# Metallus Inc.: Form 10-Q for the period ended Sep 30, 2024

- Company: [Metallus Inc.](/companies/mtus.md) (CIK 1598428)
- Form: 10-Q
- Filed: 2024-11-07
- Accepted by EDGAR: Nov 7, 2024, 16:21 ET
- Period: 2024-09-30
- Accession: 0000950170-24-123398
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1598428/000095017024123398/mtus-20240930.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1598428/000095017024123398/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2024-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2024-07-01 to 2024-09-30 | $227.2m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 9 months, 2024-01-01 to 2024-09-30 | $843.5m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 3 months, 2024-07-01 to 2024-09-30 | $215.1m | us-gaap:CostOfGoodsAndServicesSold |
| Cost of revenue | 9 months, 2024-01-01 to 2024-09-30 | $756.7m | us-gaap:CostOfGoodsAndServicesSold |
| Gross profit | 3 months, 2024-07-01 to 2024-09-30 | $12.1m | us-gaap:GrossProfit |
| Gross profit | 9 months, 2024-01-01 to 2024-09-30 | $86.8m | us-gaap:GrossProfit |
| Selling, general and administrative | 3 months, 2024-07-01 to 2024-09-30 | $22.5m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Selling, general and administrative | 9 months, 2024-01-01 to 2024-09-30 | $67.3m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Income tax | 3 months, 2024-07-01 to 2024-09-30 | −$1.2m | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2024-01-01 to 2024-09-30 | $6.3m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2024-07-01 to 2024-09-30 | −$5.9m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2024-01-01 to 2024-09-30 | $22.7m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2024-07-01 to 2024-09-30 | −$0.13 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2024-01-01 to 2024-09-30 | $0.49 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2024-07-01 to 2024-09-30 | −$0.13 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2024-01-01 to 2024-09-30 | $0.52 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2024-07-01 to 2024-09-30 | 43,100,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2024-01-01 to 2024-09-30 | 46,200,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2024-01-01 to 2024-09-30 | $26.4m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Share repurchases | 9 months, 2024-01-01 to 2024-09-30 | $34.1m | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Cash and equivalents | at 2024-09-30 | $254.6m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2024-09-30 | $602.0m | us-gaap:AssetsCurrent |
| Total assets | at 2024-09-30 | $1.13bn | us-gaap:Assets |
| Current liabilities | at 2024-09-30 | $228.2m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2024-09-30 | $420.7m | us-gaap:Liabilities |
| Long-term debt | at 2024-09-30 | $0 | us-gaap:LongTermDebtNoncurrent |
| Current portion of debt | at 2024-09-30 | $13.2m | us-gaap:LongTermDebtCurrent |
| Shareholders' equity | at 2024-09-30 | $712.7m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 37,478 characters.

#### (dollars in millions, except per share data)

This Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to help investors understand our results of operations, financial condition and current business environment. The MD&A is provided as a supplement to, and should be read in conjunction with, our unaudited consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q for the three and nine months ended September 30, 2024.

The MD&A is organized as follows:

- Overview: From management’s point of view, we discuss the following:
- Summary of our business and the markets in which we operate
- Key trends and events during the current year
- Results of Operations: An analysis of our results of operations as reflected in our consolidated financial statements
- Non GAAP (1) Financial Measures: An analysis of our net sales by end-market, adjusted to exclude surcharges, which management uses to better analyze key market indicators and trends and allows for enhanced comparison between our end-markets.
- Liquidity and Capital Resources: An analysis of our cash flows, working capital, debt structure, contractual obligations and other commercial commitments.
- Critical Accounting Policies: An overview of accounting policies identified by the Company as critical that, as a result of the judgments, uncertainties, and the operations involved, could result in material changes to the Company's financial condition or results of operations under different conditions or using different assumptions.

### Overview

### Business Overview

We manufacture alloy steel, as well as carbon and micro-alloy steel, using electric arc furnace ("EAF") technology. Our portfolio includes special bar quality (“SBQ”) bars, seamless mechanical tubing (“tubes”), manufactured components such as precision steel components, and billets. Our products and solutions are used in a diverse range of demanding applications in the following end-markets: industrial, automotive, aerospace & defense, and energy.

We conduct our business activities and report financial results as one business segment. The presentation of financial results as one reportable segment is consistent with the way we operate our business and is consistent with the manner in which the Chief Operating Decision Maker ("CODM") evaluates performance and makes resource and operating decisions for the business as described above. Furthermore, the Company notes that monitoring financial results as one reportable segment helps the CODM manage costs on a consolidated basis, consistent with the integrated nature of our operations.

