Commercial Metals Company

Hello and welcome everyone to the fiscal 2025 fourth quarter and year-end 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 releases and supplemental slides that accompany this call, can be found on CMC's Investor Relations website. Today's call is being recorded. 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 today's discussion contains forward-looking statements, including with respect to economic conditions, effects of legislations and trade actions, U.S. steel import levels, construction activity, demand for finished steel products, the expected capabilities, benefits, costs, and timeline for construction of new facilities, the benefits and impact of the pending acquisitions of Foley Products Company and Concrete, Pipe, and Precast, the company's operations, the company's strategic growth plan and its anticipated benefits, legal proceedings, the company's future results of operations, financial measures, and capital spending. These statements reflect the company's beliefs based on current conditions but are subject to risks and uncertainties. The company's earnings release most recent annual report on Form 10-K and other filings with the U.S. Securities and Exchange Commission contain additional information concerning factors that could cause actual results to differ materially from those projected in forward-looking statements. Except as required by law, CMC does not assume any obligation to update, amend, or clarify these statements. 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. In addition, today's presentation includes financial information that gives effect to the consummation of pending acquisitions. Pro forma financial information is presented for illustrative purpose only and is based on available information and certain assumptions and estimates that the company believes are reasonable. The pro forma financial information may not necessarily reflect what the company's result of operations and financial position would have been had the transactions occurred during the periods discussed or what the company's results of operations and financial position will be in the future. 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.

Good morning, everyone, and thank you for joining our conference call. As you've likely already seen, we have a lot of ground to cover today. First, we are excited to share more about CMC's agreement to acquire Foley Products Company, after which we will cover our fourth quarter performance, fiscal 2025 strategic progress, and our outlook, before opening the call to questions. To supplement today's commentary, we have posted two presentations to our IR website, one for the Foley acquisition and one detailing our fourth quarter and fiscal 2025 results. Starting with Foley, we are thrilled to add a best-in-class business with industry-leading margins to CMC's portfolio. In combination with our recently announced acquisition of CP&P, the addition of Foley will create a high-quality, large-scale platform in the strategically attractive precast industry greatly enhancing CMC's financial profile and growth over the long term. I am confident that the acquisition of Foley will increase our value proposition for customers and shareholders alike, extending our growth runway and marking another major milestone as we execute our strategy. Slide four of the acquisition presentation provides a brief overview of Foley. Since its founding by Frank Foley over 40 years ago, the company has grown into the largest regional precast producer in the United States with 580 employees in 18 plants across nine states. Foley has a strong track record of growth and best-in-class margin performance, which is a testament to their talented management team and the industry leading practices they have developed. We are very excited to welcome them to the CMC family and look forward to collaborating on Foley's continued success. As you can see on slide seven, the addition of Foley in combination with our recently announced acquisition of CPMP creates immediate scale for CMC's precast platform. Upon closing both transactions, CMC will be the third largest Precast player in the U.S. and a leader across the Mid-Atlantic and Southeast, supported by 35 facilities across 14 states. Our strategic entry into Precast will broaden our commercial portfolio to support our customers, enhance our exposure to powerful structural trends in construction, offer new capabilities to address construction industry challenges, and establish a new platform with a significant future runway. Slide eight helps illustrate Foley's best-in-class operations, which will support our ability to build a broader precast platform and unlock further synergies with CP&P. The left side of the page outlines Foley's industry-leading margin and cash flow profile, which has been consistent over time and is enabled by a highly efficient, low-cost operating model. The company has achieved sustained cost advantages through a combination of centralized production planning, automation, best-in-class manufacturing practices, low-cost support functions, and optimized logistics. Foley has also developed a winning commercial formula with leading design and engineering capabilities, lead times, and product quality. With the most comprehensive product portfolio of any precast supplier within its core regions, Foley is a true one-stop shop for many construction applications. These capabilities have given the company enduring competitive advantages which CMC will seek to preserve and strengthen. As highlighted on slide nine, Foley and CPMP have highly complementary footprints, and we see many meaningful synergy opportunities between the two companies. We expect the acquisition of Foley to generate annual run rate synergies of approximately 25 to 30 million of EBITDA by year three, in addition to the 5 to 10 million of EBITDA we originally identified for CP&P. The majority of this benefit will be driven by applying best practices across our platform, including optimized production planning manufacturing efficiencies, and a simplified structure for support functions. The expected improvement equates to roughly 35% to 40% of CPMP's forecasted 2025 EBITDA, consistent with our previous commentary that synergies would become more significant as our precast platform gains scale. It is worth pointing out that meaningful commercial synergies are likely to emerge, but have not been included in our initial synergy estimate. On slide 10, we illustrate Foley's highly complementary proximity to both CMC and CPMP networks, which we believe will facilitate optimal coordination to achieve operational synergies and, over the longer term, substantial commercial opportunities. As you can see, every precast site in the eastern and western U.S. is located near a CMC rebar mill or fabrication plant, allowing us to maximize value over time through close coordination across commercial, operational, and support functions. In particular, we are excited by the increased value we can bring to customers in these regions by providing CMCs full suite of early stage construction solutions from site preparation to structural erection. Our offering will be unique in the marketplace and will grow more compelling over time as we integrate our portfolio and offer attractive turnkey solutions. While a vast majority of the acquired precast facilities are located within one of CMC's densest geographic regions, We will also operate one satellite location in Louisiana and three satellite locations in the western US, which will provide beachheads in those regions and offer the opportunity for profitable bolt-on growth in the future. To conclude my comments on Foley, when we began our study of the precast space nearly two years ago, we immediately identified Foley as a best-in-class operator based on its reputation its standing among customers, and its top-tier financial profile in the construction materials sector. Our due diligence confirmed Foley's attractiveness as a strong business and drove us to execute on this unique opportunity. I am incredibly excited about both of these announcements, and I am confident that the additions of Foley and CP&P will unlock further upside as the cornerstones of our newly created precasts. platform. Both businesses together will position us to drive significant value for our customers and shareholders alike. With that summary of the deal rationale, I'll turn the call over to Paul to discuss the financial details.

