United States Steel Corporation

Good morning, everyone, and welcome to United States Steel Corporation's fourth quarter and full year 2022 earnings conference call and webcast. As a reminder, today's call is being recorded. I'll now hand the call over to Kevin Lewis, Vice President, Finance.

Good morning, and thank you for joining our fourth quarter and full year 2022 earnings call. Joining me on today's call is U.S. Steel President and CEO Dave Burrett. Senior Vice President and CFO Jessica Graziano, and Senior Vice President and Chief Strategy and Sustainability Officer Rich Ruhoff. This morning, we posted slides to accompany today's prepared remarks. These can be found on the U.S. Steel Investors page under the Events and Presentations section. Before we start, let me remind you that some information provided during this call may include forward-looking statements that are based on certain assumptions. and are subject to a number of risks and uncertainties, as described in our S&C filings, and actual future results may vary materially. Forward-looking statements in the press release that we issued yesterday, along with our remarks today, are made as of today, and we undertake no duty to update them as actual events unfold. I would now like to turn the conference call over to U.S. Steel President and CEO Dave Burritt, who will begin on slide four.

Thank you, Kevin, and good morning to everyone joining us today. We appreciate your continued support of U.S. Steel. We safely delivered another profitable quarter as we end a strong year of operational, financial, and strategic performance and advance our best-for-all strategy. We are pleased but not satisfied, and we are focused on moving faster towards our future. 2023 will be our most transformational year yet as we continue to unlock the stockholder value of our best for all strategy. In summary, we are bullish, we are confident, we are transitioning to greater stockholder value, we are focused on our competitive advantages, and we are delivering on our strategy. I will start my remarks with a recap of the past year. In 2022, we delivered some all-time record performances. Best safety and environmental performance in our history. Best execution on strategic projects, delivering greater returns that far exceeded the weighted average cost of capital. Best cash and liquidity positions of $3.5 billion and $5.9 billion, respectively. Best year-end balance sheet ever with 0.2 times net adjusted debt to EBITDA. Best strategic market volumes. Second best adjusted EBITDA of $4.2 billion and second best free cash flow of $1.8 billion. We also delivered on a breakthrough collective bargaining agreement with United Steelworkers. Instead of falling in line with other union agreements, We broke pattern from a competitor and took the time to negotiate a fair agreement where our employees continue to do well when the company does well. The agreement truly is best for all and includes, over four years, $3 billion lower capital commitments versus a competitor, $200 million cost advantage versus a competitor, and $300 million of cash benefits. The winds of the past year were experienced throughout the enterprise and across our businesses, and our ability to perform at our best level so far translated to stockholder value. While steel prices retreated throughout the year, our stock increased in value and performed better versus prior cycles on a relative basis than most of our peer group. That's only the start. And that resiliency is a proof point that our strategy is working. And we remain committed to delivering even better returns for our investors as we focus on the continued execution of our strategy. We're just getting started. Focused execution starts with safety, and I'm pleased that we achieved another record year of safety performance. Our days away from work, safety performance is industry-leading, by a long shot, 18 times better than the most recent Bureau of Labor Statistics iron and steel data. Record safety has become a drumbeat at U.S. Steel. 2022, better than 2021. 2021, better than 2020. 2020, better than 2019. As the best in the industry, we expect that drumbeat to carry forward into 2023. Safety results are table stakes for operational excellence. Great safety translates to great operations. Our drumbeat of improvement also continues across other key priorities, including strategic project execution. In spite of inflationary pressures and supply chain delays, I am pleased to report we remain on time and on budget. While others in the industry have not been able to overcome these challenges, we remain confident in our ability to execute our best-for-all future safely. You know all of this, but it's worth repeating. We are bullish on U.S. Steel's future. Our future is less cost-intensive, less capital-intensive, less carbon-intensive, and enables us to become the best steel competitor as measured by EBITDA multiple improvement in the near term and best customer and stockholder value longer term. To become the best, we are transforming our business model by expanding our competitive advantages in low-cost iron ore, mini-mill steelmaking, and best-in-class finishing. We are also generating value through a balanced capital allocation framework, maintaining our strong balance sheet, investing in capabilities that grow our competitive advantages and generate returns in excess of our cost of capital. and returning capital to stockholders. And with the added support of continued strong trade enforcement, our path forward to our best-for-all strategy is becoming a reality. So this morning, I want to spend some time talking about that reality, a reality that we are achieving with each quarter of strong performance and strategic execution. And while I know it's easy for many to focus on just the short term, I want to create the drumbeat for our future, a future that is delivering for our customers, our employees, our planet, and most importantly, you, our stockholders. Let's get into today's discussion on slide five. Our best-for-all strategy is focused on value creation, ESG transformation, and disruptive innovation. The strategy we are executing is delivering. Our low-cost iron ore and a differentiated metallic strategy. Our transition to mini-mill steelmaking, which serves as a catalyst to generate increased and resilient free cash flow. And our best-in-class finishing capabilities are crucial to sustainable steel solutions. Finishing assets in Gary Works and ProTech are unmatched today. These solutions align with our customers' priorities and support our bold 2030 and 2050 sustainability goals. Innovation is the name of the game, and disruption in the steel industry is inevitable. We intend to innovate to disrupt. Steelmaking innovations expected from Big River II should extend our leadership role in producing advanced grades with