Schnitzer Steel Industries, Inc.

Ladies and gentlemen, thank you for standing by and welcome to the Schnitzer Steel first quarter 2021 earnings release conference call. At this time, all participant lines 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 one on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star zero. I would now like to hand the conference over to your speaker today, Michael Bennett, Investor Relations. Thank you. Please go ahead, sir.

Thank you and good morning. I am Michael Bennett, the company's Senior Director of Investor Relations. I am happy to welcome you to Schnitzer Steel's earnings presentation for the first quarter of fiscal year 2021. In addition to today's audio comments, we have issued our press release and posted a set of slides. both of which you can access on our website at schnitzelsteel.com or schn.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-Q, 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 future margin expansion. 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 2, as well as our press release of today and our Form 10-Q. Please note that we will be discussing some non-GAAP measures during our presentation today. We've 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 Richard Peach, our Chief Financial Officer and Chief Strategy Officer.

Thank you, Michael. Good morning, everyone, and Happy New Year. I hope you all had a good holiday break and, like me, are looking forward to a healthier, safer, and stronger 2021. The beginning of our calendar year always coincides with the announcement of our fiscal first quarter results. This year, we are reporting our first quarter results under our new One Schnitzer operating model. The efficiencies from this model, combined with a supportive market environment, contributed to the strong results that we announced this morning. On our call today, I'll review our quarterly financial results and the market and macroeconomic trends affecting our business I'll also provide an update on the strategic initiatives and investments we have underway to address evolving industry dynamics and create long-term value through the cycle. Richard will then provide more detail on our financial performance, CapEx investments, and capital structure. I'll wrap up, and then we'll take your questions. But before we get started on this review, I'd like to make two comments about the performance of our team. These past 10 months have been full of changes and challenges for all of us due to COVID-19. The operational and financial results that I am about to discuss would not be possible without all our employees, from our frontline workers to those who have been working remotely, living our core values of safety, sustainability, and integrity. Our success is the direct result of how each of you has embraced these values. Regarding safety, as you may remember from my comments last quarter, in each of the last two fiscal years, we have reduced recordable injuries to record lows for our company. In the first quarter of this fiscal year, many of our sites demonstrated that our goal of an injury-free workplace is achievable. Ninety percent of our locations were recordable free in the first quarter. We still have work to do. but our team's commitment to continuing to improve is clearly showing through. Thanks go to all our employees for making this happen. So let's turn now to slide four to get started. In mid-December, we issued our seventh annual sustainability report, which included multi-year goals centered around our sustainability framework of people, planet, and profits. As one of North America's largest metal recyclers, sustainability is at the core of what we do and how we operate, and has been since our founding in 1906. Advancing sustainable business practices and further integrating sustainability throughout our operations have been foundational elements of our success. In last year's report, we set forth our first set of multi-year sustainability goals. This year's report describes the significant progress we have already made. Two accomplishments that I want to highlight here include, first, achieving a 15 percent reduction in greenhouse gas emissions at our recycling operations, and second, exceeding our 90 percent carbon-free electricity goal well before our original target date of fiscal 25. As a result, our new carbon-free electricity goal is to achieve 100% net carbon-free electricity usage by the end of fiscal 22. I encourage you to visit our website to view our latest sustainability report, which describes how we help conserve resources, how we innovate to use less water and energy and to generate less waste, how we create a safe, ethical, engaging, and inclusive workplace, and how we give back to the communities where we operate. Now let's turn to slide five. Earlier this morning, we announced our fiscal 21 first quarter adjusted earnings per share of 57 cents. Our results reflect adjusted EBITDA of over $40 million, which was up 40% sequentially and was our second highest first quarter consolidated adjusted EBITDA in the last 10 years. As I mentioned earlier, We benefited from strong market demand for recycled metals and finished steel products, as well as from the execution of commercial initiatives and productivity improvements enabled by the full transition to our one Schnitzer operating model. Our Q1 metal spreads expanded as both ferrous and non-ferrous prices increased during the quarter, with non-ferrous prices seeing a particularly steady rise throughout the quarter. Sequentially, Our ferrous volumes were approximately flat, and our non-ferrous volumes were lower due to timing of shipments. Demand for our finished steel products was strong, with utilization reaching 97 percent versus 85 percent a year ago. We also returned capital to our shareholders through our 107th consecutive quarterly dividend. Let's turn now to slide six for a review of pricing trends for recycled metals and finished steel products. As you can see on this slide, global raw material prices rose to multi-year highs by the end of the quarter, driven by a strong recovery in automotive demand, supply chain restocking, a resilient construction market, and scrap supply constraints related to COVID-19 restrictions. More specifically, ferrous export price increases off the East Coast were positively impacted by stronger export demand for Turkish steel products. Through October, Turkey's crude steel production had increased 4.2% year-over-year, as steel production returned to pre-pandemic levels to meet higher domestic and export demand, while ferrous scrap imports into Turkey were up 19%. Ferrous export price increases off the West Coast were driven by strong semi-finished steel import demand from China, and higher steel production in Asia. A key global driver for the