Hello, and welcome, everyone, to the Third Quarter Fiscal 2023 Earnings Call for Commercial Metals Company. Today's materials, including the press release and supplemental slides that accompany this call, can be found on CMC's Investor Relations website. Today's call is being recorded. [Operator Instructions] 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, U.S. steel import levels, construction activity, demand for finished steel products, the expected capabilities, benefits and time line for the construction of new facilities, the company's future operations, the time line for execution of the company's growth plan; the company's future results of operations, financial measures and capital spending. These and other similar statements are considered forward-looking and may involve certain assumptions and 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 and Forward-Looking Statements section of the company's latest filings with the Securities and Exchange Commission, including the company's latest annual report on Form 10-K and quarterly report 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 be correct, and actual results may vary 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, supplemental slide presentation 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 and Chief Executive Officer of Commercial Metals Company, Ms. Barbara Smith.

Good morning, everyone, and thank you for attending CMC's third quarter earnings conference call. As we reported in our press release this morning, it was another period of outstanding financial results with quarterly core EBITDA performance among the best in our company's history. I would like to thank CMC's 12,500 employees who have made these results possible. Your hard work and focused efforts are driving our success. For this morning's call, I'm joined by Commercial Metals Company President, Peter Matt; as well as Senior Vice President and Chief Financial Officer, Paul Lawrence. I will start today's discussion with a few comments on CMC's third quarter results and give an update on our strategic growth projects. Peter will then provide commentary on current market conditions and factors behind CMC's long-term demand outlook. Paul will cover the quarter's financial information in more detail, and I will then conclude with our outlook for the fourth fiscal quarter after which we will open the call to questions. Before diving into more details on the quarter, I'd like to direct listeners to the supplemental slides that accompany this call. The presentation can be found on CMC's Investor Relations website. As I noted, CMC's third quarter fiscal 2023 earnings were among the strongest in our company's 108-year history. We reported net earnings of $234 million or $1.98 per diluted share on net sales of $2.3 billion. Excluding the impact of non-operational items, which Paul will discuss in more detail, adjusted earnings were $239.7 million or $2.02 per diluted share. CMC generated core EBITDA for the quarter of $391.7 million, an increase of 29% from the prior quarter producing an annualized return on invested capital of 19.1%. This marks the North America segment's 10th consecutive quarter of year-over-year EBITDA growth and the 20th quarter of year-over-year growth…

Thank you, Barbara, and good morning to everyone on the call. Before providing remarks on CMC's end markets, I would like to share a few observations for my first two months as President. My time has been filled with site visits and conversations with employees from across the organization, and I have come away with a true appreciation for the quality of our culture and our people. It's clear that our team members are truly dedicated to our customers and to each other. It's also clear that our people excel at meeting challenges from routine business issues to spearheading the adoption of breakthrough technologies. After meeting these folks, it's no surprise that CMC has become an industry leader and built a track record of innovation and financial success. I am highly energized by the opportunity to work closely with such a talented group of people and to join a management team I greatly respected during my tenure on the company's Board of Directors. Now turning to CMC's markets in North America. Conditions remained strong with healthy demand for our products and generally favorable margin environment. The value of our downstream backlog ended the third quarter at a record level for this time of year, up roughly 4% from a year ago. Volume in our backlog is also at historically high levels and conversations with customers indicate that other fabricators are similarly situated, which should support finished steel shipments over the next several quarters. CMC's downstream bidding activity for newly announced projects, which provides the best view of developments within the future project pipeline also remained robust, increasing nearly 30% on a year-over-year basis. Projects in the pipeline continue to represent a healthy blend of both private and public work, spanning across our geographies. We are experiencing particular strength in local…

