Ryerson Holding Corporation

Ladies and gentlemen, thank you for standing by and welcome to the Ryerson's first quarter 2020 earnings conference call. 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 this time, simply press star then the number one on your telephone keypad. If you would like to withdraw your question, you may press the pound key. If you require any further assistance, please press star then zero. Please be advised that today's conference is being recorded. I would now like to turn the conference over to Justine Carlson with Ryerson's Investor Relations Department. Please go ahead.

Good morning. Thank you for joining Ryerson Holding Corporation's first quarter 2020 earnings call. I'm here this morning with Eddie Lehner, Ryerson's President and Chief Executive Officer, and our Corporate Controller and Chief Accounting Officer, Molly Kannan. Kevin Richardson, Mike Burbach, and Jim Claussen, our North American Regional Presidents, will be joining us for Q&A. Before we get started, let me remind you that certain comments we make on this call contain forward-looking statements within the meaning of the Federal Securities Laws. These forward-looking statements involve a number of risks and uncertainties, including the impacts of COVID-19 and related economic conditions that could cause actual results and other members of the Board of Directors. In addition, Our remarks today refer to several non-GAAP financial measures that are intended to supplement but not substitute for the most directly comparable GAAP measures. A reconciliation of the non-GAAP financial measures discussed on today's call to the most directly comparable GAAP measures is provided in our first quarter 2020 earnings release file on Form 8K yesterday, which is available on the Investor Relations section of our website. I'll now turn the call over to Eddie.

Thank you, Justine, and thank you all for joining us this morning to discuss our first quarter results and our response to the novel coronavirus or COVID-19 pandemic. I hope this call finds you all healthy and well. Our best wishes and prayers go out to all those who are recovering from or have been lost to the virus. I want to start our call today by thanking all frontline responders whose tireless and courageous efforts are so imperative to the fight against the disease and to all essential workers, including many of my Ryerson colleagues who are part of essential and critical on-premises work required to support COVID response and basic societal functioning. During this time of extreme virus-induced abnormality, we have acted comprehensively and decisively upon our first priority of providing a safe work environment for our employees, It adherence to evolving guidance provided by the Centers for Disease Control and Prevention, as well as the presiding government authorities where Ryerson operates. Upon the onset of the pandemic, a rapid response team was commissioned to plan and implement COVID-19 policies, procedures and practices within our facilities and throughout our service center network, including but not limited to social distancing, restricted travel, staggered shifts, reconfigured workspaces, dedicated communications channels and resources, disinfecting and sanitizing our facilities and working remotely whenever possible. I want to thank each of my riders and teammates for their commitment to our community's health and safety. and for their resolve and resilience during this ongoing public health and economic crisis. I also want to thank my Ryerson colleagues for delivering commendable results during a quarter whose positive momentum was hijacked by the COVID-19 outbreak. Ryerson saw volumes and margins track higher through the quarter until mid-March, before the coronavirus or BCV. We saw a slow start out of the gate with respect to volumes due to original equipment manufacturer program business contraction in commercial ground transportation, consumer durables, construction equipment, as well as sharp declines in oil and gas. We generated net income of just over $16 million, exceeding guidance and adjusted EBITDA excluding LIFO of $34 million, which is in line with the guidance range articulated in our fourth quarter and full year 2019 earnings release. Further, if the mark to market impacts of hedges placed on behalf of our customers were excluded from our results, net income would have totaled 20 million and adjusted EBITDA excluding LIFO would have been 39 million. During the quarter, which felt like three different years in three months, Ryerson executed upon organizational priorities by repurchasing approximately $55 million of our senior secured notes at an average price below par. We generated significant cash from operating activities, decreased net debt by $30 million, and continued to increase our net book value of equity. Meanwhile, the notable progress being made at Central Steel and Wire, or CS&W, was demonstrated in the company's results as post-close acquisition synergies met up with recovering carbon gross margins to provide us with a positive view of CS&W's performance in what was a below-average market, BCD, and which was very encouraging. In advance of the onset of COVID-19 as a nationwide