Ryerson Holding Corp. (RYI) - 30-Jul-2020
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30-Jul-2020
Ryerson Holding Corp. (RYI)
Q2 2020 Earnings Call
Total Pages: 8
1-877-FACTSET www.callstreet.com Copyright © 2001-2020 FactSet CallStreet, LLCRyerson Holding Corp. (RYI) Corrected Transcript
Q2 2020 Earnings Call 30-Jul-2020
CORPORATE PARTICIPANTS
Justine Carlson Molly Kannan
Investor Relations, Ryerson Holding Corp. Interim Principal Financial Officer, Controller & Chief Accounting
Officer, Ryerson Holding Corp.
Edward J. Lehner
President & Chief Executive Officer, Ryerson Holding Corp.
.....................................................................................................................................................................................................................................................................
MANAGEMENT DISCUSSION SECTION
Justine Carlson
Investor Relations, Ryerson Holding Corp.
Good morning. Thank you for joining Ryerson Holding Corporation's Second Quarter 2020 Earnings Call. I'm here
this morning with Eddie Lehner, Ryerson's President and Chief Executive Officer; and our Corporate Controller
and Chief Accounting Officer, Molly Kannan. Kevin Richardson; Mike Burbach; and Jim Claussen, our North
American Regional President; 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 involve 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 second
quarter 2020 earnings release filed on Form 8-K yesterday, which is available on the Investor Relations section of
our website.
I'll now turn the call over to Eddie.
.....................................................................................................................................................................................................................................................................
Edward J. Lehner
President & Chief Executive Officer, Ryerson Holding Corp.
Thank you, Justine, and thank you all for joining us this morning to discuss our second quarter results and the
progress we have made on our dual mandate response to the COVID-19 pandemic. I hope this earnings call finds
all of you safe and well.
I want to begin our call this morning by thanking all the frontline responders and essential workers who have been
working tirelessly and courageously in the fight against COVID-19. I also want to thank my Ryerson colleagues,
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Q2 2020 Earnings Call 30-Jul-2020
our customers and our suppliers as we continue to navigate through this time of unparalleled challenge for public
health, economic health and societal well-being. All those who have lost love ones due to pandemic, please
accept our deepest sympathies with wishes for peace and strength during this time of solemnity and
remembrance.
As we noted during our first quarter earnings call, we took decisive and effective actions in establishing COVID-19
health and safety protocols in accordance with CDC guidelines and governing jurisdictional orders. We continued
this discipline through the second quarter, making the necessary adaptations along the way as the virus continues
to greatly impact daily life.
Within our Ryerson community, our number of confirmed cases has been low, and we are relieved that each
confirmed case has either recovered or is expected to recover. We are also looking out for one another and
working safer as our OSHA TRI rate for the first half of 2020 was lowest recorded within the last five years.
I want to reiterate my appreciation to each of my Ryerson teammates for their commitment to the organization
and our community's health and safety and for their resolve and resilience, as we continue our essential work in
safely serving our customers.
During the second quarter, we took necessary actions to preserve liquidity and recovery capacity. We reduced
operating expenses by 25% year-over-year and 20% sequentially. We generated $103 million in cash from
operating activities in the second quarter and reduced net debt by approximately $100 million to its lowest level in
10 years.
In addition, just over a week ago, we issued $500 million of new eight-year senior secured notes through August
1, 2028, at a coupon of 8.5% and retired our 11% senior secured notes due in 2022. This refinancing reduces our
annual cash interest expense by approximately $16 million, with optional redemption features available during the
three-year non-call period to reduce the outstanding notional amount of the bonds by as much as 50% or by $250
million. This offers Ryerson an enhanced optionality as we continue delevering the balance sheet and further
reducing annual cash interest outlays.
Since our bond refinancing in September 2012 and through our bond refinancing in May of 2016, Ryerson has
reduced its outstanding notional bond principal by $400 million and bond-related annual interest expense by
approximately $45 million. This is a testament to our transformative efforts, progress and results during the period
noted, as we made important investments through acquisitions and growth CapEx, aligned with our strategy of
creating great customer experiences across a network of intelligently connected service center assets.
