Schnitzer Steel Industries, Inc.

Good day, and thank you for standing by. Welcome to the Schnitzer Steel's third quarter 2022 earnings release call and webcast. At this time, all participants are in the listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during that session, you will need to press star 1 on your telephone. Please be advised that today's conference is being recorded, and if you require any assistance during the call, please press star 0. I would now like to hand the conference over to your speaker today, Mr. Michael Bennett of Investor Relations. Mr. Bennett, the floor is yours.

Thank you, Chris, and good morning. I'm Michael Bennett, the company's Vice President of Investor Relations. I'm happy to welcome you to Schnitzer Steel's earnings presentation for the third quarter of fiscal year 2022. In addition to today's audio comments, we have issued a press release and posted a set of slides, both of which you can access on our website at schnitzersteel.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, line growth, and margin. 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.

Richard Peach Thank you, Michael. Good morning, everyone, and welcome to our fiscal 22 third quarter earnings call. Before we begin our formal presentation, I'd like to congratulate our employees on another quarter of excellent operational and financial achievements. After delivering record results for the first and second quarters of this fiscal year, Our team did it again. This quarter's adjusted EBITDA represents the best third quarter in our company's 116-year history. To all our employees, thank you. You have continued to exhibit the resilience, nimbleness, and commitment to excellence that have been hallmarks of our company for over a century. On our call today, I'll review our quarterly financial results and the trends affecting our business. I'll also provide an update on the strategic initiatives we have underway to meet the increasing demand for our products and services and to create long-term value. Richard will then provide more detail on our investments, financial performance, and capital structure. I'll wrap up, and then we'll take your questions. So let's turn now to slide five to get started. As I often say, sustainability is at the core of what we do and how we operate, and it has been since our founding in 1906. Our sustainability framework of people, planet, and profit is the foundation upon which our results are achieved, and I'd like to highlight two examples of the significant progress we made on our planet goals during the third quarter. In May, the US Environmental Protection Agency recognize our Oakland, California facility as part of the agency's Green Power Partnership. Our Oakland recycling facility uses more than 18 million kilowatt hours of green power annually, enough to meet two-thirds of the facility's total electricity use. By voluntarily choosing to use green power, which is renewable electricity with environmental benefits above state or local requirements, we are helping to advance the market for green power and the development of renewable power sources. This partnership is similar to other programs we participate in, such as the Tacoma Public Utilities Evergreen Options Program, which provides our Tacoma, Washington facility with electricity from majority carbon-free hydropower. Through these partnerships, we are able to advance our sustainability goal of maintaining 100% net carbon-free electricity at our operations. I'm also pleased to share our progress on our goal to deploy an ISO-certified environmental management system by the end of fiscal 22. In May, our initial six sites passed the two-stage audit process and have been officially ISO-certified. From here, we will begin the extensive process of certifying the rest of our 100-plus sites over the next four years to deliver on our commitment to responsible operations and environmental stewardship. You can see on this slide six more detail regarding our multi-year people, planet, and profit goals that underpin our sustainability framework. I encourage you to visit our website to view our latest sustainability report. So now, let's turn to slide seven for a review of our third quarter results. Earlier this morning, we announced record third quarter adjusted earnings per share of $2.59. These results are almost double our second quarter and are 18% higher than a year ago. Our third quarter results benefited from strong global demand for recycled metals, with average selling prices for ferrous, non-ferrous, and finished steel products at or near all-time highs. Our non-ferrous and finished steel volumes increased sequentially by 37% and 27%, respectively, as logistics and labor constraints improved. Our ferrous volumes, which increased 5% sequentially, were lower than planned due to the slower export demand off the East Coast that occurred during the latter part of the quarter. Our EBITDA per ton margin of $105 was the highest Q3 in our company's history. Stronger market conditions, together with increased volumes, including the benefits from Columbus recycling, which we acquired at the end of Q1, drove a significant expansion in our metal spreads and EBITDA. At the end of April, we also acquired the assets of Encore Recycling in Georgia, which included our first metal shredding operation in the southeast. Combined with Columbus recycling, we now operate 24 recycling facilities, in the expanding industrial Southeast region. During the quarter, we generated positive operating cash flow and returned capital to our shareholders through the repurchase of almost 1 percent of our outstanding