Hello, and welcome, everyone, to the Second Quarter Fiscal 2024 Earnings Call for CMC. Joining me today are Peter Matt, CMC's President and Chief Executive Officer; and Paul Lawrence, Senior Vice President and Chief Financial Officer. 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. 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, U.S. steel import levels, construction activity, demand for finished steel products, the expected capabilities, benefits and timeline for construction of new facilities, the company's future operations, the timeline for execution of the company's growth plan, the company's future results of operation, 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 belief 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 U.S. Securities and Exchange Commission, including the company's latest annual report on Form 10-K. 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 slides 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 would like to turn the conference over to Peter Matt, President and Chief Executive Officer.

Good morning, everyone, and thank you for joining CMC's second quarter earnings conference call. I would like to begin this morning's discussion by congratulating the CMC team for setting a new standard in safety performance for our company, as they brought our total recordable incident rate to less than 1, significantly better than the U.S. steel industry as a whole. At CMC, it all begins with safety, and our goal is to ensure everyone leaves their shift in the same condition they arrived. I am particularly proud of the improvements made at recently acquired locations within our Engineering Business -- Emerging Businesses Group. An important part of our integration process is instilling CMC's industry-leading safety culture and practices, which employees at acquired businesses have been eager to adopt. Compared to a year ago, the recordable incident rate for EBG has been cut in half, which equates to several injuries avoided and better outcomes for all stakeholders. The data for EBG and for all our operations can be seen on Slide 4 of our earnings presentation, and we are committed to further improvement on this strong record. This morning, I will provide an overview of CMC's second quarter financial and operating performance, after which I will share an update on the company's strategic outlook and growth projects. And then discuss our view of current and future market environment. Paul will cover the quarter's financial results in greater detail, and I will conclude with our outlook for the third fiscal quarter and beyond. We will then open the call to questions. Additional information regarding the quarter is provided in the supplemental slides that accompany this call, which can be found on CMC's Investor Relations website. Before reviewing our financial results, I want to call your attention to yesterday's announcement of a 13%…

Thank you, Peter, and good morning to everyone on the call. As noted earlier, we reported fiscal second quarter 2024 net earnings of $85.8 million or $0.73 per diluted share compared to prior year levels of $179.8 million and $1.51 per share, respectively. Results this quarter included net after tax charges of $17.2 million related to the ongoing commissioning efforts of Arizona 2. Excluding these items, adjusted earnings were $103.1 million or $0.88 per diluted share in comparison to adjusted earnings of $171.3 million or $1.44 per diluted share during the prior year period. Core EBITDA was $224.4 million for the second quarter of 2024, representing a 26% decline from the $302.8 million generated during the prior year period, but it's still a historically strong result. Slide 10 of the supplemental presentation illustrates the year-to-year changes in CMC's quarterly financial performance. Profitability at our North American and Europe Steel groups were impacted by lower margins over scrap, while benefiting from strong controllable cost performance. Adjusted EBITDA also declined in CMC's Emerging Businesses Group due primarily to difficult weather conditions in the U.S. and project delays outside of the U.S. Consolidated core EBITDA margin of 12.1% remained above average historical levels and compares to approximately 15% a year ago. I will now review the results of our segments to the second quarter of 2024. CMC's North American Steel Group generated adjusted EBITDA of $222.3 million for the quarter, equal to $220 per ton of finished steel shipped. Segment adjusted EBITDA decreased 19% on a year-over-year basis, driven primarily by lower margin over scrap costs on steel and downstream products. This pressure was partially offset by the improved controllable cost levels per ton. The adjusted EBITDA margin for the North American Steel Group of 15% compares to 18.2% in the prior year…

