United States Steel Corporation

Good morning, everyone, and welcome to the United States Steel Corporation's first quarter 2023 earnings conference call and webcast. As a reminder, today's call is being recorded. I will now hand the call over to Kevin Lewis, Vice President, Finance.

Good morning, and thank you for joining our first quarter 2023 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 Investor page under the Events and Presentation section. You'll note that we've streamlined our earnings materials, including today's call slides. They can now be found in the presentation posted this morning. accompanied by additional enterprise and business-level financial data. Our segment and financial operational data packet, which we posted yesterday with our earnings release, also includes our regular disclosures. 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 SSC 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 US 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 engagement with US Steel. We delivered another strong performance in the first quarter. and we are staying strong on the things that truly matter, safety in our people, the environment, and financials, all with a customer and stockholder focus. US Steel coined the phrase safety first more than 100 years ago, so I'll follow that mantra and begin there. Safety is the linchpin of our operations. It enables everything we do. We had an extraordinarily challenging Safe first quarter following record safety performances in 2020 and 2021 and 2022. When we say best operations, it clearly starts with best safety. So as we begin, I'd like to extend a huge thank you to the U.S. Steel team for their stellar job, for our coworkers, for our families, and for our suppliers. who are committed to putting safety first. As a member of the National Safety Council, we strongly agree with their mission. No safety challenge will be too big for us to overcome, from the workplace to any place. And as a member of Responsible Steel, with Big River Steel as the first Responsible Steel certified facility in North America, our commitment to safely operating for the environment is unwavering. Responsible Steel also provides an independent framework, and that's important. We believe in independent framework that is auditable, best-shaped standardization and certification for environmentally and socially responsible steelmaking. The first quarter was all about executing our strategy and investing in the future. Our transformative strategic projects are on track and on budget, and I'll discuss that in a bit. We remain confident in our ability to execute our best for all strategy safely. We're bullish for U.S. Steel's future as we look forward to an even stronger second quarter. We are pleased but not satisfied. Our main challenge to transition to a less cost capital and carbon intensive business remains and we're making progress. We know what it takes to be the best steel competitor. Focus Focus, focus. We're focused on creating stockholder value. We believe U.S. Steel's opportunity to create value by improving our multiple and continuing direct returns is the best in the industry. When you buy U.S. Steel stock, you're buying into a steel company, a company deeply focused on our core, making and selling steel, and a company not yet being fully rewarded for our progress. That creates an opportunity for a tremendous value for you, the investor. 2023 is the pivotal investment year in delivering on our commitments to create value for our stockholders. With each passing quarter, we deliver on our best for all future. Incremental EBITDA generation, improved free cash flow, and increased earnings resilience through cycle. We are committed to getting to the future faster. That's more than just a motto for us. It's the objective of every strategic decision we make as we unlock earnings and free cash flow growth and continued returns for our stockholders. That commitment is further supported by our excellent operational performance, a healthy market backdrop, strong trade enforcement, and a solid balance sheet. We are well positioned to deliver on our best for all goals. Let's move to slide five. This morning we're going to provide an update on the tangible progress we are making on our best for all strategy, including some key milestones. Projects are taking shape and nearing completion. Our NGO electrical steel line starts up later this summer. The dual coating line at Big River is on track for next year. And so is Big River too. a little more than a year away from its first coil. We are excited about what's taking shape. Today, we want you to see and feel that excitement yourself. We'll also share some thoughts on the healthy market backdrop, what we're seeing today and how it supports strategy execution and why US Steel is well positioned for where the market is headed. Next, we'll go deeper to share what we're seeing in real time by end market in our balanced and diverse order book. The details I'll share will create a clear line of sight to real value for you, our stockholders. Let's start with an update on slide six of Big River II. This state-of-the-art