Hello and welcome everyone to the Second 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. And after the company's prepared remarks, we will have a question-and-answer session and we'll have 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, U.S. construction activity, demand for finished steel products, the expected capabilities, benefits and time line 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 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. 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, President and Chief Executive Officer of Commercial Metals Company. Ms. Barbara Smith.

Good morning, everyone, and thank you for joining CMC's second quarter earnings conference call. Before moving to our quarterly update, I would like to congratulate our current Director, Peter Matt, who has accepted the role of President of Commercial Metals Company. Peter has been an invaluable and insightful member of CMC's Board since June 2020. He is a seasoned executive well known in this industry with a strong reputation among many of you in the investment community who have interacted with him over the past six years, while he served as Chief Financial Officer of Constellium, the European based aluminum producer. I have every confidence Peter will make meaningful contributions to CMC's continued growth and shareholder value. I would also like to welcome our new CMC employees at Tendon Systems and Roane Metals Group. You have joined at an exciting time for our company and I'm confident that your contributions together with those of your talented colleagues will make CMC's future even brighter. Both of these tuck in acquisitions align with our vertical integration strategy and our construction solutions capabilities. As we reported in our press release issued this morning, fiscal 2023s second quarter marked another period of historically strong performance. I'd like to thank CMC's approximately 12,500 employees for their commitment to safety and excellence in everything we set out to accomplish. Before diving into more details on the quarter, 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 second quarter fiscal 2023 earnings were among the strongest in our company's 108 year history. We recorded net earnings of $179.8 million or $1.51 per diluted share on net sales of $2 billion. Excluding the impact of non-operational items, which Paul…

Thank you, Barbara, and good morning to everyone on the call today. As Barbara noted, we reported fiscal second quarter 2023 net earnings of $179.8 million or $1.51 per diluted share compared to prior year levels of $383.3 million and $3.12, respectively. Results this quarter include a net after tax benefit of $8.5 million. This benefit included the settlement of an incentive related to previous capital investment at CMC Steel Oklahoma micro mill, partially offset by costs associated with ongoing commission defining efforts at AZ2. Excluding the impact of the second quarter items, adjusted earnings were $171.3 million or $1.44 per diluted share in comparison to adjusted earnings of $187.4 million or $1.53 per diluted share during the prior year period. Core EBITDA was $302.8 million for the second quarter of 2023, representing a modest decline from the $323.1 million generated during the prior year period. Slide 12 of the supplemental presentation illustrates the year-to-year changes in CMC's quarterly results. Our North American segment achieved earnings growth, while Europe experienced a pullback. Consolidated core EBITDA per ton of finished steel was up $215 per ton remained well above the historical average and compared to $226 per ton a year ago. CMC's North American segment generated adjusted EBITDA of $299.3 million for the quarter equal to $308 per ton of finished steel shipped. Segment adjusted EBITDA improved 14% on a year-over-year basis excluding the large gain related to a land sale that was recognized in last year's second quarter. The result was driven by higher 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 average selling prices improved by approximately $250 per ton compared to the second quarter of fiscal 2022. Though higher than a year ago,…

Thank you, Paul. For the reasons I've mentioned, we are confident in our ability to deliver strong financial performance in the second half of fiscal 2023 and expect to generate sequential improvement in core EBITDA during the third quarter. The signals we watch most closely, including our downstream backlog, bidding activity, customer conversations and external indicators, all point to a generally positive outlook and row robust upcoming construction season in North America. Due to normal seasonality, finished steel product shipments are expected to increase from second quarter levels in both North America and Europe with the added benefit in North America of recovering some weather delayed volume. The recent price increases across our long steel products in North America are expected to stabilize metal margins. However, costs in North America will also be impacted by a planned upgrade similar in scale to the outage taken during the second quarter. The outlook for metal margin in Europe is a bit more uncertain. However, our cost of production there should decrease from the second quarter as the price of natural gas purchases is reduced. We are excited to soon begin production at Arizona 2 and look forward to providing you with an update during our next earnings call along with an update on our fourth micro mill project in West Virginia. This world class operation is ramping up at just the right time as CMC will be able to better capitalize on the multiyear strength we see in our construction markets. Once again, I'd like to thank our customers for their trust and confidence in CMC, as well as all of our CMC employees for delivering yet another quarter of outstanding performance.

