Q1 2020 Earnings Call
Good morning, Ladies and gentlemen, my name is really in and I and your conference facilitator today I.
I would like to welcome everyone to the Cleveland, Let's first quarter 2020 earnings conference call.
All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question answer session.
The company you remind you that certain comments made on today's call will weekly predictive statements that are intended to be made as forward looking within the safe Harbor protection of the private Securities Litigation Reform Act.
Act of 1995.
Although the company believes that its forward looking statements are based on reasonable assumptions such statements are subject to risks and uncertainties I could cause actual results to differ materially.
Important factors that could cause results to differ materially are set forth in reports on forms 10-K, and 10-Q and news news releases filed with the FCC, which are available on the company's website.
Today's conference call is also available and be broadcast Cleveland clicks Dot com.
At the conclusion of the call it will be archived on the website in available for replay.
The company will also discuss results excluding certain special items.
Affiliation for regulation G. purposes can be found in the earnings release, which was published this morning.
At this time it was like in true introduced the rental controllable chairman.
In Chief Executive Officer.
Thanks.
Hey, good morning, everyone.
I hope everyone on today's call is safe and healthy.
Thank you my remarks.
Beginning with a note of appreciation.
For our employees throughout the entire company.
I.
For more dedicated people navigate through the right would be.
You have been deep sea.
Thank you operator.
Andrew I have always been essentially you do long term health.
Okay.
We appreciate how well you have adapted.
New situation and how long line, we are holding or walk workplace safety.
Oh are several operating locations.
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I'm sorry, you spend then we would note.
Huh.
Hey.
Healthier and more productive.
Hey, it's remarkable what do we have accomplished.
Challenging times, we had been true.
As you May know, we have navigated through great report.
Why distribution right now is a big deeply.
Definitely have not seeking us out of more often.
Absolutely.
This is our comfort zone.
Because differently when when the guidance high making all boats fields.
Is that time when management really bad.
I will.
Well.
We have acted.
And appropriate.
And we will continue to be sure.
More importantly, Nazi we have seen or done over the past two months.
Changed our perception on the combined company, we envision prior to the acquisition of AK steel bike linkage.
We have acquired East your company.
Highly concentrated exposure.
Yes, Mark.
Very little exposure to see commodities do projects, but equally HRC.
Hi, good markets the most important for that but he is the automotive sector.
Market, we always do companies would like to become part of it.
Did we already are a major league.
Hi.
Oh, Altamont Infectors United States.
Oh.
We are.
Electrical steels in North America, and that's it.
National Security I.
Hi wants it we had be able to communicate.
Washington, D.C. since we acquired Vicki you asked.
By the recently announced sexual June through June investigation help initiated by the Department, though.
We're also self sufficient in I don't want built.
Our most important feedstock and very poor.
We did not depend on scrap.
A fixed walk that you'll be scarce and the other side right.
Shutting down then factory.
Bart.
Promoted been fix.
And continuing to operate still view.
Particularly.
Let's go once you.
Created an unprecedented situation in our country.
That is being equal.
But it's not be January.
We're not reach me I plant comes online soon.
We'll have another relevant products itself.
And on either way to capitalize on our shrink.
Before anything else I'd like corporate change.
<unk> fourth quarter results.
Had a key you being under our control for the entire for.
Our reported by just it'd be.
Would have been 61 reason adult.
This includes the results from both legacy cliffs and AK steel into your prior to the acquisition.
Those that Paul Please know that Q1 has always been our lowest on work boots that seasonality.
The shutdown of the great lakes during the winter months.
Well now want we didn't keep human didn't need.
Do you packs of seasonality on our results.
Actually reduced.
During the course me well stick with.
The most significant developments impacting our business concur.
With vehicle you all of the automotive manufacturing plants are announcing who shutdowns.
As you may recognize even before that we see shopping you like Cleveland lives, our largest and market has always been built them would it be industry.
Jewett, Keith you and through our odd to me play Arcelormittal.
Yeah, because most of all rich Walton what it was due broad.
It's not just in time basis.
We have to make you meet adjustments to a large portion of our production.
Yes, I just meant included.
I believe reduction at Dearborn works.
Stopping operations at all rescission partner.
Plants.
Significantly curtailed and 8-K two reduction.
In implementing an extended outage at one of our electric arc furnace plant.
Mean spewed works.
All of these facilities a meaningful suppliers on the automotive sector.
While we are you still for.
From normal we have been encouraged by the timing and piece of production restarts announced the cross dealt on board.
You don't know board of many factors once you reach that reduction has been.
Yeah. They actually do you have already you started to do.
Our operations will normalize to all the balance of the second quarter.
Delivering projects to our customers more reliably than before.
You bet one item for improvement we uncovered during the due diligence process at AK steel why the stands on its just in time even for.
Well I would not be leave you case, you just in time event boy was worse than to compare inventory positions.
It was definitely not as good as we'd be lead you to be.
You're not normal world with no parana bars and business as usual, we had blended to fix this issue.
Oh, the entire year to doesn't do anything.
By de handle do you, we would have or even stories you better shape.
Once you were lining up is optimal shutdown was that it allowed us to accelerate the fusion or do you see.
