Radius Recycling, Inc.

Good day, ladies and gentlemen. Thank you for standing by. Welcome to the Radius Recycling's fourth quarter 2023 earnings release 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 the session, you will need to press star 11 on your telephone. You will then hear an automatic message advising your hand is raised. Please note that today's conference is being recorded. I will now hand the conference over to your speaker host. Michael Bennett of Investor Relations. Please go ahead.

Thank you, Livia, and good morning. I am Michael Bennett, the company's Vice President of Investor Relations. I am happy to welcome you to Radius Recycling's earnings presentation for the fourth quarter of fiscal 2023. In addition to today's audio comments, we've issued our press release and posted a set of slides, both of which you can access on our website at RadiusRecycling.com. Before we start, let me call your attention to the detailed safe harbor statement on slide two, which is also included in our press release and in the company's form 10-K, which will be filed later today. As we note on slide two, we may make forward-looking statements on our call today, such as our statements about our targets, volume growth, and margins. Our actual results may differ materially from those projected in our forward-looking statements. Additional information concerning factors that could cause actual results to materially differ from those in the forward-looking statement is contained in slide two, as well as our press release of today and our Form 10-K. Please note that we will be discussing some non-GAAP measures during our presentation today. We have included a reconciliation of those metrics to GAAP in the appendix to our slide presentation. Now, let me turn the call over to Tamara Lundgren, our Chairman and Chief Executive Officer. She will host the call today with Stefano Guggini, our Chief Financial Officer.

