aerospace and defense end market and stability across the other end markets. Additionally, higher levels of production during the quarter resulted in greater fixed cost leverage.

Now let's cover some of the third quarter highlights of our specific end markets. Industrial shipments decreased slightly in the third quarter on a sequential basis. Distribution customer inventories have improved, but still remain lean and in line with demand. Several key customers have indicated plans to ramp up operations and are projecting stronger forecast for 2026, while others remain cautious, closely monitoring year-end inventory levels.

Automotive shipments increased slightly on a sequential basis. Key automotive customer demand was solid throughout the quarter, and we have not yet experienced any disruption due to global supply chain challenges. Energy shipments remain at reduced volumes on a sequential basis. With import levels declining and tightened enforcement of tariffs, we are beginning to capture greater customer share for 2026. However, overall energy market conditions still remain subdued.

Finally, higher shipments in aerospace and defense contributed to a favorable product mix this quarter. We continue to gain traction across both new and existing programs., ,all supporting our targeted annual A&D sales run rate of $250 million by mid-2026.

In the quarter, we added several new customer opportunities for our specialty bar and tubing products for applications, including new munitions programs, gun barrels and aerospace bearings. We also recently secured prototype orders with multiple customers that once fully commercialized, will utilize Metallus' carbon and specialty alloys and newer warheads and in rocket motor casings. These are applications where strength, efficiency, quality and shorter lead times are critical.

Today, Metallus supports several dozen defense programs with growth coming from both traditional prime contractors and emerging industry producers. We are on track with the construction of bloom reheat and roller furnaces, both assets will increase our capability and optimize our throughput. We remain optimistic about the future in the growing aerospace and defense market.

Turning to another bright spot. We are focused on growing our participation in the vacuum arc remelt or VAR steel product line. We recently executed a long-term supply agreement with a trusted partner for VAR Steel, strengthening our strategic position and securing a reliable high-quality material stores to support ongoing sales and profit growth.

Before I turn it over to John, I'd like to provide a brief update regarding our labor negotiations. As we announced on October 30, members of our local USW have voted not to ratify the tentative labor agreement we had reached with the union Negotiating Committee. While we're disappointed by the outcome, we remain committed to securing a fair agreement that supports our employees and aligns with Metallus' long-term strategic goals. The current contract has been extended by 90 days to January 29, 2026, and we expect our operations to continue without disruption. We appreciate the support of our shareholders, the trust of our customers and the dedication of our employees as we look forward to a stronger 2026.

Now I'd like to turn the call over to John.

Thanks, Mike. Good morning, and thank you for joining our third quarter earnings call. During the quarter, our team delivered sequential increases in net sales, melt utilization and profitability consistent with our earnings guidance. We also advanced our capital investment safely, on budget and on schedule.

As it relates to our top line, third quarter net sales totaled $305.9 million, a sequential increase of $1.3 million, primarily driven by higher shipments in aerospace and defense and steady volume across auto and industrial end markets. Net income was $8.1 million in the third quarter or $0.19 per diluted share.

On an adjusted basis, net income was $12 million or $0.28 per diluted share. Adjusted EBITDA was $29 million in the third quarter, a sequential increase of 9% primarily driven by improved product mix and continued improvement in melt utilization, driving better fixed cost leverage. This marks the fourth consecutive quarter of sequential growth in both net sales and adjusted EBITDA, underscoring the consistency of our commercial execution, improving operations, sustained demand in our core markets and our focus on growing in aerospace and defense.

During the third quarter, operating cash flow was $22 million, primarily driven by profitability, partially offset by a slight increase in working capital needs to support the growing business. At the end of the third quarter, the company's cash and cash equivalents balance was $191.5 million, inclusive of approximately $21 million of government-funded cash on hand for future outlays as we finalize our capital projects funded by the U.S. government.

In the third quarter, capital expenditures totaled $28.4 million, including approximately $22 million of third quarter CapEx and supported by previous government funding. Planned capital expenditures for the full year 2025 are approximately $120 million, slightly lower than previous guidance due to timing of cash payments.

The full year CapEx guidance includes approximately $90 million of spending, which was funded by the U.S. government, consistent with our previous guidance and the continued successful execution of the projects.

As it relates to government funding, during the third quarter, the company received $10 million of cash from the government as part of the previously announced nearly $100 million funding agreement in support of the U.S. Army's mission of increasing munitions production.

