Q1 2025 Radius Recycling Inc Earnings Call
While market conditions during the quarter were more challenging than a year ago, our year over year operating results remained stable.
The difference between our adjusted EPS loss of $1 33, compared to a year ago was primarily due to an income tax detriment associated with our deferred tax asset.
The contribution from our recycled metals business improved versus a year ago, driven by benefits realized from our cost reduction and productivity measures implemented in fiscal 'twenty, four and stronger non ferrous demand, which offset the tightened scrap environment and the softer global ferrous markets.
The contribution from finished steel declined year over year due to weaker domestic steel conditions and a scheduled maintenance outage.
Our steel mill utilization of 81%, while down sequentially. It was still higher than the U S average of 75%, reflecting relatively stronger west coast demand.
We achieved nearly breakeven operating cash flow during the quarter and returned capital to our shareholders through our 123rd consecutive quarterly dividend.
The biggest headwind to our performance is the pressure U S manufacturing sector, which has been in recessionary territory for two years.
The last time, we saw such an extended manufacturing downtime was over 20 years ago Yeah.
The outlook for our manufacturing recovery, However is positive with U S consumer and business confidence surgeons since November and a consensus across the political spectrum that revitalizing our manufacturing sector is critical for U S economic growth and National security.
Covering in the manufacturing sector since both ease the constrained scrap environment and drive more demand for ferrous and nonferrous recycled metals.
From a long term perspective, the demand for recycled metals continues to have a strong upward bias underpinned by several structural trend U S. Industrial re shoring continued growth in Eas steelmaking production maximizing the use of recycled metals and production processes.
And the transition to metal intensive low carbon technologies importantly, our strategic initiatives focused on metal recovery technologies volume growth and expansion of our three P. R surfaces are strongly aligned with the secular growth drivers.
So, let's turn to slide five for a deeper dive into the market condition.
During the quarter export prices for recycled ferrous metals decreased driven by softer global steel demand, including the dampening effect from elevated levels of Chinese steel exports.
In the last 12 months through November 2024, Chinese steel exports to countries in Asia, Central and South America and Turkey.
Risen by approximately 25% versus a year ago, reducing steel manufacturing and associated ferrous scrap demand in these regions as a result.
Domestic ferrous scrap prices during Q1 were relatively flat sequentially, but down significantly from a year ago.
And if steel prices also softened during the quarter as purchasers reduced inventory levels heading into the end of the year, while the construction markets were softer due to interest rate uncertainty and inflationary pressures on construction costs. The Dodge momentum index, which is a 12 month, leading indicator of nonresidential construction.
Lending is signaling strong growth.
Moving to nonferrous, although average nonferrous prices decrease sequentially they remain up year over year on healthy global demand for copper and aluminum.
One of the most significant drivers of change for our operating margin has been the reduced supply of recycled scrap metal as the U S manufacturing sector has gone through a cyclical downturn our markets have experienced a tightening in the availability of end of life vehicles obsolete white goods manufacturing scrap and scrap from fewer.
And demolition projects. These constrained supply conditions have pressured purchase costs for our raw materials, leading to margin compression. In addition, auto production that is still below pre pandemic levels together with financing costs for new and used cars that are still comparatively high at.
A contributor to the average age of vehicles on the road, reaching their highest level on record.
But while the weaker environment that we're in today presents challenges, we've experienced cyclical downturns and volatility before and we've demonstrated our ability to navigate effectively through these periods by focusing on what we can control, including productivity customer service technology.
And platform diversification as market conditions recover we are very well positioned to benefit from the expected increased demand for recycled metals associated with investments in infrastructure.
Jewelry shoring, rather than U S electric arc furnace steelmaking capacity and the transition to metal intensive low carbon technologies.
So, let's turn now to slide six.
Date on our strategic priorities.
Our strategic initiatives are strongly aligned with the secular growth trends I mentioned earlier and can be summarized as follows.
First our investments in advanced metal recovery technologies. This is a multi site multi year investment program focused on increasing the recovery of nonferrous metals from our shredding process and creating product optionality by enabling us to create furnace ready products based on demand and price.
The majority of the returns from these investments should come through our results in fiscal 'twenty five.
We estimate these investments should return over $40 million in annual EBITDA after full deployment.
Second our trademark three P R service and solutions business line.
Great PR service and offering enables our customers to increase the recycling rate reduced materials going to landfills.
Lower their carbon footprint and provide enhanced sustainability reporting. This is an asset light business typically with multi year contracts that provides a counterbalance to our more cyclical core recycling operations and it's highly aligned with secular growth trends.
Reflecting the steady growth of our three PR business line contributed over 10% to our recycled metal volumes in fiscal 'twenty four.
Third our cost reduction and productivity program in the first quarter, we achieved a 6% reduction in adjusted SG&A costs compared to the prior year, reflecting the cost savings initiatives, we implemented during fiscal 'twenty four.
Additionally, as part of our continued focus on optimizing production efficiency, we expect in fiscal 'twenty five to benefit from the monetization of certain discreet real estate assets in locations, where we can both substantially consolidate or reposition our business activity and unlock the associated <unk>.
