Commercial Metals Company

Hello and welcome everyone to the fourth quarter and fiscal year 2024 earnings call for CMC. Joining me on today's call are Peter Matt, CMC's President and Chief Executive Officer, and Paul Lawrence, Senior Vice President and Chief Financial Officer. Today's materials, including the press release and supplemental slides that accompany this call, can be found on CMC's Investor Relations website. Today's call is being recorded. If you require operator assistance, please press star then zero. After the company's remarks, we will have a question and answer session and we'll have a few instructions at that time. I would like to remind all participants that during the course of this conference call, The company will make statements that provide information other than historical information and will include expectations regarding economic conditions, effects of legislation, U.S. steel import levels, construction activity, demand for finished steel products, the expected capabilities, benefits, and timeline for construction of new facilities, the company's operations, the company's strategic growth plan, the company's future results of operations, financial measures, and capital spending. These and other similar statements are considered forward-looking and may involve certain assumptions and speculation and are subject to risks and uncertainties that could cause actual results to differ materially from these expectations. These statements reflect the company's beliefs based on current conditions but are subject to certain risks and uncertainties, including those that are described in the risk factors and forward-looking statement sections of the company's latest filings with the U.S. Securities and Exchange Commission, including the company's latest annual report on Form 10-K. Although these statements are based on management's current expectations and beliefs, CMC offers no assurance that these expectations or beliefs will prove to be correct and actual results may vary materially. All statements are made only as of this date. Except as required by law, CMC does not assume any obligation to update, amend, or clarify these statements in connection with future events, changes in assumptions, the occurrence of anticipated or unanticipated events, new information, or circumstances or otherwise. Some numbers presented will be non-GAAP financial measures, and reconciliations for such numbers can be found in the company's earnings release, supplemental slide presentation, or on the company's website. Unless stated otherwise, all references made to year or quarter end are references to the company's fiscal year or fiscal quarter. And now for opening remarks and introductions, I will turn the call over to Peter.

Thank you. Good morning, everyone, and welcome to CMC's fourth quarter and fiscal year 2024 earnings conference call. I am joined today by our Senior Vice President and Chief Financial Officer, Paul Lawrence. I will start this morning's discussion with an overview of CMC's fiscal 2024 results and the accomplishments during the year. I will then cover our fourth quarter performance, provide commentary on current market conditions, and share an update on CMC's strategic planning efforts. Paul will cover the fourth quarter's financial information in more detail, and I will conclude with our outlook for the first fiscal quarter of 2025 and beyond. We will then open the call to questions. As a reminder, additional information regarding the quarter is provided in the supplemental slides that accompany this call, which can be found on CMC's Investor Relations website. Fiscal 2024 was another very solid year for CMC, one that included record employee safety performance, the third best financial result in our company's 109-year history, and meaningful progress across a number of strategic fronts. Of our many accomplishments this year, I am most proud of our continuous improvement in safety. Our success as a company starts with keeping our people safe and ensuring everyone leaves their shift in the same condition in which they arrived. In fiscal 2024, we came closer to that goal than ever before, achieving the lowest incident rate in the history of CMC and driving a meaningful reduction in absolute number of OSHA recordable events. That level of performance does not happen by luck. It happens through a methodical approach to identifying and addressing areas of risk, and through direct engagement with every employee. I would like to call out three areas of success on the safety front in fiscal 2024 that the CMC team should be very proud of. First, we drove a significant reduction in the number of incidents involving hands and fingers. And second, we saw a substantial reduction in incidents involving new hires. These types of incidents are perennial challenges for any manufacturer, CMC included. We have improved in these areas through focused training, rethinking job protocols, and the deployment of new technologies. Third, we saw a dramatic improvement in overall safety performance at recently acquired facilities within our emerging businesses group. They have been eager adopters of CMC's industry-leading safety culture and practices, which has resulted in EBG achieving the lowest incident rate among our three