Q1 2024 Radius Recycling Inc Earnings Call

January 4, 2024

Good day, and thank you for standing by and welcome to the radius Recycling's first quarter 2024 earnings release call and webcast. At this time all participants are in a listen only mode. After the speaker's presentation there'll be a question and answer session to ask a question.

During this session. Please press star one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star. One again, please be advised that today's conference is being recorded I would now like to hand, the conference over to your speaker today, Michael Bennett Investor Relations.

Thank you, Josh and good morning, I'm, Michael Bennett, the company's Vice President of Investor Relations.

Michael Bennett: I am happy to welcome you to radius recycling earnings presentation for the first quarter of fiscal 2024.

Michael Bennett: In addition to today's audio comments, we have issued our press release and posted a set of slides both of which you can access on our website at radius recycling dot com.

Michael Bennett: Before we start let me call your attention to the detailed safe Harbor statement on slide two.

Michael Bennett: Which is also included in our press release and in the company's Form 10-Q, which will be filed later today.

Michael Bennett: As we note on slide two we may make forward looking statements on our call today, such as our statements about our targets volume growth and margins. Our actual results may differ materially from those projected in our forward looking statements.

Additional information concerning factors that could cause actual results to materially differ from those in the forward looking statement is contained in slide two as well as our press release of today and our Form 10-Q.

Michael Bennett: Please note that we will be discussing some non-GAAP measures during our presentation today.

We've included a reconciliation of those metrics to GAAP in the appendix to our slide presentation now.

Michael Bennett: Now, let me turn the call over to Tamara Lundgren, our chairman and Chief Executive Officer, She will host the call today with Stefano, Virginia, Our Chief Financial Officer.

Tamara Lundgren: Thank you Michael Good morning, everyone and welcome to our fiscal 'twenty four first quarter earnings call on.

Tamara Lundgren: On our call. This morning, I'll review, our quarterly results the trends affecting our business and progress on our strategic activities, we have underway to address industry dynamics and create long term value through the cycle.

Tamara Lundgren: Stefano will then provide more detail on our financial performance, our capital investments and our capital structure.

Stefano: Wrap up with some takeaways from our 10th sustainability report that we issued in mid December and then we'll take your questions.

So, let's turn now to slide four.

Stefano: Sure.

Stefano: Earlier. This morning, we announced results for our fiscal 'twenty for first quarter, which reflected adjusted EBITDA of $1 million and an adjusted EPS loss of 64.

Stefano: Market conditions for recycled metals in Q1 were challenging primarily due to lower manufacturing activity and scrap generation in the U S and muted global steel production.

Stefano: Our first quarter results reflected higher ferrous sales volumes, but tight scrap supply flows continued to compress metal spreads.

Stefano: The steel mill experienced a decline in prices during the quarter, we continued to benefit from healthy West coast construction demand.

Stefano: The mills quarterly utilization rate of 95% was significantly higher than the national average and we achieved a 10% increase in sales volumes year over year.

Stefano: Our results reflected positive impacts from our strategic initiatives.

Stefano: Nonferrous production from both our new metal recovery technology investments and a fiscal 'twenty three acquisition contributed to a 12% increase in non ferrous sales volumes versus a year ago.

Stefano: In addition, during the quarter, we recognized initial benefits from our $30 million productivity improvement program that we announced in October.

Stefano: And lastly, we continued our uninterrupted record of returning capital to our shareholders through the issuance of our 119th consecutive quarterly dividend.

Stefano: Let's turn now to slide five.

Stefano: Ferrous export prices reflected soft demand during most of the quarter one of the continuing headwinds was chinas finished steel exports, which reached their highest levels in almost seven years.

Stefano: This elevated level of exports impacted both steel production and ferrous scrap demand in Asia, the middle East and Turkey.

Stefano: Beginning in mid November and continuing into December however, export prices strengthened.

Stefano: This demand was primarily driven by restocking and concerns over tight scrap availability.

Stefano: Turning to the U S domestic market similar to the export market ferrous prices were somewhat flat during the first two months of the quarter domestic demand was impacted by the now resolved UAW strike.

Stefano: <unk> destocking and overall low utilization rates.

Stefano: Beginning in November and continuing into December domestic ferrous prices increased across all grades and similar factors as the export market.

Now, let's review nonferrous.

Stefano: Base metal index prices for aluminum and copper traded at strong levels during the quarter supported by low warehouse inventories and forecasted supply disruptions from mines.

Stefano: Titan on ferrous scrap supplies and the increased use of recycled nonferrous metals and support of de Carbonization efforts have resulted in higher prices and a reduced discount to <unk> base metal prices.

Stefano: Turning to finished steel market prices in the quarter were down slightly our normal seasonality, we expect to see increased activity in 2024 and beyond related to the U S infrastructure bills.

Our Oregon steel mill with its range of low carbon products, including our line of net zero carbon emissions steel products is very well positioned to meet this expected demand.

Stefano: Let's turn now to slide six.

Stefano: Sure.

Stefano: On this slide you can see some of the economic factors that underlie the constrained scrap generation that we are experiencing.

Stefano: First U S. PMI has dropped below pre COVID-19 levels and second the average age of vehicles on the road has reached the highest level on record leading to materially lower scrappage rates.

Stefano: In addition, a decline in durable goods orders, along with increased scrap collection costs and higher interest rates have contributed to tighter scrap supply flows.

Stefano: We we expect scrap generation to expand as manufacturing and construction activity improves and inflation and interest rates declined from their current levels.

Stefano: Let's turn now to slide seven.

Long term demand for recycled metals remains very positive for several reasons.

Stefano: <unk> de carbonization is driving increased demand for recycled metals, many low carbon technologies are more metal intensive than the technologies that they're replacing.

Stefano: And recycled metals require less carbon to produce than mine metals.

Stefano: Second the anticipated structural deficits for metals, such as copper and nickel.

Stefano: And the increased use of recycled metals by manufacturers seeking to reduce their environmental impact are also driving demand.

Lastly, as you can see in the two charts on the bottom of the slide the use of ferrous scrap in the steelmaking process is also expected to continue to grow significantly in the coming years. In addition, yes, steelmaking capacity, which is ferrous scrap as its primary raw material has been expanding and is projected.