To date, through the end of September, the company has received approximately $82 million of government funding with an additional $4.1 million received in October. Receipt of the remaining committed government funding is expected in early 2026, as mutually agreed upon milestones are achieved.

As a reminder, this funding will substantially pay for both the new bloom reheat furnace at the company's Faircrest facility and the new roller furnace at the Gambrinus facility.

In terms of shareholder return activities, in the third quarter, the company repurchased 178,000 shares of common stock for $3 million. At the end of September, a balance of $90.9 million remained under our share repurchase authorization.

Since the inception of common share repurchases in early 2022, combined with the convertible note repurchase activities, we've reduced diluted shares outstanding by a significant 25% or 13.5 million shares compared to the fourth quarter of 2021. These actions reflect the strength of the company's balance sheet and the confidence in through-cycle cash flow generation. As it relates to liquidity, total liquidity remained strong at $437 million and no outstanding borrowings as of September 30, 2025.

Turning to our near-term business outlook. Commercially, fourth quarter shipments are expected to be 5% to 10% lower than the third quarter, primarily due to normal year-end seasonality and customers' potential global supply chain challenges. Base price per ton is anticipated to increase slightly as we realized the previously announced bar and 2 price increases of 5% that will take effect through the fourth quarter.

Product mix is expected to be less favorable than the third quarter due to the mix of sales within the industrial and aerospace and defense markets, which is primarily timing related. In summary, commercially, we expect lower shipments and slightly weaker product mix compared to Q3, slightly offset by increased base price per ton but the net impact is expected to be a $2 million to $3 million adjusted EBITDA sequential headwind.

From an operational perspective, annual shutdown maintenance in the fourth quarter will be approximately $11 million, a sequential increase of approximately $8 million from the third quarter. The planned annual shutdown maintenance timing and the normal fourth quarter commercial seasonality will result in a decrease in melt utilization from the 72% achieved in the third quarter and is anticipated to result in a sequential decrease in fixed cost leverage of approximately $3 million.

And finally, depending on the status and timing of a new labor agreement, we could also face additional labor and benefit costs that could result in a sequential fourth quarter cost increase.

Given these elements, the company expects the fourth quarter adjusted EBITDA to be lower than the third quarter, primarily driven by our normal year-end seasonality, planned annual shutdown maintenance costs and timing and a few potential customer global supply chain challenges. As compared to the fourth quarter of 2024, we expect adjusted EBITDA to improve slightly.

To wrap up, thank you to all of our employees, customers and suppliers for their support. We're well positioned for a successful 2026 and beyond as a high-quality U.S.-based specialty metals producer supporting critical markets. We remain committed to delivering value to our shareholders by driving profitable growth and executing our capital allocation strategy.

As always, thank you for your interest in Metallus. We would now like to open the call for questions.

[Operator Instructions] Your first question comes from the line of John Franzreb with Sidoti & Company.

I'd like to start with the automotive business. It was up nicely on a year-over-year basis. And last quarter, you talked about regaining share domestically. I'm curious if that's the case. And I have a follow-up to that when you answer it.

Sure, John. Thanks for asking the question. Yes, I mean if you look at the platforms, that we're on, those are the typically the SUVs, trucks, et cetera, that continue to sell at a decent rate. And they actually -- the auto companies were giving us a forecast that they thought the quarter would be lower, but that didn't materialize.

So people are still buying vehicles. They're still having to build transmissions and motors, et cetera, to supply those vehicles, and that's our sweet spot. So we'll see how the fourth quarter develops. We do expect seasonality from them. And then there are some risks of some supply chains in the fourth quarter, their supply chains disrupting potentially vehicle production at the level that we saw in Q3. Does that answer your question?

Yes. And when you referenced supply chains, you actually said global. So I'm curious, are you referencing specifically the Ford problems? Or is there something more to it?

Well, there's concern or at least there's been public voice concern over chip supply and other issues with their supply chain. So -- but yes, Ford is the one that stands out because we've seen a lot of that in the public press reporting.

Okay. And regarding the $3 million to $5 million that you expected to incur with the labor negotiations, how much did you incur in the third quarter relative to your expectations?

Barely nothing except for our cost to negotiate. A lot of those -- that $3 million to $5 million is tied on the final negotiations. So more to come yet on that.

Fair enough. And have you seen any impact from the tariffs? We talked a little bit about last quarter that there was kind of a wait-and-see status. I wonder if you've seen customers gravitate more to reacting to the tariff environment. And maybe another thought on that is, does the government shutdown impact maybe the A&D business at all?

