Ryerson Holding Corporation

Ladies and gentlemen, good day and welcome to the Ryerson Holding Corporation's fourth quarter 2020 conference call. Today's conference is being recorded. And to ask a question, you may press star one on your telephone keypad. At this time, I would like to turn the conference over to Justine Carlson with Ryerson's Investor Relations Department. Please go ahead, ma'am. Good morning.

Thank you for joining Ryerson Holding Corporation's fourth quarter and full year 2020 earnings call. I'm here this morning with Eddie Lehner, Ryerson's president and chief executive officer, and Jim Claussen, our executive vice president, chief financial officer, and president of CS&W. Kevin Richardson and Mike Burbach, our other North American regional presidents, John Orth, our executive vice president of operations, and Molly Kannan, our controller and chief accounting officer, 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 to differ materially from those implied by the forward-looking statements. Such risks and uncertainties include, but are not limited to, both set forth under risk factors in our annual report on Form 10-K for the year ended December 31, 2020. We are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date they are made and are not guarantees of future performance. 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. The reconciliation of the non-GAAP financial measures discussed on today's call to the most directly comparable GAAP measures is provided in our fourth quarter 2020 earnings release filed 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 fourth quarter and full year 2020 results. I hope this call finds you all safe and well. As we completed a quarter and a year without compare, I thank my writers and teammates for cohering and persevering through the myriad of adversities encountered throughout 2020. We extend our heartfelt thanks to all essential workers whose heroic efforts in response to the COVID-19 pandemic will long be remembered as we emerged stronger from a period of profound loss. At Ryerson, we adapted and found greater purpose and progress in our efforts to recover and build enduring value in our organization and for all of our stakeholders. In summary, for the full year of 2020 and Q4 2020, we put punctuation on balance sheet and operating model improvements as we ended the year with our lowest outstanding net debt in more than 10 years while continuing to de-risk legacy liabilities. We significantly reduced our fixed cash commitments, refinanced our bonds on vastly improved terms, extended our ADL, normalized around a lower, more variable Thank you for joining us. as we attained a cash conversion cycle of 62 days in Q4, a 29-day improvement from Q2. Taken all together, we have reached a point where we have a clear line of sight and execution path to reducing net debt to one times to three times adjusted EBITDA excluding LIFO over the next 18 to 36 months with further improvements to the operating model driving profitable growth throughout the RIOC group of companies. Moving through year end and past the midpoint of Q1, we can summarily say that for a multitude of well-reported reasons, demand and capacity utilization while still below pre-COVID-19 levels are exceeding supply chain capabilities It was a reality, whether as seen through a lens of lumber, steel, and semiconductor constraints, to name just a few, that we have, as an economy, a major hitch in our get-along. Before we can even get to a point in time equilibrium of supply and demand, we have to restock first, and that has proved difficult. over the past six months since hot-rolled carbon steel sheet prices bottomed at $434 per ton per the CLU index in mid-August and now are at their highest levels since 2007 and 2008. There is pent-up demand in the system. Supply-side constraints have been very slow to relieve, and our base case assumes higher prices for longer until we see some price reversion to the 10-year averages by mid-fourth quarter of 2021. In the absence of another acute economic shock, current price conditions appear to have more staying power than previously thought as supply-side constraints are intensifying, especially following the extreme weather events of the past week. Additionally, probabilities are increasing that we are moving into a period of higher cyclical demand for our industry. The bell is tolling for desperately needed infrastructure investment while favorable demographic, societal, and savings rate dynamics along with stimulative economic policies appear to be creating strong post-pandemic economic recovery prospects. Despite recent severe weather disruptions, demand has so far recovered to nearly 95% of pre-pandemic levels and previously lagging end markets such as machinery and equipment and commercial truck and trailer are seeing orders and backlogs increase. While experts debate the continuum between skepticism and conviction around the duration of Current Conditions, our empirical view is we are somewhere between the Cinderella ball and the often jinxed commodity super cycle, and at the very least, it doesn't feel too close to midnight. Before providing more depth around macro conditions and end markets, I would like to welcome Jim Claussen, President of Central Steel & Wire, as Ryerson's new executive vice president and chief financial officer. Jim has been with Ryerson for over 18 years, and I've had the pleasure of working with him during his time as CFO of the Northwest region, general manager of Ryerson's corporate M&A and business development function, and most recently as president of CS&W. Jim's experience and talents, particularly within operations, corporate development, Systems, and FP&A is a well-timed addition in concert with our next stage transformative objectives. Returning to the commodity environment, supply-side tightness amidst the improving demand environment drove pricing increases across all product categories. Carbon hot load prices increased aggressively throughout the fourth quarter and continue to increase in the first quarter to historically unparalleled levels. LME aluminum ended the fourth quarter more than 15% above the end of the third, while LME nickel increased by more than 13% in the same period. As of the first quarter midpoint, both LME nickel and aluminum have picked up the pace as both metals have reached 12-month highs. At this time, we anticipate that these prices will remain well above their 10-year averages through the third quarter of this year, and average mean price reversions will be gradual given our expectation that stimulus, post-pandemic recovery, and decarbonization acceleration trends should strengthen demand while supply chains repair and normalize. Turning to the demand environment, Macroeconomic indicators in the fourth quarter reflected continued recovery. Fourth quarter North American industry shipments as measured by the Metal Service Center Institute or MSCI improved from 10.9% below the year-ago period in the third quarter to 0.9% below the year-ago period in the fourth quarter, incrementally improving throughout the quarter to match the 10-year monthly average volume by December of 2020. Ryerson's North American customer activity continued to improve on balance throughout the fourth quarter. Compared to the prior quarter, we note shipment improvement across nearly all of our end markets on a sequential per day basis, and we are encouraged by what we've seen beyond early recovery stories in auto and construction. Even lagging and, secondly, depressed verticals, such as oil and gas, have stabilized and are incrementally moving higher. Although supply-side shortages and constraints are current obstacles to smoother demand backlog turnover, the recovery across Verizon's verticals appears broad-based, with inventory restocking being the most relevant current friction point. Although pandemic-driven uncertainties persist, Ryerson is optimistic about early 2021 demand fundamentals within its end markets and anticipates average selling price increases given returning demand and persistent tightness in the supply environment across all three of Ryerson's primary commodities. Additionally, Ryerson's commodity mix diversity and composition is very well suited to the current environment, giving concurrent strength across carbon steel, aluminum, and stainless markets. Therefore, Ryerson anticipates first quarter 2021 revenues of $1.08 billion to $1.1 billion, assuming sequential average selling price growth of 13% to 15%, and shipping growth of 11 to 13%. LIFO expense in the first quarter is expected to be in the range of 49 to 53 million, provided replacement costs continue to increase relative to average inventory costs. Given these expectations, adjusted EBITDA, excluding LIFO, is expected to be in the range of 102 to 106 million and earnings per diluted share are expected to be in the range of 81 cents Thank you, Eddie, and good morning, everyone.