Stefano: <unk> to increase further.

Stefano: So, let's turn now to slide eight for an update on our strategic priorities.

Stefano: In an economic environment characterized by weak scrap generation and inflationary pressures, we continue to focus on managing the things within our control.

Stefano: Our strategic priorities are directly aligned with the long term trends, we've just reviewed and can be summarized as follows.

Stefano: We are investing in advanced technologies to increase recovery of nonferrous metals.

Stefano: Generate more furnace ready higher value products and create product optionality.

Second we remain highly focused on increasing our ferrous and nonferrous volumes in light of the positive long term drivers of increased demand.

Stefano: Third we are continuing to grow our trademark <unk> business lines that supports a rapidly growing service and supply chain solution that enables our customers to increase their recycling rates reduce material going to landfills lower their carbon footprint and provide enhanced sustainability.

<unk> reporting.

Stefano: And fourth we are committed to ongoing productivity initiatives as part of our continuous improvement culture.

Stefano: Yes.

Stefano: While the current market environment is challenging we have demonstrated our ability to navigate effectively through these periods of volatility and tight scrap availability, we have a strong track record of delivering positive through the cycle operating cash flows.

Stefano: And equally as important our operating costs are largely variable, which provide more flexibility to manage through this period of slowing economic activity and tighter supply flows.

Stefano: These market conditions won't last forever, and we are well positioned to benefit from the expected increased demand for recycled metals associated with de carbonization and low carbon technologies. So now let me turn it over to Stefano.

Stefano: You Tamara and good morning, I'll start with a review of our consolidated results and provide an update on our ferrous sales and the market dynamics.

Stefano: Adjusted EBITDA in the first quarter was $1 million.

Stefano: Four months reflect that further recycled metal spread compression, resulting from three factors.

Stefano: Realized prices for recycled metals declined with average ferrous and nonferrous net selling prices down sequentially by 1% and 3%, respectively, while PGM prices decreased by 11%, reaching their lowest level in five years.

Stefano: Second the further tightening of scrap flows during the fall continue to constrain our ability to adjust scrap purchase prices to reflect the lower price environment.

Stefano: And third versus our mid October expectations, the timing of the improvement in ferrous market prices. During November was a significant contributor to metal spread headwinds as we recognize sales contracted or lower prices before the market have rebounded.

Stefano: The lower price environment also led to a modest detriment from average inventory accounting of $1 million during the first quarter down from a detriment of $5 million in the prior quarter.

Stefano: Contribution from our steel mill remains a significant driver of our consolidated performance, although down sequentially, primarily due to seasonally lower finished steel sales volumes compared to a strong fourth quarter on a year over year basis sales volumes were up 10%, reflecting the continued healthy demand.

Stefano: From nonresidential construction in our West coast markets.

Stefano: Our first quarter results included the recognition of insurance recoveries of $4 million.

Stefano: Related to the Shredder outage at our <unk> facility in prior periods. This compares to $41 million and recoveries recognized in the prior quarter.

Stefano: We continue to focus on mitigating inflationary pressures on operating costs and offsetting the loss of operating leverage due to the lower flows.

Stefano: During the first quarter, we started implementing the productivity initiatives, we announced back in October targeting benefits of $30 million on an annual basis.

Stefano: These initiatives are focused primarily on further production cost reductions operating efficiencies logistics optimization procurement savings and yield improvements.

Stefano: In the first quarter, we achieved initial benefits in the range of about half of the targeted quarterly run rate we anticipate.

Stefano: Paid achieving substantially the full run rate of benefits from these initiatives beginning in our second quarter.

Stefano: Turning to other fares dynamics in the first quarter.

Stefano: Its slowest Cup generation the sequential increase in ferrous sales volumes of 4% was driven by timing of sales.

Stefano: The share of domestic ferrous shipments was 46% our top sales destinations for ferrous experts were Turkey, Bangladesh and India.

Stefano: Now, let's move to slide 10 to discuss nonferrous sales and the market dynamics and provide an update on our nonferrous technology investments.

Stefano: Nonferrous sales volumes were up 12% year over year, reflecting benefits of our nonferrous recovery investments in expansion of our platform and were down 11% sequentially on timing of sales.

Stefano: We sold our nonferrous products to 17 countries with a major export destinations being India, Malaysia and China.

Stefano: Our product mix is highly diversified with sales of products recovered from shredding operations, representing slightly less than half of total nonferrous volumes.

Stefano: Average net selling prices for copper aluminum and other nonferrous products were down 3% sequentially.

Stefano: This is a PGM metals are down more than 50% from a year ago impacted by lower demand from the U S and global auto industry.

Turning now to our advanced nonferrous recovery technology investments.

Stefano: Our focus is on completing the remaining primary nonferrous recovery systems, which drive the incremental metal recovery and the majority of the expected contribution from our program.

Stefano: Several of these primary systems are in various stages of commissioning and ramp up with two left to start construction on the west coast.

Stefano: Which one awaiting permitting approval.

Stefano: We are working closely with our technology vendors to address fabrication and installation delays we've experienced in connection with certain of these projects.

Stefano: We now project construction of the currently permitted systems to be completed by the end of the summer we would ramp up to full operations to be reached by calendar year end 2024.

Stefano: Once fully operational we continue to expect substantial returns from these investments.

Stefano: Our advanced separation systems, which are already operational give us the ability to process the mixed aluminum metal zorba into higher grade Twitch and other furnace ready materials, providing access to an expanded customer base.

Stefano: In the first quarter the contribution to performance from these technologies was impacted by challenging market dynamics, including a compression in these turrical price premium between Twitch and Zorba contributing.

Stefano: Contributing to this compression was zorba demand from southeast Asia, which remain healthy while the UAW strike in the U S impacted demand for the higher grade Twitch domestically.

Stefano: Auto production improves we expect that increase in demand for Twitch.

Now, let's move to slide 11 to discuss our steel mill performance.

Stefano: Rolling Mill utilization was strong at 95% significantly.

Stefano: Significantly higher than the prior year of 81% and also well above the U S average of 75% for the period.

Stefano: Finished steel sales volumes were 129000 tons up 10% year over year, a reflection of continued healthy demand from non residential construction in our western U S markets.

Stefano: Were lower sequentially due to normal construction seasonality.