### Business Highlights

The following items represent key trends and events during the three and nine months ended September 30, 2024:

- Base sales: The Company’s products continued to demand solid base sales prices throughout the three and nine months ended September 30, 2024, with average base sales price per ton improving in automotive and aerospace & defense end-markets compared with the same time period in 2023.
- Capital investments: The Company continues to invest organically with capital investments of $17.6 million and $49.1 million in the three and nine months ended September 30, 2024. Investments included targeted spending for improved safety, equipment automation, and continuous improvement to drive best-in-class quality and asset reliability, as well as additional manufactured component capacity for profitable growth.
- Liquidity: Our balance sheet has remained strong, with total liquidity of $496.8 million, including cash and cash equivalents of $254.6 million as of September 30, 2024. Operating cash outflows of $13.6 million in the third quarter were primarily driven by a net loss, higher working capital and required pension contributions. Operating cash flow totaled $26.4 million in the nine months ended September 30, 2024.
- Defense Contract: In the three and nine months ended September 30, 2024, the Company received $35.5 million and $45.5 million, respectively, from the U.S. government as part of the previously announced $99 million funding agreement. The company expects the funding to be provided as mutually agreed upon milestones are achieved throughout the project. The Company is targeting late 2025 for the new bloom reheat furnace to be operational and the first half of 2026 for the new roller furnace to be operational.
- Share repurchase program: The Company repurchased 1.2 million and 1.8 million common shares in the open market at an aggregate cost of $20.1 million and $34.1 million for the three and nine months ended September 30, 2024, respectively. As of September 30, 2024, the Company had a balance of $106.3 million remaining on its authorized share repurchase program.

#### (1) Please see discussion of non-GAAP financial measures in Form 10-Q – Net Sales Adjusted to Exclude Surcharges

### Results of Operations

### Net Sales

The charts below present net sales and shipments for the three months ended September 30, 2024 and 2023.

Net sales for the three months ended September 30, 2024 were $227.2 million, a decrease of $127.0 million, or 35.9% compared with the three months ended September 30, 2023. The decrease in net sales was primarily driven by lower volumes, unfavorable surcharges and price/mix. Lower volumes of 55.9 thousand ship tons resulted in a net sales decrease of $83.3 million. The decrease in surcharges of $41.4 million was primarily due to a reduction in raw material surcharge revenue per ton as a result of lower scrap and alloy prices. Unfavorable price/mix of $2.3 million was driven by lower base prices across industrial and energy end-market sectors, partially offset by favorable base prices in automotive and aerospace & defense end-market sectors. Excluding surcharges, net sales decreased $85.6 million or 32.0%.

The charts below present net sales and shipments for the nine months ended September 30, 2024 and 2023.

Net sales for the nine months ended September 30, 2024 were $843.5 million, a decrease of $190.8 million, or 18.4% compared with the nine months ended September 30, 2023. The decrease in net sales was driven by lower volumes and surcharges, partially offset by favorable price/mix. Lower volumes of 100.9 thousand ship tons resulted in a net sales decrease of $147.7 million. Lower market prices for alloy and scrap per ton drove the unfavorable surcharges of $99.3 million. Favorable price/mix of $56.2 million was primarily due to higher base prices in the automotive, aerospace & defense and energy end-markets. Excluding surcharges, net sales decreased $91.5 million or 12.0%.

### Gross Profit

The chart below presents the drivers of the gross profit variance from the three months ended September 30, 2023 as compared to the three months ended September 30, 2024.

Gross profit for the three months ended September 30, 2024 decreased $38.9 million, or 76.3% compared with the three months ended September 30, 2023. The decrease was primarily driven by lower volume, unfavorable price/mix and raw material spread. All end-market sectors were unfavorably impacted by lower volume. Unfavorable price/mix was due to lower industrial and aerospace & defense shipments and unfavorable base prices in industrial and energy end-markets. Raw material spread was unfavorable due to lower shipments and scrap prices.

The chart below presents the drivers of the gross profit variance from the nine months ended September 30, 2023 as compared to the nine months ended September 30, 2024.

Gross profit for the nine months ended September 30, 2024 decreased $58.3 million, or 40.2% compared with the nine months ended September 30, 2023. The decrease was driven by lower volume, higher manufacturing costs and unfavorable raw material spread, partially offset by favorable price/mix. The industrial, automotive and energy end-market sectors were unfavorably impacted by lower volume. Lower fixed cost leverage on decreased production resulted in unfavorable manufacturing costs. Raw material spread was unfavorable due to lower shipments and alloy prices.

### Selling, General and Administrative Expenses

The charts below present selling, general and administrative (“SG&A”) expense for the three and nine months ended September 30, 2024 and 2023.