No, we've seen no A&D impact. This is the #1 priority is national security, and they need the volumes of munitions and weapons programs supplied. So no, we've not seen any impact on that. What was the first part of your question?

Any impact from tariffs on customers? Last quarter, you kind of said there was a wait and see...

Actually, I mean, the tariffs environment has been favorable to us. We are taking new customers. We've seen new customers come in. And we've seen a tremendous amount of inquiry activity for 2026, where more people are trying to position the domestic supply chain as you heard us in our comments. So from a commercial sales perspective, it's been fairly -- pretty positive. It's just the rate of speed in which that domestic awards are made. But there is a negative in the fact that we are seeing some tariff impacts on certain materials that we purchase offshore for our operating supplies and manufacturing.

Your next question comes from the line of Phil Gibbs with KeyBanc Capital Markets.

Mike, the -- and I know you talked a little bit about that with the last question, but what are exactly the global supply chain challenges you're mentioning? Is that more so -- is that more so with automotive and Ford? Or is there more to it? Just wanted some context?

No. I mean there's been information out there that we've been told that there is concern over, again, some chip supply. Of course, you know the impact to the Ford F-150 with the aluminum supply domestically. So those are kind of things that we're aware of. We haven't seen that impact yet, but that's a potential going forward. So we just want to put it out there. Honestly, it's just a timing issue. So whatever they don't produce, they will produce because they want to meet sales targets, et cetera, for 2026.

Got it. And with your commentary of improved year-over-year EBITDA in the fourth quarter, does this contemplate any of the potential employee contract negotiations? Or would that be separate to that commentary?

Well, I'm not quite clear what your question is. We've identified if we do get a contract settlement -- in the fourth quarter, we're going to see those outlined costs that John referenced in his comments. .

And we didn't quantify it yet, but I think there would be potentially some additional costs. It really depends on the timing.

Yes. It's all about timing. I mean right now, we have an extension until January 29. We just -- we're going to work hard to negotiate a fair and equitable contract and align with our longer-term strategic objectives.

Your next question comes from the line of Dave Storms with Stonegate.

I want to start with the energy end market here. What do you see as a potential for volumes to rebound over 2026?

Well, I mean a lot of it's driven by the price of oil and overall global demand, right? I think there are some other influencing factors like what sanctions and how effective sanctions against Russian oil are. And would that increase domestic production in North America? And then we would -- we most likely would benefit from that increased production, higher oil prices tend to drive increased production too.

Other areas where as these LNG plants come on over the next couple of years that they're building, that will drive gas consumption, pipelines, et cetera, or natural gas production et cetera, to feed the global markets that they're targeting, that's all positive stuff for, but that takes time.

We are seeing where we're -- actually probably where we're seeing potential increases in 2026 is that energy end market has historically procured a lot of SBQ into offshore and those tariffs are starting to affect their thinking and their buying strategy. So we've seen a tremendous amount of inquiries for 2026 for our energy end markets and customers.

Understood. That's very helpful. Turning to your order book. Just curious as to how you feel it's tracking relative to this point last year? I know you mentioned you want to be about 70% booked going into the year. Do you feel like you're on pace to meet that goal relative to last year? Or just maybe were do things stand there?

Yes. We're pretty strong believers that we're going to get to that 70%. It could be a little bit higher depending on the pricing landscape. We are seeing customers telling us, not every customer, but some key customers telling us their internal production forecast for next year are going up, and we see them asking for more volume for 2026. So we're very happy about that, and we look forward to delivering an even better 2026.

Understood. That's very helpful. And then just maybe one more for me. I know last quarter, we talked about energy input prices and that you were working on a new negotiation there. Would just love to hear where that stands going into the new year.

I think the biggest one is electrical energy. And we had a long-term contract that expired in May of this year, and we had to go to market. I can tell you that prices -- market prices change significantly for the time of that really nice electrical energy contract we had. So yes, and we've been transparent that we're seeing cost increases on our electrical energy purchases.

We currently have a 2-year agreement for a large portion of our requirements, but there is a small portion that's exposed to market pricing, and we'll watch that very closely. We have many projects in the pipeline to work on reducing our electrical energy consumption and let alone also increase our efficiency of production with how much electrical or kilowatt per ton we use.