Thank you, Peter, and good morning to everyone on the call. As Barbara noted earlier, we reported fiscal third quarter 2023 net earnings of $234 million or $1.98 per diluted share compared to the prior year levels of $312.4 million and $2.54 per diluted share. Results this quarter include a net after-tax charge of $5.8 million related to ongoing commissioning efforts at Arizona 2. Excluding this item, adjusted earnings were $239.7 million or $2.02 per diluted share in comparison to adjusted earnings of $320 million or $2.61 per diluted share during the third quarter of fiscal 2022. Core EBITDA was $391.7 million for the third quarter of 2023, representing a 19% decline from the record $483.9 million generated during the prior year period, but still amongst one of the most profitable quarters in CMC history. Slide 12 of the supplemental presentation illustrates the year-to-year changes in CMC's quarterly results. Our North America segment achieved earnings growth, while Europe experienced a reduction from the record set in the prior year quarter. Consolidated core EBITDA per ton of finished steel of $245 remained well above average historical levels and compared to $293 per ton a year ago. CMC's North American segment generated adjusted EBITDA of $402.2 million for the quarter, equaled to $344 per ton of finished steel shipped. Segment adjusted EBITDA improved 6% on a year-over-year basis and 34% sequentially. The increase from the third quarter of fiscal 2022 was primarily the result of significant expansion in the margin of average downstream selling price over scrap costs. Sequential improvement was driven by a combination of higher shipments and meaningfully lower controllable cost per ton of finished steel. Controllable cost per ton in the quarter benefited from improved fixed cost leverage, lower per unit cost for key consumables and a lower cost…

Thank you, Paul. We expect financial performance to remain strong during the fourth quarter, generally consistent with third quarter levels. North America finished steel shipments are anticipated to be relatively unchanged sequentially, supported by healthy end market demand and a historically high downstream backlog. Margin levels in North America should likewise be similar to the prior quarter. Results in our Europe segment are also expected to remain consistent with the third quarter, reflecting a challenging margin backdrop and ongoing economic uncertainty. Our team in Poland has the skills and operational capabilities to navigate this difficult environment and they will leverage CMC's market-leading cost position to maintain profitability. Once again, I would like to thank our customers for their trust and confidence in CMC as well as all of the CMC employees for delivering yet another quarter of outstanding performance. With that -- go ahead.

[Operator Instructions] Our first question is from Tristan Gresser with BNP Paribas.

I have two. The first one is on the new micro mill. You disclosed some EBITDA figures, I think, of the earning potential of $75 million on average on EBITDA. I believe initially the earnings potential of those mill was closer to $50 million. So what has changed really in this, if I calculated this $50 uplift? Is that the result of the structural changes you mentioned in the presentation and you flagged in the past and you're currently witnessing in the marketplace? That's my first question.

Yes. We are really excited about Arizona 2. In fact, I was there on Monday as they were doing their commissioning activities, and they achieved a significant milestone. So it was really exciting to be with the team. As we look at the expectation from the Arizona 2 operation, it's exactly what you pointed out. If we look at through the cycle, average performance, we really have updated based upon current past 10-year results or past five to seven-year results, and that is showing that structural uplift through the consolidation of the industry and other factors.

All right. That's really clear. And maybe my second question is more on the fabrication outlook. I think some peers have flagged some delays within their downstream operation. Is that also something you've witnessed across your specific products and geographies? And you touched on the backlog and the bid volumes that remain pretty healthy. If you could maybe touch on how meaningful the reshoring activity, all those new semiconductor plants that are being built, how does that contribute to this really healthy activity level?

First, let me address the delays. I think we've studied the commentary and what I would reflect is, every project is different. And there are certain segments of the industry that may see different demand scenario. What CMC is experiencing is the following. There still are challenges from supply chains and there still are challenges with labor and then you factor in weather and other things. So shipping activity on certain projects, not all projects can be affected by those ongoing supply chain or labor challenges in the marketplace. And we've seen that in some jobs that we are carrying in our backlog. But if you look at the situation more broadly, as we indicated, as Peter indicated in his commentary, our backlogs are extremely healthy. We are very encouraged by what we hear from other fabricators. We're very encouraged by the bidding activity, which remains very robust. And a lot of that is underpinned by things like what you mentioned, the supply chain rebalancing and the number of onshoring activities. Those have been consistently strong, and there's a strong pipeline moving forward. The various infrastructure and other legislation that has been passed, whether that's IIJA or the IRA or the CHIPS Act, every one of those bills has an enormous amount of support for various infrastructure or energy transition or onshoring type of activity. Some of that we've seen already, as we've indicated in the chip plans that we've been associated with here. But much of that is still activity that we expect to see in the future. It was highlighted in the script, this new chip plant in Poland. That is a very, very positive development from our vantage point for our Polish operations. And we believe that we're very well positioned to participate in that, and we look forward to that. So we remain quite optimistic for a strong demand backdrop, both near term, medium and even if you look at it on the longer term.