Real estate value.
We expect to close on two transactions in the second half of the year and raised net proceeds of approximately $35 million benefit.
Benefits from these initiatives are already contributing to our financial performance and as the manufacturing sector improves and the global steel market returns to equilibrium, we expect the benefits of our actions to become much more visible in our margins and EBITDA and to provide a substantial boost in future financial results.
Stefano: So now let me turn the presentation over to Stefano.
Stefano: Thank you Tamara and good morning.
Stefano: On a year over year basis, we were able to achieve stable operating results. Despite the deterioration in market conditions for ferrous and especially for finished steel over the last 12 months.
Stefano: In addition, last year's results have benefited from insurance recovery gains of $4 million.
Stefano: The contribution to consolidated results from our recycle metals platform improved over this period, driven primarily by stronger nonferrous demand and by the productivity and cost savings program. We implemented over the last year, we don't aggregate quarterly run rate of benefits of nearly $20 million.
Stefano: This more than offset the impact of the softer global ferrous market.
Stefano: Finished steel contribution was significantly lower as weaker demand and prices led to a 10% compression in metal spreads year over year, which was further compounded by higher conversion costs due to lower mill utilization in the first quarter of fiscal 'twenty five.
Stefano: <unk> from a scheduled maintenance outage.
On a sequential basis there were two primary drivers of the decline in adjusted EBITDA performance.
Stefano: First slightly more than half of the reduction in EBITDA was associated with the decline in sales volumes, primarily due to seasonality and to a lesser extent timing of shipments.
Stefano: Paris and finished steel volumes, each were down 11% and nonferrous volumes were down 14%.
Stefano: Lower volumes also contributed to margin compression through the loss of operating leverage including at our mill due to the lower utilization.
Stefano: And second there was a reduction in average net selling prices for our ferrous nonferrous and finished steel products that led to metal spread compression compared to the fourth quarter. The.
Stefano: The spread compression and also included a detriment from volatility in non ferrous prices during the quarter.
Stefano: Adjusted SG&A expense was down 6% year over year, driven by the measures we implemented during fiscal 'twenty four targeting a reduction of 10% in SG&A.
It's worth highlighting that our results in the first quarter reflect elevated cost of several million dollars for certain ongoing legal matters, which we expect to be temporary and received in the second half of fiscal 'twenty five.
Stefano: Reported SG&A expense was 10% lower year over year as it benefited from a $2 million insurance recovery gain related to a legacy environmental matter, which is excluded from adjusted results.
Stefano: Turning to other ferrous dynamics in the first quarter the.
Stefano: The share of domestic ferrous shipments was 43% our top sales destinations for ferrous experts, where Bangladesh, Turkey and India.
Stefano: First average net selling prices were 3% lower sequentially, primarily driven by weaker export demand amid continued pressure from elevated levels of Chinese steel exports.
Stefano: Domestic prices were stable during the first quarter.
Stefano: In the lower price environment, the impact of average inventory accounting was a detriment of $1 per ferrous stone in the first quarter similar to the levels seen in the fourth quarter.
Stefano: Now, let's move to slide eight to discuss nonferrous sales and provide an update on our nonferrous investments.
Stefano: Nonferrous sales volumes were down 14% sequentially, primarily reflecting seasonality in flows and to a lesser extent timing of sales.
Stefano: On a year over year basis volumes were down 2% we.
Stefano: We sold our nonferrous products to 13 countries with a major export destinations being Malaysia, Thailand and India.
Stefano: Average net selling prices for our recycled nonferrous products were down 6% sequentially, reflecting the decline in non ferrous market prices from the multiyear peaks reached earlier in the year.
As you can see in the bottom right graph price volatility for non ferrous metals was significant in the last six months notwithstanding the volatility prices for non ferrous products remain at healthy levels.
Stefano: Evidenced by the 12% rise in average net selling prices on a year over year basis.
Stefano: We continue to progress the deployment of our advanced primary nonferrous recovery systems, which drive the incremental metal recovery and the majority of the expected contribution from our investments in technology.
Stefano: We advanced our ramp up activities on several of these primary systems during the quarter.
Stefano: As of the end of the calendar year 'twenty four we have now completed construction and started the commissioning of the last of the currently permitted primary systems.
Stefano: Overall the contribution to performance from these systems was positive in the first quarter. We continue to expect to see a trend of increasing returns from these investments in the next couple of quarters and target a substantial substantial full ramp up of the permitted systems by Q3 of fiscal 'twenty five once fully operational.
We continue to expect substantial returns from our investments of approximately $10 EBITDA, but fairly stone in normal market conditions.
Stefano: Now, let's move to slide nine to discuss our steel mill performance.
Stefano: Finished steel sales volumes of 125000 tons in the first quarter were down 11% sequentially due primarily to construction seasonality in our western markets compared to the prior year volumes were down 3%.
Stefano: Average rolling mill utilization was 81% down from 97% sequentially and from 95% in the prior year, including due to the impact of a scheduled maintenance outage during the first quarter of fiscal 'twenty five.
Stefano: Average net selling prices for finished steel were down by 2% sequentially and 7% year over year as demand in our west coast market has softened in the elevated interest rate environment.