And on the natural gas side, we're purchased forward for 70% to 80% of our needs for next year. And we actually probably are out 5 years at various supply requirements, but we're an active buyer in the market, and we're very opportunistic. So we looked for the best competitive prices we get and position ourselves for the best cost in those unit prices for both electricity and natural gas.

Yes. And Dave, real quick, one thing to add to that, what Mike was saying on electricity is we -- if you recall at the end of Q2, we said $2 million to $3 million of sequential cost increase, that's what we experienced. So we kind of guided that, and that's what we saw. And that's aligned with the contracts that we've lined up for the next 2 years.

[Operator Instructions] Your next question is a follow-up from John Franzreb with Sidoti & Company.

I'm just curious about the CapEx spend. You dropped it down a little bit this year. What does next year look like?

Well, we're in the planning phases of that right now. The reason why we dropped down the forecast is it's all about timing. It's tied to completion of work as well as payment terms tied to after that completion and how long before we have to pay them. So it's all a timing issue. On the -- for 2026, we're in the planning phases right now, John. So we'll talk more to that early next year.

Okay. And if I recall, you brought in a third party to help you maybe with your floor operations. Any kind of progress you can report about that and how that's going?

Yes. We're very pleased with the progress, and you're going to start to see those results throughout the remainder of this year. The project is not over, but we're very pleased with the outcomes of the findings, the improvements that they're assisting with and helping my team implement them. This project goes on until late March. So a lot of those benefits will be realized in 2026.

Actually helpful. And I guess lastly, on the new A&D awards, maybe any additional color you want to provide and maybe the timing of revenue recognition or material revenue recognition from those jobs?

Yes. We're starting to actually see some of that now, particularly in the VAR VIM sales that continues to grow, which is just value creation for this company. And that's only going to continue to grow in 2026. We expect the munitions to continue to build demand build as some of the downstream supply chain issues get resolved throughout the end of this year and early next year.

And then we're getting awarded as we commented earlier, a number of new programs, weapons programs, gun barrel programs, aircraft bearings, et cetera, that demand and the realization of that value growth is really going to materialize in 2026, in my view, as a notable rate. And like we said, our objective overall was to achieve or exceed a run rate of $250 million a year of revenue, and we're very confident that we'll hit at least that in 2020 -- by mid-2026.

That concludes our question-and-answer session. I will now turn the call back over to Jennifer Beeman for closing remarks.

Thank you all for joining today, and that concludes our call.

Ladies and gentlemen, this concludes today's call. Thank you all for joining. You may now disconnect.

Thank you for standing by. My name is Tina, and I will be your conference operator today. At this time, I would like to welcome everyone to the Second Quarter 2025 Metallus Earnings Call. [Operator Instructions] It is now my pleasure to turn the call over to Jennifer Beeman. Jennifer, you may begin.

Good morning, and welcome to Metallus' Second Quarter 2025 Conference Call. I'm Jennifer Beeman, Director of Communications and Investor Relations for Metallus. Joining me today is Mike Williams, Chief Executive Officer; Kris Westbrooks, President and Chief Operating Officer; John Zaranec, Executive Vice President and Chief Financial Officer; and Kevin Raketich, 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. Please refer to our SEC filings, including the most recent Form 10-K and Form 10-Q and the list of factors included in our earnings release, all of which are available on the Metallus website. Where non-GAAP financial information is referenced, additional details and reconciliations to its GAAP equivalents are also included in the earnings release. With that, I'd like to turn the call over to Mike. Mike?

Good morning, and thank you for joining us today. Before we begin, I'd like to take a moment to welcome John Zaranec to the team. John is our new Executive Vice President and Chief Financial Officer and brings with him more than 20 years of financial leadership in the manufacturing and industrial sectors, along with a strong track record of engaging with the investment community. We're excited to have him on board, and I'm confident you'll enjoy working with him. Also, I'm excited that Kris recently assumed new responsibilities as President and Chief Operating Officer after serving as our CFO since 2018. Kris now has oversight of our safety, manufacturing operations and excellence and supply chain organizations.

Now turning briefly to the trade environment. Section 232 steel tariffs remain firmly in place at 50% for most countries with little change resulting from the country-specific agreements currently under negotiation by the administration. A fair trade environment is very important for the long-term sustainability of the steel industry, an industry that is vital to our national defense and infrastructure. As a result of the recent trade actions, we anticipate growing demand for domestically produced steel. Before we dive into safety and the quarterly results, I want to take a moment to share how honored we were to recently host Vice President, J.D. Vance at our Faircrest plant in Canton, Ohio.

