Quarterly Report for Quarter Ending September 30, 2026 (Form 10-Q)

Management's Discussion and Analysis of Financial Condition and Results of Operations

(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, 2026.

The MD&A is organized as follows:

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, 2026:

(1) Please see discussion of non-GAAP financial measures in Form 10-Q - Net Sales, Excluding Surcharges.

Results of Operations

Net Sales

The charts below present net sales and shipments for the three months ended September 30, 2026 and 2025.

Net sales for the three months ended September 30, 2026 were $337.2 million, an increase of $31.3 million, or 10.2% compared with the three months ended September 30, 2025. The increase in net sales was driven by favorable surcharges, improved price/mix, and higher shipment volume. The increase in surcharges of $13.5 million was primarily a result of higher alloy and scrap market prices, as well as energy surcharges. Favorable price/mix of $11.2 million was primarily due to higher aerospace & defense shipments and increased base prices across all end markets, except automotive. Higher shipment volume of 2.7 thousand ship tons resulted in a net sales increase of $6.6 million. Excluding surcharges, net sales increased $17.8 million or 7.4%.

The charts below present net sales and shipments for the nine months ended September 30, 2026 and 2025.

Net sales for the nine months ended September 30, 2026 were $986.5 million, an increase of $95.5 million, or 10.7% compared with the nine months ended September 30, 2025. The increase in net sales was driven by favorable surcharges, higher shipment volume, and improved price/mix. Higher surcharge per ton resulted in a net sales increase of $37.9 million. Higher shipment volume of 20.1 thousand ship tons, resulted in a net sales increase of $35.4 million. Favorable price/mix of $22.2 million was driven by higher aerospace & defense shipments and increased base prices, primarily within the industrial end market. Excluding surcharges, net sales increased $57.6 million or 8.2%.

Gross Profit

The chart below presents the drivers of the gross profit variance from the three months ended September 30, 2025 as compared to the three months ended September 30, 2026.

Gross profit for the three months ended September 30, 2026 increased $1.3 million, or 3.7% compared with the three months ended September 30, 2025. The increase was driven by favorable price/mix, partially offset by higher manufacturing costs and unfavorable raw material spread. Favorable price/mix was due to higher aerospace & defense shipments and improved base prices, particularly in the industrial end market. Manufacturing performance was unfavorably impacted by higher maintenance costs associated with improving downstream asset reliability and higher energy rates, as well as planned shutdown costs and an increase in power curtailments, partially offset by improved fixed-cost absorption from higher production volumes. Raw material spread was unfavorable due to lower scrap spread, partially offset by higher alloy spread.

The chart below presents the drivers of the gross profit variance from the nine months ended September 30, 2025 as compared to the nine months ended September 30, 2026.

Gross profit for the nine months ended September 30, 2026 increased $6.4 million, or 7.2% compared with the nine months ended September 30, 2025. The increase was driven by favorable price/mix and higher shipment volume, partially offset by higher manufacturing costs and unfavorable raw material spread. Favorable price/mix was due to higher aerospace & defense shipments and improved base prices, particularly in the industrial end market. Higher aerospace & defense and automotive shipments were partially offset by slightly lower shipments to energy and industrial end markets. Manufacturing performance was unfavorably impacted by higher maintenance costs associated with improving downstream asset reliability and higher energy rates, as well as planned shutdown costs and an increase in power curtailments, partially offset by improved fixed-cost absorption from higher production volumes. Raw material spread was unfavorable due to lower scrap spread, mostly offset by higher alloy spread and the impact of higher volume.

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, 2026 and 2025.

SG&A expense for the three months ended September 30, 2026 decreased by $0.7 million, or 2.9% compared with the three months ended September 30, 2025. SG&A expense for the nine months ended September 30, 2026 decreased by $2.0 million, or 2.8% compared with the nine months ended September 30, 2025. The decrease was primarily due to lower professional services, partially offset by slightly higher salary and benefits and variable pay compensation.

Interest (Income) Expense, net

Net interest income for the three and nine months ended September 30, 2026 was $0.3 million and $0.8 million, respectively, compared with net interest income of $1.4 million and $4.2 million for the three and nine months ended September 30, 2025, respectively. The decline in net interest income was primarily due to a combination of lower interest rates and lower average cash balances in 2026 compared to 2025. Additionally, for the nine months ended September 30, 2026, net interest income included a partial write-off of debt issuance costs of $0.1 million related to the refinancing of the Amended Credit Agreement. Refer to "Note 11 - Financing Arrangements" in the Notes to the unaudited Consolidated Financial Statements for additional information.