And I can confidently say that we're now only two months adopted the acquisition you're not comfortable position to Delever hours you, we perfectly reliability on I just think time.
As soon as dealt on board of plants up Becky Force.
It'll be amazed.
How much it gives you guys change and how ready we are what they are required.
You also would have production stoppages will ultimately frequent back well raw material operations as such we foresee definitely idle Jiechi metallurgical coal mine you, Pennsylvania.
Later on in April we didn't temporarily idled lifts northshore and Tilden I don't want mines, which account for two thirds of for annual that was production.
You didn't get the timing of decried heating at the end of two week there our blast furnace clients, where she was neither pellets for inventory replenishment you their immediate intent was to keep their blast furnaces on <unk>.
With that.
Our sales to our two major third party feel it costumers, Arcelormittal and Oklahoma have actually persisted and a healthy rate since the great lakes reopened at the end of March.
Even better our Teco peak volumes for these merchant agreements you, but a lot of certainty for future pellet sales and our primary demand reduction comes more robust.
Yeah born input.
Yeah, I think all fall minds facilities, we actually allow us to reduce some build inventory and we will contributing lockport.
Approximately 100 million dollar inflow from working capital release in the second quarter.
He public when we publicly released our extreme distressed ASCII scenario last months.
While most of office idols are temporary.
One that will remain permanent is that due to born what's true.
We anticipate returning to production very soon or most of Dearborn works.
But when it's resumes dearborn should be viewed.
Yes, Jim separate foresee.
Hey, hot and to produce labs.
Good the blast furnace via web shop equal genes casting.
And a best in class, finishing facilities, including the modern yelled PCM equally line sounding cold rolling deal.
In the Gulf at night.
Did you up on finishing facility.
Which we consider to be at par, we'd all flagship Rockport works.
Well what lies as feedstock hot rolled coils produced in our Middletown Hot strip.
One thing we found in due diligence is bad did you have borne what's your view was weak leeco simply.
Given the strength and capabilities of the Middle Dot works Hot strip mill.
Did you have borne hot strip mill is not necessarily.
So optimal to operate.
With this reconciliation we can now optimize our powerful Middletown watch good.
By Ed India boards labs, the in house, just let's see.
We estimate this improvement will save US several billion dollars annual costs, even after off course, considering the additional freight.
Moves labs inquires between the two class.
Going forward, our wholly owned subsidiary AK steel, we all have the fall we land configuration.
A single one.
Fully integrated steel you.
He Middletown, Ohio.
Joel and let me check point as you still deals.
Bottler, Pennsylvania immense you go higher.
One is left reducing plant.
Dearborn, Michigan.
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To finishing plants dedicated to you stained glass and the left we're still looking at the end zones view, Ohio and construct no.
True.
R.W. plants electrical resistance welded plants dedicated to the production of jeweler components for up to motive.
They're high end application.
<unk>, yeah akin to L.C. in Walbridge, Ohio, and Columbus, Indiana.
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Tim highly technologically developed the plants dedicated to provide engineer hot and cold stamp and assemblies, where the auto sector or breaking s. precision partners eat each one strategically located in close proximity to the.
Ulterior motive assembly lines that they supply with their engineered <unk>.
There are situated in Canada across the board from Detroit in Kentucky and in Alabama.
That's for ought to lead to H.B. I plan.
Leading up to that sheltering place orders from the state of Ohio.
We were in constant dialogue with Governor Mike you Weinstein import for the ultimate and write for outcome. That's all of our operations should be considered essential.
As part of those conversations I offered up that's construction or Toledo H.B. eyesight.
Which involved hundreds of contractors working within close proximity with one another would be suspended.
Why are these was approved and moved front cash preservation standpoint.
I am eager to resume construction and the two legal plant as soon as possible.
With extended outage of the entire automotive industry.
There has been no busheling scrap being generated in our country.
This precedented fat has tightened the markets.
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We now believe that actual demand for our H.B. I will be even better than the goods demand, we're anticipating before dependent.
This brings us to the discussion of our liquid.
Needless to say.
Oh liquidity position has being a top priority.
We have the money on number of market scenarios and testing their ultimate impact on liquid.
Differently from what is probably the outsiders per section.
We're still view assets generally carried up three low fixed costs position in the range of only 22, 25% of far overall for breaking costs.
What this means is that in extended idol scenarios, our cost obligation to maintain or no or breaking facilities is significantly reduced.
If I those were to continue for long periods of time.
Even this big squash begin to slowly for.
As you may have seen prior to raising additional capital we published hour extreme stress test geese in it <unk> the analysis.
This scenario contemplates among other things automotive plants remaining shut down through the end of June and only 6 million light vehicles being produced between April 1st in the end of the.
Even in this hypothetical extreme situation.
We will just you have plenty of liquids.
That said.
Because of all the uncertainty in front of us.
At that time.
We thought it was best who raised some additional capital.
Liquidity insurance.
As such we made the decision to use.
Our secure that capacity.
Issue $400 million you secure notes.
While the interest rate on the new issue is not ideal.
We knew go in that buying this insurance policy would not be cheap.
However, due to the ample support from long term bonds investors that no well that management Mathers most in times of crisis.