Thank you, Paul. We expect shipment volumes within our North America Steel Group to follow a typical seasonal pattern during the third quarter, while our EBITDA margin for the segment should be largely stable on a sequential basis. Conditions in Europe are expected to remain challenging, but adjusted EBITDA is anticipated to approach breakeven levels during the third quarter. Financial results for our Emerging Businesses Group should improve meaningfully, driven by the normal seasonal uptick in demand, strong underlying market fundamentals and a healthy order book. We continue to expect robust spring and summer construction activity driven by increased infrastructure investments, which we anticipate will support an already strong demand backdrop in both the North America Steel Group and the Emerging Businesses Group. Business conditions for our Europe Steel Group are slowly improving and should further benefit from increased residential construction activity as a government program aimed at first-time buyers and other government-sponsored investment programs begin to impact steel demand. We are proud of CMC's financial results and the transformation that made them possible. We are even more excited about our potential to reach new heights in the future as we execute our key strategic priorities and deliver significant value for our shareholders. Powerful structural trends in North America should drive construction activity for years to come, and CMC has positioned itself as a key beneficiary. I would like to thank our customers for their trust and confidence in CMC and all of our employees for delivering yet another quarter of very solid performance. Thank you. And maybe at this time, let's open it to questions.

[Operator Instructions] Our first question comes from Timna Tanners with Wolfe Research. Please go ahead.

Yes, hi, good morning. I wanted to probe the guidance on the flat margins in North America if we could, a little bit? I think you did some of the explanation sounds like it relates to the timing of scrap prices stabilizing after the recent drop maybe in the inventories you mentioned. But typically, it's pretty common, the last two years have seen a really big bump. And I was thinking maybe you'd have some fixed cost absorption as volumes improve. And there was a big weather hit in Q2, I thought. So I just would like a little bit more color about why the margin guidance, if there's anything else to read into there? And what's driving that outlook? Thanks.

Yes, Timna, I think, as it relates to the impact of the scrap reduction, the scrap costs came fairly significantly here in March. And so that hang in terms of the impact of what we'll actually realize through the P&L is more significant than in other periods. With respect to the comment on the fixed costs, we've continued to operate our facilities at a very high utilization rate. And so despite the shipments being impacted by a slightly lower level in our seasonally slow Q2. We've maintained the production rate. So we don't really typically see a big bump in terms of the cost performance as we enter into the summer because we're continuing to operate the mills at a consistent level of utilization. So those are the principal reasons for, yes, the metal margin statistic that we provide, to your point, we'll see an improvement. But the margins that we actually realize will be pretty consistent. And really, the increase in earnings is anticipated to really be the growth in the volumes, which we expect to be on the high end of the normal seasonal pickup that we have historically seen between Q2 and Q3.

Got it. Okay. That's helpful. Thanks. And then my second question is if you could please address a little bit more some of the hot topics. You mentioned data centers and the 250,000 tons, 350,000 tons of total rebar consumption. Can you put that in context of what it was in the past years? And also, is that in the context of like a $9 million U.S. market or roughly are those the right numbers? And then on infrastructure, any comments there on the cadence of that would be helpful? Thanks.

Yes. So on data centers, it is in the context of a 9 million ton rebar market. And I don't have the information right in front of me to comment on where it was in the past. But what I can tell you is much lower. And today, there are -- the number is something like 120 million square feet of need in data centers. So there's been a dramatic increase in the need on the data center side. On the infrastructure side, again, we are definitely seeing the spending come through. We said that last quarter too, we are starting to see it come through. But now all the data -- all the kind of key indicators, whether it be the Dodge Momentum Index or whether it be kind of the state budgets, they are all continuing to show very strong increases on a year-over-year basis. And through some anecdotal conversations that we've had with DOTs, we have understood that they are absolutely seeing kind of the IIJA money coming through and the spending is increasing as a consequence of that. It's also important to know that they all indicate that -- and we've said this in the past, too, that the spending should escalate over the duration of the program. So, it will start out, it will grow through 2024 and then 2025 should be at a higher level than 2024 and 2026 should be at a higher level than 2025. And again, just to come back to your question on incremental tons, as we've said in the past, we think that's a 1.5 million incremental tons per year, again on that 9 million ton number.

Got it.