operating segments in 2024. Though we can point to a strong safety trend across the organization, the work is never done, and we will continue pushing toward our ultimate goal of zero incidents. Turning to our financial results, fiscal 2024 was among the best in CMC's history. Core EBITDA of $1 billion remained well above historical levels, though down from the $1.4 billion achieved in fiscal 2023. Without proper context, it's easy to lose sight of just how impressive fiscal 2024 was. Even after declining from peak levels, core EBITDA last year remained 40% above any pre-pandemic year. The fiscal 2024 Cori Bidon margin of 12% was likewise historically strong. These notable financial results clearly demonstrate the impact of the thoughtful and decisive strategic actions we took over the last several years, which have enabled us to significantly grow our company, remake our industry, and set us on the path for continued success. Our solid profitability in fiscal 2024 translated into strong cash flow from operating activities of $900 million, which supports CMC's ongoing investment in future growth initiatives, as well as our commitment to providing competitive levels of cash distributions to our shareholders. During the year, we returned $261.8 million to our equity investors in the form of share repurchases and dividends, making an increase increase of 48% from fiscal 2023. Buybacks in fiscal 2024 were equal to 3% of the shares outstanding at the beginning of the fiscal year, also representing a meaningful acceleration compared to fiscal 2023. CMC made solid advancements along several strategic fronts in fiscal 2024, including meaningful progress on our mill growth projects. we continue to move towards breakeven at Arizona too, the first micro mill in the world capable of producing both rebar and merchant bar products. As with any breakthrough technology, our team has pushed through the unique challenges that come with bringing a first of its kind technology online. And they ended fiscal 2024 with a string of solid and growing production months. Based on our learnings over the last year, and given where we are positioned today, we expect to achieve operational break-even on a monthly basis during the first quarter. We continue to feel good about our progress in increasing operating levels and believe we will exit 2025 at or near target annualized run rate of production of 500,000 tons. Meanwhile, we reached several key construction milestones at our Steel West Virginia site in fiscal 2024. We have completed civil work, installed large portions of supporting infrastructure, and poured foundations for process equipment and buildings. Equipment is now being installed, and we remain on track for the commissioning process to begin in late calendar 2025. In fiscal 2024, we also made significant progress developing the strategic plan that will deliver CMC's next phase of growth. As you may recall, to support these efforts, we began the year with an organizational realignment that is intended to facilitate execution and elevate transparency. This action included creating two segments capturing our traditional steel vertical value chains, the North American Steel and Europe Steel Groups. and a third standalone operating segment for CMC's under-penetrated growth businesses, the Emerging Businesses Group. Nearly a year on, the realignment is achieving its aim of supporting value-focused decision-making and resource allocation through enhanced visibility into our key value drivers by line of business. Looking ahead, we have developed an ambitious plan that seeks to enhance our growth trajectory and drive permanent improvement in CMC's margin profile by leveraging both accretive organic projects and inorganic growth in attractive adjacent markets. We are very excited about these strategic efforts that we expect will drive significant value for shareholders. A little later on this call, I will provide some high-level insights into our plan to enhance margins across CMC. An operational and commercial excellence program we have named Transform, Advance, and Grow, or TAG for short. And we look forward to providing a more substantive update on our strategic plan in the quarters ahead. In summary, fiscal 2024 was a year that every member of the CMC team can be proud of. We kept our people safer than ever before. We continued to generate strong financial results, and we rewarded our shareholders with increased cash returns. We also continued to build for the future through organic investments and strategic planning that is expected to lay the foundation for significant long-term value creation. Turning now to the fourth quarter results, we reported in our press release this morning it was another period of good financial performance. CMC continued to generate core EBITDA margin and earnings per diluted share well above historic averages. As we have noted on previous calls, we believe margins and earnings are normalizing at sustainably higher levels compared to before the pandemic. CMC reported net earnings for the fourth quarter of $103.9 million. or 90 cents per diluted share on sales of $2 billion. We generated consolidated EBITDA for the quarter of $227.1 million, producing a core EBITDA margin of 11.4 percent and a trailing 12-month