Stefano: Average net selling prices for finished steel decreased 3% compared to the prior quarter, although down sequentially.

Stefano: Sequentially metal spreads at our mill remained healthy and historical comparison.

Stefano: As Dominic mentioned, we believe our mill stands to benefit from the expected demand created by the U S infrastructure bills.

Stefano: Now, let's move to slide 12.

Stefano: Sure.

Stefano: We achieved better than expected operating cash flow in the range of breakeven as we avoided a typical first quarter seasonal seasonal detriment to working capital through efficient management and timing of sales.

Stefano: We have a multiyear track record of generating positive annual cash flow through the cycle and expect this trend to continue for our fiscal 'twenty four.

Stefano: Capex spend in the first quarter was $25 million.

Stefano: For fiscal 'twenty four as a whole we project our capex investments to be in the range of $100 million.

Stefano: Approximately 25% will be for growth projects, including the completion of our nonferrous technology initiatives and investments to support recycling services expansion with our remaining spend for maintaining the business and environmental related capital projects.

Net debt was $280 million at the end of the first quarter availability under our credit facility remains sizable with a borrowing capacity of $800 million.

Stefano: And a maturity of August 2027.

Stefano: Net leverage was 24% at quarter end and the ratio of net debt to adjusted EBITDA was two weeks.

We also returned capital to shareholders through our quarterly dividend.

Stefano: The effective tax rate on first quarter adjusted results was 35% higher than expected due to volatility created by a relatively small changes in projected company performance.

Stefano: Turning to the second quarter of fiscal 'twenty four.

Stefano: Early trends based on the first few weeks of the quarter indicate ferrous and finished steel sales volumes to be slightly down sequentially as they followed typical winter seasonality patterns and nonferrous sales volumes to be approximately flat.

Stefano: As Tamara mentioned earlier, we have seen a strengthening of ferrous scrap prices since mid November in both the export and domestic markets with a similar upward trend in nonferrous prices, we expect second quarter results to benefit from these higher prices and to improve sequentially.

Stefano: While we anticipate improved financial performance since we are only four weeks into the quarter and current market conditions remain particularly volatile including from tight scrap availability, which can be compounded by winter weather. We plan to provide a more detailed second quarter quantitative outlook at a later time.

Stefano: And with that I'll turn the call back over to Tamara.

Tamara Lundgren: Thank you Stefano.

Tamara Lundgren: Mid December we issued our 10th sustainability report, which describes our progress towards our multiyear sustainability goals I'll highlight just a few examples.

Tamara Lundgren: We achieved our 25% greenhouse gas emissions reduction goals. Two years ahead of schedule as a result, we increased our reduction target to 35% to be achieved by the end of fiscal 2008.

Tamara Lundgren: In addition, we maintained 100% net carbon free electricity usage across our operations for the third consecutive year.

Tamara Lundgren: These achievements and many others would not have impossible without our employees living our core values of safety sustainability and integrity I am very proud of what our team has accomplished and I'd like to thank our employees for their dedication to continuously serving our customers and communities supporting our suppliers.

Tamara Lundgren: And demonstrating the critical and essential role of our business and industry and the global economy.

Tamara Lundgren: And now operator, let's open the call for questions.

Speaker Change: Thank you Sir.

<unk> to ask a question. Please press star one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one again, one moment for questions.

Speaker Change: Right.

Speaker Change: Okay.

Speaker Change: Our first question comes from Martin Englert with Seaport you May proceed.

Martin Englert: Good morning, and good morning, everyone.

Martin Englert: Morning.

Martin Englert: First question.

Martin Englert: The release and in the prepared remarks, you called out I believe it was a negative $1 per ton related to inventory holding losses. When we think about the sequential decline in EBITDA per.

Martin Englert: John across the platform, what's the remainder of that.

Martin Englert: Totally related are mostly related to challenging inbound flows in collections and what you have to pay for buying scrap.

Hi, Martin this is Stefano so that's correct. So we have really when you think about our sequential.

Martin Englert: The sequential decline.

Stefano: Conciliation, we are really two main contributors.

Stefano: One as we had anticipated a seasonally lower mill contribution, but then to your point.

Stefano: The further compression on what it takes to recycling metal spreads.

Stefano: What drove it what drove the decline and so we have mentioned lower.

Stefano: Lower prices, both on ferrous nonferrous and PGM and then the further tightening of the scrap flows.

Including that market squeeze that we saw in November where where market prices are strengthened and we had already sold ahead.

Stefano: I had to the sales and we saw a squeeze from a metal spread compression. So if we think about going forward.

Stefano: That increase that we saw since since November into December in prices, both on the on the federal side as well as on the nonferrous side that's what.

Stefano: Give us the.

Stefano: Visibility too.

Stefano: To call an improvement and we expect it to improve our results as we look into Q2. So we didn't get any benefit in Q1 from that but it should occur in Q2, and then to close the loop on your on your question yet.

Stefano: The weighted average inventory.

Stefano: Accounting detriment in.

Stefano: In Q1 was $1 and that was down from $5. So thats.

Stefano: When you look at our reconciliation sequentially that was an improvement.

Stefano: In our results.

Speaker Change: Thank you for your comment on.

Speaker Change: About November December scrap prices improve and therefore that leads you to believe that there will be some improvement in overall group results quarter on quarter for the <unk>.

Speaker Change: Kirk.

Speaker Change: <unk>.

So we are a result of improved market prices for ferrous scrap in metals or do you attribute some of that improvement too.

Speaker Change: Flows have improved somewhat.

Speaker Change: The.

Speaker Change: Metal spreads are improving as a result of that I guess, if you had to parse.

Speaker Change: Parse that out a little bit qualitatively.

Speaker Change: Yes, I'll start.

Speaker Change: So the.

Speaker Change: Major driver of the expected improvement in results from Q1 to Q2 Q to Q2.

Speaker Change: <unk> will be driven by.

Speaker Change: Unexpected spread expansion driven by the prices so the prices for again for both ferrous and non peso hasn't gone up that should expand our our spreads.

Speaker Change: On the on the flows.

Speaker Change: We are early in the quarter. So we can't really tell but so far we do not expect that that part.

Speaker Change: <unk>.

Speaker Change: That component to be a driver of the expansion, especially if we think about winter weather seasonality.