Timna, just to add a little color to the two key leading indicators that we look at in this area. If we look at the Dodge Construction starts specifically for infrastructure and again, more specifically for highway, they've got -- their projection is an increase in starts this year versus 2023 of 25.6%. That is an incredible number. But then again, that's a starts number. And it really reiterates the long-term nature of how long this tailwind will be with us because these projects will not be completed this year. They will be, as Peter said, completed over the next few years. Contrast that to the PCA data, which is really based on cement consumption in 2024 that's anticipated to be up 5.5%, another 4% next year and then really continuing that into 2025. And so that sort of is more the steel in the ground but will evolve over that period of time, but it's very impressive to see the Dodge starts forecast for the current year.

Got it. Okay. Thanks, again.

Thanks, Timna.

The next question comes from Katja Jancic with BMO Capital Markets. Please go ahead.

Hi. Thank you for taking my questions. First, can you just remind us what the seasonality typically is on volumes in North America?

Typically, Katja, it's usually between 5% and 10% from Q2 to Q3. We're going to be on the high end of that this time given the more dramatic weather conditions we saw. So that's sort of the normal range we anticipate.

Okay. And then maybe on the Emerging Businesses Group, when -- I know you said it's going to be up meaningfully sequentially. Now when I look at last year, it was around $38 million in EBITDA. How should we think about that segment relative to last year?

Yes. I mean, we expect that the Emerging Businesses Group is going to return to an on-trend performance. So, again, in the quarter, as we said, we had some conditions including weather and also some delays in shipments outside the U.S. that impacted us. But as we look at that business going forward, it should be and should be kind of 15% to 20% EBITDA margin, and it should grow organically. And we would expect it to return to something that was kind of a little bit better than what we did last year.

Okay. Thank you very much.

Yes, absolutely. Thank you.

The next question comes from Tristan Gresser with BNP Paribas. Please go ahead.

Yes, hi. Thank you for taking my questions. So I have two. The first one is on Mexico. I mean when we look at the products, the imports coming from Mexico, that's rebar is probably the one that surged the most over the past couple of years, and there's been a lot of noise, and I believe that senators have put a bill to return to tariffs on imports from Mexico. So can you discuss a bit the situation there? What happened? And also how likely do you think we're going to get some trade actions there? That's my first question. Thank you.

Yes, absolutely. So, you are right, there was a bill recently introduced by senators Brown and Cotton. And the objective of the bill is to restore tariffs to levels that are kind of along the lines of the Section 232 exemption and the USMCA. It's early days to see kind of what happens there. So we'll continue to monitor that. But yes, it would be -- it would have an impact because there have been an increase in both rebar and merchant bar shipments into the U.S. But it's early days, and we'll have to watch that one.

All right. But you have noticed the behavior from Mexican producer ramping up production, being more aggressive on prices. Has it been an issue for you anywhere in the market you operate?

Well, definitely we are aware of them. But remember, at the same time, we've had a decline in some of the imports from the other areas, right. So I would say, in general, imports have been less of a factor in the quarter, and we expect them to be less of a factor kind of in the coming quarters. So yes, we can see it, but again, it's hard to say what the ultimate impact or what the ultimate outcome of that will be.

All right. That's helpful. Maybe just another one on infrastructure and at the risk of sounding a bit like a broken record. I mean, we were talking about infrastructure. I think a year ago, there has been consistent delays. And I was wondering if you touch a little bit. I think the delays were also driven a little bit by the political situation. So now as we're getting close to our U.S. election, could this again, with the change or no change of administration, add a bit more delays. And if that's the case, I mean, 2025, if we look at the supply situation, if you could share some thought if you think there could be a mismatch because we see quite some capacity ramping up during that year. It's true towards the end of the year. But still, I'm a bit worried looking at the political situation, the supply growth in 2025 that we could see a mismatch between supply and demand essentially. I would like to hear your thought. Thank you.