SG&A expense for the three months ended September 30, 2024 increased by $2.0 million, or 9.8%, compared with the same period in 2023. The increase was primarily due to higher salary and benefits, stock-based compensation and professional services, primarily driven by the ongoing information technology transformation project.

SG&A expense for the nine months ended September 30, 2024 increased by $5.4 million, or 8.7% compared with the nine months ended September 30, 2023. The increase was primarily due to higher salary and benefits, stock-based compensation and professional services, primarily driven by the ongoing information technology transformation project, partially offset by lower variable compensation.

### Interest (Income) Expense, net

Net interest income for the three and nine months ended September 30, 2024 was $2.4 million and $7.6 million, respectively, compared with net interest income of $1.8 million and $5.0 million for the three and nine months ended September 30, 2023, respectively. The change was due to interest earned on greater cash invested in a money market fund and in other accounts which generate interest income at a rate similar to the money market fund during 2024. Refer to “Note 8 - Financing Arrangements” in the Notes to the unaudited Consolidated Financial Statements for additional information.

### Other (Income) Expense, net

|  | Three Months Ended September 30, 2024 | 2023 | $ Change |
| --- | ---: | ---: | ---: |
| Pension and postretirement non-service benefit (income) loss | **$(1.3)** | $(1.2) | $(0.1) |
| Loss (gain) from remeasurement benefit plans | **—** | (1.0) | 1.0 |
| Foreign currency exchange (gain) loss | **0.3** | — | 0.3 |
| Miscellaneous (income) expense | **—** | 0.2 | (0.2) |
| **Total other (income) expense, net** | **$(1.0)** | $(2.0) | $1.0 |

|  | Nine Months Ended September 30, 2024 | 2023 | $ Change |
| --- | ---: | ---: | ---: |
| Pension and postretirement non-service benefit (income) loss | **$(4.1)** | $(3.7) | $(0.4) |
| Loss (gain) from remeasurement of benefit plans | **1.8** | 1.7 | 0.1 |
| Insurance recoveries | **—** | (11.3) | 11.3 |
| Foreign currency exchange (gain) loss | **—** | (0.1) | 0.1 |
| Miscellaneous (income) expense | **—** | 0.3 | (0.3) |
| **Total other (income) expense, net** | **$(2.3)** | $(13.1) | $10.8 |

Non-service related pension and other postretirement benefit income, for all years, consists primarily of the interest cost, expected return on plan assets and amortization components of net periodic cost.

The Company's Bargaining Unit Pension Plan ("Bargaining Plan"), the Supplemental Pension Plan ("Supplemental Plan") and the recently terminated Retirement Plan ("Salaried Plan") each have a provision that permits employees to elect to receive their pension benefits in a lump sum upon retirement. In the first quarter of 2024, the cumulative cost of all lump sum payments was expected to exceed the sum of the service cost and interest cost components of net periodic pension cost for the Salaried Plan. As a result, the Company completed a full remeasurement of its pension obligations and plan assets associated with the Salaried Plan during the first quarter of 2024 and recorded a loss of $0.8 million.

In the second quarter of 2024, the Company entered into an agreement to purchase a group annuity contract from The Prudential Insurance Company of America (“Prudential”) in connection with the annuitization of the Salaried Plan. The Company remeasured the Salaried Plan upon annuitization on May 15, 2024. A loss of $1.0 million from the remeasurement of the Salaried Plan was recognized for the three months ended June 30, 2024. The loss was primarily due to investment losses on plan assets of $1.8 million partially offset by a decrease in the liability due to an increase in the discount rate of $0.7 million. In addition, the three months ended June 30, 2024 included a $0.1 million gain as a result of the completion of the Salaried Plan annuitization. The Salaried Plan may incur additional expenses in the fourth quarter of 2024 based on final plan expenses and participant transfers.

A gain of $1.0 million from the remeasurement of the Salaried Plan was recognized for the three months ended September 30, 2023. The gain for the three months ended September 30, 2023 was due to a $6.5 million decrease in the liability mainly driven by an increase in the discount rate, partially offset by $5.5 million of investment losses on plan assets. For the nine months ended September 30, 2023, the loss of $1.7 million was primarily related to investment losses on plan assets of $5.6 million and lump sum basis losses of $1.3 million, partially offset by a decrease in the pension liability of $5.2 million due to an increase in the discount rate.

For more details on the aforementioned remeasurements, refer to “Note 9 - Retirement and Postretirement Plans."