emergency, Ryerson established a dual mandate for our organization through the crisis. Our top imperative is to provide a safe work environment for our employees while preserving liquidity and recovery capacity. We are seeing a paralyzing economic impact due to COVID-19 given the deep virus suppression and mitigation measures required to date requiring us to call upon lessons learned during the Great Recession of 2008 and 2009 and the deep industrial recession of 2015 and 2016. Today requires the same steadfast resilience and perseverance that we exhibited then and throughout our 178-year history. Ryerson moved quickly in late February in establishing plurality or the ability to see reality clearly and began executing a detailed plan to serve our dual mandate. Given the early chaos in capital markets before significant policy responses in late March and early April, we drew upon our credit facility to increase our access to cash established aggressive working capital targets, revised our capital expenditure budget downward to 2008-2009 levels, and outlined warehousing, selling, general, and administrative expense reductions. In the process, we variabilized our cost structure to a 67%, 33% variable to fixed cost split. Given the unparalleled and a few drop in demand which was practically instantaneous. We have made difficult and pained decisions including reducing production schedules, employee furloughs, salary reductions and work shares. As we communicated throughout our organization, we are doing the things we have to do given the dystopian abnormalities currently present in society and in the economy. We understand that there's a very high probability that if we don't take these measures, the alternatives and outcomes will be worse. These decisions represent a culture of shared sacrifice as evidenced through Ryerson's 8K filing on April 22nd, 2020, notifying stakeholders that Ryerson's directors and executive officers were taking voluntary salary and fee reductions between 20% This was the necessary and right thing to do under the circumstances and underscores our commitment to our COVID-19 dual mandate. Additionally, we have been actively engaged in evaluating and acting upon, where applicable and appropriate, the various stimulus legislation provisions that have been passed in the U.S., Canada, and China. Turning to the current economic environment, The first quarter of 2020 was three different flashbacks jammed into one quarter. The quarter started well in some sectors, such as aero, auto, and construction, and weak in others, such as machinery and equipment, commercial ground transportation, and energy. On the price side of the equation, carbon prices were recovering through the first two months of the quarter, while stainless and aluminum pricing lagged due to falling stainless surcharges and varying supply and demand imbalances Our base case going into the year as communicated in our fourth quarter 2019 guidance was a slower start to the year that would see momentum picked up beginning in the second quarter of 2020 and continue for the balance of the year. Of course, as we all know, things have turned out starkly different. Since the end of February, as the pandemic began spreading geometrically, The economy has been largely shuttered, which is painfully evident in every economic indicator. The fact is there are too many unknowns at present to guess at demand for the balance of the year, given the uniqueness and magnitude of this crisis. That said, we would offer a base case scenario using our prior experiences in 2008 and 2009 and 2015 and 2016 to say we expect to see continuing demand contraction through the second quarter with stabilization occurring in the third quarter and economic growth returning from depression levels in the fourth quarter and continuing into 2021. The price side of the ledger appears more encouraging if it holds given the speed with which supply has gone offline in this crisis as compared to others and given that nickel, aluminum, and carbon prices went into the crisis below their 10-year averages. If history is any guide, prices will soon bottom, margins will begin to recover, followed by demand. The biggest risk, of course, is the virus itself and whether we can collectively manage public health and safety risk to lower levels and take positive forward steps toward normalization. The risk also is of economic false starts where demand-driven and virus-driven business continuity cannot be re-established with any budding consistency. Providing more color around Ryerson-specific demand conditions, we have greater exposure to commercial ground transportation, consumer durables, and machinery and equipment than aerospace, automotive, and in-place construction. That tip demand The downside to start the year, particularly with large OEM program accounts, but we gained momentum through the quarter as new business began onboarding late in the quarter and into the second quarter, albeit at pandemic-impacted reduced rates. We also saw relative strength in our transactional business and fabrication business with noted relative end market strength in healthcare, material handling, packaging, defense, and Consumer Essential End