Turning to the economic environment during the second quarter, in the US, we experienced the largest plunge in
industrial production recorded in 101 years, reflecting the acute economic shocks, which materially affected
economic activity. Second quarter North American industry shipments as measured by the Metals Service Center
Institute, or MSCI, contracted by 26.3% compared to the first quarter. At the same time, Ryerson's North
American shipments declined 21.4% during the quarter, showing relative strength compared to the industry.
The North American volume trend during the quarter saw the bottoming of daily tons sold in April, with sequential
volume recovery occurring throughout May and June and ending with improvement of 9.3% in the May-June
period compared to April.
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Q2 2020 Earnings Call 30-Jul-2020
Turning to commodities, the pricing environment held up better than anticipated during the second quarter as mill
capacities globally and in North America adjusted more responsibly to falling demand than that experienced
during the downturns of 2008 and 2009 and 2015 and 2016.
Carbon sheet and plate prices stabilized in the range through the quarter and ended the first few weeks of July,
while LME nickel and LME aluminum prices had recovered by 11.5% and 6.1%, respectively, compared to prices
at the end of the first quarter and continued to improve during the first few weeks of the third quarter.
After the April demand [indiscernible] (00:07:53) and significant customer shutdowns, customer activity began to
improve incrementally and gradually in May and June. Ryerson end markets, which showed relative strength in
the quarter were ground transportation, consumer durables, food and agriculture, HVAC and automotive. End
markets that remained neutral through the quarter were construction and fabrication and machine shops, while
industrial equipment, oil and gas and commercial aerospace continued to struggle.
Since Ryerson acquired Central Steel & Wire, or CS&W, on July 1, 2018, CS&W has generated cumulative
positive cash flows of $146.2 million or approximately 90% of Ryerson's $164 million purchase price. Second
quarter 2020 results were impacted by the pandemic-induced demand weakness as volume contracted by 17.1%
and average selling prices fell by 10% sequentially, resulting in revenue generation of $92.1 million compared to
$123.5 million for the first quarter of 2020.
CS&W's second quarter gross margin, excluding LIFO, was affected by declining carbon prices and contracted
sequentially by 250 basis points to 20.4%, but still tracked above 2019 levels. Second quarter operating expenses
were $21.2 million, a decrease of 22.1% compared to the first quarter, outpacing the aforementioned volume
decline. As we expect carbon prices to stabilize and margins to begin moving higher on replacement cost
inventory resets, CS&W should see expense leverage positively impact the business in the third quarter.
Given the significant improvements realized by the CS&W team over the past two years, management remains
confident in the company's mid-cycle annualized target of $600 million of revenue and $50 million of adjusted
EBITDA, excluding LIFO.
Due to the persisting macroeconomic uncertainty stemming from the coronavirus pandemic and overall lack of
visibility into future demand trends and market conditions in the end markets in which Ryerson operates, the
company will not provide guidance for the third quarter ending September 30, 2020. However, we note the
following current third quarter trends being observed in the business as of the date of our earnings release.
At this point in the third quarter, average selling prices, gross margins excluding LIFO and order rates appear to
be trending positively compared to the second quarter. North American [indiscernible] (00:10:58) selling prices are
approximately 2% higher. Managerial price margins have expanded by approximately 50 basis points, and
bookings have increased by approximately 5% to 6% compared to second quarter per day shipments.
Overall, we believe the industrial metals manufacturing environment is gradually improving through a combination
of customer restarts, restocking and growth in some end markets, offsetting decline in others.
With that, I'll turn the call over to Molly, who will discuss the highlights of our second quarter performance.
.....................................................................................................................................................................................................................................................................
Molly Kannan
Interim Principal Financial Officer, Controller & Chief Accounting Officer, Ryerson Holding Corp.
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Q2 2020 Earnings Call 30-Jul-2020
Thanks, Eddie, and good morning, everyone. In the second quarter of 2020, Ryerson achieved revenues of
$771.8 million, a decrease of 23.6% compared to $1.01 billion in the first quarter of 2020, with tons shipped down
18.4% and average selling prices down 6.4%. Compared to the second quarter of 2019, revenues were down by
$433.1 million, or 35.9%, with tons shipped 25.8% lower and average selling prices 13.6% lower.