During 2023, the Company recognized insurance recoveries of $31.3 million related to the 2022 Faircrest melt shop unplanned downtime. In the first quarter of 2023, the Company recognized recoveries of $9.8 million, of which $0.8 million was received during the first quarter and $9.0 million was received in the second quarter of 2023. In the second quarter of 2023, a $1.5 million insurance recovery was received, and the remaining $20.0 million was received in the first quarter of 2024. The 2022 insurance claims were closed in the first quarter of 2024. Refer to “Note 4 - Other (Income) Expense, net” in the Notes to the Consolidated Financial Statements for additional information. For further information related to previous insurance recoveries, refer to "Note 7 - Other (Income) Expense, net" in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023.

### Provision for Income Taxes

|  | Three Months Ended September 30, 2024 | 2023 | $ Change |
| --- | ---: | ---: | ---: |
| Provision (benefit) for income taxes | **$(1.2)** | $9.8 | $(11.0) |
| Effective tax rate | **16.9%** | 28.3% | (11.4)% |

|  | Nine Months Ended September 30, 2024 | 2023 | $ Change |
| --- | ---: | ---: | ---: |
| Provision (benefit) for income taxes | **$6.3** | $24.6 | $(18.3) |
| Effective tax rate | **21.7%** | 26.5% | (4.8)% |

The benefit for income taxes for the quarter ended September 30, 2024 was $1.2 million compared to a provision for income taxes of $9.8 million in 2023. The change in the effective tax rate is primarily related to lower income before income taxes for the three and nine months ended September 30, 2024. In addition to lower income before income taxes, the decrease for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023 is also impacted by the deductibility of the loss on extinguishment of debt on the Convertible Senior Notes due 2025 and a state net operating loss discrete adjustment that both impacted 2023.

### Non-GAAP Financial Measures

### Net Sales, Excluding Surcharges

The tables below present net sales by end-markets, adjusted to exclude surcharges, which represents a financial measure that has not been determined in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”). We believe presenting net sales by end-markets, both on a gross basis and on a per ton basis, adjusted to exclude raw material and energy surcharges, provides additional insight into key drivers of net sales such as base price and product mix. Due to the fact that the surcharge mechanism can introduce volatility to our net sales, net sales adjusted to exclude surcharges provides management and investors clarity of our core pricing and results. Presenting net sales by end-markets, adjusted to exclude surcharges including on a per ton basis, allows management and investors to better analyze key market indicators and trends and allows for enhanced comparison between our end-markets.

When surcharges are included in a customer agreement and are applicable (i.e., reach the threshold amount), based on the terms outlined in the respective agreement, surcharges are then included as separate line items on a customer’s invoice. These additional surcharge line items adjust base prices to match cost fluctuations due to market conditions. Each month, the Company will post on the surcharges page of its external website, as well as our customer portal, the scrap, alloy, and energy surcharges that will be applied (as a separate line item) to invoices dated in the following month (based upon shipment volumes in the following month). All surcharges invoiced are included in GAAP net sales.

*(dollars in millions, ship tons in thousands)*

|  | Three Months Ended September 30, 2024 Industrial | Automotive | Aerospace & Defense | Energy | Other | Total |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Ship Tons | **53.1** | **57.1** | **3.4** | **6.3** | **—** | **119.9** |
| Net Sales | **$91.4** | **$104.9** | **$12.3** | **$14.5** | **$4.1** | **$227.2** |
| Less: Surcharges | **21.3** | **19.3** | **1.2** | **3.4** | **—** | **45.2** |
| Base Sales | **$70.1** | **$85.6** | **$11.1** | **$11.1** | **$4.1** | **$182.0** |
| Net Sales / Ton | **$1,721** | **$1,837** | **$3,618** | **$2,302** | **$—** | **$1,895** |
| Surcharges / Ton | **$401** | **$338** | **$353** | **$540** | **$—** | **$377** |
| Base Sales / Ton | **$1,320** | **$1,499** | **$3,265** | **$1,762** | **$—** | **$1,518** |
|  | **Three Months Ended September 30, 2023** |  |  |  |  |  |
|  | **Industrial** | **Automotive** | **Aerospace & Defense** | **Energy** | **Other** | **Total** |
| Ship Tons | 70.5 | 79.1 | 11.9 | 14.3 | — | 175.8 |
| Net Sales | $143.0 | $140.1 | $30.7 | $35.6 | $4.8 | $354.2 |
| Less: Surcharges | 38.3 | 34.1 | 5.1 | 9.1 | — | 86.6 |
| Base Sales | $104.7 | $106.0 | $25.6 | $26.5 | $4.8 | $267.6 |
| Net Sales / Ton | $2,028 | $1,771 | $2,580 | $2,490 | $— | $2,015 |
| Surcharges / Ton | $543 | $431 | $428 | $636 | $— | $493 |
| Base Sales / Ton | $1,485 | $1,340 | $2,152 | $1,854 | $— | $1,522 |

