Good day, thank you for standing by. Welcome to the Universal Stainless Q1 2022 Conference Call and Webcast. At this time, all participants are in a listen only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during this session, you'll need to press star one on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star then zero. I would now like to hand the conference over to your host today, June Filingeri. Please go ahead. Thank you, Michelle. Good morning. This is June Filingeri of Comm-Partners, and I also would like to welcome you to the Universal Stainless Conference Call and Webcast. We are here to discuss the company's first quarter 2022 results reported this morning. With us for management are Denny Oates, Chairman, President, and Chief Executive Officer, Chris Zimmer, Executive Vice President and Chief Commercial Officer, and Steve DiTomasso, Vice President and Chief Financial Officer. Before I turn the call over to management, let me quickly review procedures. After management has made formal remarks, we will take your questions, and Michelle will instruct you on procedures again at that time. Also, please note that in this morning's call, management will make forward-looking statements. Under the Private Securities Litigation Reform Act of 1995, I would like to remind you of the risks related to these statements, which are more fully described in today's press release and in the company's filings with the Securities and Exchange Commission. With these formalities complete, I would now like to turn the call over to Denny Oates. Denny, we are ready to begin. Thanks, June. Good morning, everyone. Thanks for joining us today. The recovery in aerospace demand continued to build positive momentum in the first quarter, driving exceptional growth in bookings, backlog, and increasing sales. Specifically, consolidated backlog increased 50% from the record of $134.5 million at year-end 2021 to reach a new record of $201.8 million before surcharges. Our backlog ratcheted up each month of the quarter, including a strong increase in premium alloy products. On March 31, premium alloys represented 25% of total backlog. Given today's lead times, approximately one-third of the backlog is scheduled for shipment in 2023. The backlog growth reflects record monthly and quarterly bookings, which totaled $107.4 million before surcharges, providing an excellent base load for operations over the next several quarters. Finished bar and plate products were especially strong, with volume increasing sequentially by 136% and 40%, respectively. Net sales increased to $47.6 million, up 10% or $4.4 million from the fourth quarter, and 28% or $10.4 million from the first quarter of last year. Shipments totaled 13.7 million pounds, essentially unchanged from last quarter. A couple of noteworthy points I want to make on sales. The $4.4 million increase in sales is comprised of three things. Price and surcharge increases of $2.3 million, product mix changes of $2.7 million, and a reduction in sales of $700,000 due to revenue recognition and other miscellaneous sales adjustments. We've announced 8 base price increases over the past year, 3 before September 2021 and 5 since, including 4 increases in 2022 alone. 60% of Q1 sales were booked prior to September and did not benefit from all the increases. We expect the positive impact of price increases to accelerate over the next few quarters as the benefits of subsequent price increases kick in. The product mix improvement of $2.7 million is directly attributable to increased sales of higher priced finished bar and premium alloy products, consistent with our long-term strategy. Premium alloy sales rose 27% to $8.9 million and represented 18.8% of total first quarter sales, compared to $7 million and 16% of sales in the fourth quarter. A 17% reduction in shipments of lower priced plate products also contributed to the favorable sales mix impact. However, I should point out that order entry for plate was excellent in the first quarter. Plate backlog is up 42%, and we continue to expect a solid year in the plate business. We also expect sales to trend upward each quarter of 2022, subject to modest seasonal factors. Current backlogs point towards stronger volume, higher prices, and improving mix. Let's turn to profitability. Gross margin was $4.1 million or 8.5% of sales in the first quarter versus 8.7% of sales in the fourth quarter of 2021, and a -7% of sales in the first quarter of last year. I said on our last call that I would expect double-digit gross margins as we move through the first half of 2022. Frankly, we expected to do better than 8.5%. Looking at the puts and takes, the gross profit margin in the last quarter benefited from three items that were more than offset by three challenges. Let's take them one at a time, starting with the positives. First quarter gross profit was increased by $1.1 million by a grant received under the Aviation Manufacturing Jobs Protection Program. We recorded a $1.1 million benefit in Q1 and estimate favorable impacts of $1.5 million in the second quarter and a half million in the third quarter. The grant is contingent upon maintaining certain minimum manning levels. Without the grant, first quarter gross profit margin was 6.3%. We estimate the positive misalignment between prices and surcharges compared to material costs added $400,000 to gross profit, or about 0.8% of sales. Lastly, the increasing mix of premium