Hello, and welcome, everyone, to the first quarter fiscal 2019 earnings call for Commercial Metals Company. Today's call is being recorded. After the company's remarks, we will have a question-and-answer session and we'll have a few instructions at that time. I would like to remind all participants that, during the course of this conference call, the company will make statements that provide information other than historical information and will include expectations regarding economic conditions, effects of legislation, US steel import levels, US construction activity, demand for finished steel products, the company's future operations, the company's future results of operations, the ability to realize the anticipated benefits of our acquisition of certain rebar assets from Gerdau S.A., the investment in our new micro mill in Durant, Oklahoma, and capital spending. These and other similar statements are considered forward-looking and may involve speculation and are subject to risks and uncertainties that could cause actual results to differ materially from these expectations. These statements reflect the company's beliefs based on current conditions, but are subject to certain risks and uncertainties, including those that are described in the Risk Factors section of the company's latest annual report on Form 10-K and subsequent quarterly reports on Form 10-Q. Although these statements are based on management's current expectations and beliefs, CMC offers no assurance that these expectations or beliefs will prove to have been correct, and actual results may differ materially. All statements are made only as of this date. Except as required by law, CMC does not assume any obligation to update, amend or clarify these statements in connection with future events, changes in assumptions, the occurrence of anticipated or unanticipated events, new information or circumstances or otherwise. Some numbers presented will be non-GAAP financial measures and reconciliations for such numbers can be found in the company's earnings release or on the company's website. Unless stated otherwise, all references made to year or quarter-end are references to the company's fiscal year or fiscal quarter. And now, for opening remarks and introductions, I will turn the call over to the Chairman of the Board, President and Chief Executive Officer of Commercial Metals Company, Ms. Barbara Smith. Please go ahead.

Thank you, Gary. Good morning and happy new year to everyone joining the call to review CMC’s results for the first quarter of fiscal 2019. I will begin the call with highlights for the first quarter. Mary Lindsey will then cover the quarter’s financial information in more detail and I will conclude our prepared remarks with a discussion of our outlook for the second quarter of fiscal 2019, after which we will open the call to questions. Before discussing our results, I would like to take the moment to recognize and welcome the approximately 3,000 new employees who joined CMC as a part of the acquisition of the rebar assets of Gerdau that was completed at the beginning of November. While it's only been a couple of months, our new employees have certainly shown great excitement to be working at CMC. As announced in our earnings release this morning, we reported fiscal first quarter 2019 earnings from continuing operations of $19.4 million or $0.16 per diluted share on net sales of $1.3 billion. The impact of the acquisition and the related accounting adjustments affected our results this quarter. However, the underlying results of our operations excluding these items were strong. Excluding the impact of the non-operational costs such as certain acquisition, legal and integration costs, our adjusted earnings from continuing operations were $41.5 million or $0.35 per diluted share. This represents approximately a 15% increase in comparison to the same period in fiscal 2018 despite the highest level of rainfall on record that occurred in many of our markets. We estimate that, in our Texas market, this rainfall reduced shipments by approximately 70,000 tons. Further details of our first quarter and the full-year results will be described by Mary during the financial update. Also, as noted in our press release…

Thank you, Barbara. And good morning to everyone joining us on the call. As Barbara mentioned, for the first quarter, we reported earnings from continuing operations of $19.4 million or $0.16 per diluted share in comparison to earnings from continuing operations of $31.9 million or $0.27 per diluted share in the first quarter of 2018. Included in the first quarter 2019 results are after-tax costs of $22.1 million related to the acquisition and other non-operational items. Excluding these costs, adjusted earnings from continuing operations were $41.5 million or $0.35 per diluted share. Our adjusted earnings from continuing operations for our first quarter of 2019 were approximately 15% greater than the first quarter of 2018. Now, I will spend some time discussing the purchase accounting for the acquisition. Technical purchase accounting requirements related to the acquisition will primarily affect acquired fabrication operations. In summary, these rules revalue all assets and liabilities acquired including fabrication contracts entered into by Gerdau before the closing date using mark-to-market principles at the time of the closing. The large majority of these contracts, a backlog of 635,000 tons, acquired by CMC will cost more to complete at November 5 market cost than the contract revenue CMC will receive which was negotiated and fixed by the seller. This generated an opening balance sheet liability of $133 million. It’s important to understand, however, that this liability is determined as though the fabrication segment were unrelated to CMC and is purchasing rebar at November 5 market prices from a third party. Of course, the fabrication segment is primarily purchasing rebar from our own mills. So, the large portion of this liability is offset by our mill segment profits and does not represent a cash cost to CMC. As material is shipped over the coming months, this reserve will be…