29

*(dollars in millions, ship tons in thousands)*

|  | Nine Months Ended September 30, 2024 Industrial | Automotive | Aerospace & Defense | Energy | Other | Total |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Ship Tons | **170.3** | **191.4** | **36.3** | **27.3** | **—** | **425.3** |
| Net Sales | **$313.3** | **$350.1** | **$102.3** | **$63.4** | **$14.4** | **$843.5** |
| Less: Surcharges | **76.0** | **70.5** | **13.0** | **14.7** | **—** | **174.2** |
| Base Sales | **$237.3** | **$279.6** | **$89.3** | **$48.7** | **$14.4** | **$669.3** |
| Net Sales / Ton | **$1,840** | **$1,829** | **$2,818** | **$2,322** | **$—** | **$1,983** |
| Surcharges / Ton | **$446** | **$368** | **$358** | **$538** | **$—** | **$410** |
| Base Sales / Ton | **$1,394** | **$1,461** | **$2,460** | **$1,784** | **$—** | **$1,573** |
|  | **Nine Months Ended September 30, 2023** |  |  |  |  |  |
|  | **Industrial** | **Automotive** | **Aerospace & Defense** | **Energy** | **Other** | **Total** |
| Ship Tons | 205.9 | 239.0 | 27.1 | 54.2 | — | 526.2 |
| Net Sales | $415.3 | $404.8 | $70.9 | $127.7 | $15.6 | $1,034.3 |
| Less: Surcharges | 119.5 | 103.4 | 12.9 | 37.7 | — | 273.5 |
| Base Sales | $295.8 | $301.4 | $58.0 | $90.0 | $15.6 | $760.8 |
| Net Sales / Ton | $2,017 | $1,694 | $2,616 | $2,356 | $— | $1,966 |
| Surcharges / Ton | $580 | $433 | $476 | $696 | $— | $520 |
| Base Sales / Ton | $1,437 | $1,261 | $2,140 | $1,660 | $— | $1,446 |

30

### Liquidity and Capital Resources

### Amended Credit Agreement

On September 30, 2023, the Company, as borrower, and certain domestic subsidiaries of the Company, as subsidiary guarantors (the “Subsidiary Guarantors”), entered into a Fourth Amended and Restated Credit Agreement (the “Amended Credit Agreement”), with JPMorgan Chase Bank, N.A., as administrative agent (the “Administrative Agent”), and the lenders party thereto (collectively, the “Lenders”), which further amended and restated the Company’s existing secured Third Amended and Restated Credit Agreement, dated as of October 15, 2019.

The Amended Credit Agreement extended the maturity date of the asset-based revolving credit facility (the “Credit Facility”) from October 2024 to September 2027. Following the amendment, Credit Facility capacity remained at $400.0 million. Pursuant to the terms of the Amended Credit Agreement, the interest rate to be paid on any borrowings under the Credit Facility is now based on a two-tiered schedule rather than a three-tiered schedule with applicable rates decreasing by 25 basis points, references to LIBOR rates were updated with references to SOFR rates, the advance rate on investment-grade eligible accounts receivable was increased from 85% to 90%, and there was an improvement in the springing fixed charge coverage ratio from 1.1x to 1.0x. The Credit Facility remains undrawn at this time.

Refer to “Note 8 - Financing Arrangements” in the Notes to the unaudited Consolidated Financial Statements for additional information.

### Convertible Notes

In May 2016, the Company issued $75.0 million aggregate principal amount of Convertible Senior Notes due 2021, plus an additional $11.3 million principal amount to cover over-allotments.

In December 2020, the Company entered into separate, privately negotiated exchange agreements with a limited number of holders of the Company’s then outstanding Convertible Senior Notes due 2021. Pursuant to the exchange agreements, the Company exchanged $46.0 million aggregate principal amount of Convertible Senior Notes due 2021 for $46.0 million aggregate principal amount of its new Convertible Senior Notes due 2025. The net amount of this exchange was $44.5 million, after deducting the initial underwriters’ fees and paying other transaction costs. The Company did not receive any cash proceeds from the issuance of the Convertible Senior Notes due 2025.