Stefano: We believe our mill will benefit from the anticipated demand associated with the U S infrastructure Bill.
Stefano: However, as of yet this demand has yet to meaningfully come into play in the construction market.
Stefano: Now, let's move to slide 10.
Stefano: Operating cash flow for the first quarter was near breakeven, including a modest benefit from working capital from lower volumes and prices and the timing of shipments and collection.
Stefano: We continue to manage and align capital expenditures to current performance trends and invested $12 million in capex in the first quarter.
Stefano: Looking ahead, we now project, our fiscal 'twenty, five capex investments to be around $60 million.
Stefano: Around 20% of the spend will be for growth projects, including investments to support the continued expansion of recycling services and completion of our nonferrous technology initiatives with the remaining spend for maintaining the business and environmental related capital projects.
Stefano: As Tamara mentioned, we expect asset monetization transactions with net proceeds of $35 million.
Stefano: To contribute to free cash flow generation in the second half of fiscal 'twenty five subject to customary closing terms.
Speaker Change: Net debt was $430 million at the end of the first quarter.
Speaker Change: Our credit facility with a capacity of $800 million and a maturity date of August 2027.
Speaker Change: Interest costs that are linked to short term market rates.
Speaker Change: As a result, we benefit from the cuts in short term interest rates by the U S. Federal reserve, which have aggregated to 100 basis points since September.
Speaker Change: The effective tax rate for the first quarter was an expense of 11% on a reported pre tax results as.
Speaker Change: As mentioned during last quarter's earnings call because we are in a valuation allowance position on our deferred tax balances and based on how the underlying mechanics work our tax rate is subject to significant projection estimates during interim quarterly periods.
Speaker Change: Therefore, we expect to see meaningful quarter to quarter volatility in our tax rate due to changes in those estimates, including from company performance trends, which is what occurred in the first quarter and created a tax expense on a pre tax loss.
Speaker Change: Compared to a year ago, the income tax rate drive the substantial majority of the difference in EPS results as in the prior year, our tax rate reflected a more normal profile without the impact of a valuation allowance we.
Speaker Change: We do not expect to be a cash taxpayer in fiscal 'twenty five given the availability of net operating loss carryforward.
Speaker Change: Looking ahead to the next few months, we expect to see typical winter seasonality in our recycling metals and finished steel sales volumes in our second fiscal quarter before spring seasonality in both flows and construction activity kicks in.
Speaker Change: We also anticipate a meaningful ramp up in contribution from our technology investments to continue to see the benefits from our productivity and cost reduction program, including an abatement of the currently elevated legal cost starting in the second half of the fiscal year.
Speaker Change: And with that I'll turn the call back over to Tamara.
Tamara: Thank you Stefano in mid December we issued our 11th sustainability report, which describes our progress towards our multiyear sustainability goals I'll highlight just a few examples and I encourage you to visit our website <unk> report.
Tamara: We reduced our scope one and two emissions in our recycling operations by 30% versus our 2019 baseline.
Tamara: In addition, we maintained 100% net carbon free electricity usage across our operations for the fourth consecutive year. We are meeting these goals primarily through significant investments in state of the art emissions control systems power metals trading operations and more efficient operating equipment.
Tamara: 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.
Tamara: During a period marked by challenging market conditions and geopolitical uncertainties. Our company steady progress reflects the agility of our workforce the resiliency of our culture and the strength of our platform.
Tamara: We have an exciting year ahead of us as we execute our strategic priorities and we are well positioned to benefit from the positive structural trends driving increased demand for recycled model I'd like to thank our employees for their dedication and our customers suppliers and communities for their partnership.
And now Marvin lets open the call for questions.
Tamara: Thank you at this time, we will conduct a question and answer session.
Speaker Change: Minor to ask a question you will need to press star one on your telephone and wait for your name to be announced.
Speaker Change: Draw. Your question. Please press star one again, please standby, while we compile the Q&A roster.
Speaker Change: Our first question comes from the line of Samuel Mckinley of Keybanc capital markets. Your line is now open.
Speaker Change: Hi, Cameron Stefano good morning, good morning, good morning.
Speaker Change: Starting in the export market the first quarter export ferrous pricing posted its softest quarterly level over the last handful of years can you talk about the elevated export levels still coming out of China any potential relief on that front and what else you are seeing in the export market.
Speaker Change: Sure so so.
Speaker Change: So as you highlighted and as we mentioned.
Speaker Change: The Chinese steel overproduction is clearly had a dampening effect on.
Speaker Change: And markets around the world in Asia in Central and South America and Turkey.
Speaker Change: And elsewhere.
Speaker Change: That is we do expect to see a pullback pullback.
Speaker Change: Yes.
Speaker Change: This.
Speaker Change: Excess production in excess.
Speaker Change: Exports from China, we expect to see to pull back because other countries are going to push back on these cheap exports that hurt their domestic steel production. We've seen this dynamic before and we have seen how quickly. It can turn so we are anticipating a correction we can't give you that.
Speaker Change: Time, but.
Speaker Change: But we do anticipate a correction.
