Hello, and welcome, everyone, to the First Quarter Fiscal 2024 Earnings Call for CMC. Joining me on today's call 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. [Operator Instructions] I would like to remind all participants that during the course of this conference call, the company will make statements that provide information other than historical information and will include expectations regarding economic conditions, effects of legislation, U.S. steel import levels, construction activity, demand for finished steel products, the expected capabilities, benefits and timeline for the 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 the 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 under 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 would like to turn the call over to Peter.

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, the first quarter of fiscal 2024 marked another period of strong financial performance with core EBITDA, core EBITDA margin and free cash flow continuing at historically high levels. I would like to thank CMC's 13,000 employees who make these results, make results like these possible. Your hard work and focused efforts for customers are the driving force behind CMC's success. I will start today's call with a few comments on CMC's first quarter performance, and then discuss the rationale behind the realignment of our reportable segments, and then provide an update on the current market environment and our strategic growth investments. Paul will cover the quarter's financial information in more detail, and I will conclude with our outlook for the second 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 commenting on CMC's financial performance during the quarter, I would like to highlight our exceptional safety performance. Our incident rate was the best on record, meaning we work safer than ever before. Keeping our employees safe is a core tenant of our culture and priority number one for every team member from the shop floor to executive leadership. Performance in the first quarter demonstrates how seriously we take this responsibility. Despite records being set, there is more work to be done to push forward our ultimate goal of zero incidents. As I mentioned, CMC's first quarter financial results were among the strongest in our company's history, though down…

Thank you, Peter. And good morning to everyone on the call. As noted earlier, we reported fiscal first quarter 2024 net earnings of $176.3 million or $1.49 per diluted share, compared to the prior year levels of $261.8 million and $2.20 respectively. Results, this quarter include net after-tax charges of $16.4 million related to the ongoing commissioning efforts at Arizona 2. Excluding these items adjusted earnings were $192.7 million or $1.63 per diluted share in comparison to adjusted earnings of $266.2 million or $2.24 per diluted share during the prior year period. Core EBITDA was $325.3 million for the first quarter of 2024, representing a decline from recent levels, but still among the most profitable quarters in CMC history. Slide 11, of the supplemental presentation illustrates the year-to-year changes in CMC's quarterly results. Financial performance at our North American Steel and Europe Steel groups declined from the prior year, while results of the emerging business group were largely unchanged. Consolidated core EBITDA margin of 16.2% remained well above average historical levels. Before reviewing our segment results, I would like to make a few comments on how CMC will report and discuss each group. For both the North America Steel Group and the Europe Steel Group, we will continue providing the same operating statistics as we did under the previous segmentation. You can find the recast figures on our investor relations website. We view these metrics as offering valuable insight into the factors that drive these businesses, including selling prices, margins over scrap and product volumes. We will also begin highlighting adjusted EBITDA margins as a percentage of net sales to support our focus on higher through-the-cycle margins across our businesses. The two key metrics for the emerging business group are net sales and EBITDA margins. As Peter mentioned, we expect…

Thank you, Paul. We expect shipment volumes within our North America Steel Group to decline sequentially due to normal seasonality during the winter months. Margins on steel products are likely to experience some further compression during the second quarter. However, recent price announcements on rebar, merchant bar, and wire rod should support an inflection point in the coming months. Downstream product margins should exhibit good stability sequentially. Conditions in Europe are expected to remain challenging, but adjusted EBITDA excluding energy rebates should improve from the levels of the past two quarters. Financial results for our Emerging Businesses Group are anticipated to follow a typical seasonal pattern with some slowing of activity in Q2. Looking beyond the second quarter, which is CMC's seasonally slowest period, we expect robust spring and summer construction activity driven by the increased impact of rising infrastructure investment, which should support an already healthy demand backdrop. Both the North America Steel Group and the Emerging Businesses Group should benefit from anticipated strong activity levels. Regarding the Europe Steel Group, supply-side adjustments and the impact of increasing levels of residential and infrastructure construction should drive sequential improvement in financial results beginning with the spring construction season. It's an exciting time for CMC. We believe the realignment of our organizational and reporting structure will allow us to better execute our key strategic priorities and harvest significant value for shareholders. Powerful structural trends in North America should drive construction activity for years to come, and CMC has positioned itself as a key beneficiary. Additionally, the green shoots emerging in Poland and our strong cost position should provide an opportunity for results to rebound going forward. Once again, 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. At this time, we will now open the call to questions. [Operator Instructions] Today's first question comes from Phil Gibbs with KeyBanc Capital Markets. Please go ahead.