up to 80% fewer greenhouse gas emissions. We recently brought in innovative expertise to accelerate our strategy execution. Christian Gianni joined the company in the fourth quarter as Senior Vice President and Chief Technology Officer. Christian's extensive background in product development will be key to driving further innovation with and for our customers. John Gordon also recently joined U.S. Steel as Senior Vice President, Raw Materials and Sustainable Resources. John is unlocking greater stockholder value from our unique low-cost iron ore competitive advantage. His extensive and diversified mining background make him uniquely suited for leading this core sustainable competitive strength. Let's start with our low-cost iron ore advantage and metallic strategy. U.S. Steel has been and continues to be the low-cost producer of iron ore in northern Minnesota. Low-cost iron ore has historically been a competitive advantage as a key component of the supply chain for our integrated blast furnace operations. That value remains today. This advantage will grow our value creation potential as we continue to execute our differentiated metallic strategy in our transforming footprint with state-of-the-art mini-mill steelmaking. If the geopolitical events of the past decade couple of years have taught us anything, it is that strong supply chains, secured access to raw materials, and production capabilities matter. That is why US Steel is creating value for stockholders by investing in internally sourced pig iron at Gary Works and expanding our capabilities to produce higher grades of pellets at our key tack operations. Our investment in up to 500,000 tons of pig iron production at our Gary Works facility was completed ahead of schedule and on budget, with the first barge of pig iron received at Big River Steel on January 6th. My thanks to the construction team at Gary Works for the excellent work and your focus on safety. We had zero recordable injuries and over 185,000 hours worked. Safety first was a term invented by US Steel and remains our top priority. Our team runs operations with high quality, safely. As the metallics headwinds of the back half of 2022 ease for our mini mill operations, our investment in pig iron will only help to amplify the positive momentum we are experiencing as we enter 2023. The pace of change at U.S. Steel is accelerating, and we have no intention of slowing down. Our ability to invest in capabilities that generate value and buy back our stock is enabled by more resilient levels of free cash flow. We've moved quickly to create a business model that increasingly supports growth and direct returns to stockholders. Next on Minimal Steelmaking. As we continue to shift our domestic steelmaking volumes from integrated to electric arc furnace production, we're not only transforming the way we make steel, which is greener and with best capabilities, but we're also transforming the earnings power of steelmaking for our company, delivering higher margins and higher and more resilient free cash flow. That's powerful value creation. And I'll go as far as to say U.S. Steel provides the best opportunity to create improved stockholder value in the sector today. We believe EBITDA multiple expansion is within sight. In just a few short years, we've created a mini-mill roadmap that we expect will deliver 6 billion tons of mini-mill capabilities, an annual through-cycle EBITDA of $1.3 billion, an annual through-cycle free cash flow generation, of a billion dollars or more. Note that I said through cycle and those numbers I provided represent earnings power and free cash flow generation that our company has never had before. It bears repeating that is powerful stockholder value creation. Now it's up to all of us at US Steel to continue to execute. Our focus is winning today. because when we win, all our stockholders win, stakeholders win, and that includes our customers who are pleased to serve by producing sustainable steel solutions with best-in-class finishing capabilities. This year, we expect to complete another important milestone in our best-for-all strategy that will expand our offering of sustainable lower greenhouse gas emission steel at Big River. We are on track to bring to market thinner and wider non-grain-oriented electrical steels in the third quarter. These steels will add to our differentiated portfolio of strategic market capabilities by directly supporting the growth in the electrical vehicle market. Our investment in electrical steel finishing capabilities is expected to add an additional $140 million of through-cycle earnings power to our businesses. expand our big river margins by about 400 basis points, and adds another layer of free cash flow from the mini mill segment. At U.S. Steel, our customers are already partnering with us on advanced high-strength steel and vertex steel, and soon we will add electrical steel to the portfolio. Our customers are reimagining their own sourcing strategies, including our automotive customers, And we are pleased and eager to continue to serve our long-term relationships with them as their needs change. We truly value our customers partnership. We captured share for 2023 from those that don't share our customer first mindset and welcome additional opportunities to best serve customers this year and in the future. So that's our drumbeat for the future. best iron ore to create a differentiated metallic strategy, best mini-mil performance to fuel a free cash flow engine, and best in class finishing capabilities to deliver our customers the sustainable steel solutions they crave. These investments will deliver long-term value, incremental free cash flow, and returns in excess of our cost of capital. Before I pass it to Jess, let me provide a brief market update on Slide 6. Our NAFRA and mini-mill segments have positive momentum where we saw economic and industry trends improve through the end of the fourth quarter and to start the year. Prices are increasingly supported by rising scrap costs, increasing global metallics and iron ore prices, and extending lead times. We were successful in our annual contract negotiations for the beginning of the year. We continue capturing market share. We continue securing additional automotive items at Big River. This success is a product of close customer alignment and our preparedness to support our OEM's transition to mini mills and our product development, collaboration, and research capabilities. In Europe, significant challenges remain. Steel prices are increasing from a very low base and are beginning to offset high energy and increasing raw material costs that continue to pressure segment performance. In tubular, today's energy market remains stable with consistent demand supported by strong trade enforcement. With that, let me turn it over to Jess now to cover the financials.