mini mill remains on track for a 2024 startup and in line with its $3 billion budget. This is a game-changing investment that will bolster U.S. Steel's financial performance and environmental sustainability for years to come. Once complete, this cutting-edge facility in combination with the existing Big River Steel will form a green steel campus capable of supplying some of the most advanced and sustainable steels in North America. With the first use of endless casting and rolling technology in the United States, Big River II will bring significant energy and operational efficiencies and capability enhancement to our operations, a distinct competitive advantage. Importantly, some of the primary strategic benefits will be financial. With the new mill online next year, we expect Big River portfolio will deliver annual through cycle EBITDA of approximately $1.3 billion an annual through cycle free cash flow generation of a billion plus by 2026. That is an unprecedented level of cash generation for U.S. Steel to invest in our business and reward stockholders. We know that hitting these targets depends on solid execution and we are delivering. With 85% of the project's budget committed, we remain confident in our progress. Equipment is on order and being delivered. Structures are going up, and we are hitting key milestones along the way. Every time I visit Big River II, I marvel at the progress. What used to be a soybean field is really starting to feel like a steel mill. Let me show you what I mean on slide seven. The water systems, for example, are critical for steelmaking. At Big River II, key foundations are poured and key equipment is on site, like the cooling towers and pipe structures. We've also progressed on the electrical substation that will power Big River 2 with renewable energy. Big River will be connected to the Entergy Arkansas Driver Solar Project, a new 250-megawatt renewable energy facility that will be constructed directly adjacent to Big River Steel. And on slide 8, you can see the foundation of what will become the endless casting and rolling line. the first of its kind in the United States. Let's stay with Big River for a little while. We are on track for the third quarter launch of our new non-green oriented electrical steel line, shown on slide nine. The first test coils are scheduled. Once online, the new NGO line will empower US Steel to play a pivotal role in the country's transition from traditional combustion engines to electric cars. In fact, EVs cannot run without the kind of ultra thin electrical steel that will be soon rolling off the line at Big River Steel to the tune of about 200,000 tons a year. The launch of our new electrical steel, INDUX, further strengthens our partnership with strategic customers. In this case, the growing numbers of manufacturers of EVs. INDUX will also serve the booming market for green power generation. This specialized steel is in high demand from our customer base. In fact, we've already pre-sold our first coil of electrical steel from Big River. It seems like not a day goes by that a customer isn't reaching out, inquiring about reserving time on the new line. The bottom line is steel has not only been essential to human society since the Bronze Age, it is essential to our green energy future. And US Steel is the essential partner in making that transition happen. We are veterans of electrical steel with current production already in Europe. Our NGO line allows us to bring that expertise and proven track record to the United States. We've executed major construction milestones on this project and remain on time and on budget. On slide 10, you can see the ongoing cold commissioning of critical components of the line. For instance, we're cold commissioning the hydraulic systems that will power the NGO line. We're also cold commissioning the reversing cold mill and cleaning section of the line. The cleaning section, for instance, is essential to prepare the substrate before entering the furnaces. This is critical work, and we're making great progress. Now I'd like to turn our recently completed investment in pig iron at Gary Works. Slide 11 has the details. At Big River Steel, we consumed more than 25,000 tons of Gary pig in the EAFs in Q1. Our furnaces have seen a seamless transition as the Gary pig is high quality and a lower cost than external pig purchases. This project is key to our metallic strategy. It's a tremendous opportunity for us to unlock significant benefits across US Steel's entire footprint. Our Gary Works facility benefited from operational efficiencies and fuel rate savings in the first quarter as the project started several months ahead of schedule. It's an example of US Steel's flexibility and creativity, repurposing our existing facilities to unlock tremendous value in our mini mills. This investment also creates surety of supply in a pig iron market that we know is vulnerable to supply chain shocks. We remain on track for EBITDA benefits in 2023 with a run rate EBITDA of $30 million expected to be achieved by 2024. Once again, we're lowering our costs and making our business more resilient. Dairy Works has been