I might just jump in and add, so to complement Barbara's points on the infrastructure bill, we've said in the past that, that's 1.5 million incremental tons of rebar demand per year, and we think we're on the very front end of that. And on the kind of reshoring projects, you've got -- we can count over 300 billion of projects that are kind of -- will have substantial rebar demand. And for example, just to put it in context, again, if you look at one of these chip factories, one phase, they talk about demand of something like 100,000 tons, right? So there's -- a lot of this that still needs to be clarified, but the one thing that's clear is that there will be a good backlog going forward for our products.

The next question is from Timna Tanners with Wolfe Research.

Just wanted to -- I have a bunch of questions. I wanted to ask a little bit about the impact of falling global rebar prices on your operations. Seems like the offset was a strong fab business and falling scrap prices. But just would like a little more color on what you're seeing on imports and how you see your end markets holding up relative to those lower global prices?

I'll start off, Timna, and Barbara and Peter can add. You're right. In terms of what we have experienced is -- it really has started with a soft scrap market, and we benefited from scrap that came down over the last few months and really is expected to continue to be soft for the balance of the summer. And given the strength of the rebar demand, we are -- we have seen and expect to continue to see that we can hold on to pricing for a longer period of time. It's very similar to the back half of 2022 when we saw scrap fall much of the second half of the year, and we saw margin expansion through that period of time. So that's the benefit of the strong demand environment that we see that's supported not just by our own backlogs, but with a very robust Buy America program, which mutes the direct impact to the import pricing scenarios.

As it relates, Timna, to imports in general, if you look at rebar imports, they're actually down compared to historical. But if you look at it more broadly, there -- the import levels have been stable around the 10%, 15%, which is very manageable in the U.S. market. And again, we've pointed to in the past calls the effect of the earthquakes in Turkey, which has disrupted the production over there and then the rebuilding effort. At the current time, maybe that introduced some of the softness in the scrap market because they weren't as significant a buyer of scrap. But we also think that provides longer-term support to an import environment that is stable and quite manageable for the market here. And as Paul pointed out, a lot of the demand in the future is going to have a by American component to it, which will not allow those imports to compete for that demand.

Cool. Yes. So on the Buy America, I was actually going to ask about that as you shift to more public demand and maybe more muted private demand. If you could quantify that Buy America amount? And then actually, my second question was just to take a step back and ask about capital allocation, bigger picture. So it sounds like you're stepping away from building new mills. And so I just wondered if you could talk a little bit more about how we should think about uses of cash going forward? I know you talk about M&A. Maybe you can expand on like what kind of companies you might be looking at downstream focus versus is there much left to do among rebar scrap guys?

Thank you, Timna. So -- sorry, I forgot your first question, but...

Just the Buy America quantifying.

Oh, the Buy America. Yes. Thank you. So I think it would be hard-pressed to put a specific quantification on it, Timna. And suffice it to say that anything that's got the federal funding to it, generally speaking, is a Buy America. And I think there's just a lot of statistics. You can look at each of the acts and you can look at the billions of dollars that are allocated to various whether it's energy transition or and chips the onshoring of certain critical manufactured products. And that is all on the come, but that's all going to be Buy America. But I don't have a strict quantification of that, maybe we can take that away and look into that further. As far as capital allocation and welcome any input from Paul and Peter after my remarks. I think we've had a well-balanced strategy. We've taken a look at our dividend policy over the last several years, and we've made a number of adjustments there, and we're proud of that. And that speaks to our confidence in the business and the ongoing cash flows. We've had the share repurchase program in for a period of time, and we continue to take advantage of returning capital there. Obviously, we have had a strong eye towards growth, and that continues to be a priority for the company. I I'll take a little bit of a challenge from stepping away from new mills because we are looking forward to breaking ground on our next greenfield project in West Virginia in the coming months, and these are massive multiyear projects. So that one is still something that we very much look forward to completing and getting the benefits from that. But clearly, we have made a number of acquisitions, and we will continue…

The next question is from Lawson Winder with Bank of America Securities.

Yes, thank you for taking the time to take the question as well. I wanted to ask about the downstream pricing and maybe get a little color on your outlook and thoughts around that heading into Q4. So I mean, pricing surprised us very positively in Q4. And obviously, that helped margins. But just when you think about your order backlog and the new bidding, can you speak to the pricing but also the margin outlook for the end of the year and then looking into next year as well would be really helpful?