Gross margin contracted to 15% in the second quarter of 2020, primarily due to pandemic-driven price reactions
and by LIFO expense of $14.1 million in the quarter, which is a $34 million swing compared to the first quarter or
a swing of $27 million compared to the same quarter last year. This 15% gross margin in the second quarter of
2020 compares to 19.4% in first quarter of 2020 and 17.6% in the same quarter last year.
Ryerson generated LIFO expense during the second quarter as the company aggressively decreased inventory
and sold from older, higher-cost LIFO layers. Excluding LIFO, gross margin was 16.8% in the second quarter of
2020 compared to 17.4% in the first quarter of 2020 and 16.5% in the second quarter of 2019.
In the second quarter of 2020, Ryerson reduced warehousing, delivery, selling, general and administrative
expense by $31.6 million, or 20.3%, compared to the prior quarter. Compared to the same quarter last year,
Ryerson reduced warehousing, delivery, selling, general and administrative expenses by $40.5 million, or 24.6%.
Quarter-over-quarter expense reductions were primarily driven by adjusting staffing and labor costs to demand as
well as further variabilization of the company's operating cost structure.
Net loss attributable to Ryerson Holding Corporation was $25.6 million, or $0.67 per diluted share, which includes
$14.1 million of LIFO expense in the second quarter of 2020, compared to net income of $16.4 million, or $0.43
per diluted share in the prior year period.
Adjusted net loss attributable to Ryerson Holding Corporation, excluding restructuring and other charges, gain or
loss on retirement of debt and the associated income taxes on these items, was $24.2 million for the second
quarter of 2020, or $0.64 per diluted share, compared to income of $17.2 million, or $0.45 per diluted share in the
prior year period.
Ryerson achieved adjusted EBITDA excluding LIFO of $20.6 million in the second quarter of 2020, a decrease of
$13.8 million compared to the first quarter of 2020 and a decrease of $30.1 million compared to the second
quarter of 2019.
Turning to first half results, revenues in the first SIX months of 2020 were $1.78 billion, a decrease of 26.8%
compared to the first six months of 2019, as tons shipped decreased 17.2% and average selling prices decreased
11.6%.
Net loss attributable to Ryerson Holding Corporation was $9.2 million, or $0.24 per diluted share in the first six
months of 2020 compared to income of $45.9 million, or $1.21 per diluted share for the same period of 2019.
Adjusted net loss attributable to Ryerson Holding Corporation, excluding restructuring and other charges, gain or
loss on retirement of debt and the associated income taxes on these items, was $8.4 million for the first six
months of 2020, or $0.22 per diluted share, compared to $47.1 million of income, or $1.24 per diluted share for
the first six months of 2019. Adjusted EBITDA, excluding LIFO, was $55.0 million for the first six months of 2020
compared to $113.7 million in the first six months of 2019.
At the end of the second quarter of 2020, Ryerson had 85 days of supply in inventory, up from 74 days at the end
of the first quarter. However, on a tons basis, Ryerson's excellent working capital management is clearly visible.
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Q2 2020 Earnings Call 30-Jul-2020
We reduced inventories by more than 95,000 tons or approximately 20% in the second quarter, while
repositioning our inventory to match current levels of demand and preparing for margin recovery and expansion.
The company's cash conversion cycle increased sequentially from 77 days in the first quarter to 91 days in the
second, driven by the acute demand shock. However, in the month of June, the company's cash conversion cycle
substantially improved [ph] some 81 (00:17:39) days from the elevated levels seen in April and May. And we
expect to return to our pre-COVID-19 levels by the fourth quarter as the company continues to work with our
customers and suppliers to minimize the gap between our receivable and payable cycles and continues to
manage our inventory investment in line with demand levels.
Ryerson generated strong cash from operating activities during the second quarter of $103.3 million, compared to
$66.5 million in the year ago period. Our free cash flow, calculated as cash flow from operating activities and
asset sales less capital expenditures, was also strong in the second quarter at $98.5 million, and has resulted in
average annualized free cash flows of $133 million in the period from 2015 through the second quarter.