melted products had a favorable impact on gross profit. These positive factors were more than offset by three items. First, ongoing supply chain challenges, including delays in transport, delivery of critical parts, and timely receipt of raw materials. The resulting intermittent extended outages of key facilities limited production early in the quarter. Second, inflation in the price of virtually all operating supplies and consumables ran ahead of the benefits of price increases in the first quarter. Third, lower than planned production led to reduced absorption of fixed costs and lower margins. Actual fixed spending, however, remained unchanged. Sequentially, about $2 million of additional unabsorbed fixed costs hit the P&L in the first quarter compared to the fourth quarter. The resulting monthly trend in gross profit margins during the first quarter reflects the impact. In January, our gross profit margin was 9.5%. In February, we turned negative at 4.5% when the outages impact hit. In March, we were at 11.7% before the impact of the aerospace grant. We've addressed these issues by completing major maintenance on key facilities such as our forge, grinding equipment, selected remelt furnaces, and hot rolling operations. We've replenished parts and consumable inventories. We are de-risking our raw material and parts supply chains from exposure to Russia, Ukraine, China, and related areas of concern. Lastly, price and surcharge increases have been implemented, and their favorable contribution will grow each quarter. All these steps, coupled with a record backlog and increased production levels, give us confidence that profit margins will rise, and we will deliver the double-digit margins I described in our last call as we move through 2022. I'll provide an update on the spill in a moment, which could have an impact on our margins in the second quarter. In the first quarter, selling, general, and administrative expenses approximated about $5 million, essentially the same as the fourth quarter of 2021, but declined as a percentage of sales from 11.6% to 10.5%. We expect SG&A expenses to remain flat for the next few quarters. For the three months ended March 31, 2022, and 2021, our estimated annual effective tax rates applied to ordinary income were 10.6% and 25.8% respectively. The difference between the federal statutory rate of 21% and the federal annual estimated tax rate in both years is primarily due to research and development credits. The 2022 and 2021 estimated annual effective tax rates differ primarily due to an expectation of income tax expense in 2022 compared to an income tax benefit in 2021. The net loss for the first quarter was $1.6 million or $0.18 per diluted share, virtually identical to the fourth quarter of 2021. The year-ago quarter loss was $4.5 million or $0.51 per diluted share. EBITDA for the quarter was $3.8 million, and adjusted EBITDA was $4.2 million after adding back $400,000 for stock-based compensation. Let's move on to our financial position. Managed working capital increased in the first quarter to $142.5 million on March 31 from $136.9 million on December 31. The increase was mainly due to a $7.1 million increase in accounts receivable resulting from the high volume of shipments in March. Approximately 40% of Q1 sales occurred in the month of March. Inventory increased by $6.7 million from the end of the fourth quarter to $147.4 million. The $6.7 million increase is comprised of a $2.1 million increase in raw materials, with $400,000 due to volume and $1.7 million due to higher material costs. There was a $4 million increase in work in process, with a $3.6 million decline due to lower pounds in work in process, offset by an increase of $7.6 million due to higher material costs. Lastly, there was a $600,000 increase in supplies and parts inventory. In short, the increase in inventory is due to the rising price of materials, not to increased volumes in inventory. Lastly, the $7.5 million increase in accounts payable more than offset the increase in inventory. Capital spending was $2.5 million in the first quarter, down from $4.6 million last quarter. While we still anticipate $20 million in capital spend this year, supply chain and delivery uncertainty may push some spending into 2023. We finished the quarter with total debt of $76 million, up $6.8 million from year-end. Liquidity remains in good shape at $25.4 million, an increase of $1.4 million sequentially. Taking a minute on commodity prices, especially nickel, which ended March at $15.50 a pound, about 70% higher than at the end of December and more than double its price a year ago. The nickel market has tightened due to recent sanctions on Russia, ramping production of electric vehicles, and healthy specialty metals demand. In addition to nickel, there were strong run-ups in other commodities by the end of March. Both vanadium and ferrotitanium more than doubled in price from the end of December, while chrome was up 45%, cobalt up 15%, and scrap up 13%. Due to these sharp inflationary cost increases affecting all areas of our business, we've announced 4 price increases since the beginning of the year. A base price increase for all products in January, price increases for bar products in February and March, as well as an increase for plate products in April. Moving on to operations. We announced on April 11, that a liquid metal spill had occurred during operations at our electric arc melting