Schnitzer Steel Industries, Inc.

Good day, and thank you for standing by. Welcome to Schnitzer Steel's first quarter fiscal 2023 earnings presentation. 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 automated message advising your hand is raised. Please be advised that today's conference is being recorded. I would now like to hand the conference over to Michael Bennett, Investor Relations. Please go ahead.

Thank you, Carmen, 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 first quarter of fiscal 2023. 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 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 10Q, 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 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 Stefano Guggini, our Chief Financial Officer.

Thank you, Michael. Good morning, everyone, and welcome to our fiscal 23 first quarter earnings call. I hope you all had a good holiday break and, like me, are looking forward to a safe, healthy, and prosperous new year. Today on our call, I'll review our quarterly financial results, the trends affecting our business, and progress on the strategic activities we have underway to address evolving industry dynamics and create long-term value through the cycle. Stefano will then provide more detail on our financial performance, our capital structure, and our capital investments. I'll wrap up, and then we'll take your questions. So let's turn now to slide four to get started. Almost 10 years ago, we created a sustainability framework based on three pillars. people, planet, and profit. In mid-December, we issued our ninth annual sustainability report, which highlights our company's commitment to creating a more sustainable future by supplying our customers with high quality, low carbon recycled metals and finished steel products. In our 117th year of operation, our work and our purpose have never been more relevant than they are today. In fiscal 22, we advanced our sustainability goals by supporting our employees and communities, implementing best in class environmental processes and infrastructure, expanding our platform, and introducing net zero carbon emissions product offerings. We delivered the second best safety results in our company's history, with 90% of our facilities free of any lost time injuries. While we still have work to do to keep achieving year-over-year improvement, we are seeing excellent momentum so far in fiscal 23. We also achieved 100% net carbon-free electricity use across the company's operations for the second consecutive year. And we reduced our Scope 1 and 2 greenhouse gas emissions from recycling operations by 24% against our 2019 baseline. We are meeting these goals primarily through investments in state-of-the-art emissions control systems for our metal shredding operations and more efficient operating equipment. And in fiscal 22, we introduced Green Steel, our line of net zero carbon emission steel products. The launch of our Green Steel product line provides our customers with net zero steel solutions as they build out tomorrow's essential infrastructure. We were honored this year to be recognized by a number of organizations for our leading performance in sustainability. These achievements would not have been possible without all our employees living our core values of safety, sustainability, and integrity, and operating with the agility, resilience, and collaboration that have underpinned our success. I'm very proud of what our team has accomplished, and I encourage you to visit our website to view our latest sustainability report. So let's turn now to slide five to review our Q1 results. Earlier this morning, we announced our results for our fiscal 23 first quarter, which reflected an adjusted EPS loss of $0.44 per share and positive adjusted EBITDA of $8 million. Our first quarter results were impacted by an extended shredder outage at our Everett and a regulatory issue limiting operations at our shredder facility in Oakland, both of which were resolved by mid-November. These disruptions, together with tight supply flows from a significantly lower price environment, weaker economic activity, and the delay of several ferrous export shipments, resulted in much lower sequential ferrous sales volumes and margins. Finished steel volumes and prices also declined during the quarter, primarily due to lower wire rod demand, while rebar to scrap metal spreads remained robust. Since the end of the quarter, we've seen a strengthening in sales prices and demand for recycled metals in both export and domestic markets. With the operational disruptions now behind us and with our expanded cost reduction and productivity program expected to deliver increased benefits, we anticipate significant improvement in our second quarter results. Our balance sheet remains strong, and we continued our uninterrupted record of returning capital to our shareholders through the issuance of our 115th consecutive quarterly dividend. Let's turn now to slide six to review price trends and supply flows. Demand and prices for both ferrous and non-ferrous metals weakened throughout the quarter, influenced by slower growth, inflationary pressures, and steel inventory destocking. By November, both Ferris export and domestic markets were down by 15 to 20% or approximately $50 per ton compared to August levels. The export markets were most impacted by higher