Q2 2020 Ryerson Holding Corp Earnings Call

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Good morning, Thank you for joining Ryerson holding corporation's second quarter 2020 earnings call.

Here. This morning, with a later Ryerson President and Chief Executive Officer, and our corporate controller, and Chief Accounting Officer Molly Karen.

Kevin Richardson, Mike Burbach, and Jim Kaufman, our North American regional President along with John or our executive Vice President of operations will be joining us today.

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 impact of coven 19 and related economic conditions that could cause actual results could differ materially from those implied by the forward looking statements.

Such risks and uncertainties include but are not limited to those set forth under risk factors and our annual report on form 10-K for the year ended December 30, Onest 2019.

You are cautioned not to place undue reliance on these forward looking statements, which speak only as of the 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.

A reconciliation of the non-GAAP financial measures discussed on today's call to the most directly comparable GAAP measures is provided in our second quarter 2020 earnings release filed on form 8-K yesterday, which is available on the Investor Relations section of our website.

Ill now turn the call over to Eddie.

Thank you Justine.

Thank you all for joining us this morning.

Discuss our second quarter results and the progress we have made.

On our dual mandate response.

The cobot 19 pandemic.

I Hope this earnings call lines, all of you safe and well.

I want to begin our call. This morning by thank you know all the frontline responders and essential workers.

I've been working tirelessly and courageously.

Fight against over 19.

I also want to think by Ryerson colleagues, our customers and suppliers.

As we continue to navigate through this time of Unparallel challenge for public health economic health and societal well be.

All those who have lost loved ones do the pandemic. Please accept our deepest sympathies with wishes for peace and strength. During this time of solemnity and remembering.

As we noted during our first quarter earnings call. We took decisive in effective actions, establishing Tobin 19 health and safety protocols in accordance with CDC guidelines and governing jurisdictional orders.

We continued to is disappointing through the second quarter, making the necessary adaptations along the way.

The virus continues to greatly impact daily life.

Within our wireless and community our number of confirmed cases has been low and we are will lead the each confirm case has either recover or is expected to recover.

We're also looking out for one another and working safer as our Osha G.R.I. rate.

First half of 2020 was lowest recorded within the last five years.

I want to reiterate my appreciation to each of my Ryerson teammates for their commitments the organization.

And our communities health and safety.

For the resolve and resilience as we continue our essential work safely serving our customers.

During the second quarter, we took necessary actions to preserve liquidity and recovery capacity.

We reduced operating expenses by 25% year over year.

And 20% sequentially.

We generated 103 million in cash from operating activities in the second quarter and reduced net debt by approximately 100 million.

Its lowest level in 10 years.

In addition, just over a week ago, we issued 500 million of new eight year senior secured notes.

You August 1st 2028.

At a coupon of 8.5% and retired our 11% senior secured notes due in 2022.

This refinancing reduces our annual cash interest expense by approximately 16 million.

With optional redemption features available during the three year non call period.

To reduce the outstanding notional amount of the bonds by as much as 50%.

Our by $250 million.

This offers wires and enhanced optionality as we continue deleveraging the balance sheet and further reducing annual cash interest outlays.

Since our bond refinancing in September 2012, and through our bond refinancing in May of 2016.

Ryerson has reduced its outstanding notional bond principle.

By 400 million.

And Bob unrelated annual interest expense by approximately 45 million.

This is a testament.

You are transformative efforts progress and results.

During the period noted.

As we made important investments through acquisitions and growth Capex aligned with our strategy of creating great customer experiences across a network of intelligently connected service center assets.

Turning to the economic environment during the second quarter.

In the U.S., we experienced the largest plunge in industrial production recorded in 101 years.

Reflecting the acute economic shocks, which materially affected economic activity.

Second quarter, North American industry shipments as measured by the metal Service Center Institute or MSC eye.

Contracted by 26.3% compare to the first quarter.

At the same time, Ryersons, North American shipments declined 21.4% during the quarter showing relative strength compared to the industry.

The North American volume trends during the quarter saw the bottoming of daily tons sold in April.

With sequential volume recovery occurring throughout May and June and ending with improvement of 9.3% into May June period compared to April.

Turning to commodities.

Pricing environment held up better than anticipated during the second quarter.

As mill capacity is globally and in North America, adjusted more responsibly falling demand than that experience during the downturns in 2008 in 2009 in 2015 in 2016.

Carbon sheet in plate prices.

Stabilized in a range to the quarter ended the first few weeks in July.

Tivity began to improve incrementally and gradually in May and June.

Ryerson end markets that show relative strength in the quarter were ground transportation consumer durables.

Food and agriculture Hvdc.

And automotive.

End markets that remain neutral through the quarter were construction.

And fabrication machine shops, while industrial equipment oil and gas and commercial aerospace continued to struggle.

Since Ryerson acquired central stealing wire or see isn't W.

On July Onest 2018.

DSW is generated cumulative positive cash flows of $146.2 million or approximately 90%.