return on invested capital of 10 percent. While results in our North America steel group were hampered by weaker market sentiment that negatively influenced long steel pricing and margins, Overall shipping volumes were resilient on solid levels of ongoing construction activity. Our Europe Steel Group continued to trend of near break-even on an adjusted EBITDA basis. Excellent cost management is allowing us to maintain our financial performance at this level despite a challenging margin environment and increased incursions into the Polish market by imports from neighboring countries. CMC's emerging businesses group generated strong results during the quarter, and its adjusted EBITDA margin improved on both a year-over-year and a sequential basis. Turning now to CMC's markets in North America, demand for our steel products remained healthy during the quarter. When adjusted for available shipping days, CMC's volumes of finished products were essentially unchanged both on a year-over-year and a sequential quarter basis. Activity levels were generally good across our geographical footprint, with some areas appearing to benefit modestly from a catch-up in shipments in the wake of challenging weather earlier in the year. Stable shipment volumes have been supported by solid backlogs of ongoing construction projects that continue to consume steel, however, Given elevated uncertainty regarding the path and the pace of interest rate reductions, as well as the outcome of the U.S. presidential election, project owners and key decision makers are hesitant to act. This hesitancy is widespread across most segments of the construction markets, with the notable exception of publicly funded work such as infrastructure and institutions. Uncertainty has also weighed on steel pricing and margins as the overall market sentiment and near-term confidence have softened. Following six months of impressive stability, we saw metal margins shift lower during mid-quarter, which was the primary driver of reduced consolidated profitability in the fourth quarter compared to the third quarter of fiscal 2024. We believe these market conditions are transient in nature and will subside once greater clarity emerges, allowing strong underlying fundamentals to return. CMC's downstream bidding activity has remained resilient, which points to a solid pipeline of potential future projects. Our internal data is supported by external data points, such as the Dodge Momentum Index and insights from customer conversations. The Dodge Momentum Index, or DMI, measures the monthly value of construction projects entering the planning phase. Having recently hit an all-time high, the index appears to indicate that project owners have confidence that a rebounding construction activity will occur and are building a sizable pipeline in preparation to act once construction conditions improve. As mentioned previously, we anticipate a catalyst of improvement will be a clear path toward lower interest rates and visibility into future government policy. As we have discussed at length in the past, powerful structural trends will also benefit the U.S. construction market, including infrastructure investment, reshoring of manufacturing, energy transition, and transmission build-out, as well as measures to address chronic housing shortages. We believe these trends are in their early stages and will propel construction activity for years to come. Conditions for our Europe steel group were similar to the prior quarter. Benefits from an improving Polish macroeconomic environment and supply discipline among domestic long steel producers have been offset by the influx of excess material from neighboring countries, namely Germany. Total imports of rebar up 85 percent on a calendar year-to-date basis, while flows from Germany have increased by 141 percent. This foreign supply has more than matched the incremental demand from a growing residential construction market and supply reduction from domestic players. As a result, margins remain under pressure. Against this challenging backdrop, our team in Poland has been able to achieve near break-even results through aggressive cost management. The impact of these cost management measures has been significant, as evidenced by the $26.5 million year-over-year improvement in adjusted EBITDA during the fourth quarter, despite an 18% reduction in volumes and no help from metal margins. Based on our current view of the landscape, we would not anticipate meaningful positive change in either the overall market environment or CMC's Europe Steel Group earnings until an economic recovery develops in Germany. Before I turn things over to Paul, I would like to discuss the strategic path that CMC is embarking on, which is intended to drive the next phase of meaningful value accretive growth. As outlined on slide 10 of the supplemental presentation, our aim with this strategy is threefold. First, to achieve sustainably higher, less volatile through the cycle margins that are fortified by our operational and commercial excellence initiatives. Second, to execute on attractive growth, organic growth opportunities. And third, in a disciplined manner, to pursue inorganic growth opportunities that broaden CMC's commercial portfolio of early-stage construction products, improve