Good day and welcome to the Ryerson Holding Corporation's Third Quarter 2020 Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Justine Carlson. Please go ahead, ma'am..

Good morning. Thank you for joining Ryerson Holding Corporation's third quarter 2020 earnings call. I'm here this morning with Eddie Lehner, Ryerson's President and Chief Executive Officer; and our Controller and Chief Accounting Officer, Molly Kannan.

Kevin Richardson, Mike Burbach, and Jim Claussen, our North American Regional Presidents, along with John Orth, our Executive Vice President of Operations, will be joining us for Q&A.

Before we get started, let me remind you that certain comments we make on this call contain forward-looking statements within the meaning of the federal securities laws.

These forward-looking statements include a number of risks and uncertainties, including the impacts of COVID-19 and related economic conditions that could cause actual results to differ materially from those implied by the forward-looking statements.

Such risks and uncertainties include but are not limited to those set forth under Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2019. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date they are made and are not guarantees of future performance.

In addition, our remarks today refer to several non-GAAP financial measures that are intended to supplement, but not substitute for the most directly comparable GAAP measures.

A reconciliation of the non-GAAP financial measures discussed on today's call to the most directly comparable GAAP measures is provided in our third quarter 2020 earnings release filed on Form 8-K yesterday, which is available on the Investor Relations section of our website. Now, I’ll turn the call over to Eddie..

Thank you, Justine, and thank you all for joining us this morning to discuss our third quarter results. I hope this call finds you all safe, well, and in good spirits.

And I want to begin our call this morning by thanking all of my Ryerson colleagues, our customers, our suppliers, and our shareholders as we continue to navigate through the omnipresent COVID-19 environment.

As the course of the pandemic continues unfolding, we continue our unwavering efforts directed toward the health, safety and well-being of our coworkers, customers, suppliers, and communities.

We remain dedicated in practicing our established health and safety protocols, which are in accordance with CDC guidelines and governing jurisdictional orders, while carefully observing COVID-19 virus data trends in the areas in which we operate to further enhance suppression and mitigation efforts.

We again send our heartfelt thanks to all essential workers whose work throughout this pandemic is as heroic as it is enduring. I am compelled to express my gratitude to our Ryerson operations team that has answered that essential bell day after day while demonstrating notably improved safety performance during this challenging year.

And we, like most, if not all of our audience today, recognize all that has been lost and the hardships visited upon so many throughout the pandemic. We extend our heartfelt condolences to those who have lost loved ones and to those whose recovery is still in doubt.

Turning to the company's consolidated performance during the third quarter, bookings, shipments, revenues, and margins all advanced incrementally from July through September, while asset efficiency and expense management were excellent throughout.

As the quarter progressed, shipments moved toward 85% of pre-COVID levels and bookings increased toward 90% of pre-COVID levels, with end-market restocking gaining momentum across a wider range of Ryerson's vertical markets. Pricing drivers also improved through the quarter, starting with stainless, followed by aluminum and then carbon.

Operating cash flows hit a high watermark for the year at more than $120 million, while we've reduced debt by more than $100 million to a more than 10-year low. In fact, since the CS&W acquisition in the third quarter of 2018, Ryerson has reduced its net debt by approximately $540 million.

We did some important work on the balance sheet side of the house through the refinancing of our 2020 notes.

Soon after closing the bond refinancing, we exercised our redemption rights for an additional [Technical Difficulty] of approximately $100 million in pension benefit obligations, further reducing pension costs and reducing legacy liability risk.

Even amidst the pandemic's adverse impacts, we completed a challenging ERP conversion at CS&W, which was necessary and important because of disruption to CS&W's business in the quarter.

Reorganization costs attributable to the ERP conversion at CS&W during Q3 was $3.2 million, while lost revenue impacts through the conversion period of August 10 through September 30 were approximately $30 million.

We always understood and planned for the modernization and digitalization of CS&W's information technology systems as a primary and necessary factor in achieving our long-term goals for the business and franchise.

I would point out that as the CS&W senior leadership team moves beyond the ERP conversion, cost target and working capital target attainment is ahead of schedule.

On balance and in totality, Ryerson made some big plays and had an inspired quarter that served as another vital step in realizing our vision and potential as an organization, while being very clear-eyed about the challenges that still lie ahead.

Now unpacking the macro environment with some additional commentary, macroeconomic indicators in the third quarter reflected what we believe to be the beginning of an uneven and unusual recovery with a multitude of unknowns. The U.S.