At this time, we will now open the call to questions. [Operator Instructions] And our first question here will come from Emily Chieng with Goldman Sachs. Please go ahead.

Good morning, Barbara and Paul, and thank you for the update today. My first question is just around some of the challenges we've seen in the banking system over the last couple of weeks. Are you seeing any shifts around bidding activity levels or any impacts there within segments around the non-residential construction end markets, which could be more or less sensitive to some of the issues that we're seeing? Or perhaps some of the impacts from this volatility more broad based in nature?

Thank you, Emily. I'll answer. And if Paul has any other perspectives [indiscernible], he can certainly chime in. At this time, we are not seeing any impact from what's going on in the banking, which, I know is top of mind for everyone, myself included. But at this time, we're really not seeing any impact to that, but we'll certainly monitor it carefully as time goes forward.

Okay, understood. And then maybe just switching a little bit, but taking a look at the downstream backlog that you've talked about there. You've mentioned it's up 20% on a year-over-year basis in terms of value. To clarify, that’s a combination of both price and volume in the backlog, right? And if I could take that one step further, how do you think about what that backlog extends into in terms of timeline through the rest of the year?

Yes. Thanks, Emily. You're correct that the back backlog is up both on a volume and a value basis. And as you can appreciate the backlog is a wide range of projects with a variety of duration, but it is one of the strongest backlog to carry us through the construction season. So that's why we're so encouraged by what we see in the coming quarters. And then if you add to that, the level of bidding activity, which also remains strong, as well as those structural long term factors in the coming impact of the new Infrastructure and Jobs Act. We remain very encouraged and bullish in both medium and long term.

Great. Thank you.

Thank you, Emily.

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

Yes. Hey, good morning. Thanks for all the updates. Wanted to ask a high level question and then drill down a little. But starting out with -- I know the comments on Turkey and the context of the market really helpful. Are you seeing Turkey export less or fewer imports into the U.S. market already? And in the same vein, can you comment at all on the expected impact of Buy America, perhaps also on the threat of imports into the country?

Thanks, Timna. Turkey, [Jason Brosius] (ph), who, you know, has done a lot of great analytical work around that and I think we're providing that in our Investor Relations materials that we're putting out on the website. I guess, I would say at this point, no doubt it's going to have impacts, both more immediate impacts and then longer term impact, but I think it's still a little bit early to know how that's going to effectively play out. What we do know, of course, is that it had a huge impact on the steel producing region that post earthquake, the industry has had difficulty restarting because so many of the workers have been displaced. And then we no longer term there's going to be the rebuilding activity which is going to require a lot of the demand for increased rebar that you wouldn't necessarily see on an ongoing basis in that market. And we've experienced different, but other disaster situations here in the U.S., hurricanes and the like. And generally the rebuilding phase takes a little bit period -- a longer period of time. So while I think the government there will be moving in great speed to try to recover, from the travesty. It just practically speaking, will take some time to remove the debris and then rebuild. So at this point, I can't point to hard evidence of major impacts. But we did try to speak broadly there as you know in my opening remarks on some of the things we're watching. We're watching their procurement of scrap, we're watching and we'll continue to watch how those operations recover and then how that's going to impact trade flows. So I would think in the medium to longer term, most of that material is going to stay domestic, which should tighten up markets in Europe and in the U.S. Buy America, as you know, is going to be supported and has always been supported in the U.S. for most of the infrastructure spending. And so, that is another reason why we remain bullish on this market that the ongoing investment that's been increasing related to the prior infrastructure bill finally materializing in the market has that Buy America component and then the future spending will also take advantage of that and [Technical difficulty] really helpful to our business.