facility in Bridgeville. The spill was caused by a breakthrough at the bottom of a furnace shell. No one was injured, and there was no environmental impact. All other operations have continued to function normally. No near-term interruption to product delivery schedules is anticipated. Since the time of the spill, we have been in the process of cleanup and damage assessment. We said at the time that we expected melting operations to resume in 6-8 weeks, subject to parts and contractor availability. Our team's doing an outstanding job recovering, and we expect to resume melting the week of May 23, which would be on the low end of that estimate. While there are still unknowns and these numbers are preliminary, we estimate the cost of cleanup and repairs to be in the $1.5 million range, and an asset charge of about $300,000-$400,000 will be required. We have a $1 million deductible in our insurance program. We are taking additional steps to partially mitigate the impact of the spill. Specifically, we are securing purchased melt for selected grades to meet customer commitments, maintain downstream asset utilization, and preserve our workforce. We're also redeploying affected employees to other productive roles within the plant. Although the metal spill is uppermost in our minds right now, there were several operational milestones reached during the first quarter. Among them was completing the commissioning of the new 18-ton vacuum induction melting crucible in North Jackson. As we have discussed, the vacuum induction melting crucible expands our vacuum induction melting capacity to support the growth in premium alloy products and significantly improves the efficiency of our melt operations. 100% of the $3 million in trial inventory and work in process at year-end has passed testing and been applied to customer orders. We are also proceeding with the acquisition of two additional vacuum arc remelt furnaces to further support our growth and efficiency along with our expanding product portfolio. The furnaces have been ordered and will be installed at our North Jackson facility to be operational late in the second quarter of 2023. I'd also like to congratulate our entire Bridgeville team on achieving the coveted ISO 45001 certification for occupational health and safety. Bridgeville joins our other three plants which earned the certification in recent years, demonstrating the commitment to safety by all Universal employees and validating the effectiveness of our safety processes. Let's turn to our end markets, beginning with aerospace, our largest market. Our aerospace sales increased 17% to $30.1 million, or 63% of sales in the first quarter from $25.7 million or 60% of sales in the fourth quarter. Our first quarter sales to aerospace were the highest since the second quarter of 2020. Last quarter, I noted that recovery in aerospace was gaining traction due to improving travel activity, increased deliveries, a return of bookings for the commercial and freight sectors, increased defense spending, and growing activity in general aviation. Those same factors accelerated recovery momentum in the first quarter. Among these factors is the substantial comeback in air traffic. In its February report, IATA reported that air travel posted a strong rebound from January and a more than doubling of air travel from February of 2021. The year-over-year comparison included a 61% increase in domestic traffic and a 257% increase in international traffic. IATA said that the war in Ukraine did not have a major impact on February traffic numbers. However, March numbers are not yet available. Adding more evidence of the return of commercial air travel, Delta Air Lines reported last week that it is seeing, and I'll quote, "Historic levels of sales activity and bookings as consumer demand accelerated through the quarter, highlighted by strong spring break performance in business travel as Omicron faded, offices reopened and travel restrictions were lifted." End quote. At Boeing, the expected step-up in build rate of the 737 MAX has now materialized, increasing to 31 airplanes per month from 27 per month at the end of January. The increase seems supported by Boeing's order book, which remains strong even with recent reductions required by accounting rules due to Russian sanctions. Boeing has received an estimated 1,000 orders for the 737 MAX since its return to service. Among its wide-body aircraft, Boeing continues to work through structural flaws in the 787 airplane before it can resume deliveries and ramp production in a meaningful way. Even so, it's worth noting that Boeing's backlog totaled 4,231 airplanes as of April 12. Boeing has emphasized the freighter market as a major area of opportunity, and that has proven to be the case. They introduced the new 777-8 in January, accompanied by several major orders from Qatar Airways, Western Global, DHL, and Ethiopian Airlines. At Airbus, management is targeting delivery of 720 commercial airplanes this year, up from 611 last year. On their conference call in February, Airbus said its main priorities are to strengthen its backlog and deliver on its commercial aircraft ramp. Their order backlog at year-end 2021 was 7,082 commercial aircraft. As part of their plan for production ramp-up of the A320 narrow-body family, Airbus has increased production build rate approximately 50 to approximately 50 airplanes per month, up from 40 per month during the pandemic. They