Good day, everyone, and welcome to the Ryerson Holding Corporation's First Quarter 2022 Conference Call. Today's call is being recorded. [Operator Instructions] At this time, I would like to turn the call over to Jorge Beristain. Please go ahead..

Good morning. Thank you for joining Ryerson Holding Corporation's First Quarter 2022 Earnings Call. On our call, we have Eddie Lehner, Ryerson's President and Chief Executive Officer; Mike Burbach, our Chief Operating Officer; Jim Claussen, our Chief Financial Officer; and Molly Kannan, our Chief Accounting Officer and Corporate Controller.

John Orth, our Executive Vice President of Operations, will be joining us for Q&A. Certain comments on this call contain forward-looking statements within the meaning of the federal securities laws.

These statements involve a number of risks and uncertainties that could cause actual results to differ materially from those implied by the forward-looking statements, and are not limited to those set forth under risk factors in our Annual Report on Form 10-K for the year ended December 31, 2021.

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 non-GAAP to the most directly comparable GAAP financial measures is provided in our earnings release filed on Form 8-K yesterday, also available on the Investor Relations section of our website. I'll now turn the call over to Eddie..

Thank you, Jorge. And thank you all for joining us this morning to discuss our first quarter 2022 results.

I would like to begin this morning by profoundly thanking all of my 4,000 strong Ryerson colleagues for their contributions to a safe and profitable workplace, our customers, our suppliers and our shareholders for their continued faith in and support of and ever improving Ryerson.

Supply chains, which have yet to fully recover from the ongoing impacts of COVID variants, and now escalating war atrocities overseas were retested again on a global scale with parabolic moves in the price of nickel and upward spikes in energy and agricultural commodity prices.

Ryerson managed well through this hyper volatility to deliver its highest ever diluted earnings per share of $4.17 and adjusted diluted earnings of $4.27 per share.

During the first quarter, we continued our consistent and well-executed operational and financial strategy of accelerating the shift of our enterprise value from debt to equity through strong net income generation and high-yield debt repurchases, while evidencing better quantity and quality of earnings through the cycle.

Our net debt fell sequentially to $507 million, our lowest level since our IPO in 2014, while our book value of equity grew sequentially to $706 million, our highest level ever.

Ryerson's strategy as an intelligently connected network of value-added service centers is paying dividends figuratively and literally as we again raised our quarterly dividend this time by 25% to $12.5 per share.

Ryerson's broad and deep exposure to North American manufacturing, planned national infrastructure spend and climate-centric sustainability investment leaves us well positioned for the years ahead.

This positive outlook is further enhanced by supportive global market dynamics, such as commodity reflation, deglobalization, re-shoring of manufacturing supply chains, long-term investments in support of carbon neutrality.

At the company level, Ryerson continue to focus on strengthening our balance sheet while at the same time, making vital investments to modernize and digitize our service center network, upgrade the quality of our plants and their value-added capabilities and apex the customer experience.

I'll now turn the call over to Mike to further discuss the pricing and demand environment..

Thank you, Eddie and good morning, everyone. Ryerson's diversified metals mix with approximately 50% of revenues generated from bright metals, namely stainless steels and aluminum, supported sequential gross margin improvement into the first quarter.

This is a clear illustration that Ryerson is more than able to offset the first quarter's volatility in carbon steels, through diversification from our other high-performing metals franchises. We expect the outlook for stainless and aluminum pricing to remain favorable into the second half of 2022, reflecting an improved secular demand outlook.

Sequentially, our first quarter sales volumes benefited from a normal seasonal recovery following the fourth quarter. But additionally, we experienced an uptick in demand as buyers look to convert more of their order backlogs and to ensure metals access.

The seasonal recovery combined with the reduction in COVID-related impacts to our manufacturing customers contributed to our volumes growing 11.4% quarter-over-quarter, beating the high end of our guidance range of up 7% to 9%. Our average selling prices experienced a sequential gain of 2.3% to $3,312 per ton sold.

This occurred despite a decline in benchmark hot-rolled coil or HRC prices. Our sales mix is not as fully exposed to HRC as the industry average, and we note that HRC steel exposure for Ryerson represents approximately 10% of our total revenue.