Purchasing Managers Index or PMI, reported economic expansion for the fourth consecutive month in September, with readings well above the growth threshold of 50. However, U.S.

industrial production, while improved from the severe contraction period in April and May, has reported average year-over-year contraction of approximately 7% for the past three months.

Likewise, third quarter North American industry shipments as measured by the Metals Service Center Institute, or MSCI, came in at 10.9% below the year-ago period, though much improved from second quarter year-over-year contraction of 27.9%.

Turning to commodities, as noted on our prior earnings call, the pricing environment held up better than anticipated during the pandemic, as no capacities globally and in North America adjusted more responsively to falling demand than that experienced during the downturns of 2008-2009 and 2015-2016.

After deflating in the summer months, carbon hot rolled prices bottomed in August and have improved sequentially in September and October.

LME aluminum moving average prices ended the third quarter higher relative to the second quarter, while LME nickel continued to increase, up by 17% at the end of the third quarter, compared to the end of the second.

As of the first few weeks of the fourth quarter, both LME aluminum and LME nickel have continued to maintain relevant strength, while carbon sheet spot steel prices are at a 12-month high, with the latest CRU spot print coming in at $684 per net ton.

Very recent events around supply side tensioning are creating an environment across carbon, stainless, and aluminum, where lead times have practically moved into Q1 of 2021. This most resembles conditions last seen in the first half of 2010 and 2011, if we're looking for a few relevant reference periods.

The probabilities are growing that these conditions will be difficult to unwind for the next several quarters. After that, any line of sight becomes blurry as a function of ongoing virus impacts, demand side recovery, and stimulus consolidation versus new phasings of new capacity and overall geopolitical stability.

Longer term, we are keeping a close eye on re-shoring and on-shoring as a function of several things, including carbon pricing, which would favor U.S.-based manufacturers. Regarding Ryerson's end markets, customer activity in North America also continued to improve on balance, if unevenly, throughout the third quarter.

Compared to second quarter volumes, Ryerson's per-day volumes in commercial ground transportation, consumer durable, food and agricultural equipment and HVAC sectors all improved, while metal fabrication and machine shop, industrial equipment, and construction equipment sectors all declined quarter over quarter.

Regarding the Q4 of 2020 outlook, although we saw recovery progress in both pricing and demand conditions in the third quarter, macroeconomic uncertainty prevails beyond the current restocking cycle, given recent economic indicators and an increasing number of confirmed COVID-19 cases.

At this point in the fourth quarter, North American average selling prices are trending higher compared to the third quarter, which we expect to be up 0% to 2%, with per-day shipping volumes above third quarter levels by approximately 2% to 4%.

Overall, we believe the industrial metals economy is improving going into the fourth quarter and note that a broader manufacturing recovery of greater than a two-quarter to four-quarter restocking cycle will depend on economic variables that remain unsettled around ongoing virus impacts, potential fiscal stimulus, and current supply side tensioning.

With that, I'll turn the call over to Molly, who will discuss the highlights of our third quarter performance..

Thanks, Eddie, and good morning, everyone. In the third quarter of 2020, Ryerson achieved revenues of $831.5 million, an increase of 7.7%, compared to $771.8 million in the second quarter of 2020, with tons shipped up 5.8% and average selling prices up 1.7%.

Compared to the third quarter of 2019, revenues were down by $272.9 million or 24.7%, with tons shipped 18.2% lower and average selling prices 8% lower. Gross margin expanded to 18.7% in the third quarter of 2020, compared to 15% in the second quarter of 2020 and 18.5% for the same quarter last year.

Included in the third quarter of 2020, gross margin is LIFO income of $16.9 million, which represents a $31 million swing, compared to the second quarter, when we reported LIFO expense of $14.1 million.

Although managerial price margins expanded incrementally throughout the quarter, due to impacts of CS&W's ERP conversion, including liquidating aged inventory and accelerating physical inventory counts, gross margin excluding LIFO decreased slightly to 16.7% in the third quarter of 2020, compared to 16.8% in the second quarter of 2020, but increased compared to 15.8% in the third quarter of 2019.

While shipments increased sequentially by nearly 6%, Ryerson exhibited strong expense management as third quarter warehousing, delivery, selling, general and administrative expenses rose by only $1.3 million or 1% compared to the prior quarter.