Other (Income) Expense, net

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. For more details on the aforementioned remeasurement, refer to "Note 12 - Retirement and Postretirement Plans."

During the third quarter of 2026, the Company recognized a $2.0 million gain in other income related to a negotiated agreement with a vendor that modified and resolved an outstanding obligation.

Provision for Income Taxes

The provision for income taxes for the three and nine months ended September 30, 2026 was $8.5 million and $14.1 million compared to a provision for income taxes of $2.8 million and $9.3 million for similar periods in 2025. The effective tax rate for the three months ended September 30, 2026 remained relatively consistent year over year. The decrease in the effective tax rate for the nine months ended September 30, 2026 is primarily related to higher pre-tax income and the limitations of the tax deductibility of the loss on extinguishment of debt on the Convertible Senior Notes in the prior year.

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.

Liquidity and Capital Resources

Credit Agreement

On June 30, 2026, the Company, as borrower, and certain domestic subsidiaries of the Company, as subsidiary guarantors (the "Subsidiary Guarantors"), entered into a Fifth 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 amends and restates the Company's existing secured Fourth Amended and Restated Credit Agreement, dated as of September 30, 2022.

The Amended Credit Agreement extended the maturity date of the Credit Facility from September 2027 to June 2031. Following the amendment, the Credit Facility committed capacity was reduced to $300.0 million from $400.0 million. The Credit Facility remains undrawn as of September 30, 2026.

Refer to "Note 11 - Financing Arrangements" in the Notes to the unaudited Consolidated Financial Statements for additional information.

Additional Liquidity Considerations

The following represents a summary of key liquidity measures under the Amended Credit Agreement as of September 30, 2026 and December 31, 2025:

(1) As of September 30, 2026, Metallus had less than $300.0 million in collateral assets to borrow against. As of December 31, 2025, 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 Credit Agreement. As of September 30, 2026, taking into account our view of industrial, automotive, aerospace & defense and energy market demand for our products, and our 2026 operating and long-range plan, we believe that our cash balance as of September 30, 2026, projected cash generated from operations, and borrowings available under the Credit Agreement, 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 $70 million in 2026, inclusive of approximately $35 million of capital expenditures substantially funded by the U.S. government.

For the nine months ended September 30, 2026, the Company contributed a total of $25.2 million in pension contributions, most of which related to the Bargaining Plan, and does not anticipate making any additional contributions during the remainder of 2026.

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.

For the three months ended September 30, 2026, the Company repurchased approximately 0.2 million common shares in the open market at an aggregate cost of $3.6 million, which equates to an average repurchase price of $19.38 per share. For the nine months ended September 30, 2026, the Company repurchased approximately 0.7 million common shares in the open market at an aggregate cost of $11.5 million, which equates to an average repurchase price of $17.56 per share. As of September 30, 2026, the Company had a balance of $78.2 million remaining under its share repurchase program. The share repurchase program is intended to return capital to shareholders while also offsetting dilution from annual equity compensation awards. The share repurchase program does not require the Company to acquire any dollar amount or number of shares and may be modified, suspended, extended or terminated by the Company at any time without prior notice. These authorizations reflect the continued confidence of the Board and senior leadership in the Company's ability to generate sustainable through-cycle profitability while maintaining a strong balance sheet and cash flow.

Cash Flows

The following table reflects the major categories of cash flows for the nine months ended September 30, 2026 and 2025. For additional details, please refer to the unaudited Consolidated Statements of Cash Flows included in this quarterly report.

Operating activities

Net cash used by operating activities for the nine months ended September 30, 2026 was $7.3 million compared to net cash provided of $17.9 million for the nine months ended September 30, 2025. The change was primarily driven by increased working capital use of cash in 2026 to support the growing order book, partially offset by higher profitability and lower required pension contributions.

Investing activities

Net cash used by investing activities for the nine months ended September 30, 2026 was $35.8 million compared to net cash used of $44.0 million for the nine months ended September 30, 2025. The change was due to lower capital expenditures and reduced proceeds from government funding in 2026 compared to the prior year.

Financing activities

Net cash used by financing activities for the nine months ended September 30, 2026 was $15.8 million compared to net cash used of $23.6 million for the nine months ended September 30, 2025. The change was primarily due to the repurchase of Convertible Notes during the second quarter of 2025 and lower repurchases of common shares in 2026, partially offset by debt issuance costs in 2026 with no similar costs in 2025.

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:

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.