Thank you, Mary. Our second quarter is typically our low shipment quarter due to the holidays and winter weather conditions slowing construction activity. However, we remain very confident with a strong outlook for demand in Poland and the US as supported by our fabrication backlogs, as well as the sentiment felt by most large construction companies which have been bullish on their outlook for 2019. From the metal margin perspective, we anticipate relatively stable to slightly downward moving ferrous scrap costs and relatively stable finished goods pricing, which should result in continued strong metal margins. From the manufacturing cost side, we do not anticipate significant inflationary pressures from the current levels seen during the first quarter. We do have some planned outages during our second quarter, but not as significant as the planned outage in our Polish operation, which occurred during our first quarter. We are confident and anticipate that we are about to turn the corner and working through the backlog in the fabrication business. As Mary mentioned, new fabrication contracts are being booked approximately $285 per ton higher during our first quarter of fiscal 2019 than during the same period of the prior year. We have some challenging jobs in the West Coast that are nearing completion which will result in the second quarter continuing to be very challenging. However, based on current rebar prices, we see the legacy CMC fabrication segment returning to profitability during the second half of the year as the older, lower-priced work is shipped. We expect similar seasonal effects at our newly acquired facilities for the second quarter. however, we anticipate that the acquired assets will provide accretive returns similar to the pace they did for their first month of ownership. In addition to focusing on the transition of these operations to our systems, we are also committed to integrating the CMC culture at these facilities. Customer service excellence is at the center of this culture and we believe this commitment to our customers is critical to maximize returns from the investments we make. We have a proven track record of delivering recognized market-leading customer service and believe that our new employees are eager to embrace this culture. Before opening the call for questions, I’d like to take a moment to thank all the CMC employees for their tremendous efforts in closing the acquisition, the work done on the system migrations to date and the integration efforts which have taken place. All of this has been done while providing the high level of customer service that has come to be expected from CMC. Thank you. And at this time, we will now open the call to questions.

[Operator Instructions]. The first question comes from Martin Englert with Jefferies. Please go ahead.

Hi. Good morning, everyone.

Good morning, Martin.

You touched on this several times in the release and then on the prepared remarks, but kind of circling back to Americas Mills conversion costs, and they did step up notably quarter-on-quarter. And you flagged some of the cost pressures of alloys, electrodes and some outage expense with overall conversion cost up above $13 per ton, I think, year-on-year. Would you expect any of this to be subsiding in coming quarters here? Do you see any of the costs coming down? And maybe if you could call out what the maintenance or outage costs were for the quarter there.

Yeah. I’ll give it a shot. And if Mary wants to add any color, she can. About a third of that difference was due to the outages and the maintenance cost, and the remainder were the things that we’ve been signaling for a long time, which is frankly affecting all steel producers, and that’s the inflationary pressures around things like electrodes and alloys. And in terms of subsiding going forward, with the exception to any other outages that may occur in future quarters, that portion of it should subside. And as per historical, we normally try to schedule our outages in the seasonally slower periods, which would be first quarter and second quarter.

And any other outages planned there for the coming quarter here?

We do. We have a couple of outages. Nothing quite as major as what we had in Poland. And we had some other outages. A reheat furnacing reline in Alabama and some outage work in South Carolina this first quarter. In the second quarter, we have several outages. But I will also want to point out that the systems conversion, we will have to take time down in preparation for that conversion. So, there will be some effect there.

Okay. And no other estimates as far as the impact from that outage on the system conversion as far as maybe lost tons or anything like that?

I don't have a good estimate. I think just the seasonal adjustments. We’ll probably take that into account, Martin.

Sure. That’s very helpful. One last one if I could. On the synergy targets, I believe you noted that you would likely now exceed – was it $40 million? What would be your revised, I guess, goal post there?

I think we’d like a little more time of ownership of the assets, as you can fully appreciate. First priority was to come up and be operational on the carveout system day one and not have a disruption to our customers and also to be able to pay all our new employees and get them on to our benefits and then we moved quickly into the holidays. It’s just really early. But, certainly, in the coming quarters, we will be revising that as we have more specifics. But in the early days, we definitely are finding plenty of opportunities for synergies even beyond what our initial estimates were.

Okay, thanks for the added color there.

Thank you, Martin.

The next question comes from Chris Terry with Deutsche Bank. Please go ahead.