our customer value proposition, and meaningfully extend our growth runway. CMC's goal of permanent and meaningful improvement in its margin profile is being pursued through Transform, Advance, and Grow, or TAG. our enterprise-wide operational and commercial excellence initiative. This program is unlike any other ever launched at CMC due to the breadth and the depth of its reach, as well as its visibility and the accountability structures built to support it. Every line of business and every support function has been involved in identifying and quantifying opportunities that now include over 150 different initiatives. This has meant finding value within a business, between businesses, between businesses and central support, or even across the entire enterprise. The involvement in the TAG program has reached deep into our organization as well. Those best equipped to identify the greatest opportunities are the team members who work where the action happens on a daily basis, CMC's department, plant, and regional managers. Their participation has been critical as we search for value-generating opportunities. And just as importantly, it has created buy-in at a local business level. To drive the execution of CMC's TAG program, we have formed a dedicated team to manage the identification, tracking, and reporting of all opportunities. This group will also help prioritize across identified initiatives and stage their rollout in waves in partnership with the initiative owners at the businesses or support level. TAG is driving a more elevated level of rigor and visibility to strategic execution that is intended to ensure the success and maximize the amount of value generated. From an investor perspective, we anticipate that value will come as sustained margin enhancement earnings growth, reduced working capital needs, and greater investment capital efficiency. However, just as beneficial as meeting TAG's financial goals is the creation of a value generating engine at CMC in the form of habits that will become ingrained in our culture as we execute on the program. A drive for continuous improvement, increased collaboration to achieve the targets, and a methodical approach to tracking are all traits that we believe will continue to pay dividends long after TAG runs its course. Looking more near-term, we expect TAG efforts to start yielding meaningful financial benefits in fiscal 2025. We plan to begin quantifying those benefits for you as we achieve results against the first wave of active initiatives now underway. We will have more to share with you in the future regarding our plan to propel growth through both organic and inorganic avenues. But for now, I would like to share a few comments. Organic growth extends beyond our major steel investments. CMC is pursuing a number of smaller projects aimed at bolstering our portfolio of proprietary solutions and enabling us to drive further penetration into growing markets. One such investment is an additional geogrid production line in our Blackwell, Oklahoma facility. The new line will allow CMC to better supply the growing demand for our latest higher margin geogrid offering, as well as reduce the logistics cost to several key North American geographies. On the inorganic front, we have developed a game plan for meaningful growth into attractive adjacencies in which we believe we have a clear right to play given CMC's current commercial participation, customer knowledge, market positioning, and operational capabilities. We are targeting segments of the $150 billion early-stage construction market that touch the types of projects we are already serving and feature higher, more stable margins. These adjacencies should also benefit from the mega trends that are expected to drive construction activity for years to come, which include infrastructure investment, reshoring, and the general scarcity of labor. As you can tell, I am very pleased with our strong performance in 2024 and even more excited about our strategic path forward. With that, I will now turn the discussion over to Paul to provide more detail on our financial results. Paul?

Thank you, Peter, and good morning to everyone on the call. As noted earlier, we reported fiscal fourth quarter 2024 net earnings of $103.9 million, or 90 cents per diluted share, compared to prior year levels of $184.2 million and $1.56 respectively. Consolidated core EBITDA was $227.1 million for the fourth quarter of 2024, representing a 31% decline from the $327.7 million generated during the prior year period, but still an historically strong result. Slide 14 of the supplemental presentation illustrates the year-to-year changes in CMC's quarterly financial performance. Profitability at the North American Steel Group was negatively impacted by lower margins over scrap, while results at the Europe Steel Group benefited from significant cost reductions. Adjusted EBITDA was unchanged in CMC's emerging business group, and consolidated core EBITDA margin of 11.4% remained above average historical levels and compares to 14.8% a year ago. CMC's North American Steel Group generated adjusted EBITDA of $210.9 million for the quarter, equal to $188 per ton of finished steel shipped. Segment adjusted EBITDA decreased 14% on a sequential quarter basis, driven