Steel Dynamics, Inc. (STLD) Q2 2016 Earnings Report, Transcript and Summary

Good day, and welcome to Steel Dynamics' Second Quarter 2016 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 given at that time. Please be advised this call is being recorded today, July 19, 2016, 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 call over to Theresa Wagler, Executive Vice President and Chief Financial Officer. Thank you. Please go ahead. Theresa E. Wagler - Chief Financial Officer & Executive Vice President: Thank you, Brenda. Good morning, everyone. Welcome to Steel Dynamics' second quarter 2016 earnings conference call. Leading today's call are Mark Millett, President and Chief Executive Officer of Steel Dynamics; and myself. We're also joined by Russ Rinn, Executive Vice President of our Metals Recycling; Chris Graham, Senior Vice President of Fabrication and Manufacturing; Glenn Pushis, Senior Vice President of Long Products Steel Group; and Barry Schneider, Senior Vice President of Flat Roll Steel Group. Please be advised that certain comments made today may involve forward-looking statements about future events that by their nature are predictive. They're intended to be covered by the Safe Harbor protections of the Private Securities Litigation Reform Act of 1955 (sic) [1995] (01:19). We refer you to a more detailed form of this statement contained in the press release announcing this earnings call. These predicted statements speak only as of this day, July 19, 2016, and involve many risks and uncertainties related to our business and the environments in which we operate, any of which may cause actual results to turn out differently than anticipated. More detailed information about such risks and uncertainties may be found in our most recent Annual Report on Form 10-K under the heading Special Note Regarding Forward-Looking Statements and Risk Factors in our quarterly reports on Form 10-Q or in other reports which we file from time to time with the Securities and Exchange Commission. And now, I'm pleased to turn the call over to Mark. Mark D. Millett - President, Chief Executive Officer & Director: Thank you, Theresa. Good morning, everybody. Welcome to our second quarter earnings call. I hope and trust you are all enjoying the summer, and I'm going to have safe summer with that. It seems difficult to believe that we are already halfway through 2016. I guess time flies when you're having a lot of fun. But thankfully, we have a notably improved profile compared to last year. To begin this morning, I would ask Theresa to comment on our second quarter financial performance. Theresa E. Wagler - Chief Financial Officer & Executive Vice President: Thank you. With a continued challenging global steel industry environment, the teams achieved strong operational and financial results. For the second quarter 2016, our net income was $142 million or $0.58 per diluted share, slightly above our guidance of between $0.53 per share and $0.57 per share, really based on the strengths from the Flat Roll Group. These results are over double those of sequential and prior year quarters. Sequential first quarter net income was $63 million or $0.26 per diluted share and prior-year second quarter adjusted net income was $53 million or $0.22 per diluted, which excludes expenses primarily associated with idling our Minnesota operations. Second quarter 2016 revenues were $2 billion, a 16% improvement over the sequential first quarter based on both increased shipments and product pricing from our steel operations. Our second quarter 2016 gross margin as a percentage of sales increased to 19%, driven by the improved performance at our steel operations, most specifically from our Flat Roll Group. This represents a significant improvement of our near-term history, including first quarter 2016 performance of 14%. As a result, our operating income for the second quarter was $256 million, compared to first quarter results of $132 million, a 94% improvement. For the second quarter, steel shipments increased 9% to 2.5 million tons, as volumes improved across all divisions except in special bar quality products. The SBQ market continues to be challenged by weak demand dynamics. Conversely, domestic flat roll steel utilization is strong, as imports have declined and customer inventory levels are better balanced with actual demand. Even though second quarter platform utilization was 95%, it's a bit misleading as the Flat Roll Group produced over the theoretical quarterly capacity, offsetting lower utilization at the structural and engineered bar divisions, which operated at 82% and 53% respectively. Second quarter 2016 steel platform average selling prices increased $67 (sic) [$66] (04:41) per ton to $640, outpacing increased average scrap cost [ph] at $74 (04:47) per ton. Increased metal spread and continuing improvement in volume resulted in our second consecutive quarter of significantly higher profitability generated by the steel platform. Operating income was $276 million, just over double first quarter results. Our Flat Roll Group continued to drive this performance with a 159% increase in group operating income based on an 8% increase in shipments coupled with meaningful metal spread expansion. While our metals recycling platform continues to operate in an extremely challenging environment, the team was able to achieve significantly improved profitability, recording $15 million of operating income versus $6 million in the sequential first quarter. Increased domestic steel mill utilization resulted in improved recycling demand and pricing. Second quarter 2000 (sic) [2016] (05:38) shipments increased 3% and ferrous metal spread increased 30% compared to the sequential quarter. Additionally, internal ferrous shipments represented 60% of OmniSource's second quarter volume, effectively levering the strength of our vertically integrated business profile. Non-residential construction demand was steady throughout much of the United States, but negatively affected by inclement weather in the Southwest, resulting in a slight decrease in our second quarter fabrication shipments, but order entry and coating activity remained strong. As we suggested on the first quarter call, fabrication experienced metal spread compression, as higher steel prices increased raw material costs, while product pricing modestly declined. As a result, second quarter 2016 operating income from our fabrication operations was $24 million, a decrease of $8 million when compared to the first quarter. Although we anticipate stronger fabrication volumes, we accept to see additional metal spread compression in the third quarter, as higher price flat roll steel inventories flow through the system. During the second quarter 2016, we generated cash flow from operations of $158 million, as working capital used $136 million in the quarter due to increased sales. For the first half of 2016, we generated $447 million. First half 2016 capital investments totaled $63 million. We currently estimate full-year 2016 capital expenditures to be in a range of $225 million, obviously weighted to the second half of the year. And this includes the paint line addition at our Columbus Flat Roll Division, which is still expected to begin operations in the first quarter of 2017. We maintained our cash dividend in the second quarter at $0.14 per common share. Our history of sustained and increasing cash dividends demonstrates the confidence that we and our directors have in the strength and consistency of our cash flow generation capability. As demonstrated through the years, our business model generates strong cash flow through varying market cycles based on the low, highly variable cost structure of our operations and our diversified value-added product offerings. We achieved record liquidity of over $2.2 billion at June 30, 2016, comprised of our undrawn revolver and available cash of $1.1 billion. During the second quarter, total debt remained flat while net debt decreased $82 million to $1.5 billion. Our second quarter 2016 adjusted EBITDA was $340 million and trailing 12-month EBITDA $903 million, resulting in net leverage of 1.7 times, down from 2.7 times at the end of the year. Our credit profile continues to be solidly aligned with our preferred due cycle net leverage of less than three times. Additionally, our debt maturity outlook continues to provide great optionality, having no meaningful maturities until 2019, but in the interim periods having provision call flexibility. Looking forward, we continue to believe that our capital structure and credit profile have the strength and flexibility to not only sustain current operations, but to support additional strategic growth. Mark? Mark D. Millett - President, Chief Executive Officer & Director: Thank you, Theresa. Some may think it redundant, but I want to reiterate on each call that safety and welfare of our employees remains our number one value. Nothing surpasses the importance of creating and maintaining a safe work environment. Our safety performance remains better than industry averages, but our goal is to have a zero incident environment. We've reduced our total recordable injury rate in the first half of 2016 by a further 15% when compared to last year's full-year results. The team continues to do a phenomenal job, and we're on track for another record performance this year, but everyone must remain focused. My sincere thanks go to the entire SDI team for their dedication to our most important priority. The steel platform performed well in the second quarter. 