Metallus(MTUS) - 2022 Q1 - Quarterly Report

Part I. Financial Information Financial Statements The company reported significant year-over-year growth in Q1 2022, with net sales increasing to $352.0 million and net income rising to $37.1 million Consolidated Statements of Operations (Unaudited) Net sales for Q1 2022 increased 28.7% to $352.0 million, with net income rising to $37.1 million or $0.70 per diluted share, including a $17.0 million debt extinguishment loss Consolidated Statements of Operations (Unaudited) | (Dollars in millions, except per share data) | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :--- | :--- | :--- | | Net sales | $352.0 | $273.6 | | Gross Profit | $60.0 | $30.7 | | Loss on extinguishment of debt | $17.0 | — | | Income Before Income Taxes | $38.0 | $10.0 | | Net Income | $37.1 | $9.8 | | Basic earnings per share | $0.80 | $0.22 | | Diluted earnings per share | $0.70 | $0.20 | Consolidated Statements of Comprehensive Income (Loss) (Unaudited) Comprehensive income for Q1 2022 was $35.2 million, including $37.1 million net income offset by a $1.9 million other comprehensive loss Consolidated Statement of Comprehensive Income (Loss) (Unaudited) | (Dollars in millions) | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :--- | :--- | :--- | | Net income (loss) | $37.1 | $9.8 | | Other comprehensive income (loss), net of tax | $(1.9) | $(1.4) | | Comprehensive Income (Loss), net of tax | $35.2 | $8.4 | Consolidated Balance Sheets (Unaudited) As of March 31, 2022, total assets were $1,186.0 million, with shareholders' equity increasing to $703.2 million from $664.6 million Consolidated Balance Sheet Highlights (Unaudited) | (Dollars in millions) | March 31, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Cash and cash equivalents | $239.9 | $259.6 | | Total Current Assets | $615.2 | $582.3 | | Total Assets | $1,186.0 | $1,158.9 | | Total Current Liabilities | $246.2 | $250.8 | | Total Liabilities | $482.8 | $494.3 | | Total Shareholders' Equity | $703.2 | $664.6 | Consolidated Statements of Cash Flows (Unaudited) Net cash from operations was $13.3 million in Q1 2022, while investing activities used $6.5 million and financing activities used $25.5 million Consolidated Statements of Cash Flows Summary (Unaudited) | (Dollars in millions) | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :--- | :--- | :--- | | Net Cash Provided by Operating Activities | $13.3 | $13.2 | | Net Cash Used by Investing Activities | $(6.5) | $(2.3) | | Net Cash Provided (Used) by Financing Activities | $(25.5) | $2.0 | | Increase (Decrease) in Cash | $(18.7) | $12.9 | Notes to Unaudited Consolidated Financial Statements Notes detail accounting policies, revenue recognition by market, $0.4 million restructuring charges, $10.0 million convertible note repurchase, and pension plan amendments Net Sales by End-Market Sector (in millions) | End-Market | Q1 2022 | Q1 2021 | | :--- | :--- | :--- | | Mobile | $144.1 | $133.6 | | Industrial | $175.0 | $124.7 | | Energy | $25.0 | $7.7 | | Other | $7.9 | $7.6 | | Total Net Sales | $352.0 | $273.6 | - In Q1 2022, the company repurchased $10.0 million principal amount of its Convertible Senior Notes Due 2025 for a total cash payment of $26.8 million, recognizing a loss on extinguishment of debt of $17.0 million[65] - Under its $50.0 million share repurchase program, the company bought back approximately 0.2 million common shares for $3.4 million in Q1 2022. As of March 31, 2022, $46.6 million remained available under the program[70] - The company's Salaried Pension Plan was terminated effective March 31, 2022, subject to regulatory approval. The settlement of obligations is expected to occur in 2023 through the purchase of an annuity[74] Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes the 28.7% net sales increase to higher surcharges, favorable pricing/mix, and increased volumes, while maintaining strong liquidity and pursuing capital return Results of Operations Q1 2022 net sales increased 28.7% to $352.0 million, driven by higher surcharges, favorable price/mix, and increased volumes, with gross profit up 95.4% - The increase in net sales was driven by higher surcharges ($41.0 million), favorable price/mix ($32.2 