The Convertible Senior Notes due 2025 bear cash interest at a rate of 6.0% per year, payable semiannually on June 1 and December 1, beginning on June 1, 2021. The Convertible Senior Notes due 2025 will mature on December 1, 2025, unless earlier repurchased or converted. The Convertible Senior Notes due 2025 are convertible at the option of holders in certain circumstances and during certain periods into the Company’s common shares, cash, or a combination thereof, at the Company’s election. The Indenture for the Convertible Senior Notes due 2025 provides that notes will become convertible during a quarter when the share price for 20 trading days during the final 30 trading days of the immediately preceding quarter was greater than 130% of the conversion price. This criterion was met during the third quarter of 2024 and as such the notes can be converted at the option of the holders beginning October 1 through December 31, 2024. Whether the notes will be convertible following such period will depend on if this criterion, or another conversion condition, is met in the future. To date, no holders have elected to convert their notes during any optional conversion periods. For additional details regarding the Convertible Notes please refer to “Note 14 - Financing Arrangements” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023.

### Additional Liquidity Considerations

The following represents a summary of key liquidity measures under the Amended Credit Agreement as of September 30, 2024 and December 31, 2023:

|  | September 30, 2024 | December 31, 2023 |
| --- | ---: | ---: |
| Cash and cash equivalents | **$254.6** | $280.6 |
| **Credit Agreement:** |  |  |
| Maximum availability | **$400.0** | $400.0 |
| Suppressed availability(1) | **(152.4)** | (135.8) |
| Availability | **247.6** | 264.2 |
| Amount borrowed | **—** | — |
| Letter of credit obligations | **(5.4)** | (5.4) |
| Availability not borrowed | **$242.2** | $258.8 |
| Total liquidity | **$496.8** | $539.4 |

(1) As of September 30, 2024, and December 31, 2023, Metallus had less than $400.0 million in collateral assets to borrow against.

Our principal sources of liquidity are cash and cash equivalents, cash flows from operations and available borrowing capacity under our Amended Credit Agreement. As of September 30, 2024, taking into account our view of industrial, automotive, aerospace & defense and energy market demand for our products, and our 2024 operating and long-range plan, we believe that our cash balance as of September 30, 2024, projected cash generated from operations, borrowings available under the Amended Credit Agreement and committed government funding to support capital investments, will be sufficient to satisfy our working capital needs, capital expenditures and other liquidity requirements associated with our operations, including servicing our debt and pension and postretirement benefit obligations, for at least the next twelve months. We expect capital expenditures to be approximately $65 million in 2024, inclusive of approximately $15 million of capital expenditures funded by the U.S. government.

In the nine months ended September 30, 2024, the Company contributed a total of $37.5 million in pension contributions, most of which related to the Bargaining Plan. In October 2024, the Company contributed an additional $5.3 million to the Bargaining Plan, resulting in total 2024 pension contributions of $42.8 million.

To the extent our liquidity needs prove to be greater than expected or cash generated from operations is less than anticipated, and cash on hand or credit availability is insufficient, we would seek additional financing to provide additional liquidity. We regularly evaluate our potential access to the equity and debt capital markets as sources of liquidity and we believe additional financing would likely be available if necessary, although we can make no assurance as to the form or terms of any such financing.

We continue to evaluate the best use of our liquidity which would allow us to invest in profitable growth, maintain a strong balance sheet, and return capital to shareholders.

In the first quarter of 2023, we repurchased a total of $7.5 million aggregate principal amount of our Convertible Senior Notes Due 2025. In addition to reducing outstanding debt and generating annual interest savings of $0.5 million, the repurchases of convertible notes reduced weighted average diluted shares outstanding for the year ended December 31, 2023 by 0.7 million shares and, on a go-forward basis, reduced diluted shares outstanding by 1.0 million shares.

For the three months ended September 30, 2024, the Company repurchased approximately 1.2 million common shares in the open market at an aggregate cost of $20.1 million, which equates to an average repurchase price of $17.29 per share. For the nine months ended September 30, 2024, the Company repurchased approximately 1.8 million common shares in the open market at an aggregate cost of $34.1 million, which equates to an average repurchase price of $18.82 per share. As of September 30, 2024, the Company had a balance of $106.3 million remaining on its authorized share repurchase program.

### Cash Flows

The following table reflects the major categories of cash flows for the nine months ended September 30, 2024 and 2023. For additional details, please refer to the unaudited Consolidated Statements of Cash Flows included in this quarterly report.

|  | Nine Months Ended September 30, 2024 | 2023 |
| --- | ---: | ---: |
| Net cash provided (used) by operating activities | **$26.4** | $51.2 |
| Net cash provided (used) by investing activities | **(3.6)** | (34.5) |
| Net cash provided (used) by financing activities | **(48.2)** | (48.2) |
| **Increase (Decrease) in Cash and Cash Equivalents** | **$(25.4)** | $(31.5) |

#### Operating activities

Net cash provided by operating activities for the nine months ended September 30, 2024 was $26.4 million compared to net cash provided of $51.2 million for the nine months ended September 30, 2023. The change was primarily driven by lower profitability and pension contributions, partially offset by a decrease in the use of cash for working capital during the nine months ended September 30, 2024 compared to the same period in 2023.

