Good day and welcome to the Steel Dynamics' Fourth Quarter and Full Year 2019 Earnings Conference Call. At this time, all participants are in a listen-only mode. After management’s remarks, we will conduct a question-and-answer session and instructions will be following at that time. Please be advised this call is being recorded today January 23rd, 2020 and your participation implies consent to our recording this call. If you do not agree to these terms please disconnect. At this time, I would like to turn the conference over to Tricia Meyers, Investor Relations Manager. Please go ahead.

Thank you, Melissa. Good morning everyone and welcome to Steel Dynamics' fourth quarter and full year 2019 earnings conference call. As a reminder, today's call is being recorded and will be available on the company's website for replay later today. Leading today's call are Mark Millett, President and Chief Executive Officer of Steel Dynamics; and Theresa Wagler, Executive Vice President and Chief Financial Officer. We also have leaders for our operating platforms including our Metals Recycling Operations, Russ Rinn, Executive Vice President; our Steel Operations Chris Graham, Senior Vice President, Long Products Steel Group; and Barry Schneider Senior Vice President Flat Roll Steel Group. For our Southwest Strategy, we have Miguel Alvarez, Senior Vice President Southwest U.S. and Mexico; and for our Fabrication Operations, Jim Anderson, Vice President, Steel Fabrication. Some of today's statements which speak only as of this date may be forward-looking and predictive typically preceded by believe, expect, anticipate, or words of similar meaning, they are intended to be protected by the Private Securities Litigation Reform Act of 1995 should actual results turn out differently. Such statements involve risks and uncertainties related to our steel, metals recycling, and fabrication businesses as well as the general business and economic conditions. Examples of these are described in the related press release as well as in our annually filed SEC Form 10-K under the headings forward-looking statements and risk factors found on the Internet at www.sec.gov and if applicable in any later SEC Form 10-Q. You will also find any referenced non-GAAP financial measures reconciled to the most directly comparable GAAP measures in the press release issued yesterday entitled Steel Dynamics Reports Fourth Quarter and Annual 2019 Results. And now, I'm pleased to turn the call over to Mark.

Thank you, Tricia and welcome. Good morning everybody and happy 2020. Thanks for joining us this morning for our fourth quarter and full year 2019 earnings conference call. We certainly appreciate your time today. To begin, I would like to thank the entire SDI team and their families for their extraordinary dedication and passion. 2019 represented a period of market challenge yet the team achieved numerous operational milestones as well as a strong financial performance, record steel shipments, record fabrication shipments to name just two. 2019 represented the third best year since our inception in 1993, the best testament to the superior performance of our teams and our differentiated business model. And to impart clarity, Theresa will provide insights into our recent performance.

Thank you. Good morning. I add my sincere appreciation and congratulations to the entire Steel Dynamics team. It was a strong year with many operational milestones as well as being one of the best years financially. Revenues of $10.5 billion derived from record steel and fabrication volumes represented our second highest annual performance. Operating income of $987 million and net income of $671 million or $3.04 per diluted share represented our third best annual performance. Cash flow from operations of $1.4 billion and EBITDA of $1.3 billion represented our second and third best performances respectively and notably, the achievement of gaining an investment-grade credit rating designation and recognition of our capital foundation and capital allocation philosophy. Regarding our fourth quarter 2019 performance, net income was $121 million or $0.56 per diluted share which includes financing costs related to our December 2019 refinancing activities of approximately $0.01 per diluted share and lower earnings resulting from our two planned annual maintenance outages at our Butler and Columbus Flat Roll Division of approximately $0.05 per diluted share. The outage has also impacted fourth quarter flat-rolled steel shipments by an estimated 70,000 tons to 80,000 tons. Fourth quarter earnings were above our mid-quarter guidance of $0.49 per diluted share to $0.53 per diluted share primarily due to stronger-than-anticipated December steel shipments. Excluding these items, fourth quarter 2019 adjusted net income would have been $0.62 per diluted share above our adjusted guidance of $0.55 to $0.59 per diluted share. Fourth quarter 2019 revenues were $2.4 billion, 18% lower than fourth quarter 2018 sales and 6% lower than sequential third quarter results, as average realized steel prices declined. Our fourth quarter 2019 operating income was $182 million, 50% lower than prior year fourth quarter earnings and 20% lower than sequential third quarter results due to lower…