Yes, Lawson, if we look at our -- the pricing environment in the fabrication business, as you can see from sort of the trailing four quarters really for much of this year, our pricing has remained very stable and resilient. And I think that, that comes from the perspective of the demand that's underlying and creating the strong backlogs that we have. And so that is the environment that, frankly, we see continuing to support us going forward. From a margin perspective, really, that will be driven from your expectations around scrap. So as we look to the fourth quarter, we do see some continued opportunity for overall margin expansion as the forecast is for scrap to remain soft through the summer. But there has been a really significant level of stability in the downstream in our downstream business. And I would say to the earlier comments, it really is seeing the benefit of some of these major projects, such as the semiconductor facilities. Those are very complex projects. They are -- they have the degree to which only a few players can actually execute them. And as a result, there is a premium for the complexity, of which we're able to deliver to our customers. And I think that's driven some of the uptick in the margin in that space, is the nature of the projects that we're servicing.

Yes. Thanks, Paul. That was a fantastic color. Could I also ask about just follow-up on your M&A comments, Barbara? Those were very helpful. But in terms of value, are you seeing good value in the M&A pipeline at this point?

What I'd say is that we have to be patient on that, right? So in certain instances, we are seeing good value. I think the thing that the company has done is it's nicely put itself in a position to be patient. So we are -- we see a decent amount of activity and where the valuation is not where we needed to be, we pass. And we'll be patient.

Okay. And then just finally, it would be helpful to get your thoughts on Turkey and whether or not you're seeing any indications there of like a rebuild starting to gain some momentum and some real local demand starting to take form?

So in Turkey, I think we are -- we've seen a slight uptick in utilization over the past month. But generally speaking, it stayed quite low. I think we're running at something like 50% to 60% utilization. The challenge that Turkey has, obviously, is there's -- you've got the combination of the damage that was done to the areas, but then you've also got the humanitarian impact and the challenge of getting people to be able to come to work and produce the material. So in general, what we've seen is we've seen Turkey step away from the scrap buy. So they're not as big a factor in the scrap buy. And we've seen them as less of a factor in the export market. So therefore, kind of imports from Turkey are lower than they have been in previous periods. And we expect this is going to continue for a while, while they kind of get things under control.

And If your question was aimed Lawson at the rebuilding, our experience would say that you're not seeing any consumption of structural products toward the rebuilding efforts at this point in time. You have a -- whether we point to Hurricane Harvey that occurred here in Texas a few years back or any of the other hurricane events. What happens is you've got cleanup and recovery and the things that Peter mentioned around humanitarian efforts, then you have a massive -- you have to demolish what was destroyed and then begin the reconstruction period. And so I think -- my personal view is I think we're still a year to 18 months out before you're going to see anything measurable in terms of rebuilding. That, of course, can be accelerated or decelerated based upon their government support and priorities. But I don't think we've seen any rebuilding efforts yet. And when things are resolved in Ukraine, you'll kind of go through a similar cycle before rebuilding is going to occur.

[Operator Instructions] The next question is from Emily Chieng with Goldman Sachs.

Good morning, Barbara, Peter and Paul. Thanks for the update is morning. My first question is just around any early insights you might have into fiscal '24 CapEx, particularly as it relates to the West Virginia mill, is there any indications cost inflationary pressures there? And anything left on the West Virginia mill ahead of ground-breaking that needs to be sort of met on perhaps some permitting or otherwise?

I'm going to take a crack at it, and then Paul might be able to add some commentary on how we see the cash flows related to that project. What I would -- as I indicated in my remarks, we are awaiting the air permit. We do anticipate to receive that very shortly. As I indicated as well, upon receiving the air permit, we will proceed in earnest with the construction. And so we don't anticipate any delays in the start of the project. What I would say from the inflation portion of your question is similar to some of the remarks that we've made. I mean we are seeing some abatement of supply chain issues and some abatement of the severe inflation impacts that we experienced with the Arizona project. So the labor market is better than some of the challenges that we saw in Arizona. We were in the midst of a concrete shortage during a portion of the project there. So I think there is some abatement on the inflation side. Saving, things like labor in general has gone up over the last couple of years, and it's nothing different than any other project to see. I think what I would also say is, this is a target-rich environment for us, having just come off of the Arizona project and seeing all the challenges that we experienced there. And this is our fourth go at it. So we have a lot of experience in building these micro mills. And so we're going to take advantage of everything that we've learned from Arizona and put ourselves in a position to not have to deal with the same set of challenges that we had to in Arizona. And we will be looking very carefully at long lead time items. We will be making sure that we have those scheduled in such that we're either not waiting on something or we're pressured into paying a higher price to get something to be expedited. So as I said, I was in Arizona on Monday. It was very exciting. The team that has supported that, there will be a lot of crossover to the team that is beginning to work on West Virginia. And we will absolutely take advantage of all that we've learned, and we do expect to have fewer impacts from supply chain. And at this stage, which is the very beginning of the project, we do see some moderation of inflation.