#### Investing activities

Net cash used by investing activities for the nine months ended September 30, 2024 was $3.6 million compared to net cash used of $34.5 million for the nine months ended September 30, 2023. The change was due to proceeds from government funding in the nine months ended September 30, 2024 compared to 2023, partially offset by higher capital spending in the nine months ended September 30, 2024.

#### Financing activities

Net cash used by financing activities for the nine months ended September 30, 2024 was $48.2 million, consistent with the nine months ended September 30, 2023. Lower repurchases of Convertible Notes in 2024 were offset by higher shares surrendered for taxes and common share repurchases compared to the same period in 2023. Refer to “Note 8 - Financing Arrangements” for more detail related to the Convertible Senior Notes due in 2025 and the share repurchase program.

### Critical Accounting Policies and Estimates

Our financial statements are prepared in accordance with U.S. GAAP. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the periods presented. We review our critical accounting policies throughout the year.

### New Accounting Guidance

See “Note 2 - Recent Accounting Pronouncements” in the Notes to the unaudited Consolidated Financial Statements.

### Forward-Looking Statements

Certain statements set forth in this Quarterly Report on Form 10-Q (including our forecasts, beliefs and expectations) that are not historical in nature are “forward-looking” statements within the meaning of the Private Securities Litigation Reform Act of 1995. In particular, Management’s Discussion and Analysis of Financial Condition and Results of Operations contains numerous forward-looking statements. Forward-looking statements generally will be accompanied by words such as “anticipate,” “aspire,” “believe,” “could,” “estimate,” “expect,” “forecast,” “outlook,” “intend,” “may,” “plan,” “possible,” “potential,” “predict,” “project,” “seek,” “should,” “strategic direction,” “strategy,” “target,” “will,” “would,” or other similar words, phrases or expressions that convey the uncertainty of future events or outcomes. You are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date of this Form 10-Q. We caution readers that actual results may differ materially from those expressed or implied in forward-looking statements made by or on behalf of us due to a variety of factors, such as:

- the effects of fluctuations in customer demand on sales, product mix and prices in the industries in which we operate. This includes: our ability to respond to rapid changes in customer demand including but not limited to changes in customer operating schedules due to supply chain constraints or unplanned work stoppages; the ability of customers to obtain financing to purchase the Company’s products or equipment that contains its products; the effects of customer bankruptcies or liquidations; the impact of changes in industrial business cycles; and whether conditions of fair trade exist in the U.S. markets;
- changes in operating costs, including the effect of changes in our manufacturing processes; changes in costs associated with varying levels of operations and manufacturing capacity; availability of raw materials and energy; our ability to mitigate the impact of fluctuations in raw materials and energy costs and the effectiveness of our surcharge mechanism; changes in the expected costs associated with product warranty claims; changes resulting from inventory management, cost reduction initiatives and different levels of customer demands; the effects of unplanned work stoppages; availability of skilled labor; and changes in the cost of labor and benefits;
- the success of our operating plans, announced programs, initiatives and capital investments; the consistency to meet demand levels following unplanned downtime; and our ability to maintain appropriate relations with the union that represents our associates in certain locations in order to avoid disruptions of business;
- whether we are able to successfully implement actions designed to improve profitability on anticipated terms and timetables and whether we are able to fully realize the expected benefits of such actions;
- the Company's pension obligations and investment performance;
- with respect to the Company's ability to achieve its sustainability goals, including its 2030 environmental goals, the ability to meet such goals within the expected timeframe, changes in laws, regulations, prevailing standards or public policy, the alignment of the scientific community on measurement and reporting approaches, the complexity of commodity supply chains and the evolution of and adoption of new technology, including traceability practices, tools and processes;
- availability of property insurance coverage at commercially reasonable rates or insufficient insurance coverage to cover claims or damages;
- the availability of financing and interest rates, which affect the Company's cost of funds and/or ability to raise capital;
- the effects of the conditional conversion feature of the Convertible Senior Notes due 2025, which, if triggered, entitles holders to convert the notes at any time during specified periods at their option and therefore could result in potential dilution if the holder elects to convert and the Company elects to satisfy a portion or all of the conversion obligation by delivering common shares instead of cash;
- the impacts from any repurchases of our common shares and convertible notes, including the timing and amount of any repurchases;
- competitive factors, including changes in market penetration; increasing price competition by existing or new foreign and domestic competitors; the introduction of new products by existing and new competitors; and new technology that may impact the way our products are sold or distributed;
- deterioration in global economic conditions, or in economic conditions in any of the geographic regions in which we conduct business, including additional adverse effects from global economic slowdown, terrorism or hostilities. This includes: political risks associated with the potential instability of governments and legal systems in countries in which we or our customers conduct business, and changes in currency valuations;
- the impact of global conflicts on the economy, sourcing of raw materials, and commodity prices;
- climate-related risks, including environmental and severe weather caused by climate changes, and legislative and regulatory initiatives addressing global climate change or other environmental concerns;
- unanticipated litigation, claims or assessments, including claims or problems related to intellectual property, product liability or warranty, employment matters, regulatory compliance and environmental issues and taxes, among other matters;
- cyber-related risks, including information technology system failures, interruptions and security breaches;
- the potential impact of pandemics, epidemics, widespread illness or other health issues;
- with respect to the equipment investments to support the U.S. Army’s mission of ramping up munitions production in the coming years, whether the funding awarded to support these investments is received on the anticipated timetable, whether the Company is able to successfully complete the installation and commissioning of the new assets on the targeted budget and timetable, and whether the anticipated increase in throughput is achieved; and
- those items identified under the caption Risk Factors in our Annual Report on Form 10-K.