He spoke to approximately 300 of our employees and local stakeholders, emphasizing the federal government's commitment to investing in American workers and businesses. He also acknowledged our role in supporting national defense, highlighting Metallus' investment in a new bloom reheat furnace and our support of the Army's increased artillery shell production. This visit left many of our employees energized and deeply proud of the vital role they play in strengthening our national's industrial and defense capabilities.

Moving on to safety. Our mission remains clear to be recognized as having the safest specialty metals operation in the world. In 2025, we're on track to invest approximately $5 million to enhance our safety management systems and upgrade critical equipment. I'm pleased to report that our previous safety investments are delivering meaningful results. So far in 2025, we've had 0 serious injuries, a 40% reduction in injury severity and a 6% reduction in injury frequency compared to the same period a year ago. Even more encouraging are our leading indicators, a 25% increase in the number of employees actively participating in the first aid provider program and serving as safety committee representatives. A 41% rise in near miss reporting and a 48% increase in proactive safety engagement interactions -- these trends reflect growing employee engagement and trust in our safety culture.

We're also continuing to derisk our operations through robust serious injury and fatality prevention measures, comprehensive risk assessments and targeted lockout, tagout, tryout enhancements. We recognize that safety is a journey. However, these positive indicators give us confidence that we're moving in the right direction toward our goal of industry-leading safety performance. Moving to business results for the second quarter. Overall, shipments increased by 10% compared with the first quarter, driven by higher aerospace and defense, automotive and energy shipments. When looking at the first half of 2025, we shipped 28% more tons than the second half of 2024.

Higher shipments, coupled with better manufacturing performance resulted in a $26.5 million adjusted EBITDA, a significant increase from the first quarter. Additionally, we recently announced a price increase on seamless mechanical tubing products of $100 per ton effective in November for customers not covered by annual pricing agreements. Lead times are currently extended to October for our SBQ bars and seamless mechanical tubing products. Turning to our specific markets. Industrial shipments increased slightly in the second quarter on a sequential basis. Distribution customer inventory levels have declined over the last few months. SBQ and seamless mechanical tubes are consistently turning over and customers are regularly ordering from us.

Energy shipments improved 17% on a sequential basis. We continue to invest in our thermal treat capabilities for high-pressure, high-temperature applications to further expand our reach in the energy market. Tariffs aimed at protecting domestic steel producers are helping to reduce imports and stimulate demand. Automotive shipments improved by 9% sequentially. The sequential increase in shipments included some market share gains and increased demand on existing programs. The highest running light truck and SUV programs that Metallus participates in remain strong. And as we mentioned last quarter, we are continuing to see increased customer inquiries driven by tariff-related onshoring.

As expected, aerospace and defense shipments nearly doubled sequentially. While the industry continues to work through their short-term supply chain challenges, this market remains on target to continue to grow for the foreseeable future, and we are energized by our participation in this market. We continue to build momentum with vacuum arc remelt or VAR steel, driven by our broad downstream processing capabilities and a strategic relationship with a VAR supplier. Metallus is uniquely positioned to procure, engineer, process and sell these VAR products in an efficient manner that is desired by customers. Year-to-date, VAR-related sales have more than doubled compared to the first half of 2024, reflecting the focused efforts of our teams.

Alongside growing volumes with existing customers, the enhanced strength and durability of VAR steel has enabled us to win new business in the aerospace, defense and industrial sectors. As previously shared, we remain on track to achieve approximately $30 million in VAR-related revenue by the end of 2025. Switching gears to operations. Our melt utilization rate improved to 71% or by 6 percentage points sequentially on higher production volumes. We're seeing the benefits of ongoing process improvements across our manufacturing facilities, and we expect melt utilization to further increase in the third quarter to support our solid order book.

That said, we believe there are still meaningful opportunities to drive improvement in operating performance and cost structure. To support this, we've launched an initiative focused on optimizing the execution of our day-to-day manufacturing operating system across the organization. We expect this initiative will support the long-term sustainability of our operations while reducing costs and enabling profitability growth. In terms of recent capital investments, our automatic grinding line at our Harrison facility has successfully completed hot commissioning and is now fully staffed and operational. We're already seeing daily improvements in safety and throughput, clear indications of the project's positive impact.