Hi, good morning.

Hi, Phil.

Hi, Phil.

In terms of the scrap market for January, there's been a lot of mixed news on the market over the last couple of weeks. Just curious in terms of what you all are seeing for your key consuming grades.

Yes. So thank you, Phil, for the question. We have kind of heard and anecdotally seen some of this weakness and, honestly, not a huge surprise for us given the rapid run-up that we've seen over the kind of last several months in scrap. I think it's important to say that, as it relates to the price increase that we announced, which I think may be part of what you're getting at, the move in scrap, the price increase that we announced did not fully cover the move that we've seen in scrap. And the move in scrap was kind of part of what motivated our move on price, but only part. And the other part was the strong demand that we're seeing in the market. So in spite of the kind of potentially sideways movement in scrap, we remain very confident in the kind of pricing position that we've taken and our ability to kind of hold onto it and build on it

Thank you. And then as it relates to CapEx, you said your outlook there was intact. You had $250 million related to West Virginia. How much is left over to spend for West Virginia in 2025 and beyond - fiscal '25 and beyond? And what's your sustaining CapEx with all the investments you've made?

Yes, Phil, as far as our CapEx, our guidance typically is that our CapEx, our maintenance CapEx, which is a pretty liberal definition of anything not significant enough to call out, is around $250 million per year. This year on top of that, we've got the finishing off of the investments in Arizona, too, as well as the West Virginia spend. So we anticipate, given that we anticipate starting up West Virginia late 2025, that next year's spend will be somewhat similar to this year in West Virginia, and then possibly finishing up a little bit into 2026.

Thank you.

Thanks, Phil.

Thank you. The next question is from Timna Tanners with Wolfe Research. Please go ahead.

Hi, guys. Good morning, and Happy New Year. I wanted to just kind of ask a little bit more about capital allocation. Just because of the stark reduction in your debt, you point out really nicely on Slide 18, you kept the dividends flat. I think some of us were expecting that you might have raised that, and your cash is running above 10, at least, for the last six quarters. So can you talk to us a little bit more about how you're seeing opportunities in M&A versus organic? You said you're not going to build any more steel mills after these next ones, which sounds good. What else are the types of opportunities that you might be looking at for uses of cash?

Yes, so thank you for the question, Timna. I mean, we continue to plan a balanced capital allocation strategy, and that's going to include, given our balance sheet condition is very good, it's going to focus on really growth and then returns to shareholders. We have, on the growth side, obviously we've got the kind of West Virginia project that we're in full course on at this point in terms of getting that spending ramped up. And there are kind of other smaller organic projects around the company that we're also investing in at this time. On the M&A side, we see a lot of different opportunities, and we're doing a lot of work around strategy to figure out precisely where our priorities are, because we want to make sure that the M&A growth that we do pursue is M&A growth that is, number one, complementary to the core; and, number two, growth where we can generate returns in excess of our cost of capital. But we do see a decent amount of M&A opportunity out there, and we're just going to be kind of disciplined about doing that. As it relates to returns to shareholders, we did increase our share buyback in the most recent quarter. You'll note, as others have noted, that we are coming to the end of our authorization on share buybacks, and I would say this is a topic that we discuss on a regular basis with our Board, so I would stay tuned on share buybacks as an overall piece of the pie. And on dividends, again, we periodically review the dividend, and we'll continue to do that. But overall, the strategy is balanced capital allocation between kind of growth and return of capital to shareholders.

Okay, great. Thanks for that comprehensive answer. I know I threw a lot in that last question. Just the next one is a little, hopefully, smaller one. We have seen the pace of government awards and highways slow down a bit, and I know you alluded to that in your commentary. Can you give us a little more color on what's driving that? Is that just tough comps? Is that resources availability? Is it anything to be cautious about, or is it just kind of the normal cadence after a big spending program coming through?

Yes, we actually feel very confident about where we are on government awards, and actually we've seen government awards continue at a healthy pace here. What I'd say is just kind of taking a couple steps back, if you look at infrastructure spending, infrastructure spending grew in 2023. We expect, and all the other prognosticators expect, that it's going to grow in 2024. And we can see, both in the form of kind of the pipeline of projects and the design and pre-design phase, significant increases that have been significantly increased over the last literally nine quarters. So that, we think, is kind of evidence that there's more coming through the pipeline. And lastly, what we're seeing is state budgets are growing at a healthy rate. And we commented in the prepared remarks that they're up about 13% on average. And we believe we are seeing some of the IIJA money coming through now. Remember, it's a little difficult to see precisely when it comes because the funds are commingled with state monies, but we do believe we're starting to see that, and we believe that's going to grow over the course of 2024. And one thing that I'd also kind of point out on IIJA is, remember, the way the program is structured, every year there's a grant, but it doesn't necessarily mean that the spend in that year is the same. So over the course of the program, we believe you're going to see kind of an escalating level of spending. So we continue to be very bullish on what infrastructure means for our business and the demand for rebar.