Hi, Barbara and Mary. And happy new year. I had a couple of questions. Just thinking conceptually about the Gerdau acquisitions, I think calculating on the one month of performance, we get around 55% utilization and about $100 per ton EBITDA margin versus CMC’s own $140 per ton. How do we think about the opportunity on the utilization and the EBITDA per ton maybe on a one to two-year view? I know it’s going to take some time to get there, but just trying to work out where you see the potential in those assets? Thanks.

Yeah. Thank you, Chris. And I did see your note with an estimate of a 55% utilization, and that's really, really understated in terms of where they're currently operating. And let me try to walk you through why. First of all, it was a partial month of ownership. Second, we had to come up and be operational on November 5 on a carveout system. And needless to say, it went extremely, extremely well, but there is always things that you find. And so, that impacted shipments to a certain degree for this past quarter and that partial month of ownership. The other thing I would add is that Gerdau accelerated shipments prior to the close in order to protect customers to make sure that we didn't have any disruption to the customer base. And then, finally, there was an outage, I believe a reheat outage, in Jacksonville, which was planned, in the month of November. So, by our estimates, and we don't generally disclose utilization rates, but it was closer to the industry average than that 55%. And, I guess, one final point. I don't know if you're using rolling mill capacity or melt capacity, but there is significant excess melt capacity at a couple of the acquired facilities.

Okay, thanks. Thanks. That's helpful. And just maybe – I guess there’s a lot of commentary on scrap falling in the next month or so. And you talked about that. What’s your expectations, I guess, a little bit further out, for the next couple of quarters on the scrap market? And just if you can touch a little bit more on specifics around different end markets on the demand side. Thanks.

Yeah. I think that it's really difficult to predict where scrap prices are going. There are so many factors that play into that. Certainly, there are seasonal effects and we’ll see how winter weather evolves. Sometimes that forces prices up because it’s harder for scrap to find its way to the market. Obviously, as the busy season, construction season evolves, busy production season, that has some effect on scrap prices. But I wouldn't want to make predictions past what the experts are already predicting in the market. And forgive me, was there a second part to your question, Chris?

Just if you’d give any comments on the demand picture on specific end markets, how you see it playing out? I know you said you were broadly constructive on the overall end markets, but if you could just dig into some of the specifics, that would be great.

Yeah, thank you. Well, I noted a number of things in my remarks in terms of – you know the unemployment rate and the job creation in December is certainly a positive indicator. I know that there is a lot of nervousness around trade effects and oil prices and residential housing, et cetera, et cetera. And we’re really just not seeing that in terms of the amount of work that’s coming to us to be bid and the amount of work that we’re booking. And our fabrication backlog is our best indication of forward demand and it’s very strong. Our backlog is very high and the amount of bidding that's going on is still quite robust irrespective of seasonal fluctuations. I can also say that – especially with the closing of the acquisition, we have had a number of outreach efforts to our customers, new customers and existing customers. And generally speaking, they see good demand going forward.

Okay, great. Thank you.

The next question comes from Matthew Korn with Goldman Sachs. Please go ahead.

Hi. Good morning, Barbara. Good morning, Mary.

Hi, Matthew.

I had one quick operational question, then I want to ask Mary a little bit more on some of the accounting details. Poland looked very good. Seemed that was up – outperformed given all the work that you had going on for the quarter. What’s your thoughts on a year-over-year basis for the next quarter now that these updates are done? And then, there's the expansion work that you're working on. Does that limit your ability to ship from this mill in any meaningful way?

We expect Poland to have another – I would call it – exceptional year. If you look at last year, it was a record year from financial perspective. And as I've indicated on past calls, that was really a long-term strategy of repositioning that, now moving up the value chain into higher value-add products. And Poland, as the US, is experiencing good market demand, good GDP growth and we expect that to continue. So, quarter over quarter, Poland will have normal seasonal effects. And I would say one thing that was unique about this December is, as compared to prior Decembers, the way the holidays fell, with Christmas falling on Tuesday, a lot of our customers took extended downtime through the holidays. And what might have been a 7 to 10-day period down in prior years was more like 14 days. And, of course, winter weather is beginning to be a factor in Poland. And it's difficult to predict snow levels and how that might affect their shipments. But, normally, we have a significant seasonal effect in Poland. In terms of the expansion, it's not going to impact operations. As in many situations like this, we make provisions to accumulate inventory where necessary if there have to be some down periods. But we do not expect this to be disruptive to operations. And we’re in the very early stages. And so, as the project moves forward, we’ll provide further update.

Hi. Thanks. Let’s hope we never reach the point where seasonality in Texas is the same as it is in Poland.

