Schnitzer Steel Industries, Inc.

Good day, and thank you for standing by, and welcome to Q2 fiscal 2023 earnings call. At this time, our participants are in listen-only mode. After the speaker's presentation, there'll be a question and answer session. To ask a question during the session, you'll need to press star 1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1 again. Please be advised that today's conference is being recorded. We'd now like to hand the conference over to your host, Michael Bennett, Investor Relations. Please go ahead.

Thank you, Justin, and good morning. I am Michael Bennett, the company's Vice President of Investor Relations. I am happy to welcome you to Schnitzer Steel's earnings presentation for the second 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. 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. Please note that we will be discussing some non-GAAP measures during our presentation today. We've included a reconciliation of those metrics, the 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 second quarter earnings call. Before we begin with our formal presentation, I'd like to address the devastation that occurred in Turkey due to the earthquake in February, and more recently, the series of natural disasters in the U.S. Our news cycles are short these days, and I'd like to take a moment to remember the tens of thousands of people who lost their lives or loved ones homes or livelihoods as a result of these natural disasters. Our relationships in Turkey go back decades, and we have sold millions of tons of recycled metals to our valued Turkish customers over that time. Here at home, we have employees, customers, and suppliers in many of the communities impacted by tornadoes, storms, and floods. I know that I speak for all of us when I say that our thoughts and prayers continue to be with those impacted by these disasters. I'd also like to recognize our employees for their generosity and humanitarian spirit. Whether providing support to Turkey or, more recently, providing aid and assisting in cleanup efforts connected with natural disasters and rail accidents in the U.S., our company and our employees have stepped up to offer many forms of in-kind and financial support. Thank you. 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. Earlier this morning, We announced our results for our fiscal 23 second quarter, which reflected adjusted EPS of 14 cents and adjusted EBITDA of $32 million. Our strong sequential improvement benefited from the resolution of the Shredder operating disruptions that affected our Everett and Oakland operations in the first quarter and the strengthening of both Ferris and non-Ferris prices. The significant sequential increase in our ferrous sales volumes of nearly 50% was primarily underpinned by several shipments in December that had been delayed from the first quarter. Our non-ferrous sales volumes were up slightly, and finished steel sales volumes, as expected, were down about 7% due to seasonality and softer demand for wire rod products. While ferrous scrap prices increased during the quarter to relatively strong levels, on an historical basis, lower industrial and consumer activity led to tighter than expected scrap flows tempering our margin expansion. We generated strong free cash flow during the quarter, and our results benefited from the productivity initiatives and cost savings that we implemented earlier in the fiscal year. And we continued our uninterrupted record of returning capital to our shareholders through the issuance of our 116th consecutive quarterly dividend. Let's turn now to slide five. Ferris export prices strengthened during the quarter amid increased global steel demand, tight availability of scrap, and strong rebar demand in Turkey. Ferris prices increased about 35% from their November trough, with about half of that uplift occurring in February, which should benefit our Q3 shipments. Since the end of the quarter, ferrous export prices strengthen before flattening and currently remain in the mid to high 400s per ton delivered, depending on the region. Recently, the Turkish government announced the country's need for 5 million tons of steel to support those efforts in the Iskenderun region. This implies a need for around 6 million tons of ferrous scrap. We expect that even accounting for Turkish domestic scrap generated by earthquake cleanup activities, turkey scrap imports should rise materially to meet this need. In the U.S. domestic market, ferrous prices increased in each month of Q2 and in March, following seven months of consecutive price declines. Higher scrap prices were driven by steel mill restocking, tighter scrap flows, and higher auto production. In the non-ferrous markets, demand and prices for recycled copper, aluminum, and Zorba products increased for most of Q2, driven by low inventories and stronger demand from China and Southeast Asia. Turning to finished steel, while demand and prices came off their near-record highs, metal spreads continued to be robust during Q2. Although higher interest rates and tighter credit conditions could lead to softer demand, there are a number of offsetting trends. We expect lower steel imports into the U.S. from Turkey due to Turkey's increased domestic demand associated with its rebuilding activities. In addition, we expect increased rebar demand supported by the Biden administration's infrastructure bills and the buy clean directive. Our Oregon steel mill, with its range of low carbon long products, including our net zero carbon emission green steel product line, is well positioned to meet this rising demand. Let's turn now to slide six. Decarbonization is a powerful structural driver of demand for recycled metals, which require less carbon to produce than mined metals. Many low carbon technologies are widely acknowledged to be more metal intensive. Maximizing the environmental benefits of decarbonization will require increasing use of recycled metals versus virgin materials. An example of one of the many actions we're taking to capture value from this rising demand is our acquisition of ScrapSource LLC last quarter. ScrapSource is an asset-light business focused on providing metals recycling management services and solutions to over 500 customers, including manufacturers, fabrication facilities, and service centers across North America. This lean business model will enable us to scale our national accounts platform enhance services to our national manufacturing and retail customers, increase supply flows to our operations, and create expansion opportunities in new regions. The integration of ScrapSource with our national accounts platform is well underway, and we are launching our integrated recycling services activities under our trademarked 3PR brand. 3PR stands for Third Party Recycling. 3PR involves activities where Schnitzer is providing recycling services, including, among other activities, scrap management and recycling solutions for our customers' reverse logistics processes. Our 3PR brand reflects a rapidly growing and important service and supply chain solution for industrial, manufacturing, and retail customers that enables greater recycling rates and value recovery improved manufacturing and retail efficiency, reductions in material going to landfill, an improved carbon footprint, and enhanced sustainability reporting. So now let's turn to slide seven to review additional strategic actions we have underway. We are 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 customer base, and reduce materials going to landfills. Second, volume growth. We're highly focused on increasing our ferrous and non-ferrous volumes through a combination of organic growth and recent acquisitions such as scrap stores, Encore recycling, and Columbus recycling. Our multi-year focus on this strategic priority has led to an annual 6% volume growth rate between fiscal 16 and fiscal 22. Third, expansion of our products and services to meet the evolving demand for recycled metals such as our net zero green steel products and the 3PR 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 Q2, we achieved nearly the full run rate of benefits from the cost reduction and productivity initiatives that we announced earlier in this fiscal year. So now, let me turn it over to Stefano for a more detailed review of our financial and operating performance.