2016 has certainly provided a changing landscape to the domestic flat roll market. Several positive macro shifts have resulted in significantly improved flat roll product pricing. Year-over-year, first half flat roll steel import levels have declined and customer inventory levels are better aligned to actual consumption, all supporting higher domestic sheet mill utilization. While demand has remained steady, these supply side drivers have led to much improved market dynamics. Our flat roll steel mills operated at full capacity during the second quarter, supported by the automotive and construction sectors. Although conversely, even though sequential long products steel shipments improved 14%, they operated at about 75% of their full production capability, with engineered bar being the most challenged. So, for the steel platform as a whole, our production utilization rate for the second quarter of 2016 increased to 95% compared to the overall domestic steel industry that's been operating at around 74%. Despite a significant increase in second quarter scrap costs, our overall average steel metal spread improved, as average product pricing outpaced the increased costs. However, as a subgroup, our combined long product divisions actually experienced flat pricing and metal spread compression in the second quarter. Although overall construction continues to improve, the competitive landscape for structural steel, merchant sheets, and engineered bar is extremely aggressive. The robust increase in second quarter 2016 long product group shipments was due to the customers buying ahead of the significant scrap increase in April and in May. While we anticipate third quarter of 2016 metal spread expansion for the long products group, the buy-ahead customer activity will likely result in slightly reduced related shipments. Part of the investment thesis from our recently announced $126 million planned acquisition of Vulcan Threaded Products is the potential volume improvement for our Engineered Special Bar Products division that could result as being a supplier to Vulcan. Historically, Vulcan has purchased nearly 20,000 tons of steel from SDI. But based on our production capabilities, this could increase to as much as 30,000 tons to 50,000 tons, just under 10% of our Engineered Bar division's 2015 shipments. Vulcan purchases special bar quality steel products for the manufacture and sale of higher-margin threaded steel rod, cold-finished bar, and heat-treated bar. We're excited to soon welcome the Vulcan employees to the SDI family. Vulcan has a great reputation in the industry for supplying high-quality products with excellent customer service. We have recently received the required regulatory approvals for the deal and hope to close the transaction shortly. At Columbus, the successful market and product diversification that we achieved during 2015 is one of the key differentiators for the improved profitability that we are realizing this year. As an example, Columbus achieved record six months production stats in the first half of 2016 and continues to increase their value-added product capabilities. The new paint line project is on budget and on schedule, with expectations for painted product shipments to begin in the first quarter of 2017. The total $100 million investment will provide 250,000 tons of annual coating capability and further diversification into higher-margin products for Columbus. We already have two paint lines and a Galvalume capability in Indiana. And this new project allows for higher-quality, double-wide steel and access to the southern markets, including Mexico. We plan to sell surface-critical, appliance-grade steel as well as construction-related products from this line. As a part of the project, this month, we're installing equipment in one of the Columbus' galvanizing lines to allow them to sell value-added Galvalume products into the construction sector. We anticipate the installation and resulting disruption to result in about $5 million of lost earnings in the third quarter 2016. Our steel platform also continues to benefit from other organic growth investments, some of which began contributing in 2015 but should continue to increase momentum in 2016. The $26 million investment in premium rail is continuing to improve the ratio of premium to standard rail shipments. The $96 million investment in engineered special bar quality diversification and capacity expansion generally are geared toward automotive industry. This diversification has already facilitated increased mill utilization and cost compression during the ongoing weak heavy equipment and energy demand environment. Finally, the $22 million investment for an additional 600,000 tons of annual flat roll pickling capability at our Butler Flat Roll division, which will increase value-added sales while deemphasizing commodity-grade hot roll. The team began operating the line in January and has already achieved 75% utilization. The continued increase in domestic steel mill utilization is also benefiting our metals recycling platform. The team was able to achieve meaningful improvement in profitability for the second consecutive quarter. The recycling environment remains challenging. Many regional players in the industry are either for sale or headed into insolvency. As such, the number of active shredders has declined, which should benefit the industry in the years ahead. Earlier this year, the rapid and significant increase in flat roll steel mill utilization and product pricing during a period of low obsolete scrap flows resulted in significant ferrous scrap price increases. April pricing increased about $50 per ton followed by another increase in May of about $20 per ton to $30 per ton. But looking forward, we expect the pricing environment to decrease somewhat and stabilize, as the rush to regain mill inventories subsides and obsolete scrap flows, perhaps, improve. We saw this occur as June and July's price trend was basically unchanged for prime grades, but then $10 per ton to $20 per ton for obsolete grades. Combined with the expectation of a continued relative strong U.S. dollar and relatively low scrap exports, we anticipate ample scrap supply and don't see likely drivers for significant increases in ferrous scrap prices. The fabrication platform continues their ongoing strong performance. Since our acquisition of additional deck assets in September 2015, we've gained considerable market share for deck, achieving 31% for the first half of 2016, compared to only 24% in the same timeframe last year. Additionally, the acquisition provides an opportunity for steel supply options from our Columbus Flat Roll division. Over the last three years, the acquired assets averaged over 60,000 tons of annual flat roll steel purchases, predominantly galvanized and predominantly from our competitors. We plan to source a substantial amount of the steel from Columbus, which will help further shift Columbus' product mix and increase mill utilization during weak demand environment. The power of pull-through volume was certainly helpful in last year's steel environment. Our fabrication operations purchased just over 300,000 tons of steel from our steel operations in 2015 and has already purchased over 160,000 tons in 2016. The New Millennium team continues to perform extremely well, levering our national footprint to gain market share. The strength of this business provides positive insight into the continued growth of non-residential construction activity. We continue to see strong ore activity and expect increasing volumes. But the increased cost of flat roll steel, which benefits our $7 million ton capacity Flat Roll Group, will result in further margin compression for our fabrication operations in the third quarter. This natural hedge continues to benefit the overall company. Relative to the macro environment, the steel-consuming sectors that were weak in 2015 such as energy, heavy equipment, and agriculture will likely remain so in 2016. However, those that have been strong or recovering are expected to continue this path, such as automotive and construction. 2016 forecast for these two largest domestic steel-consuming sectors remains positive. Automotive has continued forecasting strength. And overall, construction spending continues to improve with additional forecasted growth in 2016. SDI is growing exposure to both of these sectors through our Columbus Flat Roll division, additional Long Products production capability, and growing fabrication operations. Driven by the strength of the U.S. dollar, low iron ore costs and global overcapacity, steel imports were 2015's principal headwind. However, recent import levels have declined and the trade cases are likely to erode them further. Reduced imports, idling of domestic capacity, and relatively higher global pricing, along with steady demand and rebalanced supply chain inventory, have created a positive pricing and volume environment for flat roll products. As raw material prices moderate, there's likely margin expansion opportunity. As in the past, importantly, we are not waiting in order to help inflate ourselves from the imports. Part of our strategy is to not only develop strong customer relationships but to also manufacture products that are more difficult to compete with on a global basis, such as painted flat roll steel, highly engineered SBQ steel, and long length rail. As such, we're able to mitigate some of the import impact and, with our broad portfolio of value-added products, able to maintain higher steel mill utilization rates when compared to our domestic peers. As you've seen, we continue to strengthen our financial position through strong cash flow generation and the execution of our long-term strategy. We also have additional company-specific earnings catalysts and are well positioned for growth. Customer focus, coupled with our market diversification and low-cost operating platforms, support our ability to maintain our best-in-class industry performance. We believe we are uniquely poised to capitalize on growth opportunities that will benefit our customers, shareholders, employees, and communities. Driven to maintain a sustainable differentiated business, we're focusing on growth opportunities to maximize our financial performance throughout market cycles. We will concentrate on growth opportunities that will improve the quality of our margins, with a particular focus on downstream value-added growth to mitigate the impact of imports and the evitable cyclicality of our business. The strong character and determination of our employees are absolutely unmatched. They are a phenomenal group, and I'm proud to stand with them. We look forward to creating new opportunities for them, for our customers, and our shareholders in the months and years ahead. So, again, thank you for your time today. And Brenda, we'd love to open the call up for questions.