Speaker Change: Usually.

Availability of crop generally speaking in the winter is slightly more constrained seasonality wise. So we don't expect that to be a driver of that improvement.

Speaker Change: Okay understood.

Speaker Change: One other thing and I think the other thing to add is sorry Martin.

Speaker Change: Sure.

Speaker Change: The other thing to add would be the benefit of a full quarter of our productivity.

Speaker Change: Benefits.

Speaker Change: On that.

For the current quarter that was largely due to inflationary pressures as Eric comment on the current fiscal <unk>.

As to whether there will be.

Speaker Change: Similar offset there or is this something that you'll begin to see kind of flow through the P&L in a positive way.

Speaker Change: I'll take that one.

Speaker Change: Yes, we are seeing inflation that we have been clear in the past I think what we're seeing right now is a slowdown.

Speaker Change: Of inflationary pressure and so as we continue to look for productivity improvement certainly too.

Achieved the full run rate.

Speaker Change: Of the ones that are already identified.

We continue to look for additional productivity and we would expect that to be accretive to margins as we go forward in a lower inflationary pressure environment.

Speaker Change: And Martin I would add some green shoots that we look for and some of which we're seeing and the <unk>.

Timing weather, whether it occurs Q2 Q3 timing is not clear, but the things that we're watching for it clearly.

Speaker Change: Fed rate hike hiking cycle is probably over rate cuts are expected at some at some point.

Speaker Change: In 'twenty four as inflation gets under control.

Speaker Change: Treasury yields.

Longer term treasury yields going lower the risk of the U S. As our U S recession declining. These are all macro green shoots that that we expect to convert into.

Speaker Change: Higher manufacturing activity higher construction activity.

Speaker Change: Yes, obviously lower rates and and we're also looking for an improvement in auto production, which has impacted supply flows.

Speaker Change: And.

Speaker Change: And obviously.

Speaker Change: Constrained.

Speaker Change: Strained and.

Speaker Change: End of light vehicle scrappage rates and alike.

And then longer term, we see demand in India growing we see the ongoing energy transition demand for metals, continuing and it does look like the destocking that we that we experienced in the last quarter may have also.

Speaker Change: Come to.

Speaker Change: Come to a conclusion.

Speaker Change: Thank you for the additional color there.

Speaker Change: One quick question on the insurance recovery I know that was a.

Speaker Change: Significant impact a quarter ago, there was a $4 million positive impact.

Speaker Change: That was related to a prior event.

Speaker Change: And you remind me what the timing was.

Speaker Change: Then it was associated with and Im curious.

Speaker Change: Why isn't this just excluded from the adjusted EBITDA for the quarter.

When you reported the results there.

Speaker Change: Yes, I'll take that.

No.

Speaker Change: The recoveries in the current quarter or in connection with the.

Speaker Change: Fire that we experienced at our Everett, Massachusetts Shredder facility.

Speaker Change: In December of 2021 so.

Speaker Change: Two years ago and since then we have been.

Speaker Change: In in negotiation with our insurance partners.

Speaker Change: Regarding.

Speaker Change: The property damage and business interruption.

Speaker Change: Impact and claim that we have made under the under the insurance.

Speaker Change: And so in the current quarter, we recognized that you said $4 million incrementally associated with that claim and we are at this point in advanced stages of negotiations and we would expect to at some point to settle this.

Speaker Change: In the in short order.

Speaker Change: From a.

Speaker Change: Our approach from a non-GAAP perspective, I will I will remind you that when we experienced the financial impact of the of the operational disruption associated with with this event.

Speaker Change: Which happened over the last couple of years.

Speaker Change:

Speaker Change: We did not exclude that impact from our adjusted EBITDA.

Speaker Change: And consistent with that approach, we do not adjust out insurance recoveries.

Speaker Change: They are recognized in our income statement as in the current quarter.

Speaker Change: Okay.

Speaker Change: So there was $41 million last quarter $4 million this quarter were <unk> 45.

Speaker Change: Apologies is there anything else before that and I guess more importantly is there anything else what else are you expecting from that and maybe timing around it.

Speaker Change: Yes Martin.

Martin Englert: So you might remember we have had to cigna.

Martin Englert: Significant insurance claims one was related to this average shredder.

Martin Englert: Event, there was another one ready to the mill that one was settled in Q4, it was part of that higher.

Martin Englert: Amount of recoveries because of the settlement of the claim so that there is nothing related to that.

Martin Englert: That is open.

Martin Englert: At this point, while we cannot project the potential remaining amount or the timing right for our settlement.

Martin Englert: Our progress in our negotiations with insurance partners.

Martin Englert: We do not expect the magnitude to be.

As significant as what we've recognized to date around these claims and I'll leave it at that.

Speaker Change: Alright, Thank you very much good luck.

Speaker Change: Thank you.

One moment for questions.

Speaker Change: Our next question comes from Simon <unk> with Keybanc capital markets. You May proceed.

Speaker Change: Okay.

Simon: It's Phil Gibbs actually good morning.

Phil Gibbs: Good morning, good morning.

Phil Gibbs: Question is just on the global seaborne freight market.

Phil Gibbs: It looks to be a lot of volatility in those things we're reading.

Phil Gibbs: Sort of in the European European region, specifically about some maybe some port constraints.

Phil Gibbs: What are you seeing in terms of the freight dynamics.

Phil Gibbs: That something that also kind of clouds your ability to be more specific on guidance.

Phil Gibbs: Okay.

Hi, Phil.

Phil Gibbs: Stefano.

Phil Gibbs: So kind of looking back as we think about the impact of freight charges and I would put both the Panama Canal right and the.

Phil Gibbs: The Red Sea.

Phil Gibbs: Suez Canal challenges due to the conflict.

Phil Gibbs: The impact to our Q1 results looking back was not was not significant there was not impacted the availability of.

Phil Gibbs: Bulk ships or containers, so from that perspective.

Phil Gibbs: And on top of the fact that at freight freight costs are a pass through from our perspective, there was not.

Phil Gibbs: A significant impact while we have heard through marketing intelligence very recently that there could be certain surcharges that are being might be added on certain routes.

Phil Gibbs: Two container freight rates.

At some point going forward for those containers.

