Schnitzer Steel Industries, Inc.

Ladies and gentlemen, thank you for standing by, and welcome to the Schnitzer Steeles Third Quarter 2021 Earnings Release Call and Webcast. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. To ask a question during the session, you'll need to press star 1 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. Please go ahead.

Thank you, Josh, and good morning. I'm Michael Bennett, the company's Vice President of Investor Relations. I am happy to welcome you to Schnitzer Steel's earnings presentation for the third quarter of fiscal year 2021. 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 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. I'm pleased to welcome you to our fiscal 21 third quarter earnings call. The operational and financial results that we will discuss today are Schnitzer's best results in over a decade. They would not have been 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. I'd like to thank our employees for their extraordinary efforts over the past 15 months. Our success is the direct result of how you have embraced these values. and your performance reflects the collaboration, innovation, and resilience that define our culture and our company. So let's turn now to slide four to begin a more detailed quarterly review. Our performance this quarter continued to benefit from efficiencies gained from our one Schnitzer organizational model that we implemented at the beginning of this fiscal year and from growth achieved through the execution of our strategic plan. Our sustainability framework of people, planet, and profit is the foundation upon which these results were achieved, and I'd like to highlight some examples of the significant progress we've made in each area. On the people front, we continued to improve our safety performance. As many of you know, in each of the last two fiscal years, we've reduced workplace injuries to record lows for our company. Through the third quarter of this fiscal year, We're on track to extend this trend. We still have work to do, but our team's commitment to safety is clearly showing through. We're also well on track to achieve our planet goals of reducing absolute greenhouse gas emissions from our recycling operations by at least 25 percent, achieving 100 percent net carbon-free electricity use, and increasing landfill diversion through our investments in technologies that enable us to extract more recyclables from the material that we process. And the financial and operating results that we announced earlier this morning reflect that we are delivering on our profit goals of growing volumes and expanding margins. So now, let's turn to slide five for a review of our third quarter results. Earlier this morning, we announced our fiscal 21 third quarter adjusted earnings per share of $2.20, which represents our highest quarterly performance since 2008. Adjusted EBITDA of $97 million was up almost 40 percent sequentially and is more than five times higher than the third quarter of last year. Our results reflect strong global demand for recycled metals and finished steel products as well as benefits from the commercial initiatives and productivity improvements related to the transition to our one Schnitzer operating model. Notably, our adjusted EBITDA per ton of $80 was significantly better than in fiscal 2012, which was the last time that Ferris and non-Ferris prices were at levels as high as we saw this quarter. This illustrates the benefits we've been able to achieve from our productivity and commercial initiatives. Our results also reflect a strong sequential lift in sales volumes, with Ferris up 24 percent, non-Ferris up 15 percent, and finished steel up 12 percent, despite constraints in the freight markets. The pace of our sales volumes is now solidly back to pre-pandemic levels. During the quarter, we also returned capital to our shareholders through our 109th consecutive quarterly dividend. So let's turn now to slide six for a review of pricing trends for recycled metals and finished steel products. As you'll see on this slide, prices for ferrous scrap during Q3 rose to multi-year highs, continuing a trend that we saw in Q2. Notably during the quarter, both pricing peaks and troughs were at respectively higher levels than we've seen in the past decade. And even though prices have dipped slightly since the end of the quarter, they remain at multi-year highs. These stronger pricing levels are supported by cyclical and structural trends, including the post-pandemic economic recovery and the global focus on decarbonization. Export sales off the East Coast continue to be driven by Turkey. Turkey's annual crude steel production has increased 21% through May to meet higher domestic and export demand, and total scrap imports into Turkey reached a record high in April. Export sales off the West Coast are also strong. The expected decrease in Chinese steel exports following the removal of their steel export rebate tax, paired with higher Chinese steel demand, is expected to increase overall ferrous scrap demand in Asia. On the domestic front, ferrous scrap demand and prices remained high through the quarter, as steel capacity utilization approached pre-pandemic levels of 83 percent. During the quarter, non-ferrous scrap prices also reached multi-year highs, benefiting from the combination of cyclical and structural market trends, including tight supplies, shipping constraints, and decarbonization programs. Zorba, which was trading as low as 34 cents per pound last year, has more than doubled in price. Demand for material continues to be broad-based, and we expect it to strengthen as auto production accelerates. Finished steel prices and demand also reached multi-year highs during the third quarter. In late May, there was a fire at our steel mill with no injuries to personnel. Property loss and damage was limited to the mill's melt shop. There was no significant impact to our third quarter results, and we expect the melt shop to resume operations in late August or early September. As Richard will explain in more detail, we anticipate that our net insurance recoveries will cover most of the repair costs and also a significant amount of lost income resulting from the fire. Our Oregon steel mill is one of the very few whose primary energy source comes from hydroelectricity. Combined with the use of recycled metal as its primary raw material, the steel made in our electric arc furnace has an exceptionally low carbon impact as compared to the industry average. As we return to full operations at our steel mill, we expect demand for our finished steel products to remain strong. Let's turn now to slide seven. Increasing the use of ferrous and non-ferrous scrap in industrial production is a great example of how old economy tools will lead the way to decarbonization of the new economy. A low-carbon economy and many low-carbon technologies are widely acknowledged to be more metal-intensive. 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, increasing the use of recycled metals is one path that is achievable immediately. Decarbonization is a powerful structural driver of demand for recycled metals. And scrap is now an important strategic solution for companies, industries, and governments that are focused on carbon reduction. It is a differentiator for metal producers and fabricators, and it is a critical part of every community's commitment to supporting a circular economy and reducing material going to landfills. We can see how some of these trends have translated into higher fair scrap metal usage in the U.S. and globally. By looking at the charts on this slide, electric arc furnace steelmaking capacity, which uses scrap as its primary raw material, has been expanding and is projected to increase further. And in China, by 2025, scrap usage in steelmaking is expected to increase by 50% from last year's levels, driven by additional EAF capacity as well as by the increased use of scrap in their BOFs. Let's turn now to slide eight. to review the strategic actions we have underway, which are aligned with these long-cycle trends. Innovation, efficiency, and volume growth underpin our strategic initiatives. Our innovative investments in advanced metal recovery technologies are critical components of our strategic plan to increase our efficiency and grow our non-ferrous volumes. During the quarter, we began ramping up production on two of our new systems, with additional systems on track for commissioning by the end of this calendar year. Extracting more non-ferrous metals from our shredding activities is a significant value-added process and is directly aligned with global demand trends. Copper and aluminum demand, for example, will benefit materially from the low-carbon transition through growth in electrification and renewables. 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 customer base, and support our sustainability objectives of increasing recycling and reducing waste. So now, let me turn it over to Richard for more detailed review of these projects and our financial performance.