We were able to price or deal with a coupon that turned out to be.
Better than the initial indications actually much better.
As of today may 11th.
We have more than 1.2 billion in Toto liquidity.
Which also includes an addition decision on new 150 million dollar filed traunch on R.A.B. or.
This first name lost out to file a trench was I'm not a pockets of liquidity that we quietly added in the early stages of this crisis, you're not transaction, we completed in late March.
Thanks for a great relationships, we door banking group and their commitments in full support for comfort.
Those who had been <unk> no that I'm always looking for opportunities to reduce our that balance in improve our capital structure.
Without liquids position shored up as a result of the previous secure that transaction.
We then use a chunk of or remain secret capacity to repurchase.
$736 million off our unsecured that.
Which would there be a lot less than this 736 need actually at 25%. This come to bar, taking advantage of the prevailing trading levels of or bonds in the market.
This liability management transactional alone was that if two reduced to correct, our total that by $181 million.
We are firm believers that all of that that you know or structure is worth it spar bit.
So we were always look for opportunities to take advantage of bonds trading at a discount.
As I said before I don't fight they take.
And if there's an opportunity to create equity value out of teen there I would take.
These same play book helped us navigate.
Through the 2015 2016 downturn in the industry.
After all this proactive indecisive moves on the financial side, we have done.
We have a very manageable that profile.
With a four year maturity window, no financial covenants and plenty of liquidity.
While out the borders demand has driven most of our production adjustments, we continue to serve our others to end markets.
Drop the pandemic.
We sent and continue to sans brother with the infrastructure manufacturing appliance and electric power markets.
Regarding electrical steals our most recent success is on the political from.
Despite their case do being the only producer of great oriented electricals juice or goes in the United States and in North America. The probability of this business has been under pressure with legacy stand alone. They case you recording negative.
It'd be the in the second half of 2019 on the production in sales or electric rose fuse.
These wars that directs consequence off the actions taken by bed players in the marketplace develop you waste to circumvent section two three true tariffs <unk> by re route.
Dumped goes coils to Mexico end to Canada, where do you still is cuts into smaller pieces.
This is smaller piece called elimination and course.
Immediately sent terrorist free into the United States, taking advantage of Mexico's in Canada's favored crave steps.
Without action by the federal government to level, the playing field.
1450 jobs at Butler Butler works in Pennsylvania, and then you works in Ohio were at risk.
Fortunately I have been dealing with officials in the department of course, they U.S.T.R. and incongruous, who understand the national security importance of discrete go feed the store for the production Transformers used in our country's electric <unk>.
I'm pleased to acknowledge the size of action, taking by Secretary <unk> last week.
<unk> his audience to have the deal seat.
Soap initiating a section 232 investigation covering the key electric post your brothers impacted by this <unk>.
The expedited and positive outcome of this process is critical to save the jobs of the employees of these Jew operations in Pennsylvania and Ohio.
At this point, we believe it's is abundantly clear in Washington D.C.
A viable electric goes through business for Cleveland clips is the only way to resolve these very real national security.
We look forward to our next bit night and positive conclusion of the sexual Julia investigation self initiated by video C.
As you can see we have made all the necessary moves possible twisted through this crisis, while at the same time, where integrating a newly acquired the company.
It Hurts me that I haven't being able to be on the plant forced with my fellow employees, but we have made it work very well so far.
This environment has actually help goer integration in many ways.
As we have come to get a more closed in the face of a diverse.
Our new Cleveland Bleeps employees from a case do you have adapted to our way of doing business N.S. conditions improve we have a lot to be excited about.
S per hour outlook for the remainder of this year.
Clear give me the impact on both there's two sides in their minds side.
Real easily to us.
We expect the vast majority of automotive reduction in our country to resume this week and next week.
And make no mistake.
Automotive business in this country, we'll record.
Particularly with the new trend generated by the control and a virus pandemic I then.
The grievers widespread use up right Sherry service providers.
Going back in favor or privately owned vehicles.
As private cars are perceived rightfully so <unk>.
S sanctuaries seats from infection.
Driving their own vehicles is what <unk> want to do now.
Car ownership is trendy again.
And that includes S.U.V.s and pickup trucks, which consume a lot of is do you produced by encased you end a lot of parks supplied by precision partners and eight k. too.
April sales volume was not nearly as bad as we initially expected.
Yeah, there has been significant growth.
Garcia's being consummated on line.
The buyer even visit the our car dealer show.
We expect all these trends to continue.
Very soon to be well recognized by the media in by investors in general.
Where's that Oh, no pass through it over to keep <unk> before giving my final remarks he.
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Together with a discussion of some of the cost cutting in Costa for all measures we have implemented.
For briefly touching on our first quarter results, which as you know we're previewed with the market on April 15th.
This environment has pushed us to sharpen our pencil from a cost standpoint.
And we have already taken meaningful actions across the board.
Guarding the hundred and 20 million and your ones synergies and permanent cost reductions we committed to achieve.
<unk> steel acquisition I'm pleased to announce that we are already there with the initiatives we have already set in motion throughout the company.
You will see a portion of the Runrate savings associated with these actions in our two or three numbers and their full impact on our queue for results well ahead of the first anniversary of the acquisition of aka steel and March 2021.