Compared to the same quarter last year, Ryerson reduced warehousing, delivery, selling, general and administrative expenses by $40.2 million or 24.3%.

These expense reductions were driven by the variabilization of the company's cost structure as it adapted to the COVID19 environment, and we anticipate carrying approximately half of this leverage with us in the long-term once we start to realize more normalized pre-COVID-19 demand levels and bring back production capacity accordingly.

Third quarter net loss attributable to Ryerson Holding Corporation was $39.9 million or $1.05 per diluted share, compared to net income of $10.1 million or $0.27 per diluted share in the prior-year period.

Included in third quarter net loss is $52.5 million of a non-cash settlement charge related to the partial annuitization of our pension liabilities and $17.1 million of expenses related to the refinance of Ryerson's 2022 notes, which was completed in July.

Adjusted net income attributable to Ryerson Holding Corporation, excluding gain on insurance settlement, restructuring and other charges, gain or loss on retirement of debt, pension settlement charge, and the associated income taxes on these items, was $11.9 million for the third quarter of 2020 or $0.31 per diluted share, compared to $9.2 million of adjusted net income or $0.24 per diluted share in the prior-year period.

Ryerson achieved adjusted EBITDA, excluding LIFO, of $31.4 million in the third quarter of 2020, an increase of $1.9 million, compared to the third quarter of 2019 and an increase of $10.8 million, compared to the second quarter of 2020.

Turning to the year-to-date results, revenues in the first nine months of 2020 were $2.61 billion, a decrease of 26.2%, compared to the first nine months of 2019, as tons shipped decreased 17.6% and average selling prices decreased 10.4%.

Net loss attributable to Ryerson Holding Corporation was $49.1 million or a loss of $1.29 per diluted share in the first nine months of 2020, compared to $56 million of net income or $1.48 per diluted share for the same period of 2019.

Adjusted net income attributable to Ryerson Holding Corporation, excluding gain on insurance settlement, restructuring and other charges, gain or loss on retirement of debt, pension settlement charge, and the associated income taxes on these items, was $3.5 million for the first nine months of 2020 or $0.09 per diluted share compared to $56.3 million or a $1.49 per diluted share for the first nine months of 2019.

Adjusted EBITDA, excluding LIFO, was $86.4 million in the first nine months of 2020 compared to a $143.2 million in the first nine months of 2019.

Ryerson's strong and responsive working capital management was clearly illustrated in the third quarter as the company decreased inventory days of supply in line with the market environment to 68 days, compared to 85 days at the end of the second quarter and 76 days at the end of the third quarter of 2019.

The company also continued to work with customers during the quarter to significantly reduce the gap between the receivable and payable cycles, contributing to a cash conversion cycle of 70 days for the period, compared to 91 days for the second quarter and 80 days for the year-ago period.

Driven by successful working capital management, Ryerson generated strong cash from operating activities during the third quarter of $120.6 million, compared to $82.5 million in the year-ago period.

Consequently, our free cash flow, calculated as cash flow from operating activities and asset sales less capital expenditures, was also strong in the third quarter at $114.5 million, resulting in a cash flow yield of 52.4%.

Additionally, we continued to significantly decrease our outstanding net debt during the period, driving it down by $101 million since June 30, 2020, to $692 million as of September 30, 2020.

Enabled by countercyclical cash flows, we have decreased our net debt by $231 million year to date through a combination of opportunistic open market repurchases, credit facility borrowing reductions, and our July refinance to again achieve our lowest net debt level in 10 years.

And further, as Eddie also mentioned, we completed a partial pension annuitization in the third quarter as part of our continued efforts of reducing Ryerson's pension plan liability exposure and which is expected to result in economic savings of approximately $7.8 million on a net present value basis.

As a result of the partial annuitization, a remeasurement of the Ryerson U.S. pension liability was completed and resulted in an accounting liability increase of $33 million, primarily driven by decreasing discount rates and lower expected pension asset returns.

Despite expenses related to the bond refinance and driving down net debt, Ryerson retained a strong liquidity position of $398 million as of September 30, 2020, an increase compared to $350 million as of June 30, 2020.

As of the end of the third quarter, we have invested $17.9 million into capital expenditures through the first nine months of 2020 and expect to meet our COVID-19 revised CapEx budget target of $25 million for the full-year 2020.

