Metallus(US:MTUS)2022-11-04 18:08Financial Data and Key Metrics Changes - In Q3 2022, net sales totaled $316.8 million, a decrease of 24% sequentially from $415.7 million in Q2 2022 and an 8% decrease from $343.7 million in Q3 2021 [24][32] - The company reported a net loss of $13.3 million or a loss of $0.29 per diluted share, compared to net income of $74.5 million or $1.42 per diluted share in Q2 2022 and net income of $50.1 million or $0.94 per diluted share in Q3 2021 [24][25] - Adjusted EBITDA was $10.8 million in Q3 2022, down from $84.2 million in Q2 2022 and a decrease of $61.2 million compared to Q3 2021 [26][27] Business Line Data and Key Metrics Changes - Industrial shipments decreased by 30% sequentially to 71,300 tons, while mobile shipments decreased by 17% to 71,200 tons [29] - Energy customer shipments totaled 16,000 tons, a sequential decrease of 25% [30] - Approximately 70% of the business operates on annual contracts, with half of the 2023 pricing negotiations completed [12][13] Market Data and Key Metrics Changes - The company has a customer order backlog exceeding 300,000 ship tons, indicating strong demand in mobile, industrial, and energy markets [6] - Base selling prices increased by approximately $300 per ton on average in Q3 2022 compared to the full year 2021 average, reflecting a 30% increase year-over-year [33] Company Strategy and Development Direction - The company aims for $80 million in profitability improvements, with $25 million expected in 2022 and the remainder between 2023 and 2026 [16] - Focus areas include commercial excellence, manufacturing reliability, and administrative process simplifications, with dedicated business development leads in high-growth sectors like energy and defense [17][18] Management's Comments on Operating Environment and Future Outlook - Management expects continued strong demand in the near term, despite challenges from the July melt shop incident [5][22] - For Q4 2022, shipments are expected to be slightly lower than Q3 due to inventory availability and normal seasonality [47] - The company anticipates average base prices to further increase in 2023 following successful annual pricing negotiations [54] Other Important Information - Operating cash flow was $46.8 million in Q3 2022, marking the 14th consecutive quarter of positive cash flow [39] - The company repurchased 1.3 million common shares at a total cost of $19.7 million during Q3 2022, with an additional $75 million share repurchase program authorized [42][44] Q&A Session Summary Question: Raw material spread headwinds - Management indicated that there will still be headwinds in Q4, with surcharges expected to decline [62][63] Question: Net working capital expectations - Management expects no pickup in net working capital in Q4, with modest increases anticipated in the first half of 2023 [64] Question: Production rates and labor demand - Management targets to return to an 80-85% utilization rate by year-end or early Q1 2023, focusing on training new employees [68][75] Question: Liquidity position and cash deployment - The company has a capital allocation strategy focusing on asset investment, maintaining a strong balance sheet, and shareholder returns [76] Question: Impact of rising interest rates on end-market demands - Management noted that while rising interest rates will affect consumer demand, the outlook for the first half of 2023 remains solid [80]