Speaker Change: Okay and then my next question would be on interest expense first quarter interest expense was relatively flattish sequentially, but that number rose about $4 million year over year I know a recent amendment to the credit facility has increased your cost of money, but any info you can give us on how you plan to manage.
Speaker Change: With that in that rising interest expense moving forward.
Speaker Change: Hi.
Stefano: And as Stefano so.
Stefano: So on the first part of your question.
Stefano: The impact of the cost of the amendment to the credit facility that we executed back in June is now fully reflected in our interest cost profile in Q1 'twenty five those were onetime costs that were paid in cash at the time of execution of the amendment from a discounting perspective, theyre amortized interest expense over the remaining life of the.
Facility, which expires in August 2007, so at this point those costs that flowed through interest expense are noncash and they were not material to start with.
Stefano: On the second part of your question, obviously I mentioned in my in my prepared remarks.
Stefano: Interest rates decline that we've seen with a reduction of over 100 basis points. Since the fed started cutting the rates that can September debt that does and will benefit our interest costs. Since we <unk>. Our line of credit is based on short term interest rates and because of the timing of windows reduction occurred.
Stefano: The benefits are only very partially reflected in our fiscal <unk>.
Stefano: Q1.
Stefano: It will be will be therefore reflected in full.
Stefano: In Q2.
Stefano: And overall from a from a.
Stefano: That perspective.
Stefano: <unk>.
Stefano: We have a line of code, we have a capacity of $800 million.
Stefano: We have 430 million at the end of Q1.
Stefano: Outstanding and really that level of debt is also reflective of the investments we made in the in the last couple of years and including on our non ferrous recovery technologies, but we now expect as Tom mentioned and I mentioned, we expect those returns to expand and a strong payback.
Stefano: So we view we view our liquidity.
Stefano: From a positive perspective.
Stefano: Past that we're looking forward is clearly improving.
Stefano: Improving the financial performance and operating cash flow generation.
Self help initiatives, our strategic initiatives and as Tom just mentioned expecting market conditions to recovery as well. So those are the catalysts, we have managed and align our capex and flex the capex.
Stefano: To align with cash flow generation, we expect 60.
Stefano: $60 million in Capex spend in FY 'twenty, five we have asset monetization opportunities.
Stefano: Two two properties under contract with expected cash proceeds of $35 million.
Stefano: Those will be supportive of free cash flow generation and the interest cost going lower so.
Stefano: That perspective.
Stefano: That's the context.
Stefano: Next Columbia on the debt the interest cost to them.
Stefano: Okay. Thank you.
Stefano: Thank you. Thank you.
Thank you I'm showing no further questions at this time.
Tamara Lundgren: Turn it back to Tamara Lundgren for closing remarks.
Tamara Lundgren: Thank you Marvin and thank you all for your time today, we look forward to speaking with you again, when we report our second quarter results in April in the interim data and stay well.
Tamara Lundgren: Thank you for participation in today's conference. This does conclude the program you may now disconnect.
Tamara Lundgren: Okay.
Tamara Lundgren: Okay.
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Tamara Lundgren: Good day, and thank you for standing by welcome to the wages recycling first quarter 2025 earnings release call and webcast at.
Tamara Lundgren: At this time, all participants are in listen only mode.
Tamara Lundgren: After the Speakers' presentation, there'll be a question and answer session.
Tamara Lundgren: To ask a question. During this session you will need to press star one on your telephone.
Tamara Lundgren: Dan here automated message revising your hand as trace to withdraw your question. Please press star one again, please be advised that today's conference is being recorded.
Tamara Lundgren: And I like to hand, the conference over to your first speaker today, Michael Bennett Investor Relations. Please go ahead.
Thank you Marvin and good morning, and Michael Bennett, the company's Vice President of Investor Relations.
Tamara Lundgren: I'm happy to welcome you to radius recycling earnings presentation for the first quarter of fiscal 2025.
Tamara Lundgren: In addition to today's audio comments, we have issued a press release and posted a set of slides.
Tamara Lundgren: Both of which you can access on our website at radius recycling dot com.
Tamara Lundgren: Before we start let me call your attention to the detailed safe Harbor statement on slide two which is also included in our press release and in the company's Form 10-Q, which will be filed later today as.
Tamara Lundgren: As we note on slide two we may make forward looking statements on our call today, our actual results may differ materially from those projected in our forward looking statements.
Tamara Lundgren: Additional information concerning factors that could cause actual results to materially differ from those in the forward looking statements is contained in slide two as well as our.
Tamara Lundgren: Press release of today, and our Form 10-Q.
Tamara Lundgren: Please note that we will be discussing some non-GAAP measures during our presentation today.
Tamara Lundgren: We've included a reconciliation of those metrics to GAAP in the appendix to our slide presentation.
Tamara Lundgren: Now, let me call, let me turn the call over to Tamara Lundgren, our chairman and Chief Executive Officer, She will host the call today with definitely the Ginnie, our Chief Financial Officer.
Speaker Change: Thank you Michael Good morning, everyone and welcome to our first call 25 first quarter earnings call.