Additionally, our government-funded investments continue to hit key milestones related to the installation of the new bloom reheat furnace and roller furnace to support the Army's increased demand for artillery shells. The bloom reheat furnaces construction continues to remain on schedule to begin commissioning by the end of the year. The new roller furnace building and equipment foundations are nearing completion and equipment has begun to arrive. We remain on schedule to begin commissioning in the first half of 2026.

Lastly, as a reminder, we will begin labor negotiations with the United Steelworkers on August 18 regarding the current labor agreement, which expires on September 29. As always, our aim is to achieve a timely, fair and equitable contract for both the company and our employees. We remain focused on our daily execution to support our solid order book while maintaining a commitment to safety, delivering an exceptional customer service and making strategic capital investments. These priorities are key to supporting sustainable profitability, generating strong cash flow and creating long-term value for our shareholders. I'm now going to turn the call over to Kris to review our financial results for the second quarter since he served as CFO for the majority of the quarter, and John will share the company's outlook.

Thanks, Mike. Good morning, and thank you for joining our second quarter earnings call. During the quarter, our team delivered a sequential increase in shipments, net sales, melt utilization and profitability, consistent with our earnings guidance. We also continue to invest in the business to drive profitable growth while maintaining a strong balance sheet. From a top line revenue perspective, second quarter net sales totaled $304.6 million, a sequential increase of $24.1 million or 9%, primarily driven by higher shipments across all end markets.

Net income was $3.7 million in the second quarter or $0.09 per diluted share. On an adjusted basis, net income was $8.4 million or $0.20 per diluted share in the quarter, more than double, first quarter levels. Adjusted EBITDA was $26.5 million in the second quarter, a sequential increase of 50%, primarily driven by higher shipments and continued improvement in melt utilization, driving better fixed cost leverage. During the second quarter, operating cash flow was $34.8 million, driven by profitability, lower inventory and the receipt of a $6.5 million federal income tax refund.

At the end of the second quarter, the company's cash and cash equivalents balance was $190.8 million, inclusive of approximately $34 million of government-funded cash on hand for future investments. In the second quarter, capital expenditures totaled $17.8 million, including approximately $15 million of second quarter CapEx supported by previous government funding. Planned capital expenditures for the full year 2025 remain at approximately $125 million, consistent with previous guidance and inclusive of approximately $90 million of capital expenditures funded by the U.S. government. As it relates to government funding, during the second quarter, the company received $5.1 million of cash funding from the government as part of the previously announced nearly $100 million funding agreement in support of the U.S. Army's mission of increasing munitions production.

Additionally, during July, the company received an additional $10 million of cash funding from the government. To date, through the end of July, the company has received $81.5 million of government funding. Receipt of the remaining committed government funding is expected throughout the remainder of 2025 and into 2026 as mutually agreed upon milestones are achieved. As a reminder, this funding will substantially pay for both the new bloom reheat furnace at the company's Faircrest facility as well as the new roller furnace at the Gambrinus facility.

Now switching gears to pensions. In the second quarter, the company made $5.9 million of required pension contributions related to the U.S. bargaining plan. Following a recent actuarial update, we're now estimating only $3.5 million of additional required pension contributions in the second half of 2025, which is $6.5 million lower than previously stated guidance. As we proceed forward into 2026, the company is estimating a significant reduction in required annual pension contributions subject to investment performance, actuarial assumptions and funding laws. We continue to actively manage the pension. We'll provide further updates as available. In terms of shareholder return activities in the second quarter, the company repurchased 255,000 shares of common stock for $3.3 million. In July, an additional 67,000 shares were repurchased for $1.1 million.

At the end of July, a balance of $92.8 million remained under our share repurchase authorization. As it relates to convertible notes, during the second quarter, we settled the remaining $5.5 million of outstanding convertible notes at a cash cost of $9.1 million. As of June 30, 2025, the company had no outstanding borrowings. Since the inception of common share repurchases in early 2022, combined with the convertible note repurchase activities, we've reduced diluted shares outstanding by a significant 25% or over 13 million shares compared to the fourth quarter of 2021. These actions reflect the strength of the company's balance sheet and confidence in through-cycle cash flow generation. With that, I'll turn it over to our CFO, John Zaranec, to cover the business outlook.

Thanks, Kris. I'm excited to be part of the Metallus team, and I look forward to engaging more deeply with our shareholders and analysts in the near future. In terms of the near-term business outlook, commercially, third quarter shipments are expected to be similar to the second quarter, with lead times currently extending to October for both bar and tube products. Additionally, base price per ton is anticipated to remain relatively steady in the third quarter, dependent on our mix in the quarter. Effective November 1, we expect base price per ton to begin to benefit from the recently announced $100 per ton spot price increase on seamless mechanical tubing products.