We certainly didn't forget 100-year record rain levels.

True. Let me then ask on the fabrication side. I just want to make sure I'm understanding this correctly and the way that you laid out the rest of the year. This past quarter, adjusted EBITDA, negative $37 million. Legacy, if I exclude the $8 million that came in from the acquired assets, legacy [indiscernible], the $29 million kind of flat quarter to quarter, I think, as you had guided. Hearing you and your prepared remarks, it sounds as though if I think about the legacy piece only, we should see the second half then move to above breakeven. And if I think about what you’re going to report for the full year, for the entire complex, all the fabrication, if I'm going to add back the purchase accounting benefits, $11.3 million this quarter and whatever it is for the remaining part of the year that that – if I add that, you're actually going to see like around a breakeven level. Is that a correct interpretation?

So, let's talk legacy first. I would expect that number to be, as you indicated, similar in the second quarter. Then it will step down and it will take a fairly sizable step down in third and fourth quarter, such that we expect it to end the year being breakeven or positive. And then, you have the Gerdau piece which will continue to show in the segment EBITDA results, the losses which will be offset by the amortization. It's hard to say how the shipments will play out exactly, but you can use a $10 million a month amortization level, and that's probably kind of a safe assumption.

Got it. Thanks a lot for the clarity. I’ll follow-up with you’ll later on. Good luck.

Thank you, Matthew.

[Operator Instructions]. The next question comes from Timna Tanners with Bank of America Merrill Lynch. Please go ahead.

Hey, thanks. Good morning, everyone. Happy new year.

Happy new year, Timna.

On the discussion of the Gerdau assets acquired, I know that you mentioned the extra melt capacity and I was just wondering if you have any concrete plans to kind of crank that up or under what conditions you think about it? Is it an additional investment or what is the take to kind of eke out some additional plans [ph] from those acquisitions?

We’re not prepared to discuss specific plans at this time, Timna. I think, first and foremost, it would depend upon market demand. And there would be some investment, obviously, in the downstream from the melt shop in order to debottleneck and take advantage of that excess melt. Certainly, billet sales have been strong of late. And to the extent that there's opportunistic billet sales, we will always take advantage of those opportunities. But, right now, we don't have specific plans that we’re prepared to share.

Okay, that’s helpful. So, debottlenecking. And then, my second question is just on the European market, the last conference call, you sounded a bit more cautious on the outlook for Poland coming off of a really strong fiscal 2018. And the tone in this call sounds much more upbeat. So, I'm just wondering if you could help me understand if maybe I'm missing something or if you changed your mindset there? And also, if you have any thoughts on the Turkish rebar, where it's going, given the further restrictions EU and US? Thanks.

Yeah. I think, Timna, as far as Poland and the outlook coming out of our August quarter, we were trying to temper expectations candidly. We still expected Poland to have a fabulous year in 2019. We knew we had the various outages. We never really forecast billet sales because they come and they go and they are very opportunistic. So, it was really to temper a little to not take last year's results and then increase that in terms of our guidance to the Street. And we now have one quarter under our belt, and the quarter was quite strong and we did take advantage of some opportunistic billet sales. Kudos to the team in Poland and their execution of that outage, which actually came in a little bit ahead of schedule. And so, we also are very cognizant in Europe that the safeguard measures had an expiration date, which, frankly, is coming up here soon, and we were uncertain how that might get resolved going forward. And so, all those things combined, we’re kind of the nature of having a little bit of caution coming out of such a fabulous year last year. Having said that, we’re still very bullish on Poland. Demand is very good. We’ve repositioned these facilities very nicely. They're generating excellent returns. They’ve increased their flexibility tremendously by expanding their product mix over time. And we fully expect Poland to have another really fabulous year. In terms of Turkey and that situation, thus far, we’re not hearing anything about a removal of the second 25%. However, as everyone knows, these trade matters can change quickly. And, certainly, we monitor that all the time and we do whatever we can to ensure that we have a level playing field. But at this point in time, while we do see from time to time some Turkish offers, the trade actions that the administration have put in place seem to be working and having their intended effect. And at this moment, we’re not seeing a change in that.

Okay, thank you.

Thank you, Timna.

At this time, there appear no more questions. Ms. Smith, I’ll turn the call back to you for closing remarks.

Okay. Well, thank you, everyone, for joining us on today's conference call and we look forward to speaking with many of you during our investor visits in the coming days and weeks. Have a great day.

This concludes today's Commercial Metals Company conference call. You may now disconnect your lines.