Okay, great. That's helpful. Yes, the Turkey cadences seemed really quick. And so I was just wondering if you were seeing it or maybe the reports we're hearing were a little early. So thank you for that. Just drilling down a little bit, I wanted to understand Tensar a little bit, because I know that last call you said that there were some unusual reasons for $11.4 million of EBITDA, the production challenges. And in this quarter, you are reporting, just about $8 million $9 million overall and $7.5 million in the U.S. Like is that just seasonal or is there some continuing production challenge? And then if you could also comment on the higher CapEx number [indiscernible]. Thank you.

Thank you, Timna. Let me take a crack at Tensar and I'll let Paul comment on CapEx. So we have two kind of, I'll call it, unrelated things going on. We did have a press failure in our Georgia facility some months ago and had been waiting because of supply chain issues for the replacement press. And that press was installed last quarter. And as you can appreciate, we have been debugging that and ramping that up. And so at this point, the facility has largely recovered from that incident, but it did impact prior quarters and this reporting period as well. In terms of overall what are we seeing in terms of volume and activity level in Tensar. Tensar has a greater seasonal effect within this quarter than even CMC. It is generally a more dramatic seasonal downturn than our traditional CMC business. And this quarter was no different. And just as weather impacted us, it also weather impacted Tensar, but they typically see a more dramatic seasonal effect. If we look at other indicators, which we've been tracking in terms of -- because this is a product that is an innovative product and a growth product in the market, if you look at their volume last year relative to this year, they are seeing the expected growth in volume. So the innovative product is making inroads in the marketplace due to the unique characteristics and the construction problems that it solves. And so, that is a very good sign for us. The second thing is, they are constantly innovating and introducing new products into the market and they introduced a new product over the last number of quarters. And that product is receiving very strong customer acceptance in the marketplace, which is another real encouraging sign. And every time we introduce a new product, it has enhanced features and typically carries margins associated with those enhanced features. So we're very, very encouraged and the team there fully expects to have a really interesting and exciting construction season in the coming quarters.

Timna, with respect to your question on the increased capital spend, it's really twofold. Significantly, we are anticipating increased spend in this current year on Steel West Virginia, the announced facility. As Barbara outlined on her comments, we're expecting to receive the permit in the coming months and that will allow us to accelerate some of our site preparation and earthmoving costs. We're also taking the precautionary steps of preordering a lot of equipment that has had very long lead times in today's environment. So we can ensure the project is maintained. So those require some down payments to be placed, which has increased our spend. And naturally, we are seeing some inflation in some of our CapEx projects that we have and that's a portion of it as well.

Great. Thanks for all the information. A - Barbara Smith Thanks, Timna.

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

Yes. Hi. Thank you for taking my questions. The first one, thank you for providing the steel intensity figures for residential infrastructure. When you look at the spending in billions for on the reshoring side that you also laid out in terms of the steel intensity there for those facility, I was wondering if you had a number in mind and maybe if you can share, is there any kind of difference by type of [indiscernible] also in terms of the timeline, when you start building and you complete those type if facility, any kind of information that can help us out putting the number behind this kind of a higher rate reshoring trend that will help you out as well.

Thanks Tristan. Really great question. A couple of comments I would make and staying with some of the examples that we laid out. Because we're involved in a number of chip facilities. I think we have a really good understanding of the steel intensity for those types of projects. And those projects are multibillion dollar projects as you're well aware. And there is a very significant steel intensity, for example, in a chip facility because of the structural integrity that you need. I would also say those projects are generally constructed in phases. And so, they will begin and complete Phase 1 and then they'll move on to Phase 2, et cetera. And of course, given our breadth of capability and breadth of products and size and scale and geography, we're really well positioned to provide excellent customer support to these really large real intensive projects. I'd also say -- the other example of LNG, again, depending on the size and scale of the project, we know from our experience of supporting these projects historically kind of what the level of steel content that goes into that. But I would further add on a LNG facility that requires some different types of structural steel, cryo bar, high strength steel, as well as traditional black bar. And CMC is one of very few that can extend to our customer that full range of products that they need to support that. And so, I'm not prepared to tell you X number of tons per project because they all vary. They're all very, very different. I think that the message that we're trying to convey is that the activity is real, there are multitude of these projects, they are multi-year, they are funded before they begin. Corporates have very strong balance sheets. And so they're less affected by the earlier question around some of the banking challenges that are going on in the marketplace. But that in our view is going to provide significant support to business activity levels going forward, unlike when we've been into multiple times in the past or unlike periods in the past.