As for temporary cost reductions of deferrals. The most significant cost reductions are understandably coming from our idled plants and operations.
As Lorenzo noted we have a high variable costs structure, which allows us to ratchet down spending substantially during the idol period.
Most of the steel making costs structure consists of raw materials, which are nearly all eliminated and an idol scenario.
Exception of a few take or pay arrangements.
Energy is another piece it comes down quite a bit.
Most of the fixed costs portion comes from the labor side. We're in the event of a plant idol, we continue to pay a portion of employee wages and healthcare for a period of time.
We've also sharply reduced our capital expenditures right now we are only incurring cat backs on sustaining and permission to operate projects at our facilities in our stress case. This runs at about $15 million a month, not including capitalized interest our total cutbacks in the first quarter was 140 million.
Dollars 120 million of which was related to the H.B.I. plant.
We will still incur some H.B. I spend in the second quarter for work performed prior to the suspension of the work.
Under construction until construction returns, we will be running at the minimal sustaining rate.
Between our steel and mining operations, we have already deferred approximately 100 million of 2020 sustaining capital not including H.B.I.
Or total companywide cutbacks will range from 250 million to 350 million for the last nine months of the year, depending on the timing of H.B.I. construction restart.
We have implemented pay deferrals, ranging from 10% to 40% for our salary workforce and our temporarily suspending the four one k. match.
You also know we suspended our future dividends, which represented about $100 million per year on a pro forma basis cash outflow going forward.
We are also benefiting from the acceleration of M.T. refunds, we expected to receive half and 2021 and half and 2022.
And they're now expected to be received this year lately in the second quarter.
In addition, we've been able to differ pension payments are $51 million to early next year and can do for remaining employer social security payments to the end of 2021 and 22.
As for our results reported adjusted EBITDA of $23 million for the first quarter.
Which is mostly driven by the mining and Palletizing business results from our new Steeler manufacturing segment. Only include the last 19 days of March which as you know is when the pandemic affect began to impact or and customers.
Stuff period, even for stealing manufacturing of negative $11 million is in no way indicative of aka performance in a regular environment.
It just happened to coincide with the beginning of automotive shutdowns.
Leading up to that point Lorenzo noted aka steel actually generated $38 million and adjusted EBITDA, which does not show up in our results other than the opening balance sheet.
Overall during this stuff period, we reported $218 million total sales, which 120 million or 55% was to automotive customers.
Oh, the remaining sales 25 per cent was to distributors and converters and 20% was to infrastructure and manufacturing markets as a reference <unk> generated 1.2 billion of revenue between January 1st and March 12th the day before we close the out position.
Or mining and Palletizing results were solid for an always light first quarter on the back of 2.1 million long tons of pellets sales.
Completed acquisition of vacation deal resulted in the accelerated acceleration into sales of certain inventory produced previously for aka steel, which is why the volume number came in higher than last year's first quarter.
The report of a segment even of $82 million included about $30 million of eliminated margin from those intercompany sales to our steel and manufacturing segment.
You will notice we also had several items related to the acquisition that were carved out to arrive at adjusted EBITDA, including acquisition costs of 23 million.
<unk> costs of 19 million.
As well as recognition of inventory step up of 23 million, which impact and stealing manufacturing cost of goods sold.
We also realize the 3 million dollar gain related to repurchase of some of vacation deals bonds at a discount.
It should be noted that this gain will be significantly larger in the second quarter as a result of the hundred and 81 million and discounts captured in our latest financing deal.
I was Lorenzo noted or business outlook will be heavily dependent upon the rate of automobile production during the last nine months of the year.
We have implemented a new more stable priced intercompany contract for pellets between our minds, and our Dearborn, and Middletown plans, which remove the influence of commodity prices, but we will still transfer at a market rate with comparable margins to last year.
As a result of this sensitivities to commodity prices in our mining and Palletizing segment will be much less relevant than what we've provided historically.
To conclude all of these initiatives and benefits combined with the additional capital raise completed in April have let us to the very comfortable liquidity position that Lorenzo described.
I well know that we implemented our cost cutting measures in a way that does not jeopardize the great condition of any of our assets and does not cut anything related to worker safety, which remain of the highest importance to us.
On that no I'll turn it back to Lorenzo to wrap up are prepared remarks.
Thanks to.
So maybe it abundantly clear.
All or or Cleveland.
Has not changed.
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Despite the set back we'll we'll we'll get 90 pandemic, we have already to cheat at least two great. Thanks.
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So I'll section three Jew investigation <unk> cores in Love you Nations of Green oriented the electrical stews and death, no real game changer. He compares with <unk> Dear <unk> <unk> <unk> <unk>.
I came to Cleveland 52014 <unk>.
Implemented extracted supported by one fundamental back.
The United States, a condom use the most reliable individuals resilient in the entire world.
Well the plus six years, we have developed our business, having you score believe in mind.
And we all know that you spend damning, we ultimately <unk>.
What's the most important for US right now is that if they feel far workers and the health of our company being protected for the moment.
Cleveland beliefs generates good me middle class jobs for Americans.
And we do that why we enable supply chains for <unk>.
