Hello, and welcome, everyone, to the First Quarter Fiscal 2023 Earnings Call for Commercial Metals Company. Today's material, including the press release and supplemental slides that accompany this call can be found on the CMC Investor Relations website. Today's call is being recorded. And after the Company's remarks, we will have a question-and-answer session and we will have a few instructions at that time. I would like to remind all participants that during the course of this conference call that the Company may make statements that provide information other than historical information that will include expectations regarding the economic conditions, effects of legislation, U.S. steel import levels, U.S. construction activity, demand for finished steel products, the expected capabilities and benefits 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 the current conditions that 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 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 made only 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 otherwise stated, all references made to the year or quarter end are references to the Company's fiscal year or fiscal quarter. And now for the opening remarks and introductions, I would now like to turn the call over to Chairman of the Board, President and Chief Executive Officer of Commercial Metals Company, Ms. Barbara Smith.

Good morning, everyone, and thank you for joining CMC's first quarter earnings conference call. I hope each of you had a wonderful holiday season. As we reported in our press release issued this morning, fiscal 2023's first quarter was another outstanding period, marking the second best core EBITDA performance in our company's history. I would like to thank CMC's 12,000 employees who made these results possible. Your hard work and focused efforts are appreciated and are the driving force behind CMC's success. I will start today's call with a few comments on CMC's first quarter performance, then discuss our key strategic growth investments and sustainability efforts before providing an update on the current market environment. Paul Lawrence will cover the quarter's financial information in more detail, and I will then conclude with our outlook for the second fiscal quarter, after which we will open the call to questions. Before starting my prepared remarks, I would 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 first quarter fiscal 2023 earnings were among the strongest in our company's 108-year history. We achieved net earnings of $261.8 million or $2.20 per diluted share on net sales of $2.2 billion. Excluding the impact of mill operational start-up costs incurred at our Arizona 2 project, adjusted earnings from continuing operations were $266.2 million or $2.24 per diluted share. CMC generated core EBITDA for the quarter of $425 million, an increase of 30% from a year-ago, which produced an annualized return on invested capital of 23%. Results for our North America segment were again exceptional, as our team capitalized on strong demand. Segment adjusted EBITDA was within 1% of its record, excluding the impact of our second quarter 2022…

Thank you, Barbara, and happy New Year to everyone on the call. As Barbara noted, we reported fiscal first quarter 2023 net earnings of $261.8 million, or $2.20 per diluted share compared to prior year levels of $232.9 million and $1.90, respectively. Results this quarter include a net after-tax charge of $4.4 million, which was related to start-up activities at CMC Arizona’s project. We expect to continue to incur start-up costs for the balance of fiscal 2023. Excluding the impact of this item, adjusted earnings were $266.2 million, or $2.24 per diluted share. Core EBITDA was $425 million for the first quarter of 2023, representing a 30% increase from the $326.8 million generated during the prior year period. Slide 13 of the supplemental presentation illustrates the strength of CMC’s quarterly results. Our North America segment drove the significant year-over-year earnings growth, while Europe experienced some pullback. Core EBITDA per ton of finished steel reached its second highest rate ever coming in at $273 compared to $223 per ton a year ago. Now I will review the results by segment. CMC’s North American segment generated adjusted EBITDA of $378 million for the quarter, equal to $348 per ton of finished steel shipped. Segment adjusted EBITDA improved 41% on a year-over-year basis, driven significantly by increased margins on downstream and steel products over their underlying scrap costs. Downstream products were a particularly impactful contributor on a year-over-year basis as the average selling price improved by over $300 per ton compared to the first quarter of fiscal 2022. Partially offsetting these benefits were lower margins on sales of raw materials as well as higher controllable costs on a per ton of finished steel basis due primarily to increased unit pricing for alloys, energy and freight. On a sequential quarter basis, controllable costs per…

Thank you, Paul. We remain confident that fiscal 2023 will be another year of strong financial performance. Downstream backlog and bidding activity are at historically high levels and should support volumes over the near-term. Additionally, we look forward to the start-up of our newest micro mill, Arizona 2, in the spring, which will greatly enhance CMC’s ability to capitalize on the strength we see in construction markets. We anticipate good financial results in the second quarter compared to historical standards, though seasonally down from the first quarter. We expect healthy demand for our products to continue in North America, while conditions in Europe are more challenging and could be impacted by customer pessimism and general uncertainty. However, as I discussed earlier, CMC’s operations in Poland are very well positioned to compete given their cost leadership position and operational flexibility. While we anticipate margins over scrap in both North America and Europe to remain elevated in relation to historical levels, they are likely to compress from the first quarter levels. Once again, I would like to thank all of our CMC employees for delivering yet another quarter of outstanding performance.