You are cautioned that it is not possible to predict or identify all of the risks, uncertainties and other factors that may affect future results, and that the above list should not be considered to be a complete list. Except as required by the federal securities laws, we undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise. Further, this report includes our current policy and intent and is not intended to create legal rights or obligations. Certain standards of measurement and performance contained in this report are developing and based on assumptions, and no assurance can be given that any plan, objective, initiative, projection, goal, mission, commitment, expectation, or prospect set forth in this report can or will be achieved. Inclusion of information in this report is not an indication that the subject or information is material to our business or operating results.

## Market risk

As filed, 2,528 characters.

### Interest Rate Risk

Our borrowings include both fixed and variable-rate debt. The variable-rate debt consists principally of borrowings under our Credit Agreement. We are exposed to the risk of rising interest rates to the extent we fund our operations with these variable-rate borrowings. As of September 30, 2024, we have $13.2 million of aggregate debt outstanding. None of our outstanding debt as of September 30, 2024 has variable interest rates, thus a rise in interest rates would not impact our interest expense at this point in time.

### Foreign Currency Exchange Rate Risk

Fluctuations in the value of the U.S. dollar compared to foreign currencies may impact our earnings. Geographically, our sales are primarily made to customers in the United States. Currency fluctuations could impact us to the extent they impact the currency or the price of raw materials in foreign countries in which our competitors operate or have significant sales.

### Commodity Price Risk

In the ordinary course of business, we are exposed to market risk with respect to commodity price fluctuations, primarily related to our purchases of raw materials and energy, principally scrap steel, other ferrous and non-ferrous metals and alloys. Additionally, the current and potential future global conflicts could also exacerbate inflationary pressures throughout the global economy and lead to potential market disruptions, such as significant volatility in commodity prices and supply chain disruptions. Although our business has not been materially impacted by current conflicts to date, it is difficult to predict the extent to which our operations, or those of our suppliers, will be impacted in the future.

Whenever possible, we manage our exposure to commodity risks primarily through the use of supplier pricing agreements that enable us to establish the purchase prices for certain inputs that are used in our manufacturing business. We utilize a raw material surcharge as a component of pricing steel to pass through the cost increases of scrap, alloys and other raw materials, as well as energy. From time to time, we may use financial instruments to hedge a portion of our exposure to commodity price risk. In periods of stable demand for our products, the surcharge mechanism has worked effectively to reduce the normal time lag in passing through higher raw material costs so that we can maintain our gross margins. When demand and cost of raw materials are lower, however, the surcharge impacts sales prices to a lesser extent.

## Controls and procedures

As filed, 962 characters.

(a) Disclosure Controls and Procedures

As of the end of the period covered by this quarterly report, we carried out an evaluation, under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e)). Based upon that evaluation, the principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this quarterly report.

(b) Changes in Internal Control Over Financial Reporting

During the Company’s most recent fiscal quarter, there have been no changes in the Company’s internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

## Risk factors

As filed, 250 characters.

We are subject to various risks and uncertainties in the course of our business. The discussion of such risks and uncertainties may be found under Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2023 filed with the SEC.

Filed Nov 7, 2024.
Source: SEC EDGAR, the filing index for accession 0000950170-24-123398. Last ingested by Listed: Nov 3, 2026, 14:47 ET. No prices; not investment advice.