D lives, we doubt depending on China or any other foreign countries that drew back deliberate actions or by means off the passive aggressive <unk> <unk>.
Inflict damage to do a nice states into our great people.
After we make it through just right.
We as Americans should look back and humbly assess what you could have done differently.
When we do so I truly expect.
Did the public in January and investors <unk>.
We will have a better appreciation for real companies like Cleveland.
With that alternate back to julianne or you wouldn't it.
Thank you as a reminder, you'd like to ask the question. Please press star followed by the number one on your telephone keypad, well, possibly just a moment to compile the CUNY roster.
Yeah I first question comes from but this pipe some be rally at B.R., Yeah line is out that.
Hey, good morning, everyone. Congratulations on closing the transaction during these difficult times and then also taking aggressive actions to bolster liquidity and of course, you know to protect the safety of your workers, but the rent. So I I wanted to ask them to liquidity side you provided you <unk>.
Test case scenarios I think it was 120 million burn per month, and then you commented. It prepared remarks police stepped thinks are like kind of getting better faster than you thought so I wonder if you could update us on where you would see kind of the case of cash in the quality over the course of this year. Thank you.
Thanks looking for a good morning look at the number school wreck. The number that you mentioned then that was the number we use when we would use or stress <unk> use me safflower stress. The best case scenario was <unk> open border reduction.
The end of June and only cars being back into production you lie. We also where is the big to have very little number all 46 museum cars being reduced the nine months comprehending between April 1st and December 30.
Well, we are we ahead.
Several bar.
I'll, our ulterior motive clients have already restarts Mercedes B.M.W. <unk> thought that Honda accompanied back today during the remainder <unk> would be back on the me eighties wheat and.
We have we do succeed.
Numbers more <unk>.
Early in June so I'm at this point them. We are you speaking a brief more and more.
A fair level of automotive production the second up on the net addictive sequences that people are really reluctant to answer you know mover <unk> right now because they don't know who was the last person side <unk>.
<unk> outside the United States I recorded people eat.
Walk you away from public transportation.
So we have wait to see <unk> in new car ownership <unk> on C.N.D.C.
I see more volatile nation was basically baggy pointing to come on the secular ooh ooh.
Going back to appreciate stopped replenishing is even boys.
Going down the boy <unk> <unk>.
I'm sure rescue fine, they're interviewing you too so anyway, we are very optimist. Another thing because we <unk> on the balance sheet I think that we're seeing other companies doing right now.
Or some did very recently, we did it very early in a game. So we're the first ones in and out we're done we're not going to do anything any more because we we did what we had to do well right now my mic on Sundays, when we are going to restart H.B.I. because <unk>.
Take advantage of described <unk> <unk>, a a shortage that will be the new normal into domestic market police in United States.
That's that's very helpful. Thank you then I wanted to turn over to the electrical steel side and I wondered if you could provide some color as to how big this market is in the United States. What your current capacity isn't that what the capacity utilization.
<unk> you production has been over the last few years and and and also in the context of this if the disclosures. This morning, as we kind of all kind of you know update our models here on the <unk> following to perform on models <unk>. It's just kind of to level of liquidity be should we should expect sorry that their level of disclosure.
We should expect going forward. Thank you.
Okay, so that'd be stuck to the electrical stools I've been there Oh have <unk> the liquidity disclosure stuff like that so that the market for it must use in the United States give or take 250000.
The dollars a year and that's more or less it needs to come back.
You know or let God when it's new in <unk> in in Butler, Pennsylvania in the the finishing plant in <unk>, we the technology that technology has beyond the pool historically, it's well move technology.
Used by means of strange effects ended up in the hands off the Chinese degree is in the jumped when used and then they start to other cutting these markets here in the United States by Dumpy <unk>.
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<unk> <unk> <unk> the <unk> they will get 90 situation everybody was addicted in in low prices and looking at the other side, how the bulls won't prices there'll be a cheap so they started movies more machines to goods scores elimination across the board.
Ooh, we'd still Canada across the border from Detroit into Mexico.
Across the board of home.
From Brownsville, Texas, and so they're quite as these thought you stand up comedy to the United States <unk> going to mix and then go through the of course eliminations nonsense by truck back into the United States Dairy free maybe <unk> yeah.
Beautiful the only problem is that neither Mexico, more Canada reduce a pound.
Those who are able to explain that very clearly to the U.S.T.R. Robert lighthizer over the direct off men affecting the white House Doctor <unk>, Yeah <unk>. The segment there of course, <unk> I think that.
For us here is basically the for the left goes through business due diligence for US was a mindless $40 million it'd be.
Shutting down the left goes to business he's immediate $40 million it'd be by improvement in our company.
That would with more than 1400 people in.
In in in.
Since you been handle high water, but drawer full 1400, good families are using good paying jobs in Pennsylvania, and Ohio, where beads asleep.
For the wrong <unk>.
So I will.
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Out of these two British but my default my Big line is if.
The department of Commerce, which by the way I fully expect that I would <unk> was there <unk> so they got.
And they were good fast, but as soon as left with like this was the deal see <unk>, we're going to have a pre profitable business and we still have all been pleased to deal with my <unk>.