Thank you. And at this time we will now open the call for questions. [Operator Instructions] And our first question today will come from Emily Chieng with Goldman Sachs. Please go ahead.

Good morning, Barbara and Paul. Thank you for the update this morning. I'd like to start off by asking around the Europe segment there. Volumes were certainly much higher than anticipated. Perhaps could you share how much of that is taking share versus some of the still steady Polish construction market strength that you're seeing? And then perhaps if you've got a sense of what volume expectations could look like there for the remainder of the year?

Yes. Thank you, Emily. Happy New Year. So I would say the following. If you look at our strategy in Europe, we've had a deliberate strategy over time to strengthen our Polish operations by creating a situation where we have tremendous operational flexibility and expanding the product range of products that we have to offer. So if you go back 10, 15 years, we were highly dependent upon construction products, rebar and wire rod. And there's been a deliberate investment strategy to invest in merchant and even into some SBQ ranges. And what that does for us is it gives us the flexibility as market conditions change to shift the product mix to the markets with good demand or better demand. In addition, we've worked really hard to have a cost structure that is advantaged relative to other options in the region. And those two factors combined have really allowed us to shift to the markets that have the strongest demand. So I would say we are encouraged, as I said earlier, about the construction fundamentals in Poland going forward, albeit some reduction in residential, but still good growth and good – there's positive GDP in Poland as compared to other parts of the region. There's – as I indicated, the trade flows have changed as a result of the war. That has created opportunity for CMC to step in and fill demand that was filled from Russia and Belarus. So all those factors combined, we're going to continue to take advantage of our low-cost structure and take advantage of our operational flexibility to shift to where the best market opportunities are. And that will allow us to have good operational results going forward.

Great. That's very clear, Barbara. And as a follow-up, would love to sort of dig deeper around the cost commentary that was provided. It sounds like things may be peaking and you might be starting to see some early signs of certain costs coming down, presumably some of the warmer weather might have brought down the energy cost structure as well. But could you perhaps share what you're seeing in each of the different components in the controllable cost calculation? And then maybe when we should be expecting that maintenance activity to hit this year? I'll leave it at that. Thank you.

Let me make a couple of broad comments, and then I'm going to let Paul give some more specifics. If you look at – and you go back and look at what happened when COVID hit, there was just a severe supply chain disruption and severe economic reaction because there were so many unknowns. If you fast forward to when the war broke out between Russia and Ukraine, you saw a similar situation where – in the example, I'll use energy just skyrocketed because there was all this uncertainty around how Europe would source their energy and what would the price be. You also saw a massive increase in a number of raw materials, alloys and other things that were a result of that disruption. And much the same as we saw during COVID after supply chain started to readjust and things calmed down, there was an abatement in that supply chain disruption. The COVID is probably not as good of an example to the war because it was just so far reaching, and we had such concentrated supply chain sourcing. But in the case of the war, as time has gone on, we've seen the supply chain begin to adjust and in particular, alloy costs have continued – have started to abate and prices have adjusted downward as we found other sourcing options and as the uncertainty is – has started to become clear. So inflation is still broadly an issue around the world, but there's definitely abatement going on due to that initial reaction and then everybody figuring out how to adjust their supply chain. But I'll let Paul make some further comments.