Finally, last month we were proud to announce the redemption of $50 million of our 8.5% senior secured notes due in 2028, which is scheduled to occur tomorrow, October 30, at a redemption price of 103% of the principal amount, plus accrued interest.

This transaction is expected to result in an annualized interest expense savings of approximately $4.3 million. After completion of the partial redemption, $450 million aggregate principal amount of the notes will remain outstanding.

In summary, the strong execution of our COVID-19 liquidity strategies has enabled us to once again produced strong operating cash flows, maintain ample liquidity throughout the pandemic, and further achieve balance sheet improvements through debt reduction.

I would like to reiterate Eddie's thanks to our Ryerson colleagues whose hard work has enabled us to continue making progress on this transformation. Now, I'll turn the call back over to Eddie to conclude..

Thank you, Molly. As we remarked during our Q2 call and as evidenced by our third quarter performance, we played the hand we were dealt exceptionally well and managed to draw some better cards in the bargain.

As real and life-altering as this pandemic-infused dystopia has been, 2009 and 2015 gave us some practice reps around how to continue driving a company transformation through adversity. So in closing, let's come back to the mission and the people.

The mission is to provide great customer experiences time after time by building a network of intelligent and connected industrial metal service centers around an organizational DNA of culture, speed, value-add, scale, and analytics.

None of that, however, is possible, without a workforce that works safely, in good health and productively with an unquenchable desire for continuous improvement, growth, and contribution. At Ryerson, as we complete our 178th year in business, we have such a workforce, working safer, working smarter, and working together.

As the pandemic moves through its tenth month and we take stock in 2020 so far, we are a stronger organization today than we were at the start of the year. Let's keep doing that as we work in unity toward better days. With that, we look forward to your questions.

Operator?.

Thank you. [Operator Instructions] Our first question comes from Matthew Fields from Bank of America. Please go ahead. Your line is open..

Hey Eddie, hey Molly. I just want to ask a couple of capital structure questions.

Did this $50 million redemption in August – October, sorry, that's scheduled for tomorrow? Is the intention for that to be paid out of cash on hand, or will you need to sort of redraw on the ABL that you were able to pay down nicely in 3Q?.

Hey, Matt, it's Eddie. Hope you can hear me. We're paying that out of cash on hand. And from our perspective, I think, it's hard to tease out one from the other. Our cash flow performance has been excellent. And as we noted, fourth quarter trends are improving, so we feel confident in that decision, and we're glad to have made it, and 24 hours away.

We're going to keep working down that debt, my man. We're going to keep working it down..

Okay, great. And then I know you can't do another 103 call for another 12 months. That's once per 12-month period, but you do have the other special call feature where you can pay down $100 million at 104 with sale of real property. So, I know you, kind of did a big one last year.

Are any other big sale/leaseback real estate transactions in the works that you can talk about in any – obviously, not with specificity, but anything thematically that you can let us in on?.

Matt, I would say this, and hopefully it'll keep you coming back for more of these earnings calls. And what I would say is, we've made it clear to stakeholders that we believe that there is untapped value on our balance sheet. And so if all the variables align, then we would certainly look at prospectively doing another transaction like that.

But I can't speculate further, only to say that we believe we have untapped value on the balance sheet..

Okay, that's helpful. Thanks very much and good luck..

Thanks, Matt. Take care..

Thank you. We will now take our next question from Chris Terry with Deutsche Bank. Please go ahead. Your line is open..

Thank you. Hi Eddie and Molly. Hope you are well. A few questions from me. I'll just ask them, maybe, one at a time. Just looking at the shipments, I think for 4Q ahead, 2% to 4%. I just wondered if you could comment on the two competing forces, saying seasonality and then the COVID recovery and how you're seeing the whole Q shipments. Thank you..

Sure. Chris, I'm going to I'm going to ask Mike, Kevin to add some color as well.

I would only preface the answer by saying that Q4 trends so far look good on what appears to be a restocking cycle that's pretty robust so far in terms of you look at Newton's Law as being in full effect right now, but we had this very acute reaction to the pandemic and its shutdown, and now you've got a bounce-back, too, that has probably brought us back half of the way, depending on what your end market exposures are.

So, the Q4 trends look good. We just don't really know what the holiday season is going to bring. And we know that some of the COVID indicators are problematic as we move into the latter part of the fourth quarter.

But certainly in some of our end markets, too, that had been lagging, maybe automotive that had been lagging construction, which had recovered faster. We're starting to see some of those end markets show strength and come around, which is a welcome sight. But I would ask Mike and Kevin to comment as well..