Thank you. Our first question comes from the line of Tony Rizzuto with Cowen & Company. Please, go ahead with your questions. Anthony B. Rizzuto - Cowen & Co. LLC: Thank you very much, and good morning, Mark and Theresa. My question is, one, you've done such a tremendous job at optimizing your flat roll plants at Butler in Columbus. I'm wondering how much further is there to go in terms of volume growth and aside from mix improvements that you clearly are implementing at these facilities. Mark D. Millett - President, Chief Executive Officer & Director: I think the team at Butler has done an absolute phenomenal job. If you look back, when a little English man was running the place up there, we were around about 2.2 million tons – about 2.4 million tons, and all they had to do is kick me out. Anthony B. Rizzuto - Cowen & Co. LLC: Right. Mark D. Millett - President, Chief Executive Officer & Director: And so, they went from 2.4 million tons, I think – they probably have about 3.1 million tons of capability there, way above the – way, way above the rated capacity. I would say, Columbus, they've already demonstrated on the half side, the ability to get around about 3.4 million tons, and that's without the – so the prodding and the innovation and the creativity of the employee base. And I would say there is good room for movement there. Anthony B. Rizzuto - Cowen & Co. LLC: Okay. May I ask another question? I know they said one question, but I'd I like to ask a question on the market, if I could. You mentioned, Mark, about the imports that have come down. Obviously, that's been a key shift in supply this year. But the import license data has been beginning to trend higher and, obviously, looking at higher imports later this year. And we're starting to see some signs that the market is becoming a little bit less tight, if you will. I was wondering if you could just address that along with your comments about the scrap, maybe, being a little bit sloppy here over the near-term. And just generally speaking, how do you think about pricing and where we are in the market today? And do you think we've hit a peak for hot-rolled at this juncture? Mark D. Millett - President, Chief Executive Officer & Director: Well, that was a compound question, Tony. Let me start off by saying, I think import levels are down about 25% year-to-date. But we do, indeed, see activity picking up a little bit. The global spread for hot band is in excess of $200 a ton today. And so, it's natural for that to occur. But I think it's been amazing that the import pricing, though, remains pretty resilient, I would say, unusually resilient and maybe there is import offers now about 50 bucks off in the domestic market. And as I said, that's a little unusual, a little more resilient. The trade constraints have totally eliminated China and the other primary importers from the marketplace. And import offers are coming in through what we would consider somewhat non-traditional sources, Vietnam and others. And those are a little less accessible, and the network from a customer base importing those steels is a little less reliable at this moment in time. And in any event, import pressure is not going to materialize in any great form in Q4. And I am somewhat confident that it's not going to return to the levels that really imploded on markets at the end of whenever that was, 2014 and early 2015. From a pricing standpoint, cold-rolled sheet and coated, they remain very, very, very strong. Lead times are around about eight weeks. In the hot-rolled coil arena, you're right, the market seems a little hesitant. And I think they're uncertain of its direction. There are lead times, perhaps, down to two weeks to three weeks today. And I think it's because some are anticipating softening, given that the high global spread and the recent deterioration in scrap pricing. And so, they're not placing orders today. They really are just placing exactly what they need. There's a good side to that. Yeah. The recent MSCI data shows that inventory is at 2.3 months on a shipping basis, while actual shipping – or shipments are strong. And I think that that's a good position to be in, in all honesty. I think there could be actually an opportunity for restocking and that they can hang out there and hope for lower pricing. But the scrap arena is going to support the prices where it is today. We don't see any real downtick in scrap pricing, so that's going to support it. I think the lean inventory will support pricing in the region it is today. Does it come off $10 or $20? Yeah, maybe. But it is certainly not going to implode. And you never know, history may repeat itself and, invariably, it has in our industry, where inventories, service center inventories get real, real tight, then all of a sudden, folks, they all seem to jump into the market at the same time. Lead times stretch out because the domestic industry, from a production capability, just can't recover as quickly and you actually get a price pressure environment, so time will tell. Anthony B. Rizzuto - Cowen & Co. LLC: Thanks for all that color, Mark. I greatly appreciate it.