remain committed to increasing that to 65 per month by July of 2023 and would like to move beyond that level to 70-75 per month, but recognize current supply chain capacity may be limiting. Demand in the defense market remains healthy. Since our last call, the administration submitted a fiscal year 2023 DoD budget requesting $773 billion, which is up 4% from the level enacted in fiscal year 2022. Based on discussion with our aerospace customers, their increased order levels are in response to current demand, combined with planning for higher demand in the second half of 2022, continuing to 2023. That's in line with airplane build rate forecasts and supported by multi-year backlogs at Boeing and Airbus. The heavy equipment market remained our second largest market in the first quarter of 2022. Heavy equipment sales were $8.1 million or 17% of sales, which is 11% lower than $9 million or 21% of sales in the fourth quarter. Metal fabrication demand drives our sales to the heavy equipment market. Last quarter, I pointed to typical lumpiness in quarterly sales, and that was evident in the first quarter. Even so, based on our bookings and a 42% increase in order backlog in first quarter, we expect our heavy equipment market sales to remain strong in 2022, driven by continued industrial equipment demand and model changeovers by automakers. The oil and gas end market was our third largest in the first quarter of 2022, with sales up 7% to $4.5 million or 9.2% of sales, compared with $4.1 million and 9.4% of sales in the fourth quarter. Volatility in oil and natural gas pricing of late has been dramatic. At the time of our last call in late January, crude oil prices closed at $88 per barrel, close to a seven-year high, and natural gas prices had jumped a full 82% in 2021. Later on, the war in Ukraine, Russian sanctions, unusually cold weather, and the decision by the IEA to release approximately 240 million barrels of emergency oil reserves over the next six months, and the erratic moves in prices are not all that surprising. Oil was as high as $124 a barrel on March 8 and closed at $103 yesterday. While natural gas closed at $7.80 per million BTU, up 40% this month alone. While it may be hard to get a fix on where oil and gas prices will settle, drilling activity continues to increase as evidenced by the Baker Hughes rotary drilling rig count. As of April 8, there were a total of 689 active drilling rigs in the U.S., an increase of 16 from the week before, an increase of 257 rigs from April a year ago. International rigs total 815, up 2 during the week, but up 100 from the same period last year. The U.S. Energy Information Administration estimates that commercial oil inventories in the OECD ended the first quarter at 2.6 billion barrels, up slightly from February, but that was the lowest level since April 2014. With a low level of inventories, one equity analyst recently not only forecasted increased drilling activity in the U.S. and internationally, but that major oil companies would maintain their capital discipline and spend at the upper end of expectations while private operators would continue to add rigs. Higher drilling activity leads to more demand for parts, and therefore more demand for metal to produce them. We are seeing the initial signs of increased activity, and supply chain inventories appear to be getting in good shape. General industrial market sales in the first quarter totaled $3.4 million, or 0.7% of sales, an increase of 33% from the $2.5 million in the fourth quarter. Our general industrial market includes sales to the semiconductor, medical, and general manufacturing markets. Robust semiconductor industry demand remained the main driver of our first quarter growth in this market. Semiconductor industry reported global semiconductor sales increased 32% in February from the same month of 2021, while sales in the Americas increased 43%. At Universal, we continue to expect reasonable volume opportunities in the general industrial market in 2022. Power generation market sales increased 10% to $1.3 million or 3% of sales compared to $1.2 million last quarter. Maintenance demand continues to account for most of our power generation sales, and we expect that to be the case for the foreseeable future. A pickup in seasonal maintenance aided our first quarter. While there may be some future benefit from increased gas turbine backlogs at major OEMs, it has not materialized in terms of demand from our customers. Looking at the industry more broadly, EIA has forecasted that natural gas generation will represent a solid 35% of U.S. electricity generation in 2022 and 2023. At the same time, an industry analyst report in the industrial gas turbine market forecasts a growth rate of about 3% over the next six or seven years. We expect sales to grow modestly in 2022 and track normal seasonal patterns. Before I wrap up, I'd like to take a moment to introduce Steve DiTommaso. Steve has served as our corporate controller since 2018, during which time he led our accounting and treasury operations and had expanding responsibilities in strategy development and operations. He's an ideal fit for the strategic role of Vice President and Chief Financial Officer because of his deep knowledge of financial reporting and cash management, and equally important, because of his familiarity of Universal's business and operations. Personally, I'm looking forward to working with Steve to execute