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.

Thanks, Eddie, and good morning. In the first quarter of 2020, Ryerson achieved revenues of $1.01 billion, a decrease of 17.9% compared to $1.23 billion in the first quarter of 2019, with average selling prices down 10.2% and tons shipped down 8.6%. Gross margin expanded to 19.4% in the first quarter of 2020 compared to 18.8% in both the fourth quarter of 2019 and the same quarter last year. First quarter 2020 gross margin expansion was partially driven by an increase in our transactional sales mix. Included in first quarter of 2020 cost of materials sold was LIFO income of 20.2 million compared to LIFO income of 6.5 million in the fourth quarter of 2019 and LIFO income of 20.1 million in the first quarter of 2019. Excluding LIFO, gross margin was 17.4% in the first quarter of 2020 compared to 18.1% in the fourth quarter of 2019 and 17.2% in the first quarter of 2019. In the first quarter of 2020, Ryerson reduced warehousing, delivery, selling, general and administrative expense by 8 million or 4.9% compared to the year-ago period driven by reductions in variable staffing-related expenses. warehousing, delivery, selling, general and administrative expenses as the percentage of sales increased in the first quarter of 2020 to 15.4% compared to 13.3% in the first quarter of 2019 as the decline in revenue outpaced expense reductions. Net income attributable to Ryerson Holding Corporation was $16.4 million, or 43 cents per diluted share in the first quarter of 2020 compared to 29.5 million or 78 cents per diluted share in the prior year period. Adjusted net income attributable to Ryerson Holding Corporation excluding restructuring and the other charges, gains and losses on retirement of debt and the associate income taxes was 15.8 million for the first quarter of 2020 or 41 cents per diluted share compared to 29.9 million or 79 cents per diluted share in the prior year period. Ryerson achieved adjusted EBITDA excluding LIFO of 34.4 million in the first quarter of 2020 compared to 63 million in the first quarter of 2019 and 46.9 million in the fourth quarter of 2019. At the end of the first quarter of 2020, Ryerson had 74 days of supply and inventory, down from 84 days at the end of the fourth quarter of 2019. On the same store basis, excluding CS&W, Ryerson had 72 days of inventory supply in the first quarter of 2020, compared to 81 days at the end of the fourth quarter of 2019. While Ryerson achieved inventory within our target range of 70 to 75 days on both a total company and same store basis, we anticipate an increase in the second quarter as demand deteriorates faster than inventory levels can adjust. However, aggressive decreases in inventory purchases alongside innovative inventory management practices are expected to bring us below our target range by the third quarter. We generated cash from operating activities of 72.8 million for the first quarter of 2020 compared to cash used in operating activities of 18.5 million in the year-ago period, driven by lower working capital requirements and the deflating price environment. During the quarter, we wisely repurchased 54.6 million in outstanding senior secured notes at an average price of 98.5. The transactions are expected to result in annualized interest expense savings of approximately 6.1 million and were funded through a combination of restricted cash, which was in majority a portion of the proceeds generated through the sale defect transaction completed in the fourth quarter of 2019, and company operating cash flows. Even with having completed these repurchases, we maintained ample liquidity throughout the quarter. And although we are always mindful of our liquidity position, we are carefully monitoring our credit line availability and projecting working capital requirements. This includes actively managing our receivable and payable cycles and decreasing inventory purchases in line with demand. and enabling liquidity accretive actions under the various stimulus legislation within the U.S., Canada and China. Also, to ensure adequate cash access during the early and unsettling chaos surrounding the COVID-19 pandemic fallout during the second half of March, we proactively drew on our credit facility in March to increase our North American cash balance to 185.2 million. As of March 31st, 2020, borrowings were 546 million on our primary revolving credit facility with additional availability of 159 million. Including cash, restricted cash from the sale of real estate under the sale leaseback transaction and availability from US and foreign sources, Ryerson's total liquidity was 396 million as of March 31st, 2020. Additionally, to preserve liquidity, we have reduced our capital expenditure budget for the year from approximately 45 million to approximately 25 million, which will be almost entirely funded through remaining restricted cash generated from the sale these back transaction completed in the fourth quarter of 2019. We have also taken decisive actions to reduce expenses and unfortunately those actions included difficult but necessary decisions to reduce our workforce by approximately 16% since mid-March to adjust to the COVID-19 demand environment. These decisions were made with careful consideration throughout Ryerson teams and combined with the aforementioned salary reductions will preserve liquidity as we manage through this unprecedented crisis. Now, I'll turn the call back over to Eddie to conclude.