shares and the issuance of our 113th consecutive quarterly dividend. Our record performance through the first nine months of fiscal 22 is reflective of the drivers of demand set forth on the next slide eight. The structural trends underpinning higher demand for recycled metals and low-carbon finished steel include, among other things, significant growth in EAF production, which uses recycled metals as its primary raw material, decarbonization trends, which are driving the increased use of recycled metals by BOFs and in many other manufacturing production processes, the effects of years of underinvestment in industrial metals and mining, which have created structural shortages in metals like copper, the transition to low-carbon technologies, which are more metal-intensive than the technologies they're replacing, and the U.S. infrastructure bill, which is expected to materially increase demand for finished steel and recycled ferrous and non-ferrous metals. So now, let's turn to slide nine to review pricing trends. Demand for long products continued to rise during the quarter, with prices reaching their highest levels on record. Total U.S. construction spending continued to show strength, with the three-month total spend through April 22 rising by almost 13% year over year. Non-residential and infrastructure projects on the West Coast showed particularly strong growth. We expect to see robust demand in the construction markets continue as our customers' order books remain strong and rising activity related to the U.S. infrastructure bill is expected to materialize in late 2022, early 2023. With the increased focus on low carbon steel, our Oregon steel mill is well positioned to meet this demand. Our mill is one of the very few whose primary energy source is 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. In March, we launched a line of net zero carbon emissions products branded Green Steel to support the ever-evolving needs of our customers. If we turn to slide 10, we can review fairest and non-fairest pricing trends. Our third quarter began with market prices for recycled ferrous metals reaching historically high levels, in excess of $650 per ton, driven by the initial market disruption associated with the Russian war in Ukraine. By the end of the quarter, prices had dropped to a range of $450 to $500 per ton, driven largely by China's lockdowns, slower purchases by Turkey, low-cost Russian billets, and ample scrap flows. Since the end of the quarter, we've seen prices trade in the range of $330 to $350 per ton off the East Coast to Turkey, with prices slightly stronger off the West Coast. Copper and aluminum scrap prices also began the quarter at or near multi-year highs, benefiting from the tailwinds of broad-based demand, low global inventories, supply chain disruptions, and high inflation. Similar to Ferris, non-Ferris prices declined in the latter part of the quarter to levels generally consistent with their 12-month average. Since the end of the quarter, non-Ferris prices have further softened due primarily to higher energy prices and slow demand from China. Supply flows during the quarter were steady but have tightened since the end of the quarter as suppliers feel the impact of higher fuel costs and lower metal prices. The fairest and non-fairest price changes during the quarter were significant, and recessionary fears and economic growth concerns remain at the forefront of global markets. The headwinds from China's COVID lockdown, the Russian war in Ukraine, and the unsteady global economy are creating a tough short-term environment for metals. However, it's important to remember that the strong demand trends remain intact. There is increasing demand, for recycled copper, aluminum, and low-carbon steel as governments and others focus on renewables, electric vehicles, and efficient, responsible, low-carbon intensity steelmaking. As we look at the fourth quarter, we expect our Ferris sales volumes to increase sequentially as several shipments planned for Q3 move into Q4. And excluding the significant impact of average inventory accounting, resulting from the sharp drop in prices, we expect our EBITDA per ton to be similar to what we achieved in Q4 of last year. So, let's turn now to slide 11 to review the strategic actions we have underway that are aligned with these positive structural trends to create long-term value. Our strategic priorities and progress can be summarized in four buckets. First, technology investments in advanced metal recovery systems at our major recycling operations to enable us to extract more non-ferrous metals, including copper and aluminum, from our shredding activities. Of the 13 systems we have planned, eight are either operational or in commissioning, with the remainder in the construction or permitting process. Second, ferrous volume growth with a fiscal 23 target of 5.3 million tons. Our annualized 12-month run rate, including our recent acquisitions, is now 4.8 million tons. Third, expansion of our products and services to meet the evolving demand for recycled metals, such as the launch of our net zero carbon emissions green steel products and the reverse logistics services we provide to manufacturers and retailers. And fourth, productivity initiatives that we undertake as part of our continuous improvement culture, where our focus is on efficiencies in processing, procurement, and pricing. This focus has enabled us to partially offset inflationary pressures on operating costs. So now let me turn it over to Richard for a more detailed review of the contributions from our strategic initiatives and our financial and operating performance.