That's really helpful. If I may just follow-up just trying my luck there. In terms of steel intensity, is it fair to assume that we're closer to some -- the steel intensity you provided for infrastructure rather than non-residential?

I'm sorry, Tristan. Can you repeat, because I was -- it was breaking up a little bit on my end.

Sorry. When you look at the steel intensity of those planned semiconductor investment over there. I know you prefer to share a number, but just wondering if in terms of still intensity for rebar, is it closer to the infrastructure figure that you provided or closer to the non-resi figure you provided?

Yes, Tristan, we would say that it's likely somewhere in the middle. It's not going to be quite as intensive as the infrastructure, but I think as Barbara was alluding to. It is more intensive than the traditional non-res component.

Okay. That's really helpful.

Yes. And Tristan, I would -- before -- I don't know if you have a follow-up, but one thing I failed to mention in our earlier conversation related to these projects, but these projects also are great projects for the application of our products that Tensar makes. And so, that's another positive indicator for growth in that product line as well.

Got it. And maybe just a second question, a general question, a bit more bigger picture. You kind of have a unique position by being involved in the construction market in the U.S. but also in Europe. And we've seen the U.S. really putting a lot of policies in place to support non-residential activity. And now we're starting to see a little bit of a response on the European side as well with pieces of legislation that came out over the past two weeks. Having this footprint in both regions, are you able to convert the level of political support in both of those regions? And how do you compare that?

Yes, that's a great observation. And as I indicated in my opening remarks, we are very encouraged by the activity in Poland to support the residential market in terms of this interest rate help that they're going to provide to first time homebuyers. And so I think that's a real positive sign. And I'm encouraged that other parts of Europe are looking at this issue and trying to find ways to lend support. And I think the EU is, of course, further behind than what we're seeing here in the U.S. because, for example, the chips act was approved last year and now we're starting to see the green shoots from that and we haven't even talked about wind and solar, which will be big beneficiaries of that and that is a piece of the market that plays really well to our sweet spot. But I would say this in Europe, the energy transition, there already has been a lot of talk about country and legislative support to assist with the transition, which is going to involve significant investment in existing facilities, in new technologies and green energy and all of that. So I think it's coming over there. It's just -- there have been some obvious unexpected impacts that have been kind of overshadowing in Europe when the invasion occurred last year.

Okay. Thank you very much.

Thank you, Tristan.

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

Hey, good morning.

Good morning, Phil.

As it relates to [Mesa] (ph), clearly very exciting and groundbreaking and ramping. What are the expectations over the next few quarters for volume? And how should we be thinking about the evolution of that facility in the next year?

Thanks, Phil. Yes, we are really excited as you follow this industry and there have been a number of greenfield projects and no surprise the supply chain challenges that have affected any business. So we are so proud to be really completing and commissioning according to our original schedule. And I need to make a shout out again to the team out there because they have just moved heaven and earth to overcome all the various challenges in supply chain, et cetera. In terms of the commissioning and the ramp, I'd like to say the following. We as you know have a lot of experience since this is our third micro mill. And so, we would expect for rebar that the ramp up cycle will follow a similar sort of curve to our other facilities. And as I indicated, we believe we will be producing commercial grade products within the fourth quarter. But I'll add a slight caveat to that and say that, first we're going to be commissioning rebar, but then we will follow that with the commissioning of merchant product. And so, while we're ramping our rebar output, we will have to take time on the mill to commission the merchant products. And that will be going on simultaneously. And so, I think once we get through the next couple of months with the cold and the hot commissioning, then I think we can give you a better update on specifics in terms of our volume expectations. And so, I think that it will have some impact in this fiscal year, we'll see some commercial volume flow out of that facility, but it will be a much greater impact into 2024.

