TimkenSteel(TMST) - 2023 Q2 - Quarterly Report

Part I. Financial Information Financial Statements TimkenSteel Corporation's unaudited consolidated financial statements for Q2 and H1 2023 reveal a year-over-year decline in key financial metrics Consolidated Statements of Operations (Unaudited) Unaudited consolidated operations show significant year-over-year declines in net sales and net income for Q2 and H1 2023 Consolidated Statements of Operations Highlights (Unaudited) | (Dollars in millions) | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :--- | :--- | :--- | :--- | :--- | | Net sales | $356.6 | $415.7 | $680.1 | $767.7 | | Gross Profit | $53.7 | $81.4 | $94.1 | $141.4 | | Net Income (Loss) | $28.9 | $74.5 | $43.3 | $111.6 | | Diluted earnings (loss) per share | $0.62 | $1.42 | $0.92 | $2.12 | Consolidated Balance Sheets (Unaudited) Total assets increased to $1,148.5 million as of June 30, 2023, primarily due to higher inventories and receivables Balance Sheet Highlights (Unaudited) | (Dollars in millions) | June 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Cash and cash equivalents | $221.9 | $257.2 | | Inventories, net | $266.0 | $192.4 | | Total Current Assets | $626.7 | $556.6 | | Total Assets | $1,148.5 | $1,082.0 | | Total Current Liabilities | $219.8 | $186.7 | | Total Liabilities | $436.7 | $395.5 | | Total Shareholders' Equity | $711.8 | $686.5 | Consolidated Statements of Cash Flows (Unaudited) Net cash from operations significantly decreased to $23.1 million in H1 2023, leading to an overall $35.0 million decrease in cash Cash Flow Summary (Unaudited) | (Dollars in millions) | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :--- | :--- | :--- | | Net Cash Provided (Used) by Operating Activities | $23.1 | $64.0 | | Net Cash Provided (Used) by Investing Activities | ($17.0) | ($9.9) | | Net Cash Provided (Used) by Financing Activities | ($41.1) | ($74.2) | | Increase (Decrease) in Cash | ($35.0) | ($20.1) | Notes to Unaudited Consolidated Financial Statements Notes detail accounting policies, revenue, debt, and compensation, highlighting $11.3 million in insurance recoveries and ongoing share repurchases Revenue by End-Market Sector | (Dollars in millions) | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :--- | :--- | :--- | :--- | :--- | | Industrial | $168.8 | $208.2 | $312.5 | $383.2 | | Mobile | $136.9 | $152.9 | $264.7 | $297.0 | | Energy | $45.9 | $46.3 | $92.1 | $71.3 | - In the first half of 2023, the company repurchased $7.5 million of its Convertible Senior Notes due 2025 for $18.7 million in cash, recognizing a loss on extinguishment of debt of $11.4 million[58] - The company recognized insurance recoveries of $11.3 million in the first half of 2023 related to unplanned operational downtime at the Faircrest melt shop in late 2022[38] - The company estimates required contributions of approximately $40 million to its Bargaining Unit Pension Plan in 2024[69] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses decreased net sales and gross profit for Q2 and H1 2023, while maintaining strong liquidity and continuing capital returns Business Overview TimkenSteel manufactures alloy, carbon, and micro-alloy steel products for diverse markets, with its order book full through Q3 2023 - The company's order book is full through the third quarter and is currently booking into the fourth quarter[87] - TimkenSteel recognized $11.3 million in insurance recoveries in the first half of 2023 related to unplanned operational downtime at its Faircrest melt shop in the second half of 2022[86] Results of Operations Q2 2023 net sales decreased 14.2% to $356.6 million and gross profit fell 34.0% year-over-year, primarily due to lower volumes and unfavorable surcharges - Q2 2023 net sales decreased by $59.1 million (14.2%) YoY, driven by unfavorable surcharges ($48.1 million) and lower volumes ($43.6 million), partially offset by favorable price/mix ($32.6 million)[95] - Q2 2023 gross profit decreased by $27.7 million (34.0%) YoY, primarily due to higher manufacturing costs, unfavorable raw material spread, and lower volume[100] Effective Tax Rate Comparison | Period | 2023 | 2022 | | :--- | :--- | :--- | | Three Months Ended June 30 | 27.4% | 2.0% | | Six Months Ended June 30 | 25.4% | 2.1% | Non-GAAP Financial Measures This section reconciles GAAP Net Sales to non-GAAP Base Sales, excluding surcharges, to highlight core pricing and product mix drivers Base Sales per Ton by End-Market (Q2 2023 vs Q2 2022) | End-Market | Base Sales / Ton (Q2 2023) | Base Sales / Ton (Q2 2022) | | :--- | :--- | :--- | | Industrial | $1,502 | $1,256 | | Mobile | $1,250 | $1,144 | | Energy | $1,550 | $1,369 | | Total | $1,423 | $1,261 | Liquidity and Capital Resources Total liquidity was $529.9 million as of June 30, 2023, deemed sufficient for the next twelve months, with ongoing capital return through repurchases Liquidity Summary | (Dollars in millions) | June 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Cash and cash equivalents | $221.9 | $257.2 | | Availability not borrowed | $308.0 | $233.5 | | Total liquidity | $529.9 | $490.7 | - Anticipated capital expenditures for 2023 are approximately $50 million[138] - In H1 2023, the company repurchased $20.8 million of its common shares and $7.5 million principal amount of its Convertible Senior Notes[132][141] Quantitative and Qualitative Disclosures About Market Risk The company faces market risks from interest rates, foreign currency, and commodity prices, primarily managing commodity price volatility through surcharges - The company's primary market risk is commodity price fluctuation, particularly for scrap steel, alloys, and natural gas[160] - A raw material surcharge mechanism is used in pricing to pass through cost changes for scrap, alloys, and natural gas, though its effectiveness can vary with demand[161] - As of June 30, 2023, the company had no variable-rate debt outstanding, minimizing exposure to rising interest rates[158] Controls and Procedures Management concluded that disclosure controls and procedures were effective as of June 30, 2023, 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 period covered by the report[162] - No changes in internal control over financial reporting occurred during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the company's internal controls[163] Part II. Other Information Legal Proceedings The company is involved in various legal claims, but management believes their resolution will not materially affect its financial position or results - Management does not expect the outcome of current legal proceedings to have a material adverse effect on the company's financial condition or results[165] Risk Factors This section refers to the detailed discussion of risks and uncertainties in the company's Annual Report on Form 10-K for FY2022 - For a discussion of risks and uncertainties, the report refers to the Risk Factors section in the Annual Report on Form 10-K for the year ended December 31, 2022[166] Unregistered Sales of Equity Securities and Use of Proceeds During Q2 2023, the company repurchased 650,271 common shares for approximately $11.4 million, with $52.2 million remaining under repurchase programs Share Repurchases for Q2 2023 | Month (2023) | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | April | 167,287 | $17.80 | | May | 307,980 | $16.95 | | June | 175,004 | $18.79 | | Quarter-to-date | 650,271 | $17.66 | - As of June 30, 2023, the maximum dollar value of shares that may yet be purchased under the company's repurchase programs was $52.2 million[168] Exhibits This section lists the exhibits filed with the quarterly report, including CEO and CFO certifications and XBRL data files