Phil Gibbs: They go through conflict zones, if that were to happen.

Phil Gibbs: Could be.

Phil Gibbs: An impact at this point, it's too early to tell and you are correct.

Phil Gibbs: Main uncertain from that perspective.

Speaker Change: Thank you and.

Speaker Change: You had mentioned the switch to Zorba differential was pretty tight.

Speaker Change: In the quarter, we saw the same thing.

Speaker Change: Has there been any has there been any material change to that.

Dynamics in the <unk>.

Speaker Change: Last few weeks.

Speaker Change: Yes.

Speaker Change: I think we mentioned that one of the reasons for that compression in the quarter was out of the UAW strike.

Speaker Change: It impacted the demand domestically for twitching.

Speaker Change: From a from an auto production perspective as debt UW strike has now resolved we have seen.

Speaker Change: As a certain pickup in in demand coming out of that I think as we look more long term.

Speaker Change: Although production improves that's where we would expect demand for <unk> to increase more significantly and potentially restore that historical premium that we have seen between the higher grade reach.

Speaker Change: And Zorba.

Zorba: Thanks, and then last question.

Speaker Change: Do you have any planned or planned or unplanned.

Outages going on right now and Youre Youre shredding facilities.

Speaker Change: How is how is that performing kind of coming out of this.

<unk>.

Speaker Change: This recent period. Thank you.

Speaker Change: Thanks, Phil No, we do not have any unplanned outages or the like in any of our shredder facilities.

Speaker Change: Yes.

Speaker Change: Thank you.

Speaker Change: Now I'd like to turn the call back over to Tamara Lundgren for any closing remarks.

Tamara Lundgren: Thank you Josh. Thank you for your time today, everyone and we look forward to speaking with you again in April when we report our second quarter results in the interim stay safe and stay well.

Thank you for your participation you may now disconnect.

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Tamara Lundgren: Good day and thank you for standing by welcome TV Radio Recycling's first quarter 2024 earnings release call and webcast. At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During this session. Please press star one on your telephone and wait for your name.

Tamara Lundgren: To be announced to withdraw your question. Please press star one again, please be advised that today's conference is being recorded I would now like to hand, the conference over to your speaker today, Michael Bennett Investor Relations.

Tamara Lundgren: Thank you Josh and good morning, I am Michael Bennett, the company's Vice President of Investor Relations.

Michael Bennett: I am happy to welcome you to radius recycling earnings presentation for the first quarter of fiscal 2024 and.

Michael Bennett: In addition to today's audio comments, we have issued our press release and posted a set of slides both of which you can access on our website at radius recycling dot com.

Michael Bennett: Before we start let me call your attention to the detailed safe Harbor statement on slide two.

Michael Bennett: Which is also included in our press release and in the company's Form 10-Q, which will be filed later today.

Michael Bennett: Please note that we will be discussing some non-GAAP measures during our presentation today.

Michael Bennett: We've included a reconciliation of those metrics to GAAP in the appendix to our slide presentation now.

Michael Bennett: Now, let me turn the call over to Tamara Lundgren, our chairman and Chief Executive Officer, She will host the call today with Stefano, Virginia, Our Chief Financial Officer.

Tamara Lundgren: Thank you Michael Good morning, everyone and welcome to our fiscal 'twenty four first quarter earnings call.

Tamara Lundgren: On our call. This morning, I'll review, our quarterly results the trends affecting our business and progress on the strategic activities, we have underway to address industry dynamics and create long term value through the cycle.

Tamara Lundgren: Stefano will then provide more detail on our financial performance, our capital investments and our capital structure.

Stefano: I'll wrap up with some takeaways from our 10th sustainability report that we issued in mid December and then we'll take your questions.

Stefano: So, let's turn now to slide four.

Stefano: Earlier. This morning, we announced results for our fiscal 'twenty for first quarter, which reflected adjusted EBITDA of $1 million and an adjusted EPS loss of 64.

Stefano: Market conditions for recycled metals in Q1 were challenging primarily due to lower manufacturing activity and scrap generation in the U S and muted global steel production.

Stefano: Our first quarter results reflected higher ferrous sales volumes, but tight scrap supply flows continued to compress metal spreads.

Stefano: Although the steel mill experienced a decline in prices during the quarter, we continued to benefit from healthy West coast construction demand.

Stefano: The mills quarterly utilization rate of 95% was significantly higher than the national average and we achieved a 10% increase in sales volumes year over year.

Stefano: Our results reflected positive impacts from our strategic initiatives.

In addition, during the quarter, we recognized initial benefits from our $30 million productivity improvement program that we announced in October.

Stefano: And lastly, we continued our uninterrupted record of returning capital to our shareholders through the issuance of our 119th consecutive quarterly dividend.

Stefano: Let's turn now to slide five.

Stefano: This elevated level of exports impacted both steel production and ferrous scrap demand in Asia, the middle East and Turkey.

Stefano: Beginning in mid November and continuing into December however, export prices strengthened this demand was primarily driven by restocking and concerns over tight scrap availability.

Stefano: Beginning in November and continuing into December domestic ferrous prices increased across all grades and similar factors as the export market.

Stefano: Now, let's review nonferrous.

Stefano: Base metal index prices for aluminum and copper traded at strong levels during the quarter supported by low warehouse inventories and forecasted supply disruptions from mines.

Stefano: Turning to finished steel market prices in the quarter were down slightly on normal seasonality, we expect to see increased activity in 2024 and beyond related to the U S infrastructure bills.

Stefano: Our Oregon steel mill with its range of low carbon products, including our line of net zero carbon emissions steel products is very well positioned to meet this expected demand.

Let's turn now to slide six.

Stefano: On this slide you can see some of the economic factors that underlie the constrained scrap generation that we are experiencing.

Stefano: In addition, a decline in durable goods orders, along with increased scrap collection costs and higher interest rates have contributed to tighter scrap supply flows.

Stefano: We expect scrap generation to expand as manufacturing and construction activity improves and inflation and interest rates decline from their current levels, let's turn now to slide seven.

Stefano: Long term.

Stefano: Demand for recycled metals remains very positive for several reasons.

Stefano: First the carbonization is driving increased demand for recycled metals, many low carbon technologies are more metal intensive than the technologies that they are replacing and recycled metals require less carbon to produce than mine metals.