Our next question comes from the line of Matthew Korn with Barclays. Please, go ahead with your question.

Hi. Good morning, everybody. Thanks for taking my questions. Regarding the U.S. auto market, we saw U.S. auto production had a nice June after some softness earlier in the spring. I'm wondering, are you seeing any signs, as you're out there expanding that business, that there is any step-down in optimism on growth among the OEMs, the parts makers? And, secondly, have you had any substantial wins within that industry, within that market over the quarter which you could highlight? Mark D. Millett - President, Chief Executive Officer & Director: I'm not so sure if there is optimism for further growth in the automotive world. I think they are ahead of the build right today, and I think everyone would forecast that, that build rate is going to be maintained, going forward. So I think it's a very healthy environment to be in. On the market share, we have – as we've advertised or communicated in the past calls, have had a dedicated sort of initiative in Columbus in particular to go direct to the automotive producers. We've got a team of eight folks, nine folks, 10 folks together, and it's unbelievable traction that they have gained. And I think for 2016, we're on track for about 180,000 tons of automotive shipments, which is up dramatically year-over-year. And we're looking for sort of that amount of gain, in addition to that, in 2017. Our target is just round about 500,000 tons, maybe, a little bit more, but 500,000 tons of output at Columbus eventually. Theresa E. Wagler - Chief Financial Officer & Executive Vice President: I was going to say that just another thing. If you look at the growth expected in Mexico from an armored production perspective, that also bodes well for Columbus, given the freight that we have in, in Mexico. So that's another thing that we are looking at.