Mike Burbach. Oh, sorry, Kevin, I'll take it first, and then you can jump in. Thanks for the question, Chris. I think Eddie touched on what we're seeing so far in October, and I guess I would back that up a little bit to late Q2. We started to see improvements from the trough that we saw in April, May, all through Q3.

And that step-up change in improvements has continued so far into October, which we're seeing it across a broad spectrum of end markets. A few of which continue to perform better than maybe we would have expected would be in the ground transportation area, as well as consumer durables.

Those two seem to be outperforming some others, the ground transportation more related to just maybe a quicker recovery and need for transportation. And then the consumer durable piece, I think we've been surprised on the resilience of the consumer and how they've transferred where they're spending their money these days.

So, products going into recreational vehicles, boats, RVs, ATVs, that sort of thing, has been fairly strong. What happens in the holidays? There's three less billing days that will impact things.

And Eddie touched on the virus impacts, so knock on wood, the virus is not going to get worse than it is, but some of the trends we're reading right now certainly do give us some pause.

Kevin?.

Great, thanks..

This is this is Kevin Richardson. The only thing I was going to add in terms of what we're seeing in fourth quarter is if you if you go back to third quarter, what we saw was improvement every month in the quarter. And then bookings, I think good, but if there was ever a year that's been hard to interpret in terms of volume, this is it.

And Eddie mentioned this in his opening comments. But if you look at industry shipments, industry shipments were down 28% in Q2 versus last year and down 11% in Q3 versus the prior year. So, we feel like the theme is definitely gradual improvement.

It's just really hard to get a read, but bookings have been good, and we're off to a good start in early Q4..

Yes, Chris, this is Eddie. I would make one comment because the two have somewhat decoupled a little bit, and that is the supply squeeze really takes us back to maybe 2010, coming out of 2009, which I referenced in my comments. But clearly, price recoveries and supply tensioning, to me, has been the real story.

I mean, we always expected that demand would come back to some extent and there would be a slow claw-back of what was lost from the worst of the shutdowns that cascaded through the economy. But I think the supply side is really the story, and it's a welcome story.

But it seems to have decoupled from demand just a bit, and we're going to have to see how durable that is..

Thanks, everyone. And then just a few smaller items. I just wondered if you could talk on working capital from here, obviously a really strong quarter on that front. As prices have moved up in 4Q, what are your expectations? And then also just LIFO expectations for 4Q. Thanks..

Yes, I wouldn't go any further than what we indicated, but I will say this with respect to working capital. The Ryerson team did an exceptional job managing working capital, full stop, no qualifier.

We even looked at – this morning, I looked at the DTO cycle again, just to make sure that there wasn't some type of major build in accounts payable, and there really wasn't. If anything, the eight-quarter average of the DTO cycle has been 40.6 days, and we clocked in at 39.7 for Q3. So, it wasn't an AP event.

And I looked at inventory days and I looked at receivables collections, and the cash conversion cycle was solidly under 70 days. So really, just hats off to the Ryerson team and how the whole organization rallied to manage working capital. And I think in Q4, Chris, it's hard to call on right now.

We're going to say that if I had to bet, I'd say that it would be maybe modestly positive on the cash flow side, but it's going to depend on how quickly higher-cost inventory starts coming in, balanced against shipments. The gross margin profile looks good so far.

So there's a lot of variables in play here in terms of, you think about that bungee jump metaphor, where you've got these major oscillations and a lot of things that are coursing through your financial statements.

But just given the tenor of the quarter so far, I would say be modestly positive, but I would only qualify that answer by saying that it really depends on the speed at which different other factors come into play, such as eventually inventory costs are going to go up, just because of where underlying commodity drivers are and where they seem to be settling for now.

And as demand continues to recover, hopefully going into Q1, and again, I think we're all looking forward to some more economic support on the fiscal stimulus side, even though that seems to be paused at the moment.

If that demand continues to recover, then we could actually be in what we hope is going to be the historical 8-quarter to 10-quarter up-cycle in the industry, where we might have some working capital build that we would offset that by greater EBITDA generation and expanding margins for a period of time..

Thank you.

And just on LIFO?.

I'm sorry?.

LIFO expectations for 4Q?.

Yes, I could take that one..

Yes, please. Oh, yes, thanks, Molly, thank you..