Thanks, Molly. During this crisis, I can't remember going five minutes without cycling through a word stream including unprecedented, virus, tragedy, distancing, history, pain, loss, hardship, hope, humility, determination, resolve, Resiliency and Optimism. Bob Dylan's song, Blowing in the Wind, has been playing regularly during this period, and many times it has felt like the answer is literally blowing in the wind. We wish we didn't have to say it, but we have experience managing through to the other side of times of great hardship, and we'll do it again despite the solemnity, humility, and melancholy that is at the center of all of it. We are doing what we must by generating countercyclical cash flows and adjusting expenses to current run rates while keeping a safe work environment and maintaining our recovery capacity post-pandemic. Fireson is a much stronger company today than in 2008 and 2009 and 2015 and 2016, but no organization is immune to the crisis at hand, so we have plurality. around the magnitude of current circumstances and the responses required. We are grateful to our employees, communities, customers, and suppliers as we have found the best in ourselves during this trying time as hope plus all-out effort and determination will prevail. It is coming, however, at a price that seems incalculable when looking at the pain and loss already endured and what is likely to come at least in the near term. Let me paraphrase Shantayana by saying, if we fail to learn from this global tragedy, we'll be condemned to repeat it. Several weeks ago, Mark Andreessen wrote an essay titled, It's Time to Build. When I read it, I was overjoyed with a great relief that what we have been yelling from the top of peach crates for the past 20 years was catching on in earnest with other leaders outside of the industry as failed chalkboard theories are finally seen for what they are. When we emerge from this virus-induced global tragedy with a renewed optimism and unbeatable resolve, I hope I can't go five minutes without someone saying, Y-I-T-T-B-Y. Yes, it's time to build and apply all of our learnings from COVID-19 to the best possible use so as to never see this kind of history repeat. Please stay safe and well as a lot can change in the next three months. May it be through all of our collective efforts and all be for the better. With that, we look forward to your questions. Operator.

At this time, ladies and gentlemen, if you would like to ask a question, please go ahead and press star then the number one on your telephone keypad. Again, that's star then one to ask a question. Your first question today comes from the line of Matthew Fields with Bank of America. Your line is open.

Hey, everybody. Eddie, appreciate the heartfelt comments there. A couple of detailed questions for you. On the workforce reductions, are those... Are there furloughs versus layoffs, and is there an associated kind of upfront cash cost we should expect, and if so, what's the timing of that? Hey, Matt.

I hope you and your family are doing well. The majority are furloughs. There is not an upfront cash cost at this time, and we'll be monitoring. How and when we can bring our folks back to work as conditions normalize and recover.

Okay. All right. Thanks. Mills announced a price hike recently. It sort of seems like they want to target 500 per ton again. I think Barry Zeckelman earlier this week said they were seeming to stick. Are you seeing the same thing?

Yeah, I mean, by and large, I think for spot transactions and what I'll call truckload quantities, yeah. I mean, are there deals to be had for larger tonnages? There probably are, but I think it was a smart move by the steel producers. I think when they look at import costs all in and they look at where they can more or less set a floor price relative to demand because We saw this happen in 1998 when I worked for Nucor Berkeley. There comes a time when if you cut the price more and more, you're not going to stimulate any more demand because we're in a demand shock, right? I've seen it many times before, and I think they took a thoughtful approach to it. And, yes, I think it will stick if something doesn't change in a dramatic way more than how dramatic it's been already.