increase in West Coast ferrous export prices has been China's increasing steel demand and China's new ferrous scrap import standards, which have reclassified ferrous scrap as a recycled raw material. We expect this to create higher demand for global ferrous scrap. U.S. domestic prices were underpinned by similar trends. The latest U.S. economic data reflect durable goods orders, industrial production, and housing starts rising in November. Ferris prices have now reached their highest price points in a decade. December's global auto sales doubled from their April lows and were in line with pre-pandemic levels. Current auto inventories are at 10-year lows. Container shipping is experiencing its strongest demand in at least a decade, and some steel order books stretch into March and even April. If we turn our attention to the non-ferrous market, we see an even stronger price recovery environment. Non-ferrous scrap prices increased steadily during the quarter and reached multi-year highs in December, driven by strong global demand, including from China. Zorba, which was trading as low as 34 cents per pound last year, is now in excess of 70 cents, While not shown on these charts, PGM pricing has been moving in lockstep with base metal pricing over the last several quarters, also reaching multi-year highs. The recent sharp increases in ferrous and non-ferrous prices have been driven by low inventory levels after many quarters of destocking, followed by significantly higher steel mill and smelter buy plans and production levels. There are also many long-term trends that support strong and sustainable ferrous and non-ferrous scrap demand, including the transition to lower carbon technologies, China's elimination of quotas for non-ferrous scrap imports that meet its metal content standards, and the prospect of China's reemergence as an importer in the global ferrous scrap market. In a world that is seeking decarbonization, we expect recycled scrap metal to be an increasingly important metals carbon solution and for demand to accelerate. Let's turn now to slide seven to discuss some of these trends which underlie sustainable demand for recycled metals. Despite the uncertainty in near-term market conditions due to COVID-19, the long-term drivers of recycled metals demand are underpinned by several trends that remain intact and are gaining increasing importance and relevance. These include the increased focus on reducing the environmental impact from steelmaking by lowering greenhouse gas emissions and reducing energy consumption. Our steel mill is one of the very few whose primary energy source comes from hydroelectricity. Combined with the use of recycled scrap metal as its primary raw material, the steel we produce has an exceptionally low carbon impact as compared to the industry average. Equally important is that a low carbon economy is widely acknowledged as more metal intensive. Whether it is driven by the demand for electric cars, the deployment of renewables, the transition to 5G, or the efficiency and convenience of smart grids, a green economy means a metal intensive economy. Copper, as a conductor of heat and electricity, is the most relevant and important green growth metal. Nickel is likely the next biggest beneficiary of electrification given its role in batteries. Aluminum demand is also expected to rise as it is key to reducing the weight in vehicles. Recycled metals require less carbon to produce than mined metals. While a variety of solutions will be required to decarbonize the manufactured metals value chain, increased use of recycled metals is one path that is achievable immediately. We can see how some of these trends have already been translated into higher ferrous scrap metal usage by looking at the chart in the upper right-hand corner of this slide. The proportion of global EAF steelmaking ex-China has been expanding and is projected to increase. And in China, the Chinese government is targeting a 100 percent increase in EAF-based steel production by 2025. China's increased scrap demand is also being driven by optimization in their BOFs, which can take as much as 30 percent scrap input versus their 18 percent current average. Let's turn now to slide eight to review the strategic actions we have underway to address these evolving industry dynamics. Efficiency and innovation underpin our strategic initiatives to leverage our industry's positive near-term and long-term trends and to offset cyclicality and structural changes affecting our business. Let's focus first on what we are doing to optimize our through-the-cycle performance. In April, we announced our plan to transition to a functionally-based integrated operating model, which we call the One-Shifter Model. This was the culmination of our evolution to a more simplified operating platform to improve our efficiency and enable greater focus on the critical drivers of our business. Our operations, sales, services, and other functional capabilities have been consolidated at an enterprise level, and with our first quarter results, we have completed our transition and are reporting our fiscal 21 Q1 financial results in a single segment. We have already reaped benefits from the transition to our new operating model. First, as one integrated unit, we have become more organizationally efficient and able to respond more rapidly to changing market environments, including the COVID-19 disruption. Second, our ability to increase our focus on growth, including from new products and services, has already begun to deliver benefits in higher volumes. By standardizing our operations to ensure our low-cost operating position, we have been able to more quickly adjust our operating costs with supply and production volumes and solidify the productivity benefits and cost savings we delivered in fiscal 20. In Q1 of this fiscal year, we exceeded the run rate of the targeted productivity initiatives we announced a year ago. In addition, as Richard will describe in more detail, Our investments in advanced metal recovery technologies are well underway. Extracting more non-ferrous metals is a significant value-added process and is directly aligned with global demand trends. Copper demand, for example, will benefit materially from the low-carbon transition through growth in renewables and electrification. Wind power and electric vehicles are particularly copper-intensive compared to fossil fuel-based technologies. We expect the benefits from these projects to be substantial and to increase our volumes and revenues, lower our operating costs and improve our margins, expand our product offerings and our customer base, and support our sustainability objectives of increasing recycling and reducing waste. So now, let me turn it over to Richard for a more detailed review of these projects and our financial performance.