Other carbon steels such as heavy plate and long products saw pricing less affected than benchmark HRC numbers would imply. Stainless steel products, our second largest contributor to sales, reached almost $0.5 billion in the first quarter or 28% of our overall revenue.

Nickel's commodity price spikes on the LME during the quarter, in addition to increases in stainless scrap, chrome, and other stainless steel alloy and ingredients supported a 2.9% sequential increase in average stainless steel selling prices.

Due to tight nickel market dynamics, we believe the outlook is positive for our stainless franchise in the second and third quarter of 2022. The transactional aluminum reference price rose 19% in the first quarter to a $1.84 per pound. This compares to Ryerson's realized average selling price change for aluminum products gaining 8% sequentially.

This bodes positively for our second quarter outlook. North American industry shipments as measured by the Metals Service Center Institute or MSCI, rose 9.3% quarter-over-quarter and compares with a 14.8% gain for Ryerson's North American volumes, as we gained market share in the United States.

We note that due to our end-market portfolio mix, we are more heavily exposed to latter cycle industrial spending, such as heavy machinery, commercial ground transportation, and construction equipment, all sectors which we are now seeing an uptick in build rates.

Ryerson's sequential volume shipment improvement was led by increases in commercial ground transportation of 20%, and construction equipment of 19%. HVAC performed well at plus 13% volume growth quarter-over-quarter, supported by commercial and residential construction.

While near term supply constraints and COVID-related issues persisted into the first quarter of 2022, the outlook for 2022 remains optimistic. Based on generally improving industrial activity seen from our customer base, Ryerson anticipates a recovering volume outlook into the second quarter of 2022 in the second half of 2022.

Our base case outlook calls for a lessening of supply chain disruptions and a continuing demand recovery as the year unfolds against the backdrop of price bellwethers holding well above their 10-year averages.

Notwithstanding the currently indeterminate impacts from inflation, supply chain constraints, monetary and fiscal policy shifts, ongoing COVID inflections and geopolitical unrest. With that, I'll turn the call over to Jim for our second quarter outlook..

Thank you, Mike, and good morning, everyone. Following a strong first quarter result with better than anticipated pricing and end market demand, we expect second quarter revenues to be up sequentially and in the range of $1.75 billion to $1.8 billion.

We anticipate flat to 2% gain in average selling prices, combined with an increase in tons sold of 0% to 2%. We do not expect a material LIFO impact. Given these expectations, adjusted EBITDA, excluding LIFO, is expected to be in the range of $250 million to $260 million and earnings per diluted share is expected to be in the range of $4.30 to $4.49.

The company's cash conversion cycle improved to 77 days in the first quarter of 2022 from 84 days in the fourth quarter of 2021. Accounts payable rose by $87.4 million sequentially, offset by an increase of $157.1 million in accounts receivable and higher sequential revenue.

Use of cash invested in inventory was minimal at $5.9 million quarter-on-quarter.

Ryerson generated $82.5 million of operating cash in the first quarter of 2022 and ended the period with $551 million of total debt and $507 million of net debt, a decrease in net debt of $81 million compared to $588 million for the fourth quarter of 2021, driven by strong operating results.

Due to the meaningful reduction in net debt and strong earnings, Ryerson's leverage ratio improved quarter-over-quarter to 0.5x from 0.7x, a record low since our IPO in 2014. The company's available global liquidity increased to $760 million as of March 31, 2022 from $741 million as of December 31, 2021.

Ryerson saw improved expense leverage in the first quarter of 2022, as warehousing, delivery, selling, general and administrative expenses remained low at $175 million.

Despite inflationary pressures on labor, fuel and operating supplies, warehousing, delivery, selling, general and administrative expenses actually decreased $5.6 million quarter-over-quarter or 3.1%. Capital expenditures were $18.8 million in the first quarter of 2022 compared to $34.3 million in the fourth quarter of 2021.

We reaffirm our anticipated capital expenditures, excluding acquisitions of up to $100 million for 2022.

This amount is the combination of normalized annual spend, comprised of maintenance or purchases of equipment in line with annual depreciation, and growth projects related to digitalization initiatives and the previously announced service centers in Centralia, Washington and University Park, Illinois.