I appreciate that. We're starting to hear that the OEMs are going to start back up on the auto side this month. Are you seeing any shipments ahead of those restarts to make sure that there's inventory on the stamping floors, or is there inventory kind of already in the channel for those guys?

Matthew, it's a mix. I mean, I think what we said in our comments is true, and that is I think there are fits and starts, and I think everybody wants to come back. There's a couple issues that involve that. One is the safety and health of the workforce, obviously, and if there are confirmed cases, and we've seen shutdowns, and they haven't been long shutdowns, but we've seen shutdowns that have been virus-related. But then we've seen shutdowns where people come back for a couple weeks, and there's just not enough of a backlog to sustain. to sustain production in a way that's effective. So customers are really working to come back online. The real question is really demand, and is there a consistency of demand that will allow them to at least stay at a consistent operating rate that is plausible? But let me kick that over to Mike and Kevin and have them give you some more color on that.

Hey, Matt. This is Mike Burbach. I think the way Eddie described it is very similar to what I would say. It's really a customer-by-customer type situation. And really, I think you could kind of narrow it down a little bit in terms of what is the product they're making. So if it's a product that's needed for the current situation and supports the solution to the virus, i.e. making medical equipment or Something that's really in short supply. That's one story. And then if the customer or producer is making products that truly are not as critical as others, you see a different story. So hard to put a generalized statement to say everyone's doing this or doing that. And we're watching it very closely. A lot of them are coming back on stream right now. Most of April was really hit with a number of people taken one, two, three, four, five weeks off. And so I think later this month we'll have a better idea what that looks like when we're all back in line.

Okay, thanks. On the energy side, I know it's not a big part of your business. I think it was like less than 5% of your revenue last year. But is that – we're seeing, you know, obviously a lot of closures of tubing facilities. Is that market sort of completely dead from your point of view? Are there shipments still going on? Can you just give us a little color on the energy side?

I mean, I'll start, and then I'm going to go ahead and direct it to Kevin. I would just say that above ground, where storage is really at a high degree of need, above ground is active, but it doesn't make up for E&P work below ground. But I'd have Kevin comment as well.

Yeah, hey Matt, Kevin Richardson. That's really the only short-term catalyst that we see is that people are running out of room to store the oil. And we do have a segment of our business that makes above-ground storage tanks, so we're expecting a little bit of a demand boost in Q2, Q3 from that, but it's coming from a very low base. If you just look at the rig count, you know, I think it stands at like 400 or something, which is down 60% from last year or so. There's not much going on in the energy markets excluding the above ground storage tanks right now.

Okay, great. And what types of products are involved in those storage tanks? Long, flat, mix?

It's primarily carbon plate products where it gets rolled and fabricated and welded. There'd be some long products that would go into it, but it's all carbon products. And it's not to say that there's no demand. It's not to say that there's no demand for the typical Long Product, Alloy Bar. It's very depressed demand and we don't see a big catalyst. But to your point, it's a relatively small segment of our overall business relative to what it was five or six years ago.

Right. Okay. Thank you. And then obviously the last couple of months have been sort of triage, but as hopefully things settle out and we hope there's not a big second wave of this. Do you think about kind of the ability to do more sale leasebacks, monetize more assets similar to the way you did kind of a little while ago to generate some cash?