Second the anticipated structural deficits for metals, such as copper and nickel and the increased use of recycled metals by manufacturers seeking to reduce their environmental impact are also driving demand.

Stefano: Lastly, as you can see in the two charts on the bottom of the slide the use of ferrous scrap in the steelmaking process is also expected to continue to grow significantly in the coming years. In addition.

Stefano: Steelmaking capacity, which is as ferrous scrap as its primary raw material has been expanding and is projected to increase further.

Stefano: Let's turn now to slide eight for an update on our strategic priorities.

Stefano: In an economic environment characterized by weak scrap generation and inflationary pressures, we continue to focus on managing the things within our control.

Stefano: Our strategic priorities are directly aligned with the long term trends, we just reviewed and can be summarized as follows.

Stefano: First we are.

Our investing in advanced technologies to increase recovery of nonferrous metals.

Stefano: <unk> generated more furnace ready higher value products and create product optionality.

Stefano: Second we remain highly focused on increasing our ferrous and nonferrous volumes in light of the positive long term drivers of increased demand.

Stefano: Third we are continuing to grow our trademark <unk> business lines.

Stefano: It supports a rapidly growing service and supply chain solution that enables our customers to increase their recycling rates reduced material going to landfills lower their carbon footprint and provide enhanced sustainability reporting.

Stefano: And fourth we are committed to ongoing productivity initiatives as part of our continuous improvement culture.

Stefano: And equally as important our operating costs are largely variable, which provide more flexibility to manage through this period of slowing economic activity and tighter supply flows. These.

Stefano: Thank you Tamara and good morning, I'll start with a review of our consolidated results and provide an update on our ferrous sales and the market dynamics.

Stefano: Adjusted EBITDA in the first quarter was $1 million.

Stefano: <unk> reflected further recycled metal spread compression, resulting from three factors.

Stefano: Realized prices for recycled metals declined with average ferrous and nonferrous net selling price is down sequentially by 1% and 3%, respectively, while PGM prices decreased by 11%, reaching their lowest level in five years.

Stefano: Second to further tightening of scrap flows during the fall continue to constrain our ability to adjust scrap purchase prices to reflect the lower price environment.

Stefano: Contribution from our steel mill remains a significant driver of our consolidated performance.

Stefano: Down sequentially, primarily due to seasonally lower finished steel sales volumes compared to a strong fourth quarter on a year over year basis sales volumes were up 10%, reflecting the continued healthy demand from non residential construction in our west coast markets.

Our first quarter results included the recognition of insurance recoveries of $4 million related to the shredder outage at our <unk> facility in prior periods. This compares to $41 million and recoveries recognized in the prior quarter.

We continue to focus on mitigating inflationary pressures on operating costs and offsetting the loss of operating leverage due to the lower flows.

Stefano: During the first quarter, we started implementing the productivity initiatives, we announced back in October targeting benefit of $30 million on an annual basis.

Stefano: These initiatives are focused primarily on further production cost reductions operating efficiencies logistics optimization procurement savings and yield improvements.

Stefano: In the first quarter, we achieved initial benefits in the range of about half of the targeted quarterly run rate we anticipate.

Stefano: Paid achieving substantially the full run rate of benefits from these initiatives beginning in our second quarter.

Stefano: Turning to other fair the dynamics in the first quarter.

Slowest Cup generation the sequential increase in ferrous sales volumes of 4% was driven by timing of sales.

Stefano: The share of domestic federal shipments was 46%.

Stefano: Our top sales destinations for ferrous experts were Turkey.

Stefano: In India.

Now, let's move to slide 10 to discuss non ferrous sales and the market dynamics and provide an update on our nonferrous technology investments.

Stefano: We sold our nonferrous products to 17 countries with a major export destinations being India, Malaysia and China.

Stefano: Our product mix is highly diversified with sales of products recovered from shredding operations, representing slightly less than half of total nonferrous volumes.

Stefano: Average net selling prices for copper aluminum and other nonferrous products were down 3% sequentially.

Stefano: Prices of PGM metals are down more than 50% from a year ago.

Stefano: Backed by lower demand from the U S and global auto industry.

Stefano: Turning now to our advanced nonferrous recovery technology investments.

Stefano: Our focus is on completing the remaining primary nonferrous recovery systems, we drive the incremental metal recovery and the majority of the expected contribution from our program.

Stefano: Several of these primary systems are in various stages of commissioning and ramp up with two left to start construction on the west coast, which one awaiting permitting approval.

Stefano: We are working closely with our technology vendors to address fabrication and installation delays we've experienced in connection with certain of these projects.

Stefano: We now project construction of the currently permitted systems to be completed by the end of the summer we would ramp up to full operations to be reached by calendar year end 2024.

Stefano: Once fully operational we continue to expect substantial returns from these investments.

Our advanced separation systems, which are already operational give us the ability to process the mixed aluminum metal zorba into higher grade Twitch and other furnace ready materials, providing access to an expanded customer base.

In the first quarter the contribution to performance from these technologies was impacted by challenging market dynamics, including a compression in these turrical price premium between Twitch and Zorba Kantar.

Stefano: Contributing to this compression was zorba demand from southeast Asia, which remain healthy while the UAW strike in the U S impacted demand for the higher grade Twitch domestically.

Stefano: Auto production improves we expect that increase in demand for Twitch.

Stefano: Now, let's move to slide 11 to discuss our steel mill performance.

Stefano: Rolling Mill utilization was strong at 95% significantly.

Stefano: Significantly higher than the prior year of 81% and also well above the U S average of 75% for the period.

Stefano: Finished steel sales volumes were 129000 tons up 10% year over year, a reflection of continued healthy demand from non residential construction in our western U S markets.

Stefano: Were lower sequentially due to normal construction seasonality.

Stefano: Average net selling prices for finished steel decreased 3% compared to the prior quarter.

Stefano: Although down sequentially metal spreads at our mill remained healthy and historical comparison.

Stefano: As Dominic mentioned, we believe our mill stands to benefit from the expected demand created by the U S infrastructure Bill.

Stefano: Now, let's move to slide 12.

Stefano: Sure.

Stefano: We have a multiyear track record of generating positive annual cash flow through the cycle and expect this trend to continue for our fiscal 'twenty four.