And Emily, in relation to our forecast for CapEx next year, we -- as I guided towards CapEx this year to be $575 million to $600 million. That included really three buckets, included our normal ongoing CapEx and included the two large maintenance end-of-life replacements as well as Arizona 2. So as we look forward to 2024, as Barbara alluded to, the air permit we expect within the next number of weeks. And so next year will be a full year of construction activity in West Virginia. And so we sort of expect that to replace the spending that we did this year on Arizona 2. So the spending levels will really be similar to this year, excluding the two major end-of-life projects. So it will be lower. It will probably be in the $500 million, somewhere between $550 million at this early stage look at next year's CapEx.

Great. That's very helpful. And just one follow-up around the supply side landscape for rebar. Certainly, you guys have been -- had a lot of practice and experience in building micro mills. It seems like there are a couple of other announcements out there around other micro mills being constructed. Do you have any concerns around the level of supply growth that could be on its way over the next couple of years?

Yes. And we monitor all those projects and I don't know how closely the analyst community monitors some come to fruition and some don't. And so I think based on our knowledge of the activity that's going on out there. I think that the market will absorb it. I don't think that every project that is being talked about will ultimately be executed on. And I just point to history. And when we introduced the Durant facility, there was a lot of dialogue and concern. And that facility was absorbed in the market because we start with looking at the need in the marketplace. And as we outlined earlier, there is certainly a massive structural shift that's going on that is going to require really strong demand going forward. But I think we'll wait and see how many of these projects actually get executed. But right now, we're not concerned about that.

The next question is from Alex Hacking with Citi.

So on Tensar, the EBITDA for the last 12 months was fairly similar to the levels when you bought it, I think, $60 million, $65 million, if I have my numbers correct. As you look forward, you see this as a growth opportunity, what kind of CAGR you think is reasonable to expect from that segment?

So first of all, in commenting on the performance year-to-date, you know that we have commented that we had some challenges on the manufacturing side that would have impacted our EBITDA this year. But in general, as we look at the opportunity going forward, we think that we should be to grow the business in the high single digits area. And the other thing, just kind of coming back on the performance since the acquisition, remember that with the war in Ukraine, we were forced to kind of sell the Russian business, which was a contributor to EBITDA. So those are some of the factors. But I think going forward, we're very excited about it. We see, I would say, more opportunities today than we saw at the time that we did the acquisition, and we're confident that we have the tools to grow it.

And really reinforced by the acquisition that we did about a month ago of the facility up in Oklahoma to give us more flexibility to address the production and the strong demand that we're seeing out of that business that I think really supports the ability that we have to recognize that growth that Peter outlined.

Okay. And then second question would be on merchant bar. I mean, are you seeing the same trends in merchant bar as you're seeing in rebar? Are there any particular pockets of strength or weakness in merchant bar? Any comments there would be helpful.

Yes. I think it's a stable market. There are obviously -- it's probably a little more dependent upon manufacturing activity. And there's been ups and downs since the global pandemic in terms of recovery of manufacturing activity. I think the most encouraging thing is, again, back to all the reshoring. And the going forward, we're going to see a lot more manufacturing activity in the U.S. market, which is potentially going to support further growth in the ongoing need for merchant type of sizes and shapes and different applications, but we really remain optimistic about the demand profile there. There's really only one area that may be showing some sign of weakness, and that's in the joist and deck. But that's been well publicized by others that are bigger players in this space than certainly we are.

At this time, there appears to be no further questions. Ms. Smith, I'll now turn the call back over to you.

Thank you for joining us on today's conference call. We look forward to speaking with many of you during our investor calls in the coming days, and we hope everyone has a great day. Thank you.

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