Thank you, Theresa. Thanks for the detail. I think it profiles an incredible job by an incredible team. As we've always suggested and execute upon safety is always – has been our number one value and our first priority. Nothing surpasses the importance of creating and maintaining a safe environment for our people. Our 2019 incident rate crept up slightly and our lost time rate ticked up a little above our 2018 record low. But most importantly, our severity rate continued to improve in 2019. While our safety performance remains significantly better than our industry averages, it's not enough. We all must be continuously aware of our surroundings and our team members around us. Safety must always be top of mind, and I challenge all of us to remain focused and to keep moving toward our ultimate goal of no injuries. The fabrication platform delivered an outstanding performance with the team achieving record annual earnings and shipments. Profit margins expanded as average 2019 product pricing rose and raw material steel input costs declined. Additionally, the fabrication platform provided increased utilization for our steel operations, purchasing over 438,000 tons of steel internally. The fabrication group is confident regarding 2020. Despite seasonality, they achieved record fourth quarter volumes. The order backlog is even stronger entering 2020 than it was this time last year, and the customer base is optimistic concerning non-residential construction projects. Our metals recycling team also supported our steel operations by supplying over one-third of our steel mill scrap requirements during the year. 2019 was particularly difficult in the metals recycling industry with ferrous scrap prices declining in each of eight months. The combination of trade and uncertainty around China's environmental policies also pressured recycled non-ferrous prices and demand. This month-over-month price drop decreased earnings during the year. But within…

Thank you. [Operator Instructions] Our first question comes from the line of Martin Englert with Jefferies. Please proceed with your question.

Hi, good morning, everyone.

Good morning.

Within the release and prepared remarks you noted expectations of modest demand growth in North America. What percentage growth do you think that implies? And perhaps if you can provide a little bit more detail maybe on specific end markets puts and takes, whether you're expecting ongoing growth and perhaps contraction.

Yes certainly. I think we are incredibly constructive on the market in general going into 2020 and 2021 to be – for that matter. Because again underlying demand last year didn't dissipate. The whole price drop was the sort of a drawdown or destocking of customer inventory and that obviously is reversed here in the last couple of months of the year and going into 2020. And so, it's a very positive market. You have the two principal markets, flat roll markets automotive and construction in great, great shape and that represents 60%, 70% of the market. There's incredible optimism on the construction side. New manning and building systems, our fabrication platform has an incredible business going into the year and I think that bodes incredibly well for construction in general. And it also parallels with our pre-paint building products on the flat roll side. So construction we believe is going to be very, very strong in the year. As I mentioned earlier, we think the energy sort of pipeline infrastructure is going to be strong for the year and for the next two or three years, as we go down that path of energy independence and drawing all those energy products down to the Coast for export. Downhole energy is a little weak perhaps. But again, the improving demand environment -- and if you look at our order books generally, they've been very, very strong. Pricing is very, very robust. Lead times have stretched out. The 232 tariffs have had their impact, but just the trade environment in general is very positive. And obviously, the passage of the USMCA is already garnering results. We're certainly seeing foreign sort of auto producers that were bringing material in from Asia and from Europe looking for domestic sourcing and we've been the…

Okay. I appreciate all the color there. And congratulations on the execution in challenging environment.

I appreciate it. Thank you.

Thanks Martin.

Thank you. Our next question comes from the line of Chris Terry with Deutsche Bank. Please proceed with your question.

Hi, Mark and Theresa. Thanks for taking my question. The main thing I wanted to ask you about just in the shorter term just trying to link together scrap imports and the recent strength in HRC pricing and your comments on more normalized inventory levels. Have you seen anything just recently with talk that scrap is going to be down in February on the customer behavior side that may change where people restock destock and just the outlook maybe for the next couple of months? If you could comment on that first. Thanks.

Russ, do you want to comment on the scrap?

Sure. Thanks, Chris. Again, as we look at scrap in 2019 we certainly had a very, very tough environment. I think the pricing levels overshot where they probably should have been and we've seen some of that come back in the last part of the year. I think, as we start into 2020, we're anticipating a more normalized year, some ups, some downs, but no substantial moves like we had last year. And in the short term, I think, we're looking at kind of a soft sideways. Certainly, the offshore pricing has declined slightly, but part of that's going to be offset, we believe, with the increased steel mill utilization domestically. So, we're not looking for any major changes. I think, the trend would be down slightly, but not a significant push down.

You want to -- I think, the weather in the Midwest is pretty moderate. So, flows are relatively strong on the absolute cut rates. We see very, very strong flow in prime grade still. Obviously, industrial business and most importantly automotive stamp plants are growing very, very strong. So the flow of scrap is good. And then, during the year, I think, you're going to see some additional sort of HBI alternative iron units come online. So we see a pretty stable raw material environment, with a strong product environment and I think that bodes very, very well for spreads through the year.

Okay. Thanks, Mark, and thanks for the comments. Just a follow-up. Maybe you could just discuss a little bit more your expectations on the imports for the year. Obviously, it came down a lot last year. Your comments that they should come down further in 2020, predicated on the parity pricing. Or are there other factors at play there? Thanks.