million), and higher volumes ($5.2 million)[94] - The increase in sales volume was primarily due to increased customer demand in the industrial and energy end-market sectors, partially offset by a decrease in the mobile sector due to the semiconductor chip shortage[94] - Gross profit increased by 95.4% due to favorable price/mix and increased volume, which was partially offset by unfavorable raw material spread[97] - SG&A expenses decreased by $1.0 million (5.1%) primarily due to lower employee expenses resulting from prior restructuring actions[100] Non-GAAP Financial Measures The company presents non-GAAP base sales, with average base sales per ton increasing to $1,239 in Q1 2022, reflecting improved pricing and product mix Net Sales and Base Sales per Ton | Metric | Q1 2022 | Q1 2021 | | :--- | :--- | :--- | | Net Sales / Ton | $1,792 | $1,415 | | Surcharges / Ton | $553 | $350 | | Base Sales / Ton | $1,239 | $1,065 | Liquidity and Capital Resources As of March 31, 2022, total liquidity was $522.8 million, with $40 million in capital expenditures anticipated for 2022 Liquidity Summary (in millions) | Component | March 31, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Cash and cash equivalents | $239.9 | $259.6 | | Availability not borrowed | $282.9 | $251.1 | | Total liquidity | $522.8 | $510.7 | - Capital expenditures are anticipated to be approximately $40 million in 2022, with over half allocated to profitability improvement projects[124] - In Q1 2022, the company repurchased $10.0 million of its Convertible Senior Notes and $3.4 million of its common shares[125][126] Quantitative and Qualitative Disclosures about Market Risk The company manages market risks from interest rates, foreign currency, and commodity prices, with commodity price risk mitigated by a raw material surcharge mechanism - Interest rate risk is minimal as of March 31, 2022, because the company's $35.2 million of outstanding debt is fixed-rate[141] - Commodity price risk for raw materials like scrap steel and energy is primarily managed through a raw material surcharge passed to customers[144] - The Russia-Ukraine conflict is identified as a potential risk that could exacerbate inflationary pressures and cause volatility in commodity prices and supply chain disruptions[143] Controls and Procedures Management concluded that disclosure controls and procedures were effective as of March 31, 2022, with no material changes to internal control over financial reporting - Management, including the principal executive and financial officers, concluded that disclosure controls and procedures were effective as of the end of the reporting period[146] - No changes in internal control over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, the company's internal controls[147] Part II. Other Information Legal Proceedings The company is involved in ordinary course legal actions, with management expecting no material adverse effect on financial position or results - The company states that the ultimate outcome of its ordinary course legal proceedings is not expected to have a material adverse effect on its financial condition[148] Risk Factors No new risk factors are disclosed in this report; refer to the Annual Report on Form 10-K for a discussion of risks and uncertainties - The report refers to the Risk Factors section in the company's Annual Report on Form 10-K for the year ended December 31, 2021[149] Unregistered Sales of Equity Securities and Use of Proceeds In Q1 2022, the company repurchased 169,816 common shares for $3.4 million, part of a $50.0 million program with $46.6 million remaining Share Repurchase Activity - Q1 2022 | Month | Total Shares Purchased | Average Price Paid per Share | Maximum Dollar Value Remaining ($M) | | :--- | :--- | :--- | :--- | | January 2022 | — | $— | $50.0 | | February 2022 | — | $— | $50.0 | | March 2022 | 169,816 | $20.27 | $46.6 | | Quarter-to-date | 169,816 | $20.27 | $46.6 | Exhibits This section lists exhibits filed with Form 10-Q, including management certifications, compensation plan documents, and XBRL data files - Exhibits filed include CEO and CFO certifications pursuant to Sarbanes-Oxley Sections 302 and 906, as well as Inline XBRL documents[154] Signatures