Speaker Change: On our call. This morning, I'll review, our quarterly results.
Speaker Change: 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.
Speaker Change: Stefano will then provide more detail on our financial performance, our capital investments and our capital structure.
Speaker Change: Wrap up with some takeaways from our sustainability report that we issued in mid December and then we'll take your questions.
Speaker Change: But before we begin I'd like to take a moment to express our support for those of you who are being impacted or who have family or friends, who are being impacted by the wildfires in southern California, our thoughts and prayers are with you.
Speaker Change: Before turning to the next slide I would also like to take a moment to recognize our employees for their continued strong safety performance.
Speaker Change: After delivering safety results in fiscal 'twenty for that where the second invest in our company's history. This quarter. The team achieved almost a 50% sequential reduction in our total case incident rate and <unk>.
Speaker Change: 97% of our site.
Speaker Change: Zero lost time injuries.
Speaker Change: These strong results reflect our team's engagement and commitment to creating a safe work environment and a sustainable safety culture.
Speaker Change: Let's turn now to slide four to review our first quarter highlights.
Speaker Change: While market conditions during the quarter were more challenging than a year ago, our year over year operating results remained stable.
Speaker Change: The difference between our adjusted EPS loss of $1 33, compared to a year ago was primarily due to an income tax detriment associated with our deferred tax asset.
Speaker Change: The contribution from our recycled metals business improved versus a year ago, driven by benefits realized from our cost reduction and productivity measures implemented in fiscal 'twenty, four and stronger non ferrous demand, which offset the tight scrap environment and the softer global ferrous markets.
Speaker Change: The contribution from finished steel declined year over year due to weaker domestic steel conditions and a scheduled maintenance outage.
Speaker Change: Our steel mill utilization of 81%.
Speaker Change: Dallas sequentially was still higher than the U S average of 75%, reflecting relatively stronger west coast demand.
Speaker Change: We achieved nearly breakeven operating cash flow during the quarter and returned capital to our shareholders through our 123rd consecutive quarterly dividend.
The biggest headwind to our performance is the pressure U S manufacturing sector, which has been in recessionary territory for two years.
Speaker Change: The last time, we saw such an extended manufacturing downturn was over 20 years ago.
Speaker Change: The outlook for our manufacturing recovery, However is positive with U S consumer and business confidence surgeons since November and a consensus across the political spectrum that revitalizing our manufacturing sector is critical for U S economic growth and National security.
Speaker Change: A recovery in the manufacturing sector.
Speaker Change: He's the constrained scrap environment and drive more demand for ferrous and nonferrous recycled metals.
From a long term perspective, the demand for recycled metals continues to have a strong upward bias underpinned by several structural trend.
Speaker Change: US industrial re shoring continued growth in Eas steelmaking production maximizing the use of recycled metals and production processes and.
And the transition to metal intensive low carbon technologies importantly.
Speaker Change: Our strategic initiatives focused on metal recovery technologies volume growth and expansion of our <unk> surfaces are strongly aligned with the secular growth drivers.
Speaker Change: So, let's turn to slide five for a deeper dive into the market condition.
Speaker Change: During the quarter export prices for recycled ferrous metals decreased driven by softer global steel demand, including the dampening effect from elevated levels of Chinese steel exports in.
Speaker Change: In the last 12 months through November 2024, Chinese steel exports to countries in Asia, Central and South America and Turkey.
Speaker Change: Risen by approximately 25% versus a year ago, reducing steel manufacturing and associated ferrous scrap demand in these regions as a result.
Speaker Change: Domestic ferrous scrap prices during Q1 were relatively flat sequentially, but down significantly from a year ago.
Speaker Change: If steel prices also softened during the quarter as purchasers reduced inventory levels heading into the end of the year, while the construction markets were softer.
Speaker Change: The interest rate uncertainty and inflationary pressures on construction costs. The Dodge momentum index, which is a 12 month, leading indicator of nonresidential construction spending is signaling strong growth.
Speaker Change: Moving to nonferrous, although average nonferrous prices decrease sequentially they remain up year over year on healthy global demand for copper and aluminum.
Speaker Change: One of the most significant drivers of change to our operating margin has been the reduced supply of recycled scrap metal as the U S manufacturing sector has gone through a cyclical downturn our markets have experienced a tightening in the availability of end of life vehicles obsolete white goods manufacturing scrap and scrap from fewer.
Speaker Change: And demolition projects. These constrained supply conditions have pressured purchase costs for our raw materials, leading to margin compression. In addition, auto production that is still below pre pandemic levels together with financing costs for new and used cars that are still comparatively high at.
Speaker Change: A contributor to the average age of vehicles on the road, reaching their highest level on record.
Speaker Change: But while the weaker environment that we're in today presents challenges, we've experienced cyclical downturns and volatility before and we've demonstrated our ability to navigate effectively through these periods by focusing on what we can control, including productivity customer service technology.
Speaker Change: And platform diversification as market conditions recover we are very well positioned to benefit from the expected increased demand for recycled metals associated with investments in infrastructure.
Jewelry shoring, rather than U S electric arc furnace steelmaking capacity and the transition to metal intensive low carbon technologies.