Well, obviously, between the Section 201 countervailing duty and antidumping trade cases that have been with us for some time and will remain with us for a good long time as well and the 232, we saw a considerable moderation in imports through the year last year. I think, that will continue. Obviously, the arbitrage to European and Asian pricing is not totally attractive for folks to look offshore. So, again, I think, imports will be moderated.

Okay. That’s all for me. Thanks, guys.

Thank you.

Thank you. Our next question comes from the line of Andreas Bokkenheuser with UBS. Please proceed with your question.

Yes. Thank you very much and good morning everyone. I'm kind of just staying within the same line of questions. Most of the rhetoric we're getting, especially from the service centers and downstream steel buyers seems to be somewhat cautious, so I'm just wondering what you think the market is missing here because to Terry's point, scrap is probably going to come down. There's a lot of rhetoric suggesting that the steel price hike -- or hikes as we've seen them over the last three months have been mostly driven by higher scrap prices, whereas apparent U.S. steel demand, as a whole, has actually been declining. The futures price -- flat steel futures prices have taken a pretty meaningful step-down as well, suggesting that steel price could drop $30, $50 a ton from here. And we're going into an election year, which seems to suggest a lot of people are very cautious about how they're going to be spending CapEx and consumer spending as well. So I'm just wondering, your rhetoric is obviously a little bit more constructive on how you're seeing the market. So what do you think the market is missing at this point in time?

Well, all I can say is -- or comment on the market through our lens and as I suggested the -- our backlogs are very, very strong right now. They're incredibly strong in New Millennium Building Systems, which would suggest that the construction world is going to have a very, very good year. The distribution warehouse business in that arena is incredibly strong. So construction, we do believe, is going to be robust. Automotive has been running at a relatively record pace and the prognostication is that, okay, maybe off a little, but it's going to continue to be strong. As we look through the lens of engineered bar, which I suggested earlier is our bellwether that's a very, very healthy business and it's looking better now than it has for a couple of years going into the year. And flat roll remains very strong. Coated products and obviously we're the largest non-automotive coater in the states that is very, very strong for us. So again we can only see what we see. And we can only hear what we hear from our customers and there's general optimism out there. Part of that strength could be a little restocking as people overshot last year and that tends to happen. People buy too much and they -- then they go too short. But underlying demand in our mind is very, very solid.

That's very clear. Maybe a follow-up on that. Do you see that a lot of the strength in your order book may also be driven by inorganic growth? I mean you're effectively taking market share potentially from some of your peers in the market. Is that fair to say?

I think it's fair to say in the automotive arena in particular. And in the prepaint I don't think we're taking any further market share, because our lines are running flat out and we can't produce anymore. But with our Sinton plant with the added capability we will continue to add there. But yes so automotive we are picking up I think market share. The rest of our business is more straightforward market.

Great. Thank you very much. That’s very clear. Appreciate you answering my questions.

Thank you.

Thank you. [Operator Instructions] Our next question comes from the line of Phil Gibbs with KeyBanc Capital Markets. Please proceed with your question.

Hi, good morning.

Good morning, Phil.

Mark, if we could stick on automotive just for now, can you give us a picture in terms of how much of your business right now particularly in the sheet and SBQ arena is going into automotive? And maybe give us a view of where you are today versus where you thought you'd be when Columbus is going through their mix transition and then also where you're trying to go?

Philip, Barry will give you some clarity there.

Well, Phil the automotive here we have is continuing to grow through the Columbus operation. There's a lot of different things we're doing with our auto team directly that is relatively new in the last five years to Steel Dynamics. And a lot of those awards are as a Tier 1 -- to Tier 1 suppliers are directly to automotive. So those continue to grow. We do always enjoy good business out of the Butler facility with automotive and that remains strong. So not only supplying service centers but directly we continue to grow as Mark indicated getting new market share as we are awarded new parts and our capabilities increase. So as a whole typically somewhere between 15% and 20% is automotive shipments coming out of our flat roll plants.

Thank you, Barry.

Chris from an SBQ standpoint?

Yeah. Phil this is Chris.

Hey Chris.

On the SBQ side, we're starting to leverage our existing and newfound relationships in the flat roll in the automotive group to open up opportunities for SBQ. We've -- recently the team has recently achieved some new automotive certifications that will allow us to lever our new inspection and testing equipment and our new rolling capacity there. So although it may be a relatively small number at our SBQ, the plan is to grow and I think the team is positioned well to do so.