Of Ryersons 164 million dollar purchase price.

Second quarter 2020 results were impacted by the pandemic Andy's demand weakness as volume contracted by 17.1% an average selling prices fell by 10% sequentially, resulting in revenue generation of 92.1 million compared to 123.5 billion.

For the first quarter of 2020.

Shifting w. second quarter gross margin excluding LIFO.

It was affected by declining carbon prices and contract that sequentially by 250 basis points to 20.4%, but still track above 2019 levels.

Second quarter operating expenses were 21.2 million a decrease of 22.1% compared to the first quarter outpacing the after mentioned volume decline.

As we expect carbon prices to stabilize and margins to begin moving higher on replacement cost inventory resets.

DSW should see expense leverage positively impact the business in the third quarter.

Given the significant improvements realized by the season W. team over the past two years.

Management remains confident in the company's mid cycle annualized target of 600 million of revenue and 50 million of adjusted EBITDA Excluding LIFO.

Due to the persisting macroeconomic uncertainties stemming from the Corona virus pandemic and overall lack of visibility into future demand trends and market conditions in the end markets in which Ryerson operates.

The company will not provide guidance for the third quarter ending September 32020.

However, we.

We note the following current third quarter trends being observed in the business.

As of the date of our earnings release.

At this point in the third quarter average selling prices.

Gross margins, excluding LIFO in order rates.

Appear to be trending positively compared to the second quarter.

North American average selling prices are approximately 2% higher.

Managerial price margins and expanded by approximately 50 basis points.

In bookings have increased by approximately 5% to 6%.

Compared to second quarter per day shipments over.

Overall, we believe the industrial metals manufacturing environment is gradually improving through a combination of customer restarts restocking and growth in some end markets offsetting decline and others with that I'll turn the call over to Molly who will discuss the highlights of our second quarter.

Warrants.

Thanks, Betty and good morning, everyone.

And the second quarter of 2020, Ryerson achieved revenues of 771.8 million a decrease of 23.6% compared to 1.1 billion and the first quarter of 2020 with tons shipped down 18.4% an average sell.

Prices down 6.4%.

Compare to the second quarter up 2019 revenues were down by 433.1 million or 35.9% with tons shipped 25.8% lower and average selling prices 13.6% lower.

Gross margin contracted to 15% and the second quarter of 2020, primarily due to pandemic driven price reaction.

And by LIFO expense of 14.1 million in the quarter, which is a 34 million swing compared to the first quarter or a swing up 27 million compared to the same quarter last year.

It's 15% gross margin and the second quarter of 2020 compares to 19.4% in first quarter of 2020, and 17.6% and the same quarter last year.

Ryerson generated LIFO expense during the second quarter as the company aggressively decreased inventory and sold from older higher costs LIFO layers.

Excluding LIFO gross margin was 16.8% and the second quarter of 2020.

Compared to 17.4% and the first quarter of 2020, and 16.9% and the second quarter of 29 team.

And the second quarter of 2020, Ryerson reduced warehousing delivery, selling general and administrative expense by 31.6 million or 20.3% compared to the prior quarter compared to the same quarter last year Ryerson reduced warehousing delivery.

Selling general and administrative expenses by 40.5 million or 24.6%.

Quarter over quarter expense reductions were primarily driven by adjusting staffing and labor costs to demand.

As well as further variable innovation of the company's operating cost structure.

Net loss attributable to Ryerson holding corporation was 25.6 million or 67 cents per diluted share, which includes 14.1 million of LIFO expense and the second quarter of 2020 compared to net income of 16.4 million or 43 cents.

Per diluted share in the prior year period.

Adjusted net loss attributable to Ryerson holding corporation, excluding restructuring and other charges gain or loss on retirement of that.

And the associate income taxes on these items was 24.2 million for the second quarter of 2020 or 64 cents per diluted share.

<unk> income of 17.2 million or 45 cents per diluted share in the prior year period.

Ryerson achieved adjusted EBITDA, excluding LIFO of 20.6 million in the second quarter of 2020.

A decrease of 13.8 million compared to the first quarter 2020, and a decrease of 30.1 million compared to the second quarter of 2019.

Turning to first half results revenues in the first six months of 2020 were 1.78 go in a decrease of 26.8% compare to the first six months of 20% team as tons shipped decreased 17.2% and average selling prices decreased 11.6%.

Okay.

Net loss attributable to Ryerson holding corporation was 9.2 million or 24 cents per diluted share and the first six months of 2020 compared to income of 45.9 billion or one dollar and 21 cents per diluted share for the same period of 2019.

Adjusted net loss attributable to Ryerson holding corporation, excluding restructuring and other charges.

Gain or loss on retirement that and the associated income taxes on these items.

Was 8.4 million for the first six months of 2020 or 22 cents per diluted share compared to 47.1 billion of income or one dollar and 24 cents per diluted share for the first six months of 2019.

Adjusted EBITDA, excluding LIFO was 55.0 meal and for the first six months of 2020 compared to a 113.7 million and the first six months of 2019.