Yes, this is Molly. Hi, Chris. Thanks for the question. Yeah. LIFO, I think we're expecting right now to be relatively LIFO-neutral for the fourth quarter. Obviously, there's a lot of variables that go into the calculation, but we're expecting it will be around a neutral event..

Thanks, Molly. And then just the last one for me on end markets, you've gone through some of the [moving parts], anything else that surprised you in either direction in terms of strength or weakness that you wanted to comment on for your major end markets? Thank you..

Yes, I'll go ahead and kick this over to Mike and Kevin. I'll only say that it's still pretty hard to find a bicycle and there's not a lot of appliance selection.

So, there’s dislocations that we're seeing, particularly from overseas supply chains, for a variety of reasons, whether it's trying to get crews positioned on the ships to bring those cargoes from ship to shore. So, there's still a lot of dislocation in the supply chain. And then you've got demanding express around the home.

And so home furnishings, appliances, anything to do with the home – try finding a contractor these days. So there's a real bifurcation between who can spend money and who can't and what they're spending it on. But certainly we see recoveries in automotive.

I mean, you've seen Ford's blow-out quarter, and you've seen really good trends that we didn't think were even possible back in April and May. And so those would be my comments around end markets. I would ask Mike and Kevin to comment as well..

Chris, this is Mike again. I think Eddie hit it pretty well. The recovery has been fascinating to watch, given the nuances from market-to-market.

Some areas like I touched on before, and consumer around it surprised us, and some products are incredibly strong right now and going into products that one wouldn't have thought would have been as busy as they are today, but that's the way it's working. You know, there's other markets that really have been fairly okay through the entire pandemic.

And you start to think about products that go into medical supplies, healthcare industries, emergency vehicles, that sort of things. So, those things have just held their own, and in some cases have gone up. Maybe slight surprise in Q3 is oil and gas ticked up very slightly. Okay, but put that in perspective; it's having a pretty challenging year.

So, that's up just very slightly from a very low starting point, but other than that, it's as Eddie touched on, a mixed bag, but generally speaking, the overall trend has been up, starting back early Q3. And so far in October, that trend continues..

Thanks, everyone, for the details.

One more just on margins for the 4Q, any comments on your expectations there?.

Yes, I mean the margin profile looks good. And so just given the variables that are in play, as we mentioned, we referenced in the script and even in the materials, that the margin profile looks good, and we hope it continues, but I would say pricing conditions are the best they've been all year..

Okay.

No range for the actual margin you're expecting on the quarter?.

I wouldn't really proffer an estimate at this point, but certainly better..

Okay. All the best everyone. Thanks for the answers..

Thank you, Chris. Take care..

Thank you. [Operator Instructions] We will now take our next question from Joel Tiss from BMO. Please go ahead, your line is open..

Hey guys, how is it going?.

Hey Joel, how are you?.

I wonder, is this the lower warehousing delivery and SG&A costs? Is there any way you can give us a sense of how much of that is structural versus just taking it out because business has been a little bit weaker?.

Yes. I'll ask my John Orth to comment on that because I think the operations side of the house has done a really excellent job on variabilizing the cost structure. But Joel, I think Molly referenced it in her comments, and we feel that we can hang onto half of the cost take-outs as we get back to pre-COVID volume levels.

And our team's done a really good job of looking at where we can take out costs and what we can keep and what we might have to put back into the center of the table as volumes pick up and as activity picks up.

John, do you want to make a couple of comments?.

Sure thing. Thanks, Eddie. Joel, as was mentioned earlier, we've really focused on the asset management and efficiency of our business. And in particular, we've been driving operational initiatives to increase asset utilization along with continuously improving the algorithms that we're using to optimize our end-to-end supply chain networks.

And this is the work that is driving the gains in productivity and expense leverage improvements..

So, Joel, as an example, as a team, we took on a very structured and well developed project to really analyze our footprint. And when we do that footprint analysis, it's really getting our equipment to where we can get the most throughput dollars per ton or pound and still to increase service levels.

But there's a lot of work you can do in these types of conditions where you really come to a cyclical trough, and in this case, even a cyclical depression for a period of time. And it accelerates some of the work we do around really looking at the overall network of where we process and how we process and where equipment can do the most good.

So, some really good work has been done across various parts of the network to take out some structural costs that won't come back..

That's excellent.

Is there any way to tell if you guys are gaining share?.