Our improved operating model and countercyclical cash flows have driven our average free cash flow yield as
measured by its portion of our market capitalization, up to 42% over the same period, exceeding the yields of our
publicly traded peer group.
We also significantly decreased our outstanding net debt during the period, driving it down by $100 million since
March 31, 2020 to $793 million as of June 30, 2020. As Eddie mentioned, this is our lowest net debt level
achieved in 10 years. Most of this reduction was accomplished through decreasing our credit facility borrowings
and a small part of the decrease was due to repurchasing $3 million of our then outstanding 11% senior secured
notes at an average price of $96.8.
These second quarter repurchases contributed to a year-to-date total of $57.6 million in repurchases for the first
half of 2020 at an average price of $98.4. The year-to-date repurchase transactions were funded through a
combination of restricted cash, which is a portion of the proceeds generated through the sale-leaseback
transaction completed in the fourth quarter of 2019, and the company's unrestricted operating cash flow.
Even with having completed the small amount of additional repurchases, we maintained ample liquidity
throughout the quarter. Including cash, restricted cash from the sale of real estate under the sale-leaseback
transaction and availability from US and foreign sources, Ryerson's total liquidity was $350 million as of June 30,
2020.
As of the end of the second quarter, we have invested $11.8 million into capital expenditures through the first half
of 2020, and expect to meet our COVID-19 revised CapEx budget target of $25 million for the full year 2020. We
are also continuing to take necessary cost control measures as dictated by pandemic-driven economic stresses,
as expenses per day less depreciation and amortization continued to fall through the quarter.
And finally, we were proud to announce the closing of our debt refinancing just over a week ago. We retired our
11% 2022 senior secured notes, which were issued in 2016 for $650 million and issued $500 million of 8.5%
senior secured notes due in 2028.
This refinancing marks a significant milestone for the company as it comes with the recognition of Ryerson's
improve through the cycle operating model, increased asset coverage with a higher tangible asset value, strong
real estate asset portfolio underscored by the fourth quarter 2019 sale-leaseback transaction, decreased legacy
liabilities and increased book value of equity.
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Q2 2020 Earnings Call 30-Jul-2020
Along with lowering our annual fixed cash commitments by approximately $16 million through decreasing our
interest payments, we also secured certain optional redemption terms within the non-call period of the tenor,
allowing Ryerson the option to reduce the outstanding amount of bonds by as much as $250 million within the first
three years of issuance beginning August 1, 2020. After which, we can call the bonds according to the terms
within the bonds' indenture. These terms provide Ryerson with attractive flexibility as we continue improving our
balance sheet and overall capital structure.
Now, I'll turn the call back over to Eddie to conclude.
.....................................................................................................................................................................................................................................................................
Edward J. Lehner
President & Chief Executive Officer, Ryerson Holding Corp.
Thanks, Molly. As we move through the third quarter end with hope and optimism towards improving public
health, economic recovery, as well as toward higher and better norms of social justice and equality, we will
continue building our culture of resiliency, empowerment and growth around great customer experiences
delivered at speed, scale, value-add and consistency across our network of intelligently connected service
centers.
It is clear as we have managed through multiple crises over the past 100-plus days that we have opportunities to
drive free cash flow generation and additional deleveraging of our balance sheet while building operating leverage
for the economic recovery that will come even if we don't know exactly when. Throughout this period, we have
talked about and acted upon phrases created within Ryerson such as [indiscernible] (00:23:59) defined as the
ability to see and act upon reality clearly.
I could not be more proud to work alongside my Ryerson colleagues as we continue on our path of progress and
journey through Ryerson's 178th year in business and beyond.
With that, we look forward to your questions. Operator?
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Q2 2020 Earnings Call 30-Jul-2020
QUESTION AND ANSWER SECTION
Operator: [Operator Instructions] And there are no audio questions at this time.
.....................................................................................................................................................................................................................................................................
Edward J. Lehner
President & Chief Executive Officer, Ryerson Holding Corp.
Okay. Looks like we've got a light workload today. So, thank you for spending part of your Thursday with us. Stay
healthy, safe and well. And we look forward to being with all of you next quarter.
.....................................................................................................................................................................................................................................................................
Operator: That does conclude today's call. You may now disconnect.
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