Got it. Thanks. Let me just really quickly follow up. Your cost performance has looked good. I'm wondering outside of raw materials, with the advantage that you're getting from the high capacity utilization, where are you when it comes to your conversion cost performance at Columbus or even the whole system versus a year ago, and where you'd expected to be around this time? Theresa E. Wagler - Chief Financial Officer & Executive Vice President: Without going into specifics, I kind of let into a little bit in my opening comments that the utilization number is a bit misleading because at 95%, it's really heavily weighted towards the fact that Butler and Columbus actually operated at 105% to 110% of their rated capacity for the quarter, which obviously isn't sustainable for a year, but they did it in the quarter. And so, that masks some of the capability and the opportunity that we're going to have at the long products. So there's still some meaningful cost compression that we should have across, actually, the structural mill and definitely the Engineered Bar division. So there is some leverage there. And as it relates to Columbus, Columbus conversion costs are very strong right now, being that we brought them very much in line. There was a lot of progress that was made in 2015, yet there are still some financial obligations that are outstanding, and we are trying to work through those. They have varying dates of expiration. And so, that's probably still another $5 to $8 a ton of additional cost that we are incurring at Columbus that we hope one day we won't have to.

Thanks, Theresa. It's very helpful. Best of luck for the rest of the quarter. Theresa E. Wagler - Chief Financial Officer & Executive Vice President: Thanks, Matt. Mark D. Millett - President, Chief Executive Officer & Director: Thank you.

Our next question comes from the line of Brett Levy with Loop Capital. Please, go ahead with your questions.

Hey, Mark. Hey Theresa. Thanks for all of the detail. Can you talk a little bit about kind of the continued efforts to gain market share in the long rail business. And then, as more of a bond guy question, you are now at BB+ with a positive outlook, given that you're at 9.6 times interest coverage. Is there a chance you become accidentally investment-grade even though you've sort of stated that kind of mid-double B is your target range? And if the rating agencies stick you to sort of an investment-grade range, do you feel like you're not growing fast enough or anything like – I guess I am asking about, do you plan that will be aggressive enough on the acquisition front that investment-grade may not be something that's in the cards pretty soon? Theresa E. Wagler - Chief Financial Officer & Executive Vice President: I will let Mark take the rail question first. Mark D. Millett - President, Chief Executive Officer & Director: Okay. Well, I think we have targeted about 300,000 tons of rail for the mill. And it's not a question, really, of us searching for a lot more than that market share. We need to balance the mill between beam and rail products. We are, obviously, pushing the percentage of premium rail as much as we can, and that is being well, well received today. And in fact, I think we now – we had one railroad that just was the final one – which one was that?

Canadian National. Mark D. Millett - President, Chief Executive Officer & Director: Canadian National, yeah. Canadian National finally came and approved our product. So we are approved at all major Class 1 railroads today. We're going to fall short of the 300,000 tons, I do believe, this year. We are aiming for, I think 260,000-ish tons, 270,000-ish tons, because as you appreciate the Class 1 railroads have throttled back their CapEx spending pretty dramatically. But we're on target, I think, for 260,000-ish tons for the year. Theresa E. Wagler - Chief Financial Officer & Executive Vice President: And related to the second part of the question, Brett, we're very, very open and transparent with the agencies. And so, I think, S&P just came out and moved our position of liquidity from strong to exceptional, which I'm not sure what that means, it sounds good. So we're very open with them about our plans for growth, and that's both inorganic and organic. And so, I don't think we're accidently going to become IG. I think at some point, we will, just by the nature of our cash flow generation and the maturity at which we're gaining on the operational platform. But right now, we feel like we're really strongly positioned in that BB plus range. We've got access to all the different capital markets. We have great support from the investors. And so, for us, it gives us, I think, maximum optionality and flexibility when we're really in this growth-driven state today.

And acquisition plans not slowing down? Mark D. Millett - President, Chief Executive Officer & Director: Well, I think we – Brett, we continue to explore non-organic growth opportunities that will provide strong share return. And so, that continues.

Okay. Thanks very much, guys. Theresa E. Wagler - Chief Financial Officer & Executive Vice President: Thanks.