On May 4, Ryerson's Board of Directors declared a quarterly cash dividend of $0.125 per share of common stock, payable on June 16 to stockholders of record as of June 2, 2022, a sequential increase of 25% from the first quarter dividend of $0.10 per share of common stock.

During the first quarter, Ryerson returned approximately $4.3 million to shareholders in the form of dividends and share buybacks, which includes repurchasing 20,510 shares at an average price per share of $25.27.

These repurchases were made in accordance with Ryerson share repurchase program, which authorizes up to an aggregate $50 million of repurchases through August 4, 2023.

Lastly, I am pleased to announce that in addition to the $63 million of bond repurchases completed through March 31, our Board has approved a new bond repurchase authorizing up to $172 million in additional purchases. This program is an addition to the company's special redemption rate to redeem up to $50 million in principle.

As of March 31, 2022, our notes outstanding balance was $237 million. With this, I'll turn the call over to Molly to provide further detail on our first quarter financial results..

Thank you, Jim, and good morning. Ryerson generated revenue of $1.75 billion in the first quarter of 2022, above the high end of the guidance range communicated in our fourth quarter earnings release, with average selling prices up 2.3% and volume up 11.4% compared to the fourth quarter of 2021.

Gross margin increased by 220 basis points to 23.5%, up from 21.3% in the fourth quarter of 2021 as increased average selling price outpaced cost of goods sold. Included in gross margin, is LIFO expense of $2.2 million, a decline of $73.3 million versus the fourth quarter's LIFO expense of $75.5 million.

Excluding the LIFO impact, first quarter gross margin contracted by 270 basis points from the fourth quarter of 2021 to 23.6%. In the first quarter of 2022, we changed the method we used to estimate LIFO on an interim basis. This is a change in accounting estimate that is inseparable from a change in accounting principle.

Historically, interim LIFO calculations were based on actual inventory levels and costs at each interim period.

In the first quarter of 2022, we have elected to recognize the interim effects of the LIFO inventory valuation method by projecting expected year-end inventory levels and LIFO cost and allocating that projection to be interim quarters on a pro rata basis.

We believe this change is preferable as it results in a better estimate of LIFO for the full year, creates less volatility in earnings on an interim basis and makes our results more comparable to our peers.

Net income attributable to Ryerson Holding Corporation for the first quarter was $163.6 million or $4.17 per diluted share, compared to net income of $106.4 million or $2.71 per diluted share for the fourth quarter. First quarter non-recurring items consisted of loss on retirement of debt of $5.3 million.

Excluding non-recurring items, adjusted net income attributable to Ryerson Holding Corporation was $167.5 million for the first quarter of 2022 or $4.27 per diluted share. This compares to fourth quarter 2021 adjusted net income of $105 million or $2.68 per diluted share.

In closing, Ryerson achieved its second highest quarterly adjusted EBITDA excluding LIFO of $250.6 million, an increase from our fourth quarter 2021 adjusted EBITDA excluding LIFO of 238.7 and $50 million higher than our initial guidance. And with this, I'll turn the call back to Eddie..

Thank you, Molly. After 2 plus years of a debilitating global pandemic and now the onset of war overseas, we have never been more in need of good, validating and affirming experiences. At Ryerson, our mission and purpose is to create consistently great experiences for our customers, our employees, our shareholders, our suppliers and our communities.

Our plans, our investments, our efforts and actions are all trained on creating those great experiences through the ongoing development of an intelligent network of value-added industrial metals service centers that can joyfully deliver industrial metal solutions at scale and sunrise consistency.

The world of today and tomorrow will be largely created and built with recyclable and sustainable industrial metals. That is why metal matters, as you'll see when visiting us at ryerson.com and why the Build Now movement at msci.org are also vital and imperative.

Let's keep advancing together, no matter the obstacles and realizing more of our human potential and creating ever-better experiences. With that, let's take your questions.

Operator?.

Operator:.

And it appears there are no questions at this time..

All right. Well, we got off easy. So thank you all for your continued support of and interest in Ryerson. Stay safe, stay well, and we look forward to being with you all again in August when we review our second quarter results. Thanks everybody..

That does conclude today's call. Thank you all for your participation. You may now disconnect..