operating for more than a century, and Big River II, of course, will be a brand new mini mill. Innovation is happening at both, and today both are essential for our strategy. So the bottom line is this. We're telling you what we're doing, we're doing what we say, and we're doing it exceptionally well. Let's move to slide 12. Despite macroeconomic uncertainty, especially in the back half of the year, the steel market backdrop remains healthy. Spot how rolled coil prices are over $1,100 per ton today, up over 75% since year end, reflecting healthy market dynamics. The higher selling prices are supported by higher raw material inputs, like scrap steel costs, as well as healthy customer demand. In addition, improvement in the domestic steel market appears to be taking hold supported by diverse capabilities domestically to meet customer demand, a strong policy environment supporting domestic manufacturing, and abundant natural resources, including green energy. Our business model aligns with where the domestic market is headed, and we're focused on the things we can control. Our steelmaking footprint combines integrated and mini mill steelmaking and provides diverse capabilities for our customers. And our steel is mined, melted, and made in the USA, positioning us at the heart of the domestic manufacturing resurgence. We're also one of the few steelmakers with access to our own iron ore natural resources and the only one with mini mill steel, mini mill sheet production. We believe our iron ore is lowest cost in northern Minnesota and will be increasingly in demand. Let me elaborate. We believe as electric arc furnaces move up the value chain, they will need to consume more and more virgin iron units to produce the cleaner and thinner seals customers are demanding. Iron ore is finite, and we're one of the few steel producers that own iron ore mines. It's a competitive advantage today and will be an even greater advantage tomorrow. At U.S. Steel, we know that diversity is also a competitive advantage. That applies to the diversity of our workforce, the diversity of our suppliers, and the diversity of our customers. This diversity provides us a hedge against the ups and downs of various sectors in the economy. Again, our balanced order book means we serve many strategic markets. We aren't vulnerable to concentration risk. Instead, we leverage our diversity to create value for auto OEMs, appliance manufacturers, construction and energy customers, and other important partners. We continue to welcome new volumes, new customers, and new markets into our commercial pipeline. Now turning to specific customer and markets on slide 13. We are encouraged by the balanced order book today and the trends we see in key end markets. Take automotive, for example. Q1 light vehicle sales are trending up, up nearly 7% versus last quarter and up 15% versus the quarter before that. We expect an additional 1 million auto sales in 2023 versus 2022. Appliance sales are also robust, with 2023 expected to be roughly flat year over year. This is particularly encouraging after coming off two record years in appliance production. 2022 appliance production rates were the second best ever, outdone only by 2021's performance. Energy markets remain stable. Rig counts are off their peaks of late 2022. but remain at healthy levels. If you dig a layer deeper, rig counts in strategic bases like the Permian, like the Eagleford, are relatively unchanged. Service center statistics are strong as well. Q1 flat rolled service center shipments were up about 10% year over year and above average seasonal volumes. This is an important indicator because it suggests demand for end users of steel remains strong. We're encouraged by what we see in key end market statistics and continue to monitor the order book to ensure our melt capacity is in line with customer demand. We have limited visibility into the second half of the year, but know that we face risks. Lead times, while still robust, are beginning to inch lower, and we face the risk of low-cost foreign steel coming into the marketplace. But we also know this. We have built flexibility. optionality and resilience into our business plan. We are focused on controlling what we can control and we are poised to weather a potential downturn in the economy in a way we just weren't a few years ago. Perhaps you see now why it's an exciting time at U.S. Steel. Throughout the company, we are feeling excitement. Excitement about our future, excitement about our execution, and excitement about continuing to reward stockholders with direct returns. As we demonstrate strategic proof points, we're confident our multiple will increasingly reflect a re-rating of our stock. Let me summarize before I hand it over to Jess to go over the financials. We're focused on being the best. Best operations and a continued focus on record safety and environmental excellence. best partners for our customers to create profitable steel solutions, and best improvement in valuation enabled by the best EBITDA multiple expansion potential for investors. And perhaps more than anything, we're focused on getting to our future faster. Jess?