Our next question comes from line of Evan Kurtz with Morgan Stanley. Please, proceed with the questions. Evan L. Kurtz - Morgan Stanley & Co. LLC: Hey, good morning, Mark and Theresa. Mark D. Millett - President, Chief Executive Officer & Director: Good morning. Theresa E. Wagler - Chief Financial Officer & Executive Vice President: Good morning. Evan L. Kurtz - Morgan Stanley & Co. LLC: Maybe just a follow-up on that last one. So, I know you've talked in the past about looking for targets that would help you build the mills. But when you go and look for things like Vulcan, what are some of the parameters that you look for as far as profitability, EBITDA margins? What multiples are you kind of willing to pay to get that EBITDA, pre-synergy, post-synergy, just to kind of help us think about what M&A means for valuation, going forward? Mark D. Millett - President, Chief Executive Officer & Director: Well, I should say we're continuing to evaluate. And we'll evaluate not only inorganic, but I don't think one should forget the organic opportunities that we have. We have about 400,000 tons to 500,000 tons of hot mill excess at Structural Rail division at Columbus city. That will be a very, very effective use of CapEx for $200 million or so. You pick up some tremendous value, tremendous volume there. I'm also working at Roanoke to further utilize its mill and its cash capability. But on the M&A front, obviously, we're looking at opportunities that leverage our core strengths. We want sustainability of quality returns, returns that can appreciate our existing margins. Theresa E. Wagler - Chief Financial Officer & Executive Vice President: So Evan, from the perspective of valuation, obviously, we don't want to be too specific. But I think Vulcan is an example of something where we've been able because of the management team and different things sometimes to be able to elicit really great value. And so, Vulcan was about a five times multiple, which I think is extraordinary. I know it might seem like it's on the smaller side, but that's an example. If you remember going all the way back to Columbus, Columbus was actually less than a six multiple. So I think that kind of gives you a track record for how management feels about valuation. And regarding your question on EBITDA margins, we're really looking to drive that high, as high as we can. And so, we are – excuse me, so we would look toward being higher than our average EBITDA margins today but, more importantly, higher than what we've seen in the historical past so that through cycle we can maybe need some of the volatility. Evan L. Kurtz - Morgan Stanley & Co. LLC: Super-helpful. Thanks. And maybe just one quick follow-up, since I think most are doing that. On the engineered bar front, you mentioned the demand was a bit weak. Could you provide any color there on which end markets are driving there? And I assume it's energy. But we were to see a recovery in the Engineered Bar business. What sort of end markets should we be focused on? Mark D. Millett - President, Chief Executive Officer & Director: Well, engineered bar is quite a diversified mill, in all honesty. I'm probably going to get these specific percentages wrong. But energy has been around 15% – 20% in the past. So that, obviously, is very, very challenged. You've got about the same going into the automotive now, which remains strong. Off-road equipment, mining equipment, the Caterpillars, the John Deeres, those folks, probably 30% or so. So that has been kind of weak for sure. And I think the more recent downturn or softening there has been the Class A truck and trailer. First, the Class A trucks, earlier this year, turned down and then the trailer just the last couple of months, in all honesty. So the Eatons of the world are not necessarily buying as much as they did. Evan L. Kurtz - Morgan Stanley & Co. LLC: Great. Super-helpful, again. Appreciate it.

Our next question comes from the line of Timna Tanners with Bank of America. Please, proceed with your questions.

Hey, guys. Good morning. Mark D. Millett - President, Chief Executive Officer & Director: Good morning, Timna.

So I just have a couple. So, as you pointed out, things have softened a little bit. And I just wanted to take on how much that might be a seasonal phenomenon. And you mentioned that, historically, we've seen times where everybody sits on the sidelines and have to rush in because inventories get too low. But we've also seen historically, as you know, gaps between us and the rest of the world not get this wide. So I just wanted a little bit more color on what you're seeing relative to normal seasonality and why we might get to a squeeze rather than see the import responses time around? Thanks. Mark D. Millett - President, Chief Executive Officer & Director: Firstly, just to be clear, I think, from a market perspective, that, that remains somewhat stable, with the exception of the softening in the trailer industry. I would tell you that the markets are generally as they have been, and construction continues to incrementally grow. So it's not necessarily a structural underlying demand issue. So I don't call it softening per se. The order book, obviously, on the Structural side of the business. Anticipation of scrap pricing changes the mentality or the sentiment of the buyer there. They bought little bit ahead when April and May ticked up. And as I said earlier, we will see somewhat of an impact and, look, it's not massive going into the third quarter for the Long Product shipments. In sheet, there is really no softening at all, in the coated – coat (42:23). And I would say in hot band, there's a hesitancy. I don't think there's soft – underlying softness. Folks, they are just holding off to buy exactly what they need right now. They think the market is going to go down and it's, to be honest, anyone's guess. The import market arena, as I suggested, the kind of the activity, the enquiries, and the chatter has definitely picked up a little. Pricing is remaining quite resilient. And for $50 a ton, people aren't going to get overly, overly excited. You'll see some pickup probably in volume, but it's not going to get, I do believe, to the levels that created our past problems over 2015.

Okay. That's helpful. And then, just if you could remind us, as a follow-up, on your cash usage, if maybe Theresa could you give us any updated thoughts on priorities for use of cash. I mean, are there a lot of available additional value-added processors that fit your business model that may be attractive? Or do you think that you'd be more skewed toward higher dividend and buybacks at this time? Theresa E. Wagler - Chief Financial Officer & Executive Vice President: Mark D. Millett - President, Chief Executive Officer & Director: I would say that – again, just to repeat what I said earlier, we're just continuing to explore non-organic growth opportunities in the M&A field, with the focus, obviously, on providing strong shareholder return. Well, that's our primary focus right now. We obviously always evaluate other shareholder sort of value return mechanisms that you can get through sort of the capital structure, dividends or share buybacks.

Okay. Thanks.

Our next question comes from the line of Michael Gambardella with JPMorgan. Please proceed with your questions.

Yes. Good morning, Mark, and congratulations on the quarter. A question... Mark D. Millett - President, Chief Executive Officer & Director: Thank you, Michael.

Last quarter and the first quarter, you had indicated that you were selling a fair amount of hot rolled to the integrated producers. Did you continue that in the second quarter? Mark D. Millett - President, Chief Executive Officer & Director: I don't think I ever said that, Michael.

I thought in the Q&A, you did. Mark D. Millett - President, Chief Executive Officer & Director: I'm not so sure. I suggest that we sold – I'd have to re-read my transcript.

Did you sell hot rolled to the integrated producers in the second quarter? Mark D. Millett - President, Chief Executive Officer & Director: I think that it's probably a question that's going to go unanswered, Michael.