our strategic plan, drive operating performance, and share in future conference calls and investor relations. Thank you, Denny. I'm very excited to take on this new responsibility for Universal Stainless. For the past four years, I've been fortunate to be a part of the finance group here, and I'm supported by a strong and talented team. We are fully focused on furthering Universal's growth strategy and initiatives. I'm also fortunate to have worked closely with Denny and our leadership team. We have met several recent challenges, but we also see many immediate opportunities, and Universal Stainless is well positioned for success going forward in 2022 and beyond. Thanks, Steve. Many of you will be working with Steve here as we go down the road. Let me wrap up. A couple points I'd like to close with. Accelerated recovery in aerospace demand drove exceptional growth in bookings and order backlog, as well as increased sales. Aerospace sales were up 17% sequentially and included a 27% increase in higher value premium alloy sales. Backlog is at an all-time high of $202 million, up 50%. A full 25% of the backlog consisted of premium alloys. First quarter bookings also reached a new record of $105 million. The balance of our end markets achieved sequential sales growth except for heavy equipment. However, I noted several times that the heavy equipment backlog grew 42% during the first quarter, and we expect a solid year overall. Our gross margin of 8.5% in the first quarter was aided by strong premium alloy sales, a modest positive misalignment between prices and material costs, and a $1.1 million grant. These positives were more than offset by supply chain challenges, operational difficulties early in the quarter, ongoing labor shortages, and rapidly rising costs that were not yet fully offset by price increases. Our immediate focus is on ramping up our melt shop in Bridgeville following a liquid metal spill at our electric shop. We're taking all actions possible to mitigate the effect of that event and continue to expect melting operations to resume the week of May 23. The very preliminary cleanup cost estimate of the event is $1.5 million, plus a $300,000-$400,000 non-cash asset charge. Our deductible from an insurance standpoint is $1 million. We're also moving forward on our strategic investment in two new advanced vacuum arc remelt furnaces and a variety of other labor-saving investments. We have adequate liquidity to fund our record backlog, increasing sales, target investments, and working capital needs. Excluding the charge for the melt shop spill in Q2, with the strength of our backlog in bookings amid recovering markets, we expect to deliver stronger sales volume, continued pricing improvements, a richer mix, ramping production, and improved margins as we move through 2022. Let me end by recognizing the efforts, talents, and resilience of our employees who continue to enable us to overcome our challenges and seize these new opportunities. Our ongoing confidence in the future is due to their commitment as well as the support of our board, customers, and stockholders. That concludes my formal remarks. Michelle, we're ready to take some questions. Thank you. If you have a question at this time, please press star then one on your touchtone telephone. If your question has been answered or you wish to remove yourself from the queue, please press the pound key. Our first question comes from the line of Michael Leshock with KeyBanc Capital Markets. Your line is open. Please go ahead. Hey, good morning. How you doing, Mike? Good. Good. First I just wanted to ask on supply chain inventory, specifically within aerospace, where do you see those relative to where they're normally at this time of year? Do you see any potential shift for meaningful restocking towards the back half of the year? In other words, is the 50% increase that we're seeing in backlog evidence that the supply chain doesn't have enough inventory needed for some of the production ramps that we're seeing within aerospace right now? Let me have Chris Zimmer, our Executive VP, answer that one. Chris? Hi, Mike. The feedback that we're getting from the supply chain is that, their demand from a pull standpoint continues to increase. Their inventory levels are low. In addition to ramping their buys with us to support demand, they're looking forward to where they anticipate they wanna have their inventories level at to get back to, the service levels that they like to have. We're finding that a lot of our customers that are used to, quoting out of inventory, with quick lead times because of their lower inventory levels right now, it's extending their service levels. As we look at what's coming ahead in our backlog, and more importantly, that demand that's coming in from our customers, we see a lot of the buys coming in to keep up with demand. Quite frankly, it's a bit of a struggle for them to reload their inventory to the levels that they'd like to get back to. Do you have any visibility into what specific platforms that your material is being shipped in or what's driving that backlog increase in terms of platform? I would assume it's some of the narrow body ramps, but I just didn't know what visibility you had on your end. The visibility is not what I would call crystal clear, but we do have a very good idea where a lot of it is flowing towards because that first channel for most of our sales are service centers. We know that