Well, I'll tell you. So, we're going to have to look at it over a one-year period just because of the end-market activity. When I want to know about demand in a lot of sectors I, frankly, read what you put out. You're seeing in Class 8, for example, what we're seeing in Class 8.

And so when we look at end markets coming back, for instance in Q2, market share gains were really strong because we weren't doing a lot of transactional business and some of our end markets were actually tailing out at that point.

And so because of the acute nature of the automotive shutdown and because some of the other verticals that really went offline with more impact, market share gains, where we were really high in Q2, for example, then in Q3 we noted that we had to CS&W ERP conversion, where we gave up some revenue.

So we're going to have to look at markets here, really, over the course of a whole year. But I will say that Ryerson's base business, particularly on the transactional side, is looking good when we think about market share gains.

It's been more in the program and, I'd say, OEM side, especially around heavy equipment and then some of the issues that we noted around CS&W, where we've got some cross currents in our market share data that we're going to have to look at over a longer interval. But the transactional side of Ryerson looks really good..

And then the last one for me is, is there any way that you can use, between your stepped-up systems and all this disruption that's going on? Can you use this opportunity to try to change your mix a little bit more aggressively than you would have thinking about it coming into 2020?.

Yes. I'm going to have Kevin talk about that a little bit in just a second, but absolutely. If you look at the thesis, and Jim Claussen can really, I think, provide some insight into this as well.

But if you look at the Central acquisition, we were able to really acquire into some higher-value-add market share segments that really complemented our portfolio, particularly in long and [indiscernible] plate.

And so your point of systems tied together really well with the work we're doing in CS&W, because we knew that when we bought the company, we were going to have to modernize those systems, and it did very well with our strategy of digitalization and really using technology to drive better service, better relationships, and better growth.

But when you think about some of the things we've done on the Ryerson advanced processing side, where we're doing more, I'd say, part manufacturing, which is higher value-add for certain customers, and you think about some of the value-add equipment that we've invested in, you can see where we can continue to drive that value-add percentage, which is an internal [KPI], right.

So we know that since 2010 we've gone from what we call 6% high-value-add to 10% high-value-add, which is moving beyond your stock cutting bar and burning simple plate shapes, but it's multiple fabrication steps. So, we've taken that from 6% to 10%, and our next, whistle stop is 15% on that what I'd call very high-value-add curve.

But I would ask Kevin and Jim to add some color to that..

Hey, Joel, it's Kevin Richardson here. Yes, I think Eddie said it well. Changing the mix has been a big part of our strategy.

And if you look at where we've deployed our capital, we've talked about this in the past, whether it's through the acquisitions that we've made or through the internal capital that we've deployed, it's all been to try to have more value-add in terms of what that overall mix represents.

And I think, getting back to your question, in this environment, we do see more opportunity as OEMs try to variabilize their cost structure, and they're willing and want to outsource more of that first-stage and second-stage processing.

So, we're really set up well in terms of what our capabilities are now versus 5 or 6 years ago in terms of what that equipment profile looks like. So, we feel very optimistic in terms of the progress that we've made and where we're going..

That's awesome. Thank you so much. You guys have done a great job of transforming this company. Thank you..

Thanks, Joel. Really appreciate that. Thank you..

[Operator Instructions] We will now take our next question from Phil Gibbs with KeyBanc Capital Markets. Please go ahead. Your line is open..

Hi good morning..

Good morning..

Hi Phil.

How are you doing?.

Good. Eddie, on the side of freight, because I know you guys do, obviously, a lot of moving of things in the economy, and just curious what you're seeing in terms of trucking availability and pricing and whether or not just general inflationary pressures are emerging there again..

Well, the answer would be yes, we're seeing that and it is – in hindsight, maybe it's not a surprise.

I think it's been a surprise that we've been going through it because it just shows how tension and how binary the freight market can be when you look at long-term factors such as drivers and the availability of drivers, and frankly, the availability of flatbed units, one of the things that's under-reported in this industry and in this segment.

And I will ask – again, I'll ask John Orth and Mike and Kevin to pitch in on this. But there really is a flatbed truck shortage relative to reefers and vans, even when you get into third-party freight organizations and they tell you about all the capacity they have and all the units they have access to.

When you get around to talking about flatbeds, the call goes pretty silent, pretty fast. And so we could use some more capacity. And obviously, we could use more drivers in the industry as a whole.