And to be perhaps a little more specific at Columbus we -- as Barry said we're on platforms. Well, our market share has picked up already but we're on platforms over the next 12, 18 months to pick up probably 500,000 tons will be coming out of Columbus into direct automotive. And obviously when the Sinton plant comes online, we believe about one million tons will be going to Mexico and predominantly into the automotive arena. And if you just step back and look at automotive, for us, more generally, our traction has been incredibly quick and fast. For the automotive world they tend to in the past to react very, very slowly. Obviously, the USMCA is driving a lot of that, as folks are looking for domestic content. And they look to us, first and foremost, I think to our balance sheet. They want to partner with someone that's going to be around for the next 10, 20, 30 years. And our balance sheet is more solid than some folks,' I would say. They also look at our sustainability model. Obviously there's a lot of Europeans. And a lot of our traction has been with the European automotive makers BMW, Mercedes, VW. And they see our sustainability story as being very, very persuasive. The fact that, we will repurpose 10 million, 11 million tons of scrap each year, we're repurposing about one billion pounds of non-ferrous and there are a considerably more and more positive things with our ESG sustainability story. So they're attracted to that. And they're also attracted to our product development. So we are gaining a lot of market share, a lot of traction with the automotive industry in general.

Thanks Mark. And Barry you said 15% to 20%. Were you talking just to your overall flat roll business? Is that what you were speaking to?

No. Barry was actually speaking to our total steel shipments.

Okay.

We tend to be somewhere between 13% and 15% automotive.

Thanks. I have another one. But I'll pass it on. Thanks.

Thank you. Our next question comes from the line of Andrew Cosgrove with Bloomberg. Please proceed with your question.

Hi, Mark and Theresa. Thanks for taking my question. Just had a quick one on long product shipments, obviously, they were down 10% in 2019. And construction markets you guys see them recovering this year. So where would we see volumes pick up, if that materializes?

From a volume perspective on the long product side, I think a couple of things. One is the ramp-up of the rebar projects at both Roanoke and the Structural and Rail Division, should have a positive impact from gaining market share with the differentiated supply chain model that we have at those locations. And the fact that we'll be the only independent rebar producer in those regions. So we should be able to get improved volumes related to that. In addition, the Structural and Rail Division has additional capacity. They were only operating around 75% to 80% of their capacity last year. So when we mentioned that we have over two million tons of additional capability, a lot of that is in the long products region. And then, additionally, Mark mentioned the SBQ. And Chris, I think you would think there was opportunity in SBQ. Is that correct?

That's correct.

Okay.

I think, just to emphasize there when you look at the structural mill our heavy mill which is where we roll our rail that has been kind of at 100% utilization for some time. Our medium section mill is where we've been struggling. And that's where some of the rebar -- or not some. All the rebar there is produced. But we're in the good position. And we haven't been there for a long, long time. And that the medium section mill is pretty well at full utilization. Is that right, Chris?

Yeah.

So, it is turning. It's positive.

Okay. Thank you. And then, just one more on Heartland, I know in the middle of 2019, I think the target utilization rate by the second half was to get to 70%. You had mentioned before slightly over 60%. I guess a little over 500,000 tons. Is that kind of demand-oriented? Or was it more employee-driven? As you had mentioned, you're hiring more people for next year and looking to get to 80. So just kind of gauging the impact there and I guess, how close you could get to target next year as far as Heartland is concerned?

Yes. We continue to develop markets for the Heartland operations. And right now internally, a lot of the growth at Heartland has been through debottlenecking our finished goods production and painted production through the Butler and Jeffersonville facilities. So, a lot of the development has been internally being able to get more products to our paint lines, where we could bring more value. So, as we look to external shipments, we've been right on the edge of where we need to add people and really just the team is finding new ways to get high productivity out of what they're doing. So, the last thing we do is bring people in because, we want to make sure, it's a sustainable growth. So we continue to find those markets and particularly in the cold rolled steel sales, which is something that because of our galvanizing campaigning, we typically haven't done as much cold roll sales. So we continue to make good ground there. But really internally, it's been great to get our paint lines just fully utilized and to fully develop those products in those customers.

Okay. Great. That’s it from me.

I think you can expect that we shipped 500,000 tons a little over last year and that we'll be ramping up through the year to that 750,000 to 800,000-ton level. That's not going to happen this month or next month. But I think, as Barry said, as we gain new markets, you're going to see that ramp up through the year.

Great. Thanks so much for taking my questions and good luck for 2020.

Thank you. Ladies and gentlemen, that concludes our question-and-answer session. I'd like to turn the floor back over to Mr. Millet for any closing comments.

Well for those that are still on the line, thank you for your support, both from a customer and shareholder perspective. And also, our employees that I'm sure are still on the line, we truly appreciate everything you do for us. And I just want to emphasize that hey, let's be safe out there and make sure that your fellow teammates are safe as well. So, thank you. Have a great day.

Thank you. Once again ladies and gentlemen, that concludes today's call. Thank you for your participation and have a great and safe day.