Speaker Change: Let's turn now to slide six for an update on our strategic priorities.
Speaker Change: Our strategic initiatives are strongly aligned with the secular growth trends I mentioned earlier and can be summarized as follows.
Speaker Change: First our investments in advanced metal recovery technologies. This is a multi site multi year investment program focused on increasing the recovery of nonferrous metals from our shredding process and creating product optionality.
Speaker Change: Enabling us to create furnace ready products based on demand and price.
Speaker Change: The majority of the returns from these investments should come through our results in fiscal 'twenty five.
Speaker Change: We estimate these investments should return over $40 million in annual EBITDA after full deployment.
Speaker Change: Second our trademark <unk> service and solutions business line our.
Speaker Change: I agree with you our service and offering enables our customers to increase the recycling rate.
Speaker Change: <unk> materials go into landfills lower their carbon footprint and provide enhanced sustainability reporting. This is an asset light business typically with multiyear contracts that provides a counterbalance to our more cyclical core recycling operations and is highly aligned with secular growth.
Speaker Change: Yes.
Reflecting this steady growth our <unk> business line contributed over 10% to our recycled metal volumes in fiscal 'twenty four.
Speaker Change: Third our cost reduction and productivity program in the first quarter, we achieved a 6% reduction in adjusted SG&A costs compared to the prior year, reflecting the cost savings initiatives, we implemented during fiscal 'twenty four. Additionally.
Speaker Change: Additionally, as part of our continued focus on optimizing production efficiency, we expect in fiscal 'twenty five to benefit from the monetization of certain discreet real estate assets in locations, where we can both substantially consolidate or reposition our business activity and unlock the associated real.
Speaker Change: Estate value, we expect to close on two transactions in the second half of the year and raised net proceeds of approximately $35 million.
Speaker Change: Benefits from these initiatives are already contributing to our financial performance.
Speaker Change: The manufacturing sector improves and the global steel market returns to equilibrium, we expect the benefits of our actions to become much more visible in our margins and EBITDA and to provide a substantial boost in future financial results.
So now let me turn the presentation over to Stefano.
Stefano: Thank you Tamara and good morning.
Stefano: On a year over year basis, we were able to achieve stable operating results. Despite the deterioration in market conditions for ferrous and especially for finished steel over the last 12 months.
Stefano: In addition, last year's results have benefited from insurance recovery gains of $4 million.
Stefano: The contribution to consolidated results from our recycle metals platform improved over this period, driven primarily by stronger nonferrous demand and by the productivity and cost savings program. We implemented over the last year, we don't aggregate quarterly run rate of benefits of nearly $20 million.
Stefano: This more than offset the impact of the softer global ferrous market.
Finished steel contribution was significantly lower as weaker demand and prices led to a 10% compression in metal spreads year over year, which was further compounded by higher conversion costs due to lower mill utilization in the first quarter of fiscal 'twenty five.
Stefano: <unk> from a scheduled maintenance outage.
Stefano: On a sequential basis there were two primary drivers of the decline in adjusted EBITDA performance.
Stefano: First slightly more than half of the reduction in EBITDA was associated with the decline in sales volumes, primarily due to seasonality and to a lesser extent timing of shipments.
Stefano: Paris and finished steel volumes, each were down 11% and nonferrous volumes were down 14%.
Stefano: Lower volumes also contributed to margin compression through the loss of operating leverage including at our mill due to the lower utilization.
Stefano: And second there was a reduction in average net selling prices for our ferrous nonferrous and finished steel products that led to metal spread compression compared to the fourth quarter. The.
Stefano: The spread compression also included a detriment from volatility in non ferrous prices during the quarter.
Stefano: Adjusted SG&A expense was down 6% year over year, driven by the measures we implemented during fiscal 'twenty four targeting a reduction of 10% in SG&A.
Stefano: It's worth highlighting that our results in the first quarter reflect elevated cost of several million dollars for certain ongoing legal matters, which we expect to be temporary and received in the second half of fiscal 'twenty five.
Stefano: Reported SG&A expense was 10% lower year over year as it benefited from a $2 million insurance recovery gain related to a legacy environmental matter, which is excluded from adjusted results.
Stefano: Turning to other ferrous dynamics in the first quarter.
Stefano: The share of domestic ferrous shipments was 43% our top sales destinations for ferrous experts, where Bangladesh, Turkey and India.
Stefano: Ferrous average net selling prices were 3% lower sequentially, primarily driven by weaker export demand amid continued pressure from elevated levels of Chinese steel exports domestic prices were stable during the first quarter.
Stefano: In the lower price environment, the impact of average inventory accounting was a detriment of $1 per ferrous stone in the first quarter.
Stefano: We look to the levels seen in the fourth quarter.
Stefano: Now, let's move to slide eight to discuss nonferrous sales and provide an update on our non ferrous investments.
Stefano: Nonferrous sales volumes were down 14% sequentially, primarily reflecting seasonality on flows and to a lesser extent timing of sales.
Stefano: On a year over year basis volumes were down 2% with.
Stefano: We sold our nonferrous products to 13 countries with the major export destinations being Malaysia, Thailand and India.