I think Barbara's comments really hit the nail on the head as far as what we're seeing in North America on the cost side. Really, the only comment I would add to our cost generally is on the natural gas side in Europe, the natural gas contracts reset, essentially twice a year in the October and May time frames. And so through until October, we were operating on natural gas prices that were pre-war and then they reset. Thankfully, our natural gas is limited to the reheat furnace. And so not a major cost, but the cost increased around 6x what it was previously. And so that's the one area in which we've seen some increase in costs. And it's really specific to the European operations. With respect to your other question regarding the maintenance outages, we've got a couple major outages coming in the back half of this year. And in fact, starting later this week, our Seguin, Texas facility will be down for a while as it replaces the furnace. There will be a large period of time in which we will not be melting steel. However, we have a lot of billets on the ground, and we'll continue to roll product, continue to serve customers throughout that period of time. But coming out of the outage, we will have more efficient facility and get some benefits coming out of the new technology that is being put in. So excited about that. It's a furnace that has produced well in excess of the normal service life, just a testament to the maintenance and ongoing operations that the team does down there. Following that, in the third quarter, we have another outage, and I just named that just simply because it's in our Alabama mill. And again, it's a – some new refurbishment to some of our roughing and rolling mill stands, which not only increases the reliability of those, but also provides us to enhance our product mix. And so we get benefits out of that going forward. So those will be significant, but look forward to ensuring the ongoing reliability and provide us opportunities as we move into the future. Reliability of this equipment is critical. We've been running hard as we've been enjoying these hard period – these hard market conditions, these good market conditions. And so we need to ensure that we continue to do the necessary maintenance to continue to ensure that the reliability is there.

And our next question will come from Timna Tanners with Wolfe Research. Please go ahead.

Yes. Hey, good morning, guys, and Happy New Year. Wanted to ask a bit more, if I could, about Slide 9 and the trends that you're seeing in the downstream side. Just trying to reconcile the decline in bids and backlog with the comments about the upward price trend in downstream products. Is there like a some explanation of why it seems to be rolling over, but also comments about higher prices? I'm just trying to reconcile those comments. Thanks.

Happy New Year, Timna. Thank you for the question. We have seasonality in the bidding activity in – on the fabrication side of the business. And normally, as we move towards the end of the year because there's lower construction activity through the winter months, we tend to see some changes in lower activity during that time frame and then it ramps up when you get past the first of the year. The other thing I would say is we're seeing a little bit more lumpy activity in bidding and booking in fab because of these very large jobs that I spoke of, like the semiconductor and some of those, they're out there and they're in the pipeline, but there can be a job that we anticipate booking and it just happens to miss one quarter and fall over into the next quarter. So we've had some very large jobs that just it's all about the timing. Overall, we are monitoring it carefully because we're all familiar with all of the economic concerns. And we continue to see a very, very strong pipeline of bidding and confidence in the owners of these projects that they're going to move forward, the industrial projects in particular, balance sheets are really strong. Companies have the cash. They're not dependent upon financing to move those projects forward. And those types of projects, once they get booked and they're funded, they will get completed. So we are not seeing an increased activity in rebids. We are not seeing increased activity in cancellations, and we remain quite encouraged going forward.

Okay. That's helpful and makes sense. I guess as a follow-up, if I could. Can you talk a little bit to the cadence of ramp-up of Arizona 2? I know it's supposed to ramp up in the calendar year, but just thinking about where we should be a year from now and the cadence? And then similarly, any cadence comments on what you're seeing in terms of any infrastructure stimulus timing would be great? Thanks.

Yes. Thank you. The best I can point you to, Timna, on AZ 2 is to go back and look at the ramp in Oklahoma. This is our third micro mill. And while this one’s more complex because we're adding merchant to the product mix. We are, by design, starting with rebar because that's something that we're supremely familiar with. And so I would expect the ramp to be very similar to what we experienced at Oklahoma. I don't have that exact ramp in front of me, but it was quick within three, four quarters. We were at three crews and building the fourth crew. And I would anticipate a similar situation here and the merchant will follow and be layered in and enhance the productive capability. And so I would just point you back to the trajectory that we saw for Oklahoma. As it relates to the Infrastructure Bill, it was very encouraging and eye-opening to see the trend in the preplanning and design phase numbers that I believe I quoted Dodge reports those. And there has just been a massive increase year-over-year in infrastructure, preplanning and then moving into the design phase. And once it's into the design phase, then, of course, it moves into active projects and bidding and then orders for steel. The exact timing, Timna, is hard is to predict. But if you look at the magnitude of that increase and you use kind of those historical references as it takes 12 to 24 months for those projects to translate into activity on the ground. We think the back half of 2023, those are going to start moving into the backlog and starting to come to fruition and then build from there.