Matt, I think the positive thing is we have the assets and we have the ability and we We didn't really have in 2012 or 2016. We certainly have it now. And we demonstrated that. I mean, part of the reason we did Project More when we did the sale lease back and the return on that has really been, I think we'd have to say excellent, not just the first part of that, but then being able to use the restricted cash to go in and buy the bonds and take down our principle of notes. But we have significant It's certainly an option for us when we look at different scenarios of how we create refinancing scenarios as we move forward and options that we have to not just generate cash and liquidity but to reset the cap. I think the really important thing is to put first things first. We have a dual mandate, which is a safe work environment for our people and managing liquidity. And it's really important to get that sequence right. And I think as we work in the business and we follow through on the measures that we've had to take, we will certainly shift focus as appropriate and start to run through different scenarios with respect to our bonds. I mean, we, of course, are well aware that we're still 24 plus months out from our maturity date. When we did the refi in 2016, we were 18 months from our maturity date when we did that in May of 2016. What was interesting in doing the prep for the call, not that we don't know, but you go back and look at things and it just provides a different lens through which you look at it. But, you know, When we did the refi in 2012, we refied $900 million. So we did $600 million secured and $300 million unsecured. And when we did the refi in 2016, we did $650 million in secured. And right now, we're at $533 million of secured. And we've taken a lot of debt out of this company. And it certainly makes it a lot easier when we look at what our interest expense is now versus what it was then and the options we have now versus the options we had then. and when we look at the collateral coverage which is significantly better today than it was in 2012 and 2016. So we have time, we have options and we need to be thoughtful about it but we'll be on time when that time comes.

Okay. And then, you know, thanks for that and then sort of on that vein, in that vein, you know, is the strategy do you think kind picking away at that maturity little by little before you get it back to a more manageable size to approach the capital markets? Or do you think you can still kind of approach the capital markets for kind of a holistic refi?

Matt, I think it's going to be dependent on conditions. I mean, let me say this, and we said it in the script, a lot can change. We know a lot can change in one month, two months, three months. A lot can change, and we hope it's going to. Having been through this a couple times and not wanting to take anything for granted, I believe that there's going to be windows in which we can affect a range of good options for Ryerson and for our capital structure. Right now, it's really important to focus, but I do believe that there'll be a window and there'll be multiple options that we can pursue.

All right, great. That's it for me. Thank you, and good luck, and hope you and your family are doing well as well. Thanks. Thanks, Matt. Appreciate it.

And again, ladies and gentlemen, if you would like to ask a question, please go ahead and press star, then the number one on your telephone keypad. Your next question today comes from the line of Michael LeChoc of Kibon Capital Markets. Your line is open.

Hey, guys. Good morning. Good morning. So first I just wanted to talk on SG&A on how much is fixed versus variable. I know you talked about how you brought your variable to fixed costs at 67% to 33% respectively, but could you touch on what that ratio was, DCV or in 2019, and then how much of your SG&A is labor?

Yeah. We've gone from about 40% variable to 67% variable over the last, call it four years, and it's been a very intentional progression to variabilize our cost structure more and more. We are two-thirds labor, all in all, when we look at all comp, benefits, incentive plans, temp, and overtime, and we're about, say, I'd say even 35% would be all else. And the team has done just a really just a big job given the circumstances and not just further variabilizing these costs but being very fast in recognizing the situation and taking costs out in the right sequence with a really good sense of timing.

Okay, got it. And then do you have a forecasted LIFO impact in the second quarter?

Yeah, I'm going to kick it over to Molly in just a second. I would say that Molly's going to tell you a little bit about how our LIFO pools work without getting into too much pithy detail, but we had $20 million in LIFO income in the first quarter, and we would continue to expect LIFO income and so on, through the year until prices, until replacement costs hit a bottom and then we start to inflect higher which we're modeling for some time in Q4 or late Q3. So we would expect to generate LIFO income through that period until we get into certain LIFO pools that were created in 2007 when commodity prices were very, very high or 2018 when we acquired Central Steel and Wire. Let me go ahead and kick it over to Molly, and she can give you some more color and even better expertise.

Hi. Thanks, Eddie. Yeah, as you know, our LIFO calculation has a lot of different variables that go into it, and we are trying to aggressively reduce our inventory on hand. And as we do that, we are expecting to eat through a lot of our old LIFO layers that we have, and all those layers were built – on prices that were much higher at the time. And so as you eat into those layers, you very well could get into a situation where you're actually generating LIFO expense. We also have to take into consideration our lower cost-to-market cushion as average selling prices fall. We are in a debit LIFO reserve position right now. So there's just a lot of variables that we continue to look at. We're monitoring it very closely every month. Just have to think that LIFO has no impact on our liquidity and our cash flow. So we're certainly going to be back here in July and give another update on how LIFO is playing out.