Boeing is a major driver both structural, landing gear, engine side of the business. There is a good portion of our business that goes to the engine producers, the you know the big three, whether it be a formal contract or transactional business through forgers. Even as you look through some of the smaller to mid-size programs like the Bombardier and the Embraer, we know that our product is getting there through contractual deals that we have primarily with service centers. There's also a portion of the business that's going to defense applications, both helicopters, fixed wing. Again, a lot of that flows through distribution and forgers. We have a general idea where those are going towards from the specs that flow down, but only a small portion of our sales is actually on a direct basis. Got it. I would just add a couple things if I could, Mike. I would echo everything Chris said. I think the fact that if you look at our backlog, I commented that about a third of our backlog is out into 2023. I think that underscores the confidence in the supply chain on the ultimate demand coming out of the aerospace business, the fact that we're seeing that kind of interest in loading up in the first half of next year. Everything Chris said is correct with regard to how our metal gets to market, but it's just impossible in that kind of the way we go to market to really tell you how many pounds, for example, is on a 737 of our product. We know that basically our product gets on every commercial airplane in some way, shape, or form through our forging and service center customers. Yeah. No, that's helpful. And then on margins, I wanted to ask if you expected to do better than the 8.5% this quarter, given some of the elevated supply chain issues and inflation, versus three months ago. Do you see some of these issues abating, or do you expect margin improvement in the second quarter and sequentially throughout the remainder of the year, despite some of the headwinds that you called out? We expect margin improvement as we move through the year. I would point back to the monthly trend we saw. You can clearly see in our monthly trend in gross profit, which was 9.5% gross profit in January. Then we went into the red in February when we had some of these supply chain issues happen. Essentially what's happening is, you know, in any steel mill, you're gonna have maintenance issues. You do your preventive maintenance, your predictive maintenance, but there are gonna be breakdowns, and we have a core competency in jumping on those things and fixing them quickly. The problem we're running into, as I think all mills are, is getting our hands on the parts. So you got equipment that's sitting idle while we're waiting for parts to arrive. That's what hurt us here this quarter. If you look at March, as things cleared up and we're able to purchase, get some of those supplies in, margins picked back up to 11.7%. So as I look at the second quarter, I expect to see double-digit margins. The one caveat on that, and I'm excluding when I say that, the impact of the spill, we'll have a charge in the second quarter. I don't have a hard number there. I gave you the best estimates we have on that. So I'm excluding that from when I say that we're gonna have you know, the double-digit margins. As far as whether the situation's getting improved, I would say very, very slowly. Essentially, we're addressing that by buying heavy. You know, in the last couple of calls I've talked about buying extra raw materials, buying heavier on parts. I pointed out we had an increase in our supply and operations, parts and inventory. We're buying a little on the heavy side to try and compensate for supply chain issues, and I would expect that to slowly improve over the course of the year. I think we'll still be talking about some disruptions here in the fourth quarter this year, but just not as bad as today. The labor shortage situation continues. That is a challenge these days, so we're in a mode where we're hiring people, which implies, you know, we got a lot of training going on out there. We've got probably a third of our employees have less than a year's experience. We need to train those employees to work safely, first and foremost, and efficiently as well. We're going through all those usual struggles you see in a ramp-up, which compounded by a labor shortage that I think everybody's facing these days. On that labor shortage, how much workforce do you need to bring back to get to these to be able to produce that normalized pre-pandemic volumes? We probably need another 50-75 employees. Hourly employees, I'm talking about. Got it. All right. That's it for me. Thanks for all the color. You're welcome. Thank you. Our next question comes from the line of Gregory Weiss with Boston Partners. Your line is open. Please go ahead. Hey, Denny. How are you doing? Morning, Greg. Sorry. You know, look, obviously, kind of a bipolar quarter, you know, the margins were not what you wanted. The bookings were tremendous, which is normally, you know, probably the more important of the two. You know, I think the reason your stock is trading at such a distinct discount to book value is because there's lack of confidence of achieving the profitability on that backlog. I guess if you could just, you know, provide a little more granularity on what you've already said of, you know, whether it's pricing or the backlog or, you know, asset utilization or offsetting