energy costs and a stronger dollar. The domestic market was impacted by an average steel mill utilization rate of below 80%, which has persisted for 25 consecutive weeks. While Ferris scrap prices declined throughout the quarter, They remained above their 10-year average, reflecting the underlying structural drivers of demand for recycled metals. Since the end of the quarter, ferrous export prices have strengthened, with reported December prices of approximately $400 per ton delivered, depending on the region. Demand in Turkey has improved since the end of the first quarter, and South Asian activity remains steady. In the U.S. domestic market, Ferris prices also improved in December, reversing seven consecutive monthly declines as lower prices began to significantly impact supply flows. Turning to non-Ferris, as you can see in the upper right chart on this slide, base metal index prices for copper and aluminum improved towards the end of the quarter. Drivers included the weakening of the U.S. dollar during November, China's return to the global markets for semi-finished and clean non-ferrous products and supply concerns. These concerns are valid as the significant drops in ferrous and non-ferrous prices have led to considerably tighter supply flows across all regions and channels. Exacerbated by inflationary pressures which have increased collection costs and reduced consumer scrap generation, and most recently, by challenging weather conditions in most regions in the country. Turning to finished steel. While demand and prices came off their near record highs, metal spreads continued to be robust, up 15% year over year. The construction markets are seeing some softening due to interest rates and inflationary pressures on construction costs, although the Dodge Momentum Index is signaling growth in the non-res, commercial, and industrial sectors. The increased demand related to the US infrastructure bills has not yet materialized, but we do expect to see this demand commence later in the calendar year. With the increased focus on low carbon steel in the Biden administration's buy clean directive, our Oregon steel mill is well positioned to meet this rising demand. So now let's turn to slide seven. We believe the structural demand for recycled metals remains very positive. supported by the transition to low carbon technologies, the increased focus on decarbonization, the anticipated structural deficits for copper and aluminum, and the expected funding related to the infrastructure bills. Decarbonization is a powerful structural driver of demand, as recycled metals require less carbon to produce than mined metals, and many low carbon technologies are widely acknowledged to be more metal intensive. We can see how some of these trends have translated into higher ferrous scrap metal usage in the US and globally by looking at the charts on this slide. EAF steelmaking capacity, which uses scrap as its primary raw material, has been expanding and is projected to increase even further. These trends are also reflected in the increased demand for manufacturers and retailers to maximize the use of recycled materials in their manufacturing processes and products, and to reduce the environmental impact of their activities. To support this demand, in late November, we acquired ScrapSource LLC, a scrap management company based in Dallas, Texas. ScrapSource is an asset light business in the metals recycling space, focused on providing metals recycling management services and solutions. ScrapSource currently services over 500 customers representing manufacturers, fabrication facilities, and service centers across North America. This lean business model provides opportunities for us to significantly scale our national sourcing platform, enhance services to our national manufacturing and retailing customers, increase supply flows to our operations, and create expansion opportunities in new regions. So let's turn now to slide eight to review additional strategic actions we have underway. We're focused on four strategic priorities. First, technology investments in advanced metal recovery systems that are major recycling operations to enable us to extract more non-ferrous metals from our shredding activities, increase throughput and improve our margins, expand our product offerings and our customer base, and reduce material going to landfills. Second, volume growth. Our multi-year focus on increasing our ferrous and non-ferrous volumes has led to an annual 6% volume growth rate since fiscal 16. We've achieved this through a combination of organic growth, acquisitions, and improved recovery of non-ferrous materials through our shredding process. Third, expansion of our products and services to meet the evolving demand for recycled metals, such as the launch of our net zero green steel products, the acquisition of scrap source, 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 and which are particularly important in the face of significant inflationary pressure. In Q1, we achieved nearly the full run rate of benefits from the $40 million of cost reduction and productivity initiatives that we announced in October. In December, we identified additional initiatives that aim to reduce SG&A costs by approximately $20 million on an annual basis. So now, let me turn it over to Stefano for a more detailed review of our financial and operating performance.