Okay, excellent. Thanks very much.

Thank you, Timna.

And our next question will come from Lawson Winder with Bank of America. Please go ahead.

Hi. Thank you, operator. Happy New Year. Nice to hear from you all, and thank you for the update. I would like to ask about Slide 16. You mentioned opportunistic M&A. Can you provide any color on the type of target companies you might be looking at, whether it might be downstream or diversifying into other products or perhaps different geographies? Thank you.

Thank you, Lawson. I appreciate the question. Unfortunately, historically, we haven't provided an enormous amount of color on specific targets. So I think if you go back to our Investor Day a couple of years ago, we were pretty clear on what we are and what we aren't. And I think you will whatever you see us do, it will build off of the base that we have today. Clearly, we're excited about our foray into geosynthetics with the Tensar acquisition. Clearly, that's one that you can look toward. But I would say we see so much opportunity from an organic perspective with Tensar, and we're highly focused on proper integration and really leveraging our commercial organizations to grow that really superior product that they have, and we're encouraged every single day with what we're seeing on that front. But if you look at the base business that we have, which is – we have the full value chain, recycling and rebar, merchant, wire rod and then downstream. And we look across that full gamut. As it relates to geography, if we are strong, as you know, in North America, and that is a key and core market to us. We also feel very, very strong in Europe with our Polish operations being beachhead. And so we don't rule out opportunities there, although Europe is a bit more complicated with all the various countries and differences and different growth in different countries throughout Europe. We do see Europe as going through this whole energy transition, which is going to create massive change and opportunity in our industry. And we're a leader in this area. And so to the extent that we can leverage that leadership, that's something that could be interesting to us. Beyond that, we can't really get into specific targets.

Yes, I know that was fantastic. Very helpful. You mentioned Tensar several times in your response, which maybe I think I actually wanted to ask a question about the production challenges you're having. Would you be able to provide some color on the remediation plan for that and the time frame to an improvement in performance? Thanks.

Yes. Thank you. This is one where there is a great synergy and a synergy we didn't necessarily identify through our due diligence. But bottom line, we lost a press. And those things happen. They happen all over other operations and in our steelmaking operations from time to time. They already had a press on order because they knew that they needed to refresh this. But then there were supply chain challenges, which delayed the delivery of that press and the installation of the press. So that was the challenge. The press is in, it's installed, it's performing. And so that issue is behind us. The synergy really comes in from Tensar is just superb at innovation and new product development and commercialization of new products. But their core expertise is not necessarily on the manufacturing side. We are superb at manufacturing. And so when we saw some of the challenges that Morrow was undergoing, we were able to dispatch a number of our technical experts to be on the ground and help them muscle through it or find other productivity improvements and safety enhancements and all kinds of things that just leveraged our strength and added to their capabilities. So the problem is behind us, and we would expect to see some fairly immediate abatement of the added costs that we had to incur to just move product differently around the world.

Fantastic. Now hopefully, I'm not pressing my luck too much to maybe ask one more question, but I just wanted to follow up on that Slide 9, the downstream backlog and bidding volumes. Thank you for providing that. That's extremely helpful. Could you maybe provide a little bit of detail on the makeup of that? Like, for example, what proportion is warehousing and what proportion is reshoring? Thank you so much.

I don't think we're prepared to give that granularity. What I would say is it's a strong balance between infrastructure and nonresidential. And we would expect infrastructure to increase over time. It's going to be a well-balanced mix. And I don't think it's heavy weighted towards any one segment. And the projects once they're in that backlog, they're going to get concluded and completed. I think the real beauty or message in the material that we provided is there is an enormous margin opportunity in the backlog that is going to evolve and play out going forward as we service that backlog.

Okay, great. Thanks so much.

Yes. Thank you, Lawson.

And our next question will come from Phil Gibbs with KeyBanc Capital Markets. Please go ahead.

Hey, good morning.

Good morning, Phil.

Lots of good questions were asked that we're basically already focused on what I was wanting to hit on. But what's the openness to further M&A as it relates to your strategic longer-term growth framework?