At the end of the second quarter of 2020, Ryerson had 85 days of supply in inventory up from 74 days at the end of the first quarter. However, on a ton basis Ryersons excellent working capital management is clearly visible.

We reduced inventories by more than 95000 tons or approximately 20% and the second quarter, while repositioning our inventory to match current levels of demand and preparing for margin recovery and expansion.

The company's cash conversion cycle increased sequentially from 77 days in the first quarter 10, 91 days in the second driven by the acute demand shock. However in the month of June the company's cash conversion cycle substantially improved 10, 81 days from the elevated levels and.

Pro in May and we expect to return to our pre covert 19 levels by the fourth quarter as the company continues to work with our customers and suppliers to minimize the gap between our receivable and payable cycles and continues to manage our inventory investment in line with demand level.

Ryerson generates strong cash from operating activities during the second quarter of 103.3 million compared to 66.5 million into year ago period.

Our free cash flow calculated as cash flow from operating activities and asset sales less capital expenditures was also strong in a second quarter at 98.5 million and has resulted in average annualized free cash flows of 133 million and.

The period from 2015 through the second quarter.

Our improved operating model and counter cyclical cash flows have driven our average free cash flow yield.

As measured by its portion of our market capitalization.

Up to 42% over the same period exceeding the yield of our publicly traded peer group.

We also significantly decrease our outstanding net debt during the period.

Driving it down by 100 million since March 30, Onest 2020, 793 million as of June Thirtyth 2020.

As Eddie mentioned this is our lowest net debt level achieved and 10 years.

Most of this reduction was accomplished who decreasing our credit facility borrowings.

And a small part of the decrease was due to repurchasing 3 million of our then outstanding 11% senior secured notes at an average price of 96.8.

The second quarter repurchases contributed to a year to date total a 57.6 million in repurchases for the first half of 2020 at an average price of 98.4.

The year to date repurchase transactions were funded through a combination of restricted cash which is a portion of the proceeds generated through the sale leaseback transaction completed in the fourth quarter of 2019.

And the company's unrestricted operating cash flows.

Even with having completed the small amount of additional repurchases, we maintained ample liquidity throughout the quarter.

Including cash restricted cash from the sale of real estate under the sale leaseback transaction and availability from U.S. and foreign sources Ryersons total liquidity was 350 million as of June variant 2020.

As of the ended the second quarter, we have invested a 11.8 million into capital expenditures through the first half of 2020 and expect to meet our covert 19 revised capex budget target of 25 million for the full year 2020.

We're also continuing to take necessary cost control measures as dictated by pandemic driven economic stress is as expenses per day, less depreciation and amortization continued to fall through the corridor.

And finally.

We were proud to announce the closing of our debt refinancing just over a week ago.

We retired or 11% 2022 senior secured notes, which were issued in 2016 for 650 million.

And issued 500 million of 8.5% senior secured notes due and 2028.

This refinancing marks a significant milestone for the company.

As it comes with a recognition of Ryersons improved through the cycle operating model.

Increased asset coverage with a higher tangible asset value.

Strong real estate asset portfolio underscored by the fourth quarter 2019 sale leaseback transaction.

Decrease or legacy liabilities and increased book value of equity.

Along with lowering our annual fixed cash commitment by approximately 16 million through decreasing our interest payments. We're also secures certain optional redemption term within the non call period of the tenor, allowing ryerson the option to reduce the outstanding amount of the bonds by as much as.

250 million within the first three years of issuance beginning August 1st 2020.

After which we can call the bonds according to the terms.

Within the bond indenture.

These terms to provide ryerson with attractive flexibility as we continue improving our balance sheet and overall capital structure.

Now I'll turn the call back over to Eddie to conclude.

Thanks Molly.

As we move through the third quarter end.

With hoping optimism towards improving public health economic recovery as well as toward higher and better norms of social justice and the quality. We will continue building our cultural resiliency empowerment in gross around great customer experiences delivered a speed scale.

Value add and consistency across our network of intelligently connected service centers.

It is clear as we've managed through multiple crises over the past hundred plus days that we have opportunities to drive free cash flow generation and additional de leveraging of our balance sheet, while building operating leverage for the economic recovery that will come even if we don't know exactly when.

Throughout this period, we've talked about and acted upon phrases, creating within ryerson such as hashtag coherent persevere and co rally defined as the ability to see an act upon reality clearly.

I could not be more proud to work alongside my Ryerson colleagues as we continue on our path to progress and journey through Ryersons, 178th year end business, Andy on with that we look for your questions operator.

At this time, if you'd like to ask a question. Please press Star then the number one on your telephone keypad that is star one danskin audio question.

Oh.

And again that is star one guys can audio question.

Sure.

And there are no audio questions at this time.

Okay. It looks like we got a light light workload today. So thank you were saying part of your Thursday with US stay healthy season, well, we look forward to Dean with all of you next quarter.

That does conclude today's call you may now disconnect.

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