For for now is is that you can do do at least once we accounted for an improvement of 40 million balls and it'd be done.
Bite shutting down, but then we were able to to do the right thing and appreciate that Trump administration for listening understanding where this problem isn't how we can fix it and we are acting and I believe that there were fast I have <unk> cool then send a secretary of a woman.
<unk> to do the right thing I know that the U.S.D. on buses were bought Lighthizer, we'll work on the backlash Mandy throw our passive aggressive friends to the north <unk> and the French the to the Salt Mexico and the passive aggressive guys went up shutting down.
Shutting down.
Down there complains and life is good into it when I go back to have a profitable business and supplied is very serious national security future that <unk> <unk> something grand oriented steals for the electrical greenbelt.
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Very helpful.
I appreciate that very helpful. So I'll I'll have <unk>, finishing with the digit schools keep please.
Okay, Great I really appreciate all the information and the best of luck and thank you very much.
Thanks.
Your next question comes from Matthew Fields from Bank of America. Your line is open.
Hey, Lorenzo here, Hi, Keith Hope you and your families are doing well I'm just a couple of housekeeping ones first for me. So yeah. Thanks for mentioning I guess you would have earned 61 million of EBITDA in the first quarter How'd you owned aka the whole time, so that I guess is about 38 million of EBITDA.
That you didn't own in the first quarter. So it is.
If we're trying to do a sort of a pro forma last 12 month EBITDA is at about 855 million on a combined basis.
What do you.
Yeah.
I'd like it keeps the good but before John Yeah, I'd like to measure one thing. This is just a Mac the mathematical exercise remember we have already reduced so many.
Oh, so much in terms of cost somebody in case, you overhead we have already.
Q2 bonds. So many actions in terms of reducing the cost base that this is just a pro forma exercise to show or how much. If you want could have <unk> like but again this before we could what we have already.
And in Q1, because we just did that doctored off course, you know I. Appreciate that this is before before the 120 million less energy is laying all backed up that you've taken.
Absolutely Okay. So Keith please go ahead.
Does that numbers, that's about correct it makes sense okay.
Okay. Thanks, and then so given that EBITDA and sort of CNCDA levels.
And pro forma for the Upsized issue that you did in April.
Does that mean that you're out of secured capacity at this point.
Not true you have to get the path.
But that doesn't mean that I'm going to use it.
So I have no plans at this point to issue any debt.
Or any equity zero when done we have we've already really de then we need to run this company and Oh, I'm glad that Dr. Jay.
You should go up the high yield bonds to secure that $400 million I was able in a matter of 48 hours to turn into the second transaction that was liability management and we cut almost $200 million in that.
By using the reduce it to by other bonds since on the dollar because you know a investors want investors, sometimes the they they have their own problems with their masters, they they're coping with the the general public or smaller firms or.
Taking a.
I'm, making withdrawals that forced them to sell so we're there to buy don't but the thing, but I think a at this point that there's no reason for us to do anything money equity neither an equity nor in debt, but we do have some secrets capacity that.
Okay great.
And then on the working capital side.
And obviously first quarter is your is your big use of working capital and then seasonally you got your tippett traditionally a big release of working capital in the second quarter, given all the sort of action that have gone on with your footprint and idling and then potentially restarting is that kind of do we anticipate that that's going to.
Maybe a similar trend this year or is it is gonna be is working capital just can sort of completely off the this this year given the circumstances.
Well, we have some positives on the working capital side remember, we are going to their pelletizing plant.
And we are still delivery belts, we're just depleting our inventory that we'll have a positive impact on working capital. So we're working on that front as well so key tronic ER chime in on that as well please.
Sure, Yes, and you're right. This is it it'll be a tough you're really get it can get good our arms around.
Working capital prediction, but as Lorenzo mentioned, we are generating cash or in the second quarter with pellet.
Pellet inventories coming down, we're obviously generating cash on receivables as well in the second quarter.
So we'll see cash flow coming in that way and then as we ramp up production late in the quarter here and ended up into the third quarter, we're going to end up consuming some cash. So I mean, our best guess right. Now is is a neutral year and working capital give or take 50 100 million, but it's a it really depends on the timing.
And and how how robust the other customers come back and we're overall looking at at a neutral year right now with with the caveat that it's very very difficult to predict.
Hi, I appreciate that I know that there's just a lot going on in the changing quickly.
One of your blast furnace supply peers noted in there that the 10-Q that Arcelormittal USA.
I guess is trying to declare force majeure on a supply contracts.
Can you just give us a general sense of your confidence in the volumes that or are sort of nominated for Arcelor Mittal, U.S. and 2020.
Yeah look Oh, that's done though.
What peers.
What went on that but you know people that are outside the everybody has a mouth they can see whatever they want.
ER doesn't mean that they know what they're talking about that's number one number two is that a there's no change in terms of the nomination for US a lot of mittal outside of the normal pattern and number three and remember that not only our Sullivan dog other countries like a won't like.
Fast they all have.
Minimal levels off take or pay so easy team they are unlikely and unexpected event because the horses over I assume that design studios I've seen the same thing we are seeing.
Goodwill includes at AK steel, we're on the way back.