This price increase is reflective of the improving demand environment for domestically produced products. From an operational perspective, melt utilization is expected to increase sequentially in the third quarter on improved operational performance. Consistent with prior years, planned annual shutdown maintenance will be completed in the second half of the year at a total cost of approximately $15 million. From a timing perspective, about $5 million of the planned shutdown maintenance will occur in the third quarter for non-melt shop assets. The balance of approximately $10 million of planned shutdown maintenance will occur in the fourth quarter and include the melt shop.

We are also expecting a full quarter of higher electricity costs starting in the third quarter as the previous long-term electricity contract expired midway through the second quarter. Additionally, as Mike mentioned, we're beginning negotiations with the United Steelworkers regarding the labor agreement, which is set to expire in late September. We anticipate incremental nonrecurring labor agreement negotiation costs of $3 million to $5 million in the second half of 2025, which we plan to report as an operational cost and not exclude from adjusted EBITDA, consistent with treatment in prior years. Given these elements, the company expects third quarter adjusted EBITDA to be modestly lower than the second quarter.

To combat some of these cost pressures and in the spirit of continuous operational improvement, we have engaged external resources to accelerate process optimization efforts, which include improving manufacturing efficiency within targeted facilities. The engagement began in July and will progress until targeted operational efficiencies are realized. We expect to realize annual savings of approximately $10 million as a result of this initiative, with savings ramping up throughout the first half of 2026.

To wrap up, thank you to all of our employees, customers and suppliers for their support in the first half of the year. I'm looking forward to partnering with all of you during this exciting time for Metallus, and I'm optimistic about the opportunities that lie ahead. We are well positioned as a high-quality U.S.-based specialty metals producer supporting critical markets. We remain committed to delivering value to our shareholders by driving profitable growth and executing our capital allocation strategy. As always, thank you for your interest in Metallus. We would now like to open the call for questions.

[Operator Instructions] Our first question comes from the line of John Franzreb with Sidoti.

Congratulations, Kris, and welcome to the call, John. I'd like to start with maybe the new market share gains or new customers you're grabbing as a result of maybe the change in the tariff environment. Can you talk a little bit about the magnitude of the increased bidding for your products relative to what you maybe would have saw a year ago?

Sure, John. I would say that a majority of the increase in the share gain was gaining back some industrial and automotive business that we had lost in prior years, not necessarily to imports, but to domestic competitors. However, we do see a modest increase in new customer inquiries and orders tied to the tariff environment. But I have to qualify the fact that until the agreements are signed, there's a lot of people sitting on the sidelines waiting to see what is the final tariff and what is the impact to their supply chain. I will tell you they are inquiring to get domestic supply, but they haven't pulled the trigger yet until those agreements are really finalized with the signature on those agreements with both parties.

Okay. Okay. So this is probably, I don't know, maybe a fourth quarter event if it happens that you're thinking, right?

Well, I'm not going to try to speculate my expertise on forecasting the Trump administration. So as they are finalized, yes, we do expect to continue to see, as we said in our comments, increased demand. That's what's being signaled to us. And that's actually what we're expecting going forward.

And in A&D, can you talk a little bit about the supply chain issues? It's kind of been, I don't know, an overhang for a couple of quarters now. When do you expect that to be resolved?

Actually, we've been receiving good news recently that things are starting to potentially improve in demand, and we've actually seen some increased orders, just not at the rate we expected. These were investments being made by the supply chain to ramp up the munitions production. And they've had start-up and commissioning issues that have delayed that at least by sometimes 6 months to a year. So we have -- we are getting word that things -- we expect to see additional orders in the fourth quarter of this year.

Great. Great. That's good to see. And it's interesting, one of my prepared questions was about melt utilization. We had that north of 80% target. It sounds like now you're bringing somebody in to achieve that number. Can you talk a little bit about maybe what's held back -- how is you back from hitting that number and your confidence in hitting that $10 million -- was it $10 million in savings in 2026?

Efficiency savings, yes. So we had a couple of percents of melt utilization impacted in Q2 by electrical supply interruptions because of -- we have interruptible power supply. It's a benefit to us because it actually provides us with a lower electricity if the electrical company when the grid is under extreme demand that we can idle and allow them to provide the electricity into the residential community to provide. So they have air conditioning and they keep the lights on. So we had a couple of percent utilization there. We had a couple of percent utilization tied to some reliability on auxiliary equipment, primarily cranes is the one thing that we're focused on.