Phil, I think you have followed us through the good, the bad and the ugly, and our balance sheet has never been in condition that it is extremely strong. It gives us the flexibility to do a lot of things. As you know, of late, we've been returning more to shareholders through the share repurchase and the increase in the dividend. We think about that in terms of just a balanced capital allocation strategy. And we have complete confidence that we can continue to do that as well as look at and fund the organic growth that we've talked about and leave the opening and the flexibility to consider M&A if the right thing comes along. And I think you've also followed us long enough to know that we're very disciplined in terms of our capital allocation, and we're very disciplined acquirers to ensure that it's the right strategic fit and that we have something to offer when we do combine and when we do acquire. So we remain open, and I think the balance sheet can support that kind of activity while still having a pretty balanced capital allocation strategy.

Thank you. And then just a follow-up. You had mentioned something about a 13 – excuse me, a 12x increase in something. I think as it related to perhaps infrastructure quoting or something like that. I missed exactly what you said around that?

That was around the infrastructure, I believe, Phil, that the massive increase in the preplanning and then the design phase.

Versus two years ago.

Versus two years ago for infrastructure projects, which is really the leading indicator for the new Infrastructure Bill to begin to translate into orders and backlog for us. So that's an incredibly encouraging sign that, indeed, we are going to see that coming to the market here in the near term.

Thanks so much. Appreciate it.

Yes. Thank you, Phil.

And our next question will come from Tristan Gresser with BNP Paribas. Please go ahead.

Yes. Hi. Thanks for taking my questions. Maybe I'll start off with a follow-up regarding the supply and demand outlook for rebar consumption in U.S. If you look at the medium-term picture there, there's been a number of projects announced domestically maybe around 3 million tons of new rebar capacity potentially ramping up by 2026. You flagged the 1.5 million ton rebar impact from the Infrastructure Bill. But could there be a scenario when this is not enough. And just wanted to have your thoughts on how do you feel that the medium-term balance there for the U.S. rebar market? Are you really worried that there's maybe too much capacity being built?

Yes. Thank you, Tristan. I don't know that our numbers would be quite as high as three because I think some of that has already been absorbed in the market. If you go back to the Oklahoma investment that we made, there was a very heightened concern at the time that we were introducing new capacity that couldn't be absorbed by the market, and it was fully absorbed. And as far as I can say and see and I think what you observed was it was not disruptive to the market. I acknowledge Nucor has made some investments. And certainly, we have Arizona, which really is – it's an offset to the difficult decision that we made during COVID to shutter the California facility. And so I'm not overly concerned at this time. I think what I've seen and what our numbers would tell us is that it's – you're not going to see a significant overbuilding of capacity, unlike maybe some other products where there's been substantially more new capacity brought online and not necessarily the same demand increase for that capacity, but we always monitor it. And I think the other point I would make is many mill or micro mill capacity is very flexible and can adjust when demand changes. We have a very low fixed cost portion to that model, unlike blast furnace capacity, which does not flex as easily as mini mill or micro mill capacity.

All right. That's very clear and helpful. Thank you for that. My second question is more on the spot market development. Do you think the structural adjustment you've seen in the U.S. rebar market Pre Infrastructure Bill, the one you mentioned in your presentation, are currently being fully reflected in spot rebar metal spread that are premium to flat products, meaning that we should now see a return to a more normal cost price relationship moving forward for U.S. rebar prices and cost compared to what we've seen over the past two years? So just wanted to have your thoughts on the current developments? Thank you.

Yes. Thank you, Tristan. It's a complicated question. There's many factors. But I think the consolidation of the long side of the market, particularly the rebar space, has provided a lot of stability. I do think that there is a structural shift upward in long, medium-term margins through a cycle. I would also highlight that you really should look at and compare metal margin between long products and flat products. Long products have had a much more stable margin structure over – it fluctuates, but over a much tighter band than the peak to trough that you tend to see for flat plate products. And I don't see anything that would suggest that, that stability will be disrupted. So we have known for a long period of time that even before consolidation, rebar and long products, metal margin was much more stable than what you see on the flat side of the equation.

All right. Thank you very much.

Thank you, Tristan.

And this will conclude our question-and-answer session. I'd like to turn the conference back over to Barbara Smith for any closing remarks.

Thank you, Cole. And thank you, everyone, 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. Have a great day. Thank you.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.