So they they need to do pellets to replenish their inventories and now as soon as they come back with their friends or some of their parents do need pillars to run so there will be above their minimum take or pays but we are already above the minimum take or pays with the pace that we were supplying right now so.
You know people talk too much just ignore.
Okay. Thanks, and then one last one from Europe, If you don't get from me, Keith or Oh cells or Paul just anymore.
Okay.
The last one just to sort of a bigger picture.
Just can you sort of opine on on why you think that there's been this divergence between iron ore in that coal on the seaborne market you know iron ores held up remarkably well on that calls down you know 30, 35% is here <unk>. You know is it all supply is it all you know some some different customers India versus China, just what's your.
Thinking on that.
It's the same thinking that I have the 2013 2000, TPG and 2016 when that was very vocal about what was going on we've done a war.
Well like as I used to say back then in 2015 couples of things go.
It is a lot less concentrated.
And our war I want to concentrate the visiting.
Two countries and four company.
Rio Tinto BHP Fourq is skewed in Australia volley numbers you've done.
So these four.
On it.
And they don't go food they don't Vodafone They don't all June.
Make up.
Our videoconferencing set price that's not the week works.
But because they have the same type of cost structures in all three.
Operate out of the same courts in the same geographical area in the few bar in Bali is out there in Brazil, with lower cost, but little higher free at the end of the day. They all four looked way.
On the same direction more or less at the same levels and that the same time, the only difference be they influence off day there.
Respective occurrences they always Ebola in the Brazilian real.
As far as school, we have a much more diverse diversified market.
I have a much more supply and demand driven situation.
As far as our war as long as did BTIG. Please do not want.
The prices go down I assume.
That's the let's think of that.
Yeah like I always said before to take that bad seals I will get picked your like Rio Tinto did like.
BHP it didn't bother you did.
And purchased good Fortescue did not need that but.
But the other definitely need a deadly real seem to be the worse.
Thanks Gordon was the first one quick things go fix Dino.
But in terms of a whole lot more oh out of a anybodys hands, so to be more into the market can be the supply demand and percentage.
That's very helpful. Thanks, Thanks, again and good luck with the continued integration.
Thanks, Matt Thanks, Matt.
Your next question comes from Seth Rosenfeld from Exane BNP.
How about your line is open.
Good morning, Thank you for taking my questions today.
If I may I believe in Europe.
Thank you I believe in your prepared remarks, you commented on there may be a new supply agreements in place between the Palletizing and AK steel business I heard you correctly and the can you just clarifying on why if any impact that will have on price realizations for Palletizing business and also a cost structure for steelmaking and then just to clarify what.
Still be on a fully arm's length makes sense I'll start and I said that think yeah. We we said that true that's you to still be commercial based but you need to be less influenced by.
The ups and downs off the.
The commodity in the price in the marketplace, so to be more a more stable mothers to market.
That's exactly what we said in our prepared remarks.
Okay, just to dive into that more can you confirm its not going to be a fixed price contract the cost plus structure for the AK steel business or will it still be tied like historically, if you from those inputs you've discussed in years past.
Look sets.
It is what we explain them better hungry to a level of is much more youre going to come with a with a negative zeal and there was no matter what so.
There's no.
Efforts to quite financing for you.
So go ahead than rights will report in saying that I missed on diesel.
That's what's going to happen.
No not going to give you any more information whether or not.
Revenue other question Okay.
Yes, I do my other question for you today was on the H.B. I business and if you can give us a bit of color on in white market environment, you planned on restarting the capex to build that and perhaps a range per expected ramp up time line, obviously, the scrap market strengthened a great deal in recent weeks.
Can you touch on what that would mean for potential pricing if you've had more recent discussions with your potential customers.
Are you called that H.B. I plant the once a.
We we build maker remember that.
Yes, I still remember that very very well, okay cool, okay, and my wife's studio are there to be sold.
Dollar H.B. I plan to go legal has not.
Maybe I'll read so we're fine we're only only three months away from.
Completion running the plant.
And as soon as we finish definitely who restart you'll be three months would be done and producing H.B. I.
We are going to.
Well head, but not a very successful bothered to so I was not planning on any or scrap shortages in United States actually D. Yeah. Yeah, you just street in the United States.
Predicated on one thing that's really a marriage.
There's a lot of scrap available being generated all the time in the United States. This being said that changed.
Because men factory down.
Automotive is down.
So there scrap generations down in days Bush lease scrap generation is starting to adopt.
So the hbr.
No was.
Fantastic would be even more front desk.
But what would be the price. That's a run itself you are going to know after we report the first quarter of sales.
I did not could deals at fixed price go yes.
Yes, I, there's that say the things they seem 'cause they do move there talking.
This is there the metallics market, it's a transactional mark.
You know that.
But do you keep asking the same question moving dance.
No we do not have any fixed contract fixed price contract with any client because that's not the when that market.
Function.
So we're going to leave the market that exists already.
And we're going to sell a broader extremely well.
And now that we're having casteel you to be more slager.
And you are going to be debt company that will be totally independent from feedstock.
Our own feedstock because when I have on balance or when I have all hbr indolent to sell to companies that are eager that's a fall we.