Markets. From a geographic perspective, China's shipments have recovered to 90% of pre-pandemic Q1 levels, and Mexico's shipments have fallen to 40% of pre-pandemic levels, given a greater number of customer and plant closures by Mexico government authorities, while the US and Canada are operating at approximately 75% of Q1 pre-pandemic levels. Ryerson's ability to quickly move to remote work readiness across our network of service centers with significant digital infrastructure to support e-commerce transactions and multi-channel buyouts for customers continues to provide valuable benefits in our ability to navigate the challenges posed by COVID-19. There have been numerous examples since March 13th, whereby our ability to service customers has fought needs, utilizing multiple glances, and Digital Infrastructure allowed for mutually appreciated customer experience whereby customers can satisfy their complete needs while getting a lower overall risk solution. Although it is early to declare a deeply rooted trend, we note what appears to be evidence of supply chain reorientation favoring domestic supply chains given the many supply chain disruptions caused by the COVID-19 pandemic and what we hope is among the highest economic and public safety priorities moving forward. Looking at the supply side through the quarter and through the lens of the pandemic, we have not experienced any supply disruptions as material is widely available, inventories are adjusting to the demand shock, and we thank our suppliers for the manner in which we have worked together through the early and difficult part of this economic shutdown. Given that Ryerson imports less than 10% of its procured metal from non-domestic sources and given current supply, demand, and price conditions, import purchases are disadvantaged. As a base case, we expect supply to continue adjusting to demand shock conditions for the balance of the year with limited further downside to domestic industrial prices. In the first quarter of 2020, CSMW contributed $123.5 million in revenue and $2.9 million in adjusted EBITDA excluding LIFO to Ryerson's overall results compared to $172.2 million in revenue and $3.4 million in adjusted EBITDA excluding LIFO in the year ago period and $115.5 million of revenue and a loss of $0.3 million in adjusted EBITDA excluding LIFO in the fourth quarter of 2019. First quarter results illustrate the year-over-year progress of management's commercial portfolio and cost and supply chain optimization actions. Gross margins excluding LIFO expanded by 400 basis points to 22.9%, and expenses declined by 12.3% to $27.2 million. While revenue declined 28.3% on a year-over-year basis, This is within acquisition post-close expectations adjusted for current economic conditions. Next stage CS&W synergies include digitalization of legacy systems and processes, as well as an ERP conversion into Ryerson's standard ERP environment. This will further improve the customer experience of CS&W, further enhance the bar, tube, and plate franchise, and generate additional cost synergy opportunities. Q1 2020 performance was a validating data point for CSMW and the future looks bright for Central Steel and Wire after we get to the other side of the COVID-19 pandemic. With respect to Ryerson operations, all Ryerson facilities except for two of our Mexico plants are operational and producing relative to current activity levels. Our operators have performed brilliantly. even more so given the current crisis. Safety performance in Q1 of 2020 as measured by OSHA's TRI metric of total recordable incidents declined to a five-year low, indicating that our workplace is becoming safer, and more important, our culture of workplace safety is being internalized and embedded in our behaviors. Due to the macroeconomic uncertainty stemming from the coronavirus pandemic, and overall lack of visibility into future demand trends, metal pricing and market conditions in the end markets in which Ryerson operates, the company will not provide guidance for the second quarter ending June 30th, 2020. What we can share and what is painfully obvious is that the virus and our collective response to the virus in terms of case rates, testing, tracing, containment, healthcare infrastructure, Treatment recovery rates and mortality rates will largely dictate what happens next. Central bank and fiscal policy responses have been surprisingly fast and on balance very positive and necessary given the suddenness of the jolt and difficulties involved in standing up such responses. More will likely be necessary to accelerate normalization and growth sooner rather than later. With respect to Ryerson, we have taken and will continue taking Thank you for joining us. is that current demand levels represent those witnessed over a one-year period in 2008 and 2009 and two times the demand decline experienced over a two-year period in 2015 and 2016. It would be a tragic first in the lifetimes of most of us if these public health conditions and economic conditions persisted for longer periods than those referenced during prior industrial recessions. With that, I'll turn the call over to Molly. who will discuss the highlights of our first quarter performance.