Thank you. [Operator Instructions] The next question comes from Alex Hacking with Citi. Please go ahead.

Yes, hi. Good morning. On the emerging business group, which you've highlighted that you see that growing faster than everything else, are there any long-term targets there for how big you want that business to ultimately get, either in absolute terms or as a percentage of the total company? Thanks.

Yes, thanks, Alex. Good question. We're very excited about the potential of the emerging businesses group. I think it's premature at this point to kind of articulate a specific target for where we think it will be. What we like about that business, as we said, is it tends to have - the businesses in there tend to have solid organic growth rates, they tend to have higher margins, and they tend to have less volatility, all of which will be kind of helpful in the overall financial profile for our company. So it's an area that we intend to grow, we want to grow, but coming back to my comment on M&A, we've got to be disciplined about how we grow, and that means that we've got to be comfortable that we can generate returns in excess of our cost of capital in the moves that we're making in that space. We are very optimistic that we can do that, so we're confident that you're going to see some nice growth in that segment. But it's a little bit premature to call it specifically. What I would say is that our expectation is that it will be a significant contributor to our earnings and cash flow if you look out kind of three, five years.

Okay, thanks. And then something a bit more discreet. The European cost rebates, energy rebates, given where energy prices are today, do you have any estimate of what kind of rebate you would expect at the end of this year? Thanks.

Yes, Alex, it's a good question. So there's two separate programs, as I outlined, that we received. The first relates to the cost of CO2 credits that's embedded in the underlying energy costs that the operation pays, and that is most closely tied to the CO2 credit costs themselves. And given that the demand over time is expected to continue to increase for those credits, we expect that that credit is likely to remain at the level it is today or increase. The other credit was in relation specifically to higher cost energy, and you're correct as you state that energy costs have come down from their peak. They're still elevated, and so while the program itself was simply for 2023 and we have received the full amount of that, it could be that the new government that comes in place puts a further program in place should the energy costs continue to remain elevated and uncompetitive with other geographic jurisdictions.

Okay, thanks. So just to clarify, the CO2 program is still in place and is sort of linked to the market price of CO2 credits, and the energy rebate program is now gone, but potentially could be replaced?

That's correct. The CO2 is in place through 2030.

Okay, perfect. Thank you.

Thank you. The next question is a follow-up from Phil Gibbs with KeyBanc Capital Markets. Please go ahead.

Thank you. What's the length of your fabrication backlog right now if you think about it in terms of months or quarters?

Yes, I mean the fabrication backlog tends to run with a duration of about 12 months, and that's a weighted average duration. That's, I think, a good level for where it is today.

And then as you talk about the typical force or normal seasonality associated with the second quarter versus the first quarter, what is that in your mind? Is that 5%? Is that more or less?

Yes, Phil, typically because of the weather and the slowdown in construction activity that occurs, usually it's between 5% and 10% of a reduction in volume. The volumes in the first quarter were relatively strong in relation to other seasonal impacts, so we would expect somewhere in the middle there, around a 7% reduction in volume. Now that all depends on what weather occurs. So far December was a very strong month from a construction activity despite the holidays. However, I think there's an arctic blast coming through affecting much of the U.S. this week, and so we'll see what happens over the remainder part of the quarter.

And when you talk about this 5% to 10%, is that for U.S. mills and U.S. fabrication?

Correct. Yes, as well as the EBG businesses which are construction-oriented.

And then lastly, depreciation, as you guys noted in carved-out, stepped up pretty solidly, I would think, based on your disclosure, that it was largely for AZ2. But is that a good level to be using moving forward, that stepped-up rate that we saw in Q1?

Yes, that reflects both the AZ2 depreciation as well as the acquisitions that we did throughout 2023.

Thank you.

Thank you.

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

Okay, well thank you for joining us on today's conference call. I just want to say in conclusion, CMC has positioned itself to take advantage of the wave of construction spending underway. And in this environment, we're confident in our ability to drive higher through the cycle margins and generate excess returns from our growth initiatives. We look forward to speaking with many of you during our investor calls in the coming days and weeks. Thank you very much.

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