Well, Tristan, thank you for the question. And we're not concerned about the delays. And if you think about what we've said over the last several quarters, there's a whole predesign phase, there's a design phase that these projects have to go through until they get to the spend period. And in our conversations with some of the DOTs, what we've been led to believe and told is that sometimes these predesign phases can take years, right. And so it was probably -- we were probably overambitious in our initial timing of when we thought we were going to see this coming through. But today, we are seeing it come through, as I referenced in my response to one of the earlier questions. And so we are seeing the spending come through. And the other thing that I would say is that as we look at the kind of political situation, we believe that both parties are supportive of the current infrastructure spending. It was a bipartisan bill when it was approved. And we have not seen any wavering from that on either the Republican or the Democratic side. So we remain bullish on that. And just maybe to pick up on your point on capacity, yes, there is some capacity coming, but we believe that the capacity that will -- there's a difference between the capacity that is announced or indicated and the capacity that's actually going to get built. And we're very comfortable with our estimates on how much capacity actually gets built that the market can kind of manage that capacity. So we're -- overall, we remain very bullish. The demand backdrop is, as I said in my prepared remarks, it's kind of a generational change from what it's been, and it's a multi-year spend that is going to put us in a good position for, I think, years to come.

Tristan, I'll just add with respect to your comment that we'll see some capacity come online in 2025, I don't think that's necessarily correct. I think if we look at the time line associated to our projects and others and you look at the time associated with ramp-up of commissioning the mills, I think from a true product into the marketplace, we're looking beyond '25 at this stage for any of the new capacity to come online.

All right. Thank you for the answers. Appreciate it.

Thank you.

The next question comes from Phil Gibbs with KeyBanc Capital Markets. Please go ahead.

Hi, good morning.

Hi, Phil.

Just curious on CapEx cadence for the second half and fiscal '25 as you complete some of these projects?

Phil, generally, our CapEx process is pretty consistent year after year. We sort of start the year relatively slow and then ramp up over the summer months. And we anticipate that as we complete the civil construction work at West Virginia, we're certainly going to continue to see increased spend at the -- at that site, which is driving most of our CapEx into Q3 and into Q4. So given where we are year-to-date, we anticipate that the Q3 and Q4 will achieve our guidance pretty evenly between those two months.

And as you look into '25 to complete those projects, how should we think about that?

Yes, there should be probably equal spend left on West Virginia to the $250 million that we anticipate for this year.

And then just on the start-up costs of the mill, I know you said you've gotten through some of the initial teething issues on MBQ, which is great, and rebar sounds like you're maybe being a little bit more measured here in the short-term. How should we think about your start-up costs in Q3 and Q4?

Well, so on rebar, we've largely crossed the bridge in terms of commissioning. I mean we're in good shape on rebar. So I think this is really about continuing to kind of develop product families on the MBQ side. We've had good success already, and we'll just continue to kind of grow that. As we indicated in our prepared remarks, we are still expecting to be profitable there to be breakeven on the EBITDA front in our fourth fiscal quarter. So I think you'll see those trail off, and this will be kind of just ongoing commissioning costs as we -- but it's going to be much smaller numbers because we'll be into profitability.

So this quarter is probably peak start-up and commissioning costs for you all?

Yes, that I say -- that we can say confidently that Q2 of this year is the peak and things will tail from here.

Okay. And just on your net working capital outlook for the balance of the year, I think first half might have been a little bit heavier than I expected, but you probably have some bills that you're letting in the back half as shipments increase and scrap has also gone down. So you've got a couple of things working in your favor, but you also have higher levels of business activity. So how should we think about the working capital side?

Yes, Phil, the working capital should -- we invested, as I mentioned in my comments, around $60 million of working capital. That was strictly driven from the scrap cost increase that occurred during the second quarter. As our scrap has come off in the third quarter, we do anticipate most of that coming back. And the offset to other factors is, yes, we did build a few -- a little bit of quantity of inventory into -- in the second quarter for the upcoming construction season. And that should really play off the growth we anticipate in accounts receivable. So I think those two will net. And so we should be in a working capital generation here as we complete the year and certainly, Q3 would start that.

Thank you.

Thanks, Phil.

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

Okay. Well, I'd like to just thank everyone for joining the call today. We're really pleased with the results that we've been able to generate, and we are continuing to feel really strongly about the construction outlook for, and the demand for our products that results from that. So thank you very much for your interest in CMC, and we look forward to talking to you in the future.

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 weeks. This concludes today's CMC conference call. You may now disconnect.