Capex spend in the first quarter was $25 million.

Stefano: For fiscal 'twenty for the hole, we project, our capex investments to be in the range of $100 million.

Stefano: Approximately 25% will be for growth projects, including the completion of our nonferrous technology initiatives and investments to support recycling services expansion with the remaining spend for maintaining the business and environmental related capital projects.

Stefano: Net debt was $280 million at the end of the first quarter.

Stefano: Liability under our credit facility remains sizable with a borrowing capacity of $800 million.

Stefano: And a maturity of August 2027.

Stefano: Net leverage was 24% at quarter end and the ratio of net debt to adjusted EBITDA was two weeks.

Stefano: We also returned capital to shareholders through our quarterly dividend.

Stefano: The effective tax rate on first quarter adjusted results was 35% higher than expected due to volatility created by a relatively small changes in projected company performance.

Stefano: Turning to the second quarter of fiscal 'twenty four.

Stefano: We expect second quarter results to benefit from these higher prices and to improve sequentially.

While we anticipate improved financial performance since we are only four weeks into the quarter and current market conditions remain particularly volatile including from tight scrap availability, which can be compounded by winter weather. We plan to provide a more detailed second quarter quantitative outlook at a later time.

Stefano: And with that I'll turn the call back over to Tamara.

Tamara Lundgren: Thank you Stefano.

Tamara Lundgren: In mid December we issued our sustainability report, which describes our progress towards our multiyear sustainability goals ill highlight just a few examples.

Tamara Lundgren: Key to our 25% greenhouse gas emissions reduction goals. Two years ahead of schedule as a result, we increased our reduction target to 35% to be achieved by the end of fiscal 2008 and.

In addition, we maintained 100% net carbon free electricity usage across our operations for the third consecutive year.

Tamara Lundgren: These achievements and many others would not have been possible without our employees living our core values of safety sustainability and integrity I am very proud of what our team has accomplished and I'd like to thank our employees for their dedication to continuously serving our customers and communities supporting our suppliers.

Tamara Lundgren: And demonstrating the critical and essential role of our business and industry and the global economy.

Tamara Lundgren: And now operator, let's open the call for questions.

Speaker Change: Thank you as a reminder to ask a question. Please press star one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one again, one moment for questions.

Sure.

Speaker Change: Okay.

Speaker Change: Our first question comes from Martin Engler with Seaport you May proceed.

Good morning, and good morning, everyone.

Speaker Change: Yeah.

Martin Engler: First question.

Martin Engler: The release and in the prepared remarks, you called out I believe it was negative $1 per ton related to inventory holding losses. When we think about the sequential decline in EBITDA per.

Martin Engler: John across the platform.

Martin Engler: Europe.

Martin Engler: Solely related are mostly related to challenging inbound flows in collections and what you have to pay for buying scrap.

Speaker Change: Hi, Martin this is Stefano so that's correct. So we have really when you think about our sequential.

Stefano: The sequential decline the reconciliation we are really two main contributors.

Stefano: One as we had anticipated a seasonally lower mill contribution, but then to your point.

Stefano: The further compression on what it takes to recycling metal spreads.

Stefano: Is what drove it what drove the decline and so we have mentioned lower lower prices, both on ferrous nonferrous and PGM and then the further tightening of the scrap flows including debt market squeeze that we saw in November where we are market prices.

Stefano: <unk> and we had already sold ahead contracted I had to the sales and we saw increased from a metal spread compression. So if we think about going forward.

Stefano: Yes.

Stefano: The increase that we saw since since November into December in prices, both on the on the federal side as well as on the nonferrous side that's what.

Stefano: Give us.

Stefano: Visibility too.

To call an improvement and we expect it to improve our results as we look into Q2. So we didn't get any benefit in Q1 from that but it should occur in Q2, and then to close the loop on your on your question yes.

Stefano: The weighted average inventory.

Stefano: Accounting detriment in.

In Q1 was $1 and that was down from $5. So thats.

Stefano: When you look at our reconciliation sequentially that was an improvement.

Stefano: Bettering our results.

Speaker Change: Thank you for that.

Stefano: Comment on.

Stefano: About November December scrap prices improve and therefore that leads you to believe that there will be some improvement in overall group results quarter on quarter for the current fiscal <unk>.

Speaker Change: It's only a result of improved market prices for ferrous scrap in metals or do you attribute some of that improvement too.

Speaker Change: Flows have improved somewhat.

The.

Metal spreads are improving as a result of that I guess, if you had to parse that out a little bit qualitatively.

Speaker Change: Yes, I'll start.

Speaker Change: So D.

Major driver of the expected improvement in results from Q1 to Q2 Q to Q2.

Speaker Change: <unk> will be driven by.

Speaker Change: Unexpected spread expansion driven by the prices the prices for again for both better than non peso hasn't gone up that should expand our our spreads.

Speaker Change: On the on the flows.

Speaker Change: We are early in the quarter. So we can't really tell but so far we do not expect that that part.

Speaker Change: Correct.

Speaker Change: That component to be a driver of the expansion, especially if we think about winter weather seasonality usually.

Speaker Change: Availability of crop generally speaking in the winter is slightly more constrained.

Speaker Change: <unk> wise, so we don't expect that to be a driver of that improvement.

Speaker Change: Okay understood.

Speaker Change: One other thing and I think the other thing to add is sorry Martin.

Speaker Change: The other thing to add would be the benefit of a full quarter of our productivity.

Speaker Change: <unk>.

Speaker Change: On that.

Speaker Change: For the current quarter that was largely offset inflationary pressures.

On the current fiscal Q.

Speaker Change: Whether there will be.

Similar offset there or is this something that.

Speaker Change: Begin.

Speaker Change: So you kind of flow through the P&L in a positive way.

Speaker Change: I'll take that one.

Speaker Change: Yes, we are seeing inflation that we have been clear in the past I think what we're seeing right now is a slowdown.

Speaker Change: Of inflationary pressure and so as we continue to look for productivity improvement certainly two to achieve the full run rate.

Speaker Change: Of the ones that are already identified.

We continue to look for additional productivity and we would expect that to be accretive to margins as we go forward in a lower inflationary pressure environment.