some of these headwinds of how we're gonna, you know, be profitable in this backlog. Just take it one step forward, if you comment on how order entry has been, you know, post the quarter, if it's been impaired by the spill at all or, you know, any color there would be great. Let me take those in reverse orders. You wanna go through the bookings so far, Chris Zimmer? Yeah. We had a great first quarter in order entry. Customers buying ahead as they see their demand ramping. Denny mentioned the four price increases that we put out this year, in addition to, I believe, the five that we had last year. As lead times extend, what you don't see is underlying behind that, a little caveat that it's effectively pricing in effect, for those orders that are placed out so far into the future. That gives us an opportunity to be able to stay ahead of inflation, and even for the orders that are on the books out into the future, still make adjustments, to reflect what we need to do there, staying ahead of inflation. On an order entry standpoint, we feel very good about the quality of what's going into the backlog. Prices are moving up significantly, and even with the longer lead time items, we have additional flexibility to push them up higher in response to any additional inflationary impact we see. Let's talk about why I think margins go up. I'll key right off where Chris left off. We've got price increases that we've announced, and with each of the next couple quarters, more of those price increases will start to be reflected in our P&L. All right. About three of the price increases impacted first quarter, five of them didn't. As we move through time, you'll start to see the impact as we sell through the orders that we booked since those price increases in. We're looking at higher prices going forward. If you look at the mix, we're seeing a mix of our higher margin business. The premium alloy products are up. Finished bar products are up. Plate, which was down in the first quarter, we've had a significant increase in backlog, so we expect that volume to return. We're looking at a very decent mix on top of increased prices. We are a capital-intensive business, as you know, as all steel mills are. Production activity has a big impact on our quarter-to-quarter swings and profitability. In the first quarter, we were hammered by some of these outages we had, and I didn't go through all the outages. For example, you know, we lost our forge for about a month, all told, during the month, waiting, simply waiting for parts. Which is a bit maddening, but we feel that we've covered ourselves, where we have no maintenance issues. We've taken outages. We feel we're in pretty good shape as we enter the second quarter, third quarter here to ramp up production, get higher pounds, which will improve absorption and increase our margins as well. And obviously, we got a nice book of business, we're at an all-time record in terms of absolute volume to work on. You got increasing selling prices, improving mix. We expect higher production levels, and we got the backlog already on the books. We're not planning. You know, we don't need to book a lot in the next quarter or two. We already have that, the stuff on our books. As far as the booking so far this quarter, I just wanna say I don't want anybody to expect we're gonna have record bookings, you know, in the second and third quarter. I think we'll have strong bookings as we move through this year, but I don't expect to see, you know, $100 million-plus each quarter in terms of bookings this year. Does that answer help you at all, Greg? Yeah, that's great. I mean, good luck. Let's make some money. I'm with you. Thank you. Thank you. Again, ladies and gentlemen, if you have a question at this time, please press star then one. Our next question comes from the line of Bob Sales with LMK Capital Management. Your line is open. Please go ahead. Hi, Bob. Denny, hi, how are you? Good. Good. I guess the first question is on gross margins. You said it already, but the margins that you recognized in March are ex the hit you might take on the rebuilding of the electric arc furnace are probably what we should expect as we go forward for Q2. The 11.7% number in March, just to clarify, excludes the positive $1.1 million for the grant. All right? Right. It didn't have anything to do with the spill. We didn't record anything for the spill. As you look at the second quarter, I would expect our margins to go up from that level, all right? Excluding the spill. I mean, this is all kind of in motion right now, but we'll have a number that I will identify in the second quarter that'll be related to the spill. Right. The margins outside that, I would expect to be higher than what we saw in March. Gotcha. In terms of gross margin hit from the spill, is that both the cost of, you know, ramping back into production as well as some materials that you might have to procure from outside sources? Are those the two components of the gross margin hit for the problem? The gross margin hit from. Are you talking about the spill now or just the activity level in the first quarter? The spill. The spill basically will have our melt shop closed for six weeks. All right. Okay. That's got some implications for absorption, obviously, 'cause we're not producing. Yeah. We're also not incurring a lot of the cost of the production as well. All right? We're estimating $1.5 million as a cost to basically clean