Okay. Then let me give you another question then. When you look at your sheet market, do you think about like what is the new normal in terms of the sheet market dynamics, when you basically eliminate China from the U.S. market with the tariffs that have been put in place on cold rolled and coated, and then the 90% tariffs that have been in place for 15 years now on hot rolled. You eliminate basically a producer that produces over half of the world's sheet products in the U.S. market. Can you kind of discuss what the kind of new normal is or implications on spreads or whatever you'd like to talk about in terms of evaluating the new market conditions? Mark D. Millett - President, Chief Executive Officer & Director: I'm not so sure, I or we are any smarter than anyone else. Obviously, the elimination of China has buoyed the market currently. I do think that the coated and cold rolled sheet spreads, which are at historical highs, will probably remain so as long as China has shut out. As long as the trade cases are in place to impede, they are not going to eliminate, but they will impede the import pricing. So I think those spreads are not just an aberration. I think they are going to be around for a while. Ultimately, longer term and when I say longer term, years out – over the years, I think some of that material will somehow look find its way back into the American market either through other converters or through manufactured goods. There is a good portion of imported steel in refrigerators and cars and other things. So, seriously, I'm not smart enough to know long term what the impact is. Obviously, we're in a commodity market. It's a supply and demand equation. You take supply out, it's going to benefit and bode well for the market environment and for pricing and for your profitability profile.

Okay. And just by the way, good luck with it. Hope you don't stress out too much about becoming investment grade. Theresa E. Wagler - Chief Financial Officer & Executive Vice President: We'll try not to, Mike.

Thank you. Our next question comes from the line of Jorge Beristain with Deutsche Bank. Please proceed with your questions.

Hey, guys. Congratulations on a strong quarter. Mark D. Millett - President, Chief Executive Officer & Director: Thank you.

I just wanted to ask maybe about how to think about your acquisitions, particularly the one that you just did with Vulcan, you mentioned that they were already a large consumer of your product and it would seem that you're kind of forward integrating into owning what used to be a client. Is that a way that we could think about some of your future M&A where you want to kind of go more downstream in terms of owning some of your potential current clients? Mark D. Millett - President, Chief Executive Officer & Director: Downstream is definitely a focus, yes. I think we're in a cyclical business and in times of sort of depressed or recessed markets, having pulled through volume or low – greater utilization of our mills, which are the capital intensive assets in our portfolio. New Millennium platform obviously has done that well in the past and will continue to do so in the future, and it would be nice for us to get good assets that support or pair our core competencies, but we're not going to go out on a limb and buy something we don't know. As Barry said, I think when we toured Vulcan last, there's absolutely nothing here that we don't know. And in fact, our incentive systems, our culture can – I do believe lower cost increase their productivity and efficiencies and obviously give them even better profitably profile. But bottom line, yes, we are looking – one of our focuses is to look downstream at high-margin, pull-through volume-type assets.

Okay. And my second question was just, how should we think about with the new paint line coming on in Q1 2017? You said that that cost was $100 million of CapEx. How should we think about the incremental EBIT or EBITDA bump that you would get from that kind of investment? Mark D. Millett - President, Chief Executive Officer & Director: I think just to calibrate, I guess, we would look at the payback with today's margins within 24 months.

Perfect. Thanks very much.

Our next questions come from the line of Phil Gibbs with KeyBanc. Please go ahead with your questions.

Hey, good morning. Mark D. Millett - President, Chief Executive Officer & Director: Good morning, Phil.

Hey, Theresa, just curious if you could remind us of the lag in flat roll pricing. I know you had given some clues as to the fact that the long products pricing was relatively flattish. So the hot rolled band price probably was up something less than $100 and we know the market is up clearly a lot more than that. Should we think about the difference between current market pricing and then maybe what was realized off the bottom as likely to be the type of pricing that you're going to be realizing in the third quarter? Theresa E. Wagler - Chief Financial Officer & Executive Vice President: So, Phil, first of all, over the Flat Roll Group, about 60% of the overall volume is spot. And so that trades as the spot market trades. If you think about the other 40%, most of that is tied to CRU in some form or fashion, and CRU already lags about four weeks, and our contracts lag another two months probably.

Up to two months. Theresa E. Wagler - Chief Financial Officer & Executive Vice President: Up to two months. So you're looking at potentially two months to a quarter worth of lag over that 40%.

Okay. So I think that still insinuates with your lead times on hot rolled or at least what they were a couple of months ago that you're still sort of catching up to where the market is now relative to where we were in the second quarter in terms of what you realized. Mark, if, let's say lead times, which have come in a little bit on hot rolled, persist for a little bit longer and let's say the service centers are able to take another 10% out of inventory, do you choose to do maintenance activity or do you choose to still run as aggressively as you did in the second quarter and try to maintain that share that you have? Mark D. Millett - President, Chief Executive Officer & Director: I think, Phil, as we've said in the past, it's a balance. You've got to be careful taking one's price down in search of an order and just get 500 tons and you find it takes the whole price of the market there, right? The second, I don't think there are lot of orders to be achieved. And I think the market will remain firm. Theresa E. Wagler - Chief Financial Officer & Executive Vice President: Well, I think, Phil, your question was around maintenance, and whether we're taking maintenance or not. And so related to that, I'd just remind you that we mentioned it that Columbus facility actually will be taking one of the galv lines down for a bit of time, because they want to put in – it's part of the paint line investment itself, and so that's probably going to impact some volume in the third quarter and we're kind of estimating that to be around a $5 million impact. Mark D. Millett - President, Chief Executive Officer & Director: Yeah. Columbus will have its maintenance shutdown in the third quarter as well.