Stefano: Average net selling prices for our recycled nonferrous products were down 6% sequentially, reflecting the declining non ferrous market prices from the multiyear peaks reached earlier in the year.
Stefano: As you can see in the bottom right graph price volatility for nonferrous metals was significant in the last six months notwithstanding the volatility prices for non ferrous products remain at healthy levels as evidenced by the 12% rise in average net selling prices on a year over year basis.
Stefano: We continue to progress the deployment of our advanced primary nonferrous recovery systems, which drive the incremental metal recovery and the majority of the expected contribution from our investments in technology.
Stefano: We advanced our ramp up activities on several of these primary systems during the quarter.
Stefano: As of the end of the calendar year 'twenty four we have now completed construction and started the commissioning of the last of the currently permitted primary systems.
Stefano: Overall the contribution to performance from these systems was positive in the first quarter.
Stefano: We continue to expect to see a trend of increasing returns from these investments in the next couple of quarters and targeted substantial substantial full ramp up of the permitted systems by Q3 of fiscal 'twenty five once fully operational we continue to expect substantial returns from our investments of approximately $10 to EBITDA.
Stefano: But fairly stone in normal market conditions.
Stefano: Now, let's move to slide nine to discuss our steel mill performance.
Stefano: Finished steel sales volumes of 125000 tons in the first quarter were down 11% sequentially due primarily to construction seasonality in our western markets compared to the prior year volumes were down 3%.
Stefano: Average rolling mill utilization was 81% down from 97% sequentially and from 95% in the prior year, including due to the impact of a scheduled maintenance outage during the first quarter of fiscal 'twenty five.
Stefano: Average net selling prices for finished steel were down by 2% sequentially and 7% year over year as demand in our west coast market has softened in the elevated interest rate environment. We believe our mill will benefit from the anticipated demand associated with the U S infrastructure Bill However, as of yet this demand is yet.
Stefano: Meaningfully come into play in the construction market.
Stefano: Now, let's move to slide 10.
Stefano: Operating cash flow for the first quarter was near breakeven, including a modest benefit from working capital from lower volumes and prices and the timing of shipments and collection.
Stefano: We continue to manage and align capital expenditures to current performance trends and invested $12 million in capex in the first quarter.
Stefano: Looking ahead, we now project, our fiscal 'twenty, five capex investments to be around $60 million.
Stefano: Around 20% of the spend will be for growth projects, including investments to support the continued expansion of recycling services and completion of our nonferrous technology initiatives with the remaining spend for maintaining the business and environmental related capital projects.
Stefano: As Dominic mentioned, we expect asset monetization transactions with net proceeds of $35 million.
Stefano: To contribute to free cash flow generation in the second half of fiscal 'twenty five subject to customary closing terms.
Stefano: Net debt was $430 million at the end of the first quarter.
Stefano: Our credit facility with a capacity of $800 million and a maturity date of August 2027.
Stefano: Interest costs that are linked to short term market rates as a result, we benefit from the cuts in short term interest rates by the U S. Federal reserve, which have aggregated to 100 basis points since September.
Stefano: The effective tax rate for the first quarter was an expense of 11% on a reported pre tax results.
Stefano: As mentioned during last quarter's earnings call because we are in a valuation allowance position on our deferred tax balances and based on that with the underlying mechanics work our tax rate is subject to significant projection estimates during interim quarterly periods.
Stefano: Therefore, we expect to see meaningful quarter to quarter volatility in our tax rate due to changes in those estimates, including from company performance trends, which is what occurred in the first quarter and created a tax expense on a pre tax loss.
Stefano: Compared to a year ago, the income tax rate drive the substantial majority of the difference in EPS results as in the prior year, our tax rate reflected a more normal profile without the impact of a valuation allowance we.
Stefano: We do not expect to be a cash taxpayer in fiscal 'twenty five given the availability of net operating loss carryforward.
Stefano: Looking ahead to the next few months, we expect to see typical winter seasonality in our recycling metals and finished steel sales volumes in our second fiscal quarter before spring seasonality in both flows and construction activity kicks in.
Stefano: We also anticipate a meaningful ramp up in contribution from our technology investments to continue to see the benefits from our productivity and cost reduction program, including an abatement of the currently elevated legal cost starting in the second half of the fiscal year.
Tamara Lundgren: And with that I'll turn the call back over to Tamara.
Speaker Change: Thank you Stefano in mid December we issued our 11th sustainability report, which describes our progress towards our multiyear sustainability goals I'll highlight just a few examples and I encourage you to visit our website <unk> report.
Speaker Change: We reduced our scope one and two emissions in our recycling operations by 30% versus our 2019 baseline.
Speaker Change: In addition, we maintained 100% net carbon free electricity usage across our operations for the fourth consecutive year. We are meeting these goals primarily through significant investments in state of the art emissions control systems for our metal trading operation and more efficient operating equipment.
Speaker Change: These achievements and many others with nos impossible without our employees living our core values of safety sustainability and integrity I am very proud of what our team has accomplished.
Speaker Change: During a period marked by challenging market conditions and geopolitical uncertainties. Our company steady progress reflects the agility of our workforce the resiliency of our culture and the strength of our platform.