up and replace any equipment that needs to be replaced, realign the furnace, and get back into operation is gonna be about $1.5 million. There are some pieces of equipment that were destroyed that are on the books, so we'll have to write those off, and we're estimating that at $300,000-$400,000. The other thing that could impact that number is, as we look at buying some outside melt to supplement our operations, what kind of difference we would see between our internal melt costs and external purchase costs, all of which would fall under an insurance umbrella that's got a $1 million deductible. Right. Understood. Now, when you described it as a crack in the shell, I mean, just to understand the specific issue. There's a refractory bottom to an electric arc furnace. Is that what you're having to replace, that refractory bottom is somehow cracked in, or is it something different than that? No. I know we're simplifying, but simply put, an electric arc furnace is nothing more than a commodity carbon shell, and the inside of the shell is lined with refractory brick along the sides and a refractory-type ram product that goes into the bottom. The liquid, you put the raw materials and scrap and so forth into the furnace and melt it down. The liquid metal never really touches the shell. It's contained within the refractory brick. There are chemical reactions that go on over time. The lining is gonna have to be replaced every so many heats, which is normal operations. What happened in this case is liquid metal broke through the refractory, made contact with the shell itself, and basically melted through. It happened to occur at a time when we were about to tap, so we had a full 50 tons of material in the furnace, and we essentially had a hole in the bottom of the furnace, and the liquid metal came through the hole. Understood. Got it. Okay, what is the path towards, you know, maybe I'm getting greedy here, but what is the path towards margins beyond 11%? The path towards margins is further price increases, higher activity levels. We've got to manage our mix, make sure we get the right products into our portfolio as we're working, and I mean within our existing portfolio and new products. I don't wanna leave you with the impression, if I am, that we're topped at 11.7% margin. I think you can look at the history of the company and see some of our margins back then. There's no reason to expect we can't be at or better than those high water marks. That's certainly where we're shooting inside the company. Gotcha. Okay, the last question for you is: when you take orders for a given quarter, are you forward buying the associated materials such as nickel as being the first one that comes to mind, to that then matches up the cost and pricing? We don't do a lot of hedging. If we had a sizable order with a reasonable certainty of the volume, we would hedge that particular order. Frankly, in our business, that's not the nature of our business, so we're not doing much hedging at this point. We're not speculating on raw materials. From time to time, we will buy, like I use the term buy heavy, which means we may buy more than we need. That's not so much as a risk mitigation against price changes, it's more a risk mitigation against availability in today's world. In general, if it's a rising market for materials such as nickel, are you basically chasing those material prices until they flatten off, and then you're able to overcome it completely through pricing? As the cost of raw materials goes up, driven by nickel, for example, we are gonna surcharge that with a two-month lag in most of our orders. All right? Surcharging at time of shipment. In a market where you've got rising raw material prices, you should see a slight positive. That's the $400,000 that I called out in my comments of positive misalignment between surcharges and our raw materials. Over time, as those increases start to flatten out, they will come back into balance, and there can come a time where those raw materials go down and our margins take a hit for the inverse of it. Over time, the idea is that's a risk mitigation against fluctuations in raw material costs that all mills pass along into the supply chain. Over time, it evens out, but you can look a lot better than you really are in a sharply rising market and slightly worse than you are in a decreasing market on a quarter-to-quarter basis. Yeah. Understood. The surcharges is what I forgot about and what allows you to avoid forward purchasing the nickel for when you take orders. Yep. Okay, thanks. That's all my questions. Have a good one, Bob. Thank you. Again, if you have a question at this time, please press star then one. I'm showing no further questions, and I'd like to turn the conference back over to Mr. Oates for any further remarks. Thanks, Michelle. Once again, I wanna thank everybody for joining us this morning. We're beginning a second quarter with some operational challenges, but with record high backlog amid recovering markets, especially aerospace. We'll continue to seize on those market opportunities as well as move forward with our growth opportunities. I'm confident we'll get this spill thing behind us and get our melt shop back up and running here in May, and I'll look forward to updating you on our progress in our next call in July. Be well, stay safe, and have a good day. This concludes today's conference call. Thank you for participating. You may disconnect.