primarily by lower margin over scrapped costs on steel products. Results were also impacted by the P&L effect of selling higher cost inventory into a falling price environment. The adjusted EBITDA margin for the North American Steel Group at 13.5% compares to 14.7% in the third quarter. During the quarter, CMC incurred mill operational commissioning costs related to Arizona II of $15.1 million, excluding depreciation. Including depreciation, costs amounted to $25.3 million. Both figures are on a pre-tax basis and were up from the levels incurred in recent quarters due to the high cost of power during peak summer months and time taken for some corrective outages that impacted our volumes. As Peter indicated earlier, demand for long steel products was stable during the quarter. Finished steel shipments decreased by 1 percent on a sequential basis, but were virtually unchanged when adjusted for the one fewer shipping day compared to the third quarter. Turning to slide 16 of the supplemental deck, our Europe Steel Group reported an adjusted EBITDA loss of $3.6 million for the fourth quarter of 2024. This compares to a loss of $4.2 million incurred in the third quarter. The sequential improvement was driven by lower controllable costs per ton of steel shipped. as well as a 7.4% increase in volumes. Financial performance during the fourth quarter continued a trend of improvement from the depressed levels of the fourth quarter of fiscal 2023 and the first quarter of fiscal 2024, during which time quarterly losses averaged $30 million excluded the impact of energy rebates. As mentioned earlier, this improvement has resulted primarily from self-help cost management measures taken by our team in Poland. Margin levels have been range bound between roughly $270 per ton and $290 per ton for the last five quarters despite an improving Polish economic environment and positive developments within the Polish construction sector. We would expect margins to remain, however, under pressure until the level of rebar imports begin to recede a scenario that likely requires an economic recovery in Germany. The emerging business group fourth quarter net sales of 195.6 million decreased by 3.7% on a quarter-over-quarter basis, while adjusted EBITDA of 42.5 million grew by 11.2%. The sequential improvement in profitability was driven by strong activity levels within our TENSAR units, and good shipment levels of performance-reinforcing steel. A richer sales mix during the fourth quarter led to a 140 basis point increase in adjusted EBITDA margin compared to the third quarter of fiscal 2024. Notably, TENSAR achieved its most profitable quarter as a division of CMC, driven by continued adoption of its latest geogrid solution and improved production performance. As of August 31st, cash and cash equivalents totaled $857.9 million. In addition, we had approximately $826 million of availability under our credit and accounts receivable facilities, bringing total liquidity to just under $1.7 billion. During the quarter, we generated $351.8 million of cash from operating activities, which included an impressive $176.9 million release of cash from working capital as we navigate through this period of uncertainty that Peter commented on. Capital expenditures of $81.5 million were driven by construction activity related to steel West Virginia micro mill project. CMC's leverage metrics remain attractive and have improved significantly over the last fiscal years. As can be seen by slide 21, our net debt to EBITDA ratio now sits at just 0.3 times, while net debt to capitalization is only 6%. We believe our robust balance sheet and overall financial strength provide us flexibility to finance our strategic organic growth projects and pursue opportunistic M&A while continuing to return cash to shareholders. CMC's effective tax rate was 22.3% in the fourth quarter and 23.6% for the full year. Looking ahead, we anticipate an effective full-year tax rate of between 24 and 25% for the fiscal 2025 year. Turning to CMC's fiscal 2025 capital spending outlook, we expect to invest between $630 and $680 million in total. Outside of normal sustaining investments of approximately $250 million, expenditures in 2025 will include substantial capital dollars for the construction of Steel West Virginia. Approximately $200 million of spending related to Steel West Virginia was deferred from fiscal 2024 into 2025 related to payment timing. As Peter mentioned, we are on track to begin commissioning in late calendar 2025. As outlined on past earnings call, CMC targets a prudent and balanced approach to capital allocation. Our first priority is value of creative growth that furthers our strategy and strengthens our business. Second is providing our shareholders with an attractive level of cash distributions in the form of both dividends and share repurchases. To this end, CMC returned approximately $261.8 million to our shareholders in fiscal 2024. equal to 54% of net earnings. Looking at the fourth quarter, CMC repurchased approximately 1 million shares at an average price of $54.71 per share. As of August 31st, we had $403.8 million available for repurchase under our current authorization. I'll now turn it back to Peter for additional comments on CMC's financial outlook. Thank you, Paul.