Speaker Change: We have an exciting year ahead of us as we execute.
Speaker Change: Strategic priority and we are well positioned to benefit from the positive structural trends driving increased demand for recycled metals I'd like to thank our employees for their dedication and our customers suppliers and communities for their partnership.
Marvin: And now Marvin lets open the call for questions.
Thank you at this time, we will conduct a question and answer session. As a reminder to ask a question you will need to press star one on your telephone and wait for your name to be announced.
Marvin: Draw. Your question. Please press star one again.
Marvin: Please standby, while we compile the Q&A roster.
Speaker Change: Our first question comes from the line of Samuel Mckinley of Keybanc capital markets. Your line is now open.
Cameron Stefano: Hi, Cameron Stefano good morning, good morning, good morning.
Samuel McKinley: Starting in the export market the first quarter export ferrous pricing posted its softest quarterly level over the last handful of years can you talk about the elevated export levels still coming out of China any potential relief on that front and what else you are seeing in the export market.
Cameron Stefano: Sure so so.
Cameron Stefano: So as you highlighted and as we mentioned.
Cameron Stefano: The Chinese steel overproduction is clearly had a dampening effect on.
Cameron Stefano: And markets around the world.
Cameron Stefano: Asia, and Central and South America and Turkey.
Cameron Stefano: And elsewhere, what we expect as we do expect to see a pullback pullback.
Cameron Stefano: This.
Cameron Stefano: This.
Cameron Stefano: Excess production in excess.
Cameron Stefano: Exports from China, we expect to see to pull back because other countries are going to push back on those cheap exports that hurt their domestic steel production. We've seen this dynamic before and we have seen how quickly. It can turn so we are anticipating a correction we can't give you the.
Cameron Stefano: Time, but.
But we do anticipate a correction.
Speaker Change: Okay and then my next question would be on interest expense first quarter interest expense was relatively flattish sequentially, but that number rose about $4 million year over year I know a recent amendment to the credit facility has increased your cost of money, but any info you can give us on how you plan to manage.
With that in that rising interest expense moving forward.
Speaker Change: Hi.
Andrew Stefano: Andrew Stefano so.
Andrew Stefano: So on the first part of your question.
Andrew Stefano: The impact of the cost of the amendment to the credit facility that we executed back in June is now fully reflected in our interest cost profile in Q1 'twenty five those were onetime costs that were paid in cash at the time of execution of the amendment from a discounting perspective, theyre amortized interest expense over the remaining life.
Andrew Stefano: Facility, which expires in August 2007, so at this point those costs that flowed through interest expense are noncash and they were not material to start with.
Andrew Stefano: On the second part of your question, obviously I mentioned in my in my prepared remarks.
Andrew Stefano: Interest rates decline that we've seen with a reduction of over 100 basis points. Since the fed started cutting the rates that can September debt that does and will benefit our interest costs. Since we <unk>. Our line of credit is based on short term interest rates and because of the timing of windows reduction occurred.
Andrew Stefano: The benefits are only very partially reflected in our fiscal <unk>.
Andrew Stefano: Q1.
Andrew Stefano: And it will be will be therefore reflected in full.
Andrew Stefano: In Q2.
Andrew Stefano: And overall from a from a.
Andrew Stefano: That perspective.
Andrew Stefano: Have.
We have a line of code, we have a capacity of $800 million.
Andrew Stefano: We have 430 million at the end of Q1.
Andrew Stefano: Outstanding and really that level of debt is also reflective of the investments we made in the in the last couple of years and including on our non ferrous recovery technologies, but we now expect as Dominic mentioned and I mentioned, we expect those returns to expand and have strong payback.
Andrew Stefano: So we view we view our liquidity.
Andrew Stefano: From a positive perspective.
Andrew Stefano: Past that we're looking forward is clearly improving.
Andrew Stefano: Improving the pension performance in operating cash flow generation.
Andrew Stefano: Self help initiatives, our strategic initiatives and as Tom just mentioned expecting marketing conditions to recover as well. So those are the catalysts, we have managed and align our capex and flex the capex.
Andrew Stefano: To align with cash flow generation, we expect 60.
Andrew Stefano: $60 million in Capex spend in FY 'twenty, five we have asset monetization opportunities.
Andrew Stefano: Two two properties under contract with expected cash proceeds of $35 million.
Andrew Stefano: Those will be supportive of free cash flow generation and the interest cost going lower so.
Andrew Stefano: That perspective.
Andrew Stefano: That's the context.
Andrew Stefano: Next Columbia on the debt the interest cost to them.
Andrew Stefano: Okay. Thank you.
Andrew Stefano: Thank you. Thank you.
Speaker Change: Thank you I'm showing no further questions at this time.
Tamara Lundgren: Turn it back to Tamara Lundgren for closing remarks.
Tamara Lundgren: Thank you Marvin and thank you all for your time today, we look forward to speaking with you again, when we report our second quarter results in April in the interim data and stay well.
Tamara Lundgren: Thank you for your participation in today's conference. This does conclude the program you may now disconnect.