Paul? Thank you, Peter, and good morning to everyone on the call. I will start by saying I share the excitement and optimism both about this transaction and the strategic momentum we have achieved at CMC over the last year. The acquisition of Foley in combination with CP&P is transformative to CMC's financial profile. As shown on slide 11, the creation of the new precast platform meaningfully shifts the composition of CMC earnings. increases margin levels and free cash flow capabilities, and importantly, should reduce earnings and cash flow volatility in our business. The sum of CP&P and Foley, representing our precast platform, is expected to generate approximately $250 million of adjusted EBITDA in calendar 2025, before growth and synergies with EBITDA margins in excess of 34%. This compares to CMC's core EBITDA margin of 10.7%, and the North American Steel Group adjusted EBITDA margin of 12.2% in fiscal 2025. The addition of these levels of earnings by the precast operations will significantly shift the composition of CMC's earnings. increasing the combined contribution from our EBG segment and precast platform to over 32% of total operating segment adjusted EBITDA. Upon completion of the acquisitions, we expect nearly a third of our profitability will be generated by high value-added solutions with attractive market penetration potential, strong margins, and cash flow conversions. The lower capital intensity of these businesses also means they require less reinvestment to maintain operations and less capital commitment to grow organically, enhancing free cash flows. Margin levels and normalized free cash flow conversion are both expected to increase meaningfully. Based on Foley and CPNP's forecasted results for 2025, the addition of Foley and CPNP would have increased CMC's core EBITDA margin by more than two percentage points. And given the stability of these businesses, we anticipate this improvement to be sustained over time. In fiscal 2025 alone, the platform would have improved normalized free cash flow conversion by over four percentage points. Now I will cover the major terms related to the transaction. Total consideration will be paid at closing and is subject to customary working capital adjustments. This valuation represents a 10.3 times multiple on Foley's expected calendar 2025 EBITDA. Importantly, the effective multiple is reduced to approximately 9.2 times when cash tax savings are considered as CMC will benefit from a tax step-up on assets. We believe this is a fair valuation for a fantastic asset and the multiple reflects Foley's best-in-class margin profile and business characteristics previously discussed by Peter. It's worth noting Foley's EBITDA margins are 5 to 10 percentage points higher than those of many blue chip building product and construction material companies that routinely trade at 10 to 16 times forward EBITDA. Importantly, we anticipate the transaction to be immediately accretive to earnings and cash flow per share. The combined total consideration of approximately $2.5 billion related to the purchases of Foley and CP&P will be funded through a combination of cash on hand and committed bank financing. As soon as feasible, we will seek to raise permanent debt financing in the form of corporate bond offerings. Immediately following the completion of both transactions, which is expected by the end of calendar 2025, CMC's net debt is expected to increase to approximately 2.7 times trailing 12-month adjusted combined EBITDA. As we have stated in the past, we are comfortable with temporarily increasing net leverage above our long-term target of two times for the right strategic opportunity, as we did with the highly successful acquisition of Gerdau's U.S. rebar business in 2019. We will prioritize delevering in the quarters ahead with a goal of returning below two times net leverage within 18 months. This effort will be aided by strong free cash flow generation from the precast platform itself, the wind down of capital expenditures for the construction of Steel West Virginia, and significant cash tax savings related to the 48C program and the One Big Beautiful Bill. Based on these supportive factors and the positive outlook for our existing business, we are confident in our ability to deliver quickly. That concludes my remarks, and I'll turn it back to Peter to cover the fourth quarter and fiscal year.