Speaker Change: And Martin I would add some green shoots that we look for and some of which we're seeing and the timing whether whether it occurred in Q2 Q3 timing is not clear.

The things that we're watching for it clearly the fed rate hike.

Speaker Change: Aching cycle is probably over rate cuts are expected at some at some point.

Speaker Change: In 'twenty four as inflation gets under control.

Speaker Change: Treasury yields.

Speaker Change: Longer term treasury yields going lower the risk of the U S. As our U S recession declining. These are all macro green shoots that that we expect to convert into.

Speaker Change: Higher manufacturing activity higher construction activity.

Speaker Change: Yes, obviously lower rates and and we're also looking for an improvement in auto production, which has impacted supply flows.

And.

And obviously.

Speaker Change: Constrained.

Speaker Change: End.

Speaker Change: End of light vehicle scrappage rates and alike.

Speaker Change: And then longer term, we see demand in India growing we see the ongoing energy transition demand for metals, continuing and it does look like the destocking that we that we experienced in the last quarter may have also.

Come to.

<unk> come to a conclusion.

Thank you for the additional color there.

Speaker Change: One quick question on the insurance recovery I know that was a.

Speaker Change: Significant impact a quarter ago, there was a $4 million positive impact.

That was related to a prior event.

Speaker Change: And you remind me of what the timing was.

Speaker Change: Yes.

Speaker Change: Then it was associated with and then I'm curious why isn't this just excluded from the adjusted EBITDA for the quarter.

Speaker Change: In one.

Speaker Change: When you reported the results there.

Speaker Change: Yes, I'll take that.

Speaker Change: No.

Speaker Change: The recoveries in the current quarter or in connection with the.

Speaker Change: Fire that we experienced at our Everett, Massachusetts Shredder facility in December of 2021 so.

Speaker Change: Two years ago and since then we have been.

In.

Speaker Change: In negotiation with our insurance partners.

Speaker Change: Regarding.

Speaker Change: The property damage and business interruption.

Speaker Change: Impact and claim that we have made under the under the insurance.

In the in short order.

Speaker Change: From a.

Speaker Change: Which happened on the last couple of years.

Speaker Change: We did not exclude that impact from our adjusted EBITDA.

Speaker Change: And consistent with that approach, we do not adjust out insurance recoveries. When they are recognized in our income statement as in the current quarter.

Speaker Change: Okay.

Speaker Change: So there was $41 million last quarter $4 million this quarter were <unk> 45.

Speaker Change: <unk> is there anything else before that and I guess more importantly is there anything else what else are you expecting from that.

Maybe timing around it.

Speaker Change: Yes Martin.

So you might remember we have had to.

Speaker Change: Significant insurance claims one was related to this average shredder.

Speaker Change: Event, there was another one ready to the mill that one was settled in Q4. It was part of that higher amount of recoveries because of the settlement of the claim so that there is nothing related to that.

Speaker Change: That is open.

Speaker Change: At this point, while we cannot project the potential remaining amount or the timing right for our settlement.

Speaker Change: Our progress in our negotiations with insurance partners.

Speaker Change: We do not expect the magnitude to be.

Speaker Change: As significant as what we've recognized to date around these claims and ill leave it at that.

Speaker Change: Alright, Thank you very much good luck.

Thank you.

Speaker Change: Thank you.

Speaker Change: One moment for questions.

Speaker Change: Our next.

Speaker Change: Comes from Simon <unk> with Keybanc capital markets you May proceed.

Okay.

Speaker Change: Phil Gibbs actually good morning.

Phil Gibbs: Good morning, good morning.

Phil Gibbs: Yeah.

Phil Gibbs: Question.

Phil Gibbs: On the global seaborne freight market, there looks to be a lot of volatility and some things we're reading.

Phil Gibbs: Sort of in the European European region, specifically about some maybe some port constraints.

Phil Gibbs: What are you seeing in terms of the freight dynamics in it.

That something that also kind of clouds your ability to be more specific on guidance.

Phil Gibbs: Hi.

Phil Gibbs: Stefano.

Stefano: So kind of looking back as we think about the impact of freight charges and I would put both the Panama Canal right and.

Stefano: The Red Sea.

<unk> canal challenges due to the conflict.

Stefano: The impact to our.

Stefano: Q1 results looking back was not was not significant there was not impacted the availability of of bulk ships or containers so from that perspective.

Stefano: And on top of the fact that.

Stefano: Freight right freight costs are a pass through from our perspective, there was not.

Stefano: A significant impact while we have heard through marketing that agents very recently that that it could be certain surcharges that are being might be adding on certain routes to container freight rates.

Stefano: At some point going forward for those containers.

Stefano: They go through complex zones, if that were to happen.

Could be an.

Stefano: An impact at this point, it's too early to tell and you're correct.

Stefano: <unk> uncertain from that perspective.

Thank you.

Stefano: You had mentioned.

Stefano: Switch to absorb a differential was pretty tight.

Stefano: In the quarter. We saw the same thing has there been any has there been any material change to that.

Stefano: Dynamics in the <unk>.

Stefano: Last few weeks.

Stefano: Yes.

Stefano: I think we mentioned that one of the reasons for that compression in the quarter was out of the UAW strike.

Stefano: It impacted the demand domestically for tuition.

Stefano: From a from an auto production perspective as debt UW strike has now resolved we have seen.

Stefano: A certain pickup in in demand coming out of that I think as we look more long term.

Auto production improves that's why we would expect demand for <unk> to increase more significantly and potentially restore that historical premium that we have seen between the higher grade which.

Stefano: And Zorba.

Speaker Change: Thanks, and then last question.

Speaker Change: Do you have any planned or planned or unplanned.

Speaker Change: Outages going on right now and Youre youre shutting facilities and.

Speaker Change: How is how is that performing kind of coming out of this.

Speaker Change: <unk>.

Speaker Change: This recent period. Thank you.

Speaker Change: Thanks, Bill no we do not have any unplanned outages or the like in any of our shredder facilities.

Speaker Change: Thank you I would now like to turn the call back over to Tamara Lundgren for any closing remarks.

Thank you Josh. Thank you for your time today, everyone and we look forward to speaking with you again in April when we report our second quarter results in the interim stay safe and stay well.

Speaker Change: Thank you for your participation you may now disconnect.

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