We have engaged a third party to help us improve our crane reliability, but that's not the company we're referring to. We're referring to a company that is looking from how we schedule, how we plan and how we execute on the shop floor and really drive a higher performance of efficiency in our execution. And that will be anything from culture to what tools, data, et cetera, of what we should have. This is an industry-based expertise, and they bring a global best practice approach to shop floor, particularly for the steel industry execution.

Our next question comes from the line of Chris Olin with Northcoast Research.

You might have answered my question here a bit, but I was wondering on the SBQ bar side, are there any price increases on the books, on that side? And then I guess, if not, and to your thoughts on kind of this customer apprehension, how does that impact your contract discussions for 2026? Is that going to be complicate things?

Yes. I mean I don't want to really publicly talk about price. We haven't seen price increases since really earlier this year. It was a modest one. That's stuck. We really haven't seen that. Do I expect as demand continues to grow, typically, historically, price follows and increasing to support that higher demand. In regards to the traded situation and people are awaiting to see what the final tariff environment is going to be. I just think the small -- what I see is the smaller companies have already taken action to move. The larger companies are more -- the larger steel consuming companies are a little bit of more of a wait and see. They're inquiring to make sure that they have the ability to get supply when they decide to make that decision.

And you also have to keep it in perspective, there was a fair amount of import inventory already in the United States prior to the tariffs going into play. And we're definitely aware that, that inventory still exists, but it is being consumed. So we expect that inventory to be somewhat exhausted by the end of this quarter, early fourth quarter. And that will also play into the increasing demand for the domestic supply. Did I answer your question, Chris?

Yes. I was just -- I guess the other question I would have is just in terms of the contracts, can you remind us like in terms of what would come up for renewal or...

Yes. So if you look at 2025, as we've said, 70% of our demand is under contract and about 30% is spot-based. The contract discussions haven't really begun yet. There's a couple that have inquired, but we're basically -- that will pick up in activity and discussion late September through October through November into early December. So probably the next time we have a call, we'll have a better look at how that's developing.

Your next question comes from the line of Dave Storms with Stonegate.

With the planned downtime coming up, are you going to be able to use this as a chance to implement more technology into your operations? Or is this going to be more of a maintenance update?

I would say the majority of it is maintenance, but there is some technology upgrades that we're planning to implement. But I would say the majority of it is really maintenance-related infrastructure, reliability-oriented investments in our shutdowns.

Perfect. And then I guess, double clicking on that. Could you maybe spend a little bit of time talking about any tech improvements you're planning on implementing your operations? Or will that maybe come after your previously stated operation efficiencies?

Yes. I think -- well, I think these are more focused on reliability. So we do expect to see melt shop utilization to improve on some of our key investments, our key maintenance investments. But really, I think from a go forward, it's really going to be this optimization and efficiency of shop floor execution that's really going to net at least $10 million in savings in our manufacturing costs. And then as we -- some of these big CapEx investments come on later this year, the reheat bloom furnace and then early next year, the roller furnace, there's significant cost efficiency and improvements that we're going to get out of these investments that really will materialize in 2026.

Understood. Very helpful. And then just switching gears a little bit here. With order books -- or excuse me, with lead times out to October, is there anything you can kind of tell us about the texture of the order book that you're seeing, maybe indications on the price to mix texture that you're seeing?

Sure. So our lead times are out to the second half of October. We have -- if you look at our order book, it's double the size it was a year ago at this time. So we have a much longer-term view, allows us to optimize our scheduling and increase some of our efficiencies in that regard. Defense is going to continue to be fairly stable. Automotive looks like it's going to continue to be very stable. And really, what's going to develop in that order book, we do see -- expect some price appreciate, modest price appreciation to continue to develop throughout the year as the prior announced price increases work into the shipments that we actually make from a timing standpoint. So things look a hell of a lot better than they did in the second half of last year, I could just tell you that. And then as this tariff environment becomes much more clear, then we expect demand to continue to grow.

[Operator Instructions] And with no further questions in queue, I will now hand the call back to Jennifer for closing remarks.

Thanks, everyone, for joining us this morning, and that concludes our call today. Thank you.

Thank you again for joining us today. This does conclude today's conference call. You may now disconnect.