And I think Molly makes a point that we want to emphasize, and that is, – regardless of gap-driven LIFO optics, and they're certainly important, but it's really important to keep your eyes fixed on cash flow generation and liquidity, especially during this time, because that is the most important metric.

Understood. Got it.

And then just lastly for me, could you comment on what you've seen in May thus far versus April? In other words, was April the low point for apparent demand levels based on what you've seen directionally at least in May?

We don't know. I mean, and it's hard to say we don't know, but I don't think anybody knows. I really don't. I mean, here's what I'll tell you is we were very transparent in explaining what business levels were in April relative to March. What's been... A pleasant surprise has been the transactional strength, and that's a tribute to everybody in the organization. I mean, we have good digital tools. We have a good digital framework. We have a lot of expertise. We've been staying in front of customers to meet their spot demands, and the network of service centers we have has been very instrumental and very useful in providing what I'll call low-risk solutions when customers want one vendor, one truck, as opposed to many vendors and many trucks. for a host of different reasons, primarily COVID safety related. So we've been able to put a lot of solutions together using that network very effectively and moving inventory around and getting material where we have it to where it's most needed. And of course, the essential responses into the COVID marketplace, pandemic response marketplace, the ingenuity of our customers and adapting their operations to make products for COVID responses. And we've been really proud to participate in that as well. I would like Mike and Kevin to give you some more color on that in terms of what they're seeing in May so far. And if we see any real discernible trends one way or the other.

Hey, Michael, this is Mike Robach. So I think Eddie said it. We're about three or four days into May and really too early to make a call, I think, with any certainty on it. What we saw through April is a little bit of variation with some of the customers coming on stream, going off stream, and they're fairly inconsistent from day to day and week to week. So I would say the three or four days probably is not a good enough sample size to make a call for May. Sorry, I can't give a better color than that, but I think that's the truth of the matter. I can tell you this. We're setting ourselves up to take advantage of every opportunity that presents itself to us, and Eddie touched on it with our network and with the inventory and capabilities we have. We're able to leverage all the different things we have going on. We've seen a lot of opportunities that we've been able to seize upon and fulfill due to those resources and capabilities. So certainly isn't the environment that we want to be working in, but we found a way to make some good out of it.

And let me add one comment. This is one of those times, though, that there's a lot of sight that we don't always have because we're not used to dealing with demand shocks that take you down and many more. The announcements coming from automotive plants or machinery and equipment manufacturers, consumer durable manufacturers. I mean, this is one of those times when if you're following the headlines, you can get a pretty good beat on how it's going.

Hey, Michael, Kevin Richardson. Let me just add one more comment because this is what we're watching is two different themes. One is the positive impact from large OEMs coming back online. After shutdowns in April because a lot of the large OEMs did shut down. So that's clearly a plus. And that's a little easier to predict based off of the schedules of them coming back online. What's hard to understand is the negative impact of customers that stayed open in April, but they may be depleting their backlogs. And so it's hard to really understand how you would net those two things out. Needless to say, we're watching it like a hawk. But to Mike and Eddie's point, we're only four or five days into May. So it's hard to get a reference point. But directionally, those are the two things we're watching closely.

Okay. We all need some clear reality in times like these. I appreciate the commentary, guys. Thank you. Thanks.

And again, ladies and gentlemen, if you would like to ask a question, please press star then one on your telephone. And at this time, there are no further questions in queue. I turn the call back to the presenters for any closing remarks.

Thank you for your continued support of and interest in Ryerson. We wish everyone the world over a safe and speedy return to health and normalcy. We look forward to being with you again as we work toward better days to come. Thank you.

And this concludes today's conference call. Thank you for your participation. You may now disconnect.