Thank you, Michael. Good morning, everyone, and welcome to our fiscal 23 fourth quarter earnings call. On our call this morning, I'll discuss our recent rebranding, review our quarterly and full-year financial results, the trends affecting our business, and project on the strategic activities we have underway to address industry dynamics and create long-term value through the cycle. Stefano will then provide more detail on our financial performance our capital investments, and our capital structure. I'll wrap up, and then we'll take your questions. Before we begin our review, I'd like to recognize our team for their unwavering commitment to safety. The health and safety of our employees and all who work at and visit our sites is paramount. In fiscal 23, almost 90% of our facilities were free of any lost time injuries. While we still have work to do, our team is dedicated to continuing their progress in identifying and addressing potential hazards before they become injuries to ensure a safe working environment for everyone. So let's turn now to slide four to get started. In July, we announced the launch of our new corporate name and logo, Radius Recycling. This is an exciting new step in our company's history. Over the last 118 years, We've operated under many names, from our humble beginnings in 1906 through over 50 acquisitions. Today, we operate in more than 100 communities across North America, employing over 3,300 talented individuals. The rising demand for ferrous and non-ferrous metals continues to propel our company forward. The name, Radius Recycling, reflects our company's global leadership in metals recycling and and conveys our work, our purpose, and our vision for a sustainable future. Like the radius of a circle, our work sits at the center of the circular economy, seamlessly connecting all points towards a low-carbon future. And while metals recycling and steel manufacturing represent the foundation of our business, we are not the company we were a century ago. Our reach now extends far beyond what the name Schnitzer Steel implied. And it's important for us to clearly communicate our role in the circular economy and the value we deliver in the communities in which we operate. And while our name is changing, our commitment to our core values of safety, sustainability, and integrity remains steadfast. And those SSI initials will continue to serve as a reminder of our historic legacy. So let's turn now to slide five to review our fourth quarter highlights. Earlier this morning, we announced our fourth quarter results, which reflected adjusted EPS of 47 cents and adjusted EBITDA of $49 million, which included material insurance recoveries. Our underlying performance reflected market conditions for recycled metals, which significantly weakened during the quarter on lower global steel demand. Sequentially, average net selling prices for recycled metals decreased, which, in combination with a further tightening of supply flows over the summer, led to significant metal spread compression in the quarter, lower ferrous and non-ferrous sales volumes, and an adverse impact from average inventory accounting. These effects were substantially offset by the recognition of insurance recoveries. We generated strong operating cash flow and used free cash flow of over $100 million to reduce debt. We also continued our uninterrupted record of returning capital to our shareholders through the issuance of our 118th consecutive quarterly dividend. Let's turn now to slide six to review our fiscal 23 highlights. I'm proud of the performance our team achieved in fiscal 23. During a year characterized by weaker market conditions, our focus on our strategic initiatives delivered positive benefits. Our non-ferrous sales volumes increased by 7.5% year-over-year, reflecting initial contributions from our investments in advanced metal recovery technologies. In addition, we expanded our platform and services. Last November, we acquired ScrapSource, an asset-light business that significantly scales our national sourcing platform and enhances our recycling services offerings, both of which are now integrated under our trademarked 3PR brand. Our 3PR services help our customers to increase their recycling rates, reduce material going to landfill, improve their carbon footprint, and enhance their sustainability reporting. During the fiscal year, we also successfully implemented $60 million in annual productivity initiatives focused on production cost reductions, operating efficiencies, and SG&A savings. These initiatives helped to mitigate inflationary and other cost pressures. In fiscal 23, we achieved full-year operating cash flows of $139 million, demonstrating our consistent ability to generate cash flow through the cycle. Our free cash flow was also positive for the year. And last, I'm delighted to share that our company, for the third consecutive year, earned a Great Place to Work certification. This certification recognizes companies that value employee credibility, trust, respect, pride, and camaraderie, and is a testament to the positive experiences of our employees and the strong workplace culture we have built together. Let's turn now to slide seven for a review of market conditions. One of the most significant drivers of change to our operating margins during fiscal 23, including the fourth quarter, has been the reduced supply of recycled scrap metal. As the U.S. economy slows, our markets are experiencing a tightening in the availability of end-of-life automobiles, obsolete white goods, and scrap from reduced manufacturing activity and construction and demolition projects. These constrained supply conditions have pressured purchase costs for raw materials, leading to margin compression. As the charts on this slide demonstrate, US PMI has dropped below pre-COVID levels. The availability of end-of-life vehicles has also decreased, as the average age of vehicles on the road has reached its highest level on record. Lower durable goods orders, along with increased scrap collection costs, have also contributed to tighter scrap flows. By focusing on what we can control, including customer service, technology, and platform expansion, our non-Ferris volumes increased by over 7% in fiscal 23, and we were able to limit our Ferris sales volume decline to about 5%. And unlike previous periods with similar market conditions, we expect the long-term structural benefits related to decarbonization to provide further upside when the market strengthens. Let's turn now to slide eight to review market prices in more detail. As the chart in the upper left corner of this slide indicates, Ferris export prices softened during the quarter due to slowing global economy and corresponding weaker global steel demands. Chinese steel exports have also increased meaningfully over the last 12 months as their domestic demand, especially for construction activities, has fallen. Chinese exports have reached their highest levels since fiscal 2016 and are leading to slower global steel production ex-China. In the U.S., Ferris market prices fell by 15% during the quarter as steel mill utilization rates fell, and uncertainty regarding the UAW strike has led to some destocking. Turning to non-ferrous, as the chart in the top right corner of this slide shows, during Q4, base metal prices were mixed, with copper improving due to low global inventories and aluminum falling on weaker Chinese domestic demand and lower energy prices. Turning to finished steel, while we are seeing a bit of softening due to the level of interest rates and tighter credit conditions, we expect to see increased activity in 2024 and beyond, related to the U.S. infrastructure bills. While activity supported by these bills has been very limited thus far, data tracking shows that the pipeline of projects in the pre-design and design phases is growing. Our Oregon steel mill, with its range of low carbon long products, is very well positioned to meet this expected demand. For example, last month, Oregon passed a bill requiring the Oregon Departments of Transportation and Administrative Services to prioritize domestically manufactured iron and steel in public works and public improvement, transportation, and vertical construction projects. The bill complements Oregon's previously enacted Buy Clean Law, aimed at procuring low-carbon construction materials like ART net-zero carbon emission green steel products. Let's turn now to slide nine to review the longer-term outlook for recycled metals. As we have emphasized during previous earnings calls, decarbonization is a powerful driver of demand for recycled metals, which require less carbon to produce than mined metals. As you can see from the chart in the top left corner of this slide, many low-carbon technologies are widely acknowledged to be more metal-intensive than the technologies they are replacing. As a result, the long-term demand for recycled metals remains very positive and is further supported by the anticipated structural deficits for metals such as copper and nickel and the increased demand for manufacturers to maximize their use of recycled materials and reduce the environmental impact of their activities. And as you can see in the two charts on the bottom of this slide, the use of ferrous scrap in the steelmaking process is also expected to continue to grow in the coming years as electric arc furnace steelmaking capacity, which uses scrap, various scrap, as its primary raw material, has been expanding and is projected to increase further. Let's turn now to slide 10 for an update on our strategic priorities. In an economic environment characterized by market volatility and inflationary pressures, we continue to be focused on managing the things within our control. Our strategic priorities are directly aligned with the long-term trends of decarbonization and the corresponding need for more recycled metals and can be summarized as follows. First, technology investments in advanced metal recovery systems that are major recycling operations. As Stefano will describe in more detail, 11 of the 13 new systems are now operational or in commissioning. Second, volume growth. Even in the current challenging market conditions, we remain highly focused on increasing our ferrous and non-ferrous volumes. Third, expansion of our products and services to meet the increasing demand for recycled metals. We continue to focus on providing products and services that meet this demand, such as our green steel products and our 3PR services. And fourth, productivity initiatives that we undertake as part of our continuous improvement culture. In fiscal 23, we achieved the full run rate of benefits from the productivity initiatives that we announced earlier in this fiscal year. For fiscal 24, we have launched a new $30 million productivity improvement program. Before turning it over to Stefano, it's worth noting that while the weaker environment that we are in today presents challenges, we have experienced cyclical downturns and volatility before. and have demonstrated our ability to navigate effectively through these periods. We have a strong track record of delivering positive through the cycle operating cash flows and have a flexible balance sheet. Equally as important, we benefit from an operating platform where the majority of our costs are variable and we have multiple levers available to us to manage through this period of slowing economic activity and tighter supply flows. These market conditions won't last forever. And we are well-positioned to benefit from the expected increased demand for recycled metals associated with decarbonization and low-carbon technologies. So, now, let me turn it over to Stefano.