Thanks so much. And then just a follow-up on net working capital. What should we be expecting there in the back half of the year in terms of source or use certainly scraps moved up, but you might have some excess inventory with the outages, so trying to parse all that out? Thanks so much.

Yes, Phil, you're exactly right. What we had, typically we use working capital or working capital is a use of cash in the first quarter and it's usually a relief through the last three quarters of the year. This year with the increasing scrap environment, it resulted in the second quarter being a use of cash again. As we look forward and certainly at the moment seems scrap is looking relatively stable, we would expect that we'll revert back to the typical trend of working capital being a release. And as you mentioned, yes, we should have a release here in the coming quarter with respect to getting the outage and the pre placed inventory that I spoke of liquidated into cash as we collect those receivables. So we should see elevated working capital releases for the coming two quarters.

Thank you.

Thanks, Phil.

Thanks, Phil.

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

Good morning, Barbara and Paul. Thank you for your time today and for fitting me in. Maybe just on Tensar. I believe the expectation is a run rate of about $65 million, could you maybe provide a little color on like the timeline and cadence to get to that level?

Yes. I mean, I would say we're on track for the $60 million range, probably the lower end than the higher end of that for this fiscal year. But we haven't entered that busy season yet and -- but all the signs are really, really encouraging there.

Excellent. And maybe just a market question, since the end of the quarter or more in the last month, have you detected any noticeable increase in rebar imports from regions other than Turkey to the U.S? Thanks.

Turkey is the largest factor and there are ebbs and flows from the various importing countries from time to time. Algeria is one that I would note and those mills -- some of those are Turkish mills. And so, they're really -- we kind of lump them into Turkey impact. So I would say Algeria is making -- taking up some of the slack with the earth quake disruption that took mills down in Turkey, where they can, of course, but there's not any meaningful impacts that we're seeing.

Okay. Thanks very much.

Yes. Thank you.

And our next question will come from Alex Hacking with Citi. Please go ahead.

Good morning, Barbara and Paul. Thanks for squeezing me in. I'll just ask one question. So the 1.5 million tons of rebar that you see coming from federal infrastructure program, I guess, what year do you forecast that we would get to that level? And do you have any estimate on what that number would be in 2024 given the bidding activity that you're seeing at the moment? And I would assume that that number is fairly close to zero for 2023? Thank you very much.

Thank you, Alex. What I would say is, the signs are there that the activity is moving forward, the pre planning activity, all of the Dodge indices are pointing towards movement forward. And as you point out, there's not a -- we can't point to a large set of bidding or booking activity that is specifically tied to that. But these are just like regular infrastructure bills. We always say there is a 12 to 18 month lag between when a bill is approved and when you see the activity. And so, the growth in infrastructure last year was really related back to the FAST Act. But a couple of things I would note, the state budgets are one of our best indicators because, first, you the federal allocated it by state and then the states have to put their funding in place and their project plans and a number of key states that we've looked at have either authorized multiyear infrastructure budgets to support what's coming from the federal funding or they are in the process of approving those budgets. And there's significant amounts of money that is being allocated in anticipation of that. I would say in general, the largest consuming states are healthy in terms of their balance sheet and they are being very proactive in planning for those infrastructure projects like Texas and Florida. I mean, we are seeing significant activity in both of those states and both of those states have funding plans. So it's coming and how fast it ramps up to the 1.5 million tons at this stage is a little more difficult to predict until we get to the bidding and booking. But I would expect by our next update maybe we're going to have something more concrete to share in terms of how that's flowing from preplanning to the actual project and bidding and booking.

Okay. Thanks for the color. And also thanks for the presentation. It's extremely helpful.

Thank you, Alex. We appreciate the feedback.

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

Thanks, Joe. 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. And I hope everyone has a great day. Thank you so much.

This concludes today's Commercial Metals Company conference call. You may now disconnect your lines, and have a great day.