And I think what you're seeing now underscores that where even though fuel prices still haven't really come back, I think the overall cost and transportation are heading up as the economy rebounds. But John's done a lot of work in this area for us.

And I would say Mike and Kevin, Jim, anybody want to comment on freight?.

Hey, thanks, Eddie. And you're right. This is certainly an area where we did not anticipate these type of inflationary pressures. However, I would really compliment our team around what we've been able to do to drive better utilization of our logistics networks.

In particular, we've been focused on developing some tools and analytics to increase the average weight per truck and also to increase the number of stops per delivery. So, by gaining insight into those metrics, we're able to consolidate loads and really work to bend those costs more in our favor..

And really it's a tribute to the team. And I'll just give a quick shout-out to Derek, Elizabeth, and Kyle, just for the work they've done, along with so many others in our organization, to really improve the structural way in which we approach freight, which is where we can get longer-term efficiencies and cost savings.

And I'm sorry, somebody else from our team was going to speak. I think..

No, I'm good..

I'll speak.

Is that okay?.

All right, yes..

Yes, I want a working capital wizard badge. Can I get one of those? I want a working capital wizard badge.

Could you give me one of those, please?.

What's that?.

Molly, gets one, too. A working capital wizard badge..

Yes, I'll send you guys some hats..

That would be great..

That would be great, that would be great. Thank you..

And just on the trucking side, I can't remember if we addressed this a couple of years ago, last time that freight was really tight, but how much of your own fleet do you own relative to your volume?.

I'm going to say it's about, it's probably half and half. But I think what we can do is pitch in here. I know we're more 3PL levered in certain of our businesses, and we're more company-owned and others, but Mike, Kevin, John, J.C.

anybody want to chime in here?.

Phil, this is Mike Burbach..

Hi, Mike..

I think if you look at it from a standpoint of how much of our customer freight is going on dedicated trucks, whether we own it or we have a contract with a third-party provider, that's a very high number. I'd hate to guess an exact number, but it's the vast majority of our business goes through that type of arrangement.

Probably where we're seeing the inflationary pressures that people talk about more so is long-distance rounds, maybe from mills to us or, for whatever reason, products going outside of normal channels, but if you look at what our customers see from us, a very high percentage that comes on a company-owned vehicle or company-owned truck or someone who's dedicated to us..

Thank you. So Eddie, based on what you said earlier and based on what we're seeing as well, the steel mills right now have good backlogs, particularly on the sheet side, so lead times are very extended, arguably a bottleneck. You've got some bottlenecks emerging in freight.

Any other bottlenecks that you see out there, given the fact that everybody ripped down costs so fast as an economy? And with today's GDP print, we saw it obviously bounce back pretty aggressively. So, what other bottlenecks do you see out there in the economy that need some time to get remedied? Thanks..

Yes or no, Phil, that's a great question. It's really fluid right now. It really depends where you are and where your exposures are. But in general, I think you hit on one, which is there has been a really quick rebound in flatbed demand and trucking capacity, which makes sense. This kind of ties a lot of things together on the call.

But for example, warehouse and distribution is just popping, and everything to do with warehousing and distribution is just popping in terms of what all goes around, around the warehouse.

You know, there's a truck involved, a trailer involved, the warehouse involved, crane, side loaders, forklifts, and really, more and more automated material-handling equipment. So, everything related to the warehouse and distribution is going gangbusters right now.

And so when we looked at bottlenecks they're – frankly, surprisingly, there are some labor bottlenecks. That's one of the things you didn't see from 2009 to 2010.

But again, there certainly are still labor dislocations where, I would say, it's not as good as you would think, just given the currents and the extremes that we've witnessed since March through today. Depending on what needs you have within your labor force, labor is tight in some areas, and so that would be that would be the other bottleneck.

We know of places, and we certainly wouldn't mention them by name on this call, but we know of places where it's not that they don't have a backlog, they're having a difficult time assembling crews to turn over that backlog as quickly and efficiently as they would like..

Thanks, Eddie and team. Good job..

Thanks, Phil, really appreciate it..

Thank you..

I think we're out of questions, just when I think we really got rolling. But look, thanks, everybody, for your questions. And most of all, we wish everyone a safe, healthy, and meaningful holiday season, and we really look forward to being back with you in February of 2021, and we'll review our Q4 and the full-year.

So everybody take care, and thanks so much for your interest in Ryerson..