Putting pressure on us to come back and finished because they need they may need badly.
But all the rest in terms of numbers, well I'll give that number whatever whatever numbers once in your model.
But because I'm not going to view.
Okay. Thank you very much I hope you are based I think goes very well and I hope this crop price stays high without all of your auto customers being shut down.
Your next question comes from Phil Gibbs from Keybanc capital markets. Your line is open.
Thanks, Good morning.
Question on the the pricing in the pricing in the mining side was was a really robust and even higher dramatically year on year and I know the pricing isn't necessarily links or what it used to be linked to that just trying to trying to gauge the bridge as we move on the under the rest of the year.
Thanks.
A.
Keith I want to take that.
Yeah sure Phil Yes in the first quarter, we had a.
The positive impact from the from there from the acquisition, we accelerated deferred revenue related to a legacy contract that had a had an impact on the on the price that more than offset the oh kind of a negative one time true up on me on HRC for the first quarter said offsetting effects that kind of net into about $2.
Yes.
Just to give you a little help I mean based on current commodity prices.
We would kind of see around or something in the low ninetys in terms of a selling prices on pellets for the year based on current prices and depending on how things move, but that's that's for right now so.
You are saying low low ninetys in terms of what.
You'd be getting on realizations today, not not a yearly average I just wanted to be clear on that.
That's the that would be the yearly average based on today's commodity prices.
Okay. So one Q and on the rest of the year Okay.
Great and.
And.
Lorenzo on the side of side of H.B. I know the project was was stopped due to due to colder now you're.
Now you're looking to restart the construction.
Any thoughts on on one realistically.
That that can be done Lewis with having to get people.
You know back on site in up and running.
Well just some some some timing in you know what one near term hurdles or lack thereof, there could be.
Yeah look a we are going to restock that plant and the construction of that went sometime in the second hot at this point fuel is very difficult for me to tell you when exactly when because.
One point, that's the point that you have just mentioned, which we believe we have a good plan to in place to execute on on on that but.
So in other words, we believe we can.
We can.
Bring people and put them to work with adults, creating any or elsewhere safety issues or do demanding lehman working the construction that but has been addressed them do believe we have its results all down to him.
I I I also have to be mindful that we're gonna have to Remobilize, we're gonna have to ER redo things that we had all in place at that point, So I don't know how long.
It will take two to two two and.
And to bring these people back to the site and to have everything moving again, but one thing I will tell as soon as we have DAP map on site, it's three months and to be up and running and H.B. I will be one of our best success stories have Oh, a bear with me we don't have.
Exact point in time, yeah, when we are going to be able to.
To bring these people, but I don't regret it because at the end of the Dave.
Negotiate with government the wine at the very beginning of the pandemic I would like my other plants in Ohio.
And governed white the wine rightfully. So it's very concerned about the first intact and I could explain and convince him about the they.
The counter measures that we developed on the fly and you put in place now being adopted everywhere the plexiglass separating oh.
Operating points, a social distancing forced them don't we painted spots on the board well the plant or stuff like that in the these became the norm after we did and but I could not really and in all.
Yes, the justify keeping up construction side side to open when are you clearly have had we had no plans for not having to three people on top of each other boot doing things, especially when you are real Whiting was Tony electrical equipment.
So now we do well, we're ready, but I don't have a time, yet because now we need to remove lights, and though that you take a little light, but we definitely will.
We will or will restart in the second half and we'll hopefully that you still be producing H.B. I.
Maybe believer in 2020.
To be seen.
Lorenzo wondered my last one here is what did you see the automotive order book at AK steel starting to get.
Better clearly the weakness started happening in late March in early April was was was the probably the darkest days it sounds like.
So what.
I guess, one or one when did the.
One of the bounce off the bottom happened in your mind, what's what's gotten you excited along those lines. Thanks.
Okay.
We are we are already seen go what is going into we're already seeing the the.
Do reuse for just in time convenient so it's already happening.
Each plant is different not even carbonneau each common factor it is different each plant different but are there. The general trends is that they are starting we'd want to shift and then going to ships and then going to full capacity.
And I believe that's going to be at full capacity in the second now.
That's what the trendy showing right now and there's a lot more recently and for social distance in a car manufacturer than anywhere else, we're seeing Tesla big slightly the California, right now because of that so.
We've got we don't have that in Michigan, we don't have that.
And in Alabama, and in Tennessee, and not a place that we we sell steel to common infections than the Texas both regular chip.
But.
It will pick up fast they make concern was all people are not bankcard no there.
Consumers buying cars. So cars are moving out of the months, there's a lot of punishing incentives to sell cars right. Now then dealership. So are you asking for replenishment so the pressures on and I believe that.
Much yearly again.
We have Eva we all are self anticipated would have rent to see the automotive business in this country normalized and I also believe that we'd be onsite mover.
Trend or wait to see a lot more car ownership than we have seen before and that will be a fantastic positive that again, we're not anticipating buys, but we will take it and we'll take advantage.
Oh sure I think where we have time.
Ah so with that I will send it back to.
You'll yen to wrap up the cool ER and thank you very much for.
With us.
As always we will continue to keep you posted new continued to.
Inform you above developed thank very much in every week.
Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.
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