Okay. Mark D. Millett - President, Chief Executive Officer & Director: (54:37) for Butler. Is that third quarter or November?

Right now we're leaning towards fourth quarter – more into the fourth quarter for the Butler outage.

Perfect. And Theresa, can you provide the mix on the flat roll side as you typically do? And then I'll hop off. Thanks so much. Theresa E. Wagler - Chief Financial Officer & Executive Vice President: Yeah. Sorry, Phil. I'm glad you did that. Second quarter flat roll shipments across the Flat Roll Group, hot rolled and P&O combined was 872,000 tons; cold rolled was 166,000 tons; and coated, which will include painted, galvanized and Galvalume, was 750,000 tons.

Thanks so much. Theresa E. Wagler - Chief Financial Officer & Executive Vice President: Thanks.

Thanks. Our next question comes from the line of Aldo Mazzaferro with Macquarie. Please proceed with your questions. Aldo Mazzaferro - Macquarie Capital (USA), Inc.: Hi. Thank you and good morning. I wonder if you could talk about scrap for a moment, Mark and Theresa. The market for scrap seems to be weakening a little bit maybe due to China slowing or the dollar or whatever it could be. I am just wondering in your network of scrap collection as well as processing, can you lower your intake prices at this time as fast as the scrap price declines without losing volume or how is that balance going these days? Russell B. Rinn - Executive Vice President of Metals Recycling; President and Chief Operating Officer of OmniSource Corporation: Hey, Aldo, this is Russ. Aldo Mazzaferro - Macquarie Capital (USA), Inc.: Hey, Russ. Russell B. Rinn - Executive Vice President of Metals Recycling; President and Chief Operating Officer of OmniSource Corporation: Thanks for the question. Again I think certainly we can lower the buy price, but it does impact the flows, particularly of obsoletes. I think as you look at the outlook and I think Mark's got it nailed spot on, I think we're soft sideways in the near-term future. The strength of the U.S. dollar has again slowed exports, but more importantly than that it's also encouraged some imports, because you get the cargoes out of Britain in particular that are much more affordable in today's dollar terms. So, that import/export balance there, I think, will continue to keep a lid on any major pricing moves, particularly on the upside. Aldo Mazzaferro - Macquarie Capital (USA), Inc.: Okay. Russell B. Rinn - Executive Vice President of Metals Recycling; President and Chief Operating Officer of OmniSource Corporation: Certainly, I think there will be a little bit of downward pressure, but again I think we're going to trade in a range probably for the rest of the year. If I look at it right now, I think we're going to be in a very narrow range for the rest of the year. Aldo Mazzaferro - Macquarie Capital (USA), Inc.: Right. And Russ, as the company looks to grow, they mentioned – you mentioned through acquisitions, maybe you're looking at downstream businesses. Would any of your scrap assets, maybe some shredders, be available for sale, do you think, at some point? Russell B. Rinn - Executive Vice President of Metals Recycling; President and Chief Operating Officer of OmniSource Corporation: Well, I think, Aldo, we look at everything that comes at us regardless whether it makes sense to us or not, but I think our intent is to be strategic particularly to make sure we're supporting the steel mills of our company. That's the key factor that we get as a group. So, again, we look at anything and everything whether it's buy, sell or repurpose. Aldo Mazzaferro - Macquarie Capital (USA), Inc.: Great. Thanks very much. Congratulations on the progress. Mark D. Millett - President, Chief Executive Officer & Director: Thank you.

Our next question comes from line of Alessandro Abate with Berenberg. Please proceed with your questions. Alessandro Abate - Joh. Berenberg, Gossler & Co. KG (United Kingdom): Mark and Theresa, good morning. It's Alessandro Abate from Berenberg. My question is related to your strategy for Columbus, specific to Mexico. And just going back to what you just said the target seems to be 500,000 tons to the automotive. Can you just give a little bit more color related to how much of these targets coming from Mexico and how much from the U.S. and whether there is an investment of $10 million (58:38) in the galvanizing line and Nucor or GEC can actually represent kind of potential threat to your target or your target is already taken in consideration the future development? Thank you. Mark D. Millett - President, Chief Executive Officer & Director: I don't think their expansions will threaten our plans, to be honest. Much of the automotive work we've got today is actually in the Southern U.S. So if you think we've got 180,000 tons this year and we got another 180,000 tons next year, we're quite well on our way again to our target even without Mexico. Obviously, Mexico is sort of boomtown for steel consumption, both on the appliance, HVAC, automotive side and there is no doubt that we will get some warning down there. A lot of our existing customers have facilities or building facilities or partnering with folks in Monterrey and the Mexican City arena. But currently, most of our output is within America. Alessandro Abate - Joh. Berenberg, Gossler & Co. KG (United Kingdom): And Mike, thanks for the answer, but is it possible to really give more color on the potential sales volume you might be getting from Mexico, let's say, in the next two years to three years? Mark D. Millett - President, Chief Executive Officer & Director: Barry?

Well, I believe in the painting products, we do see some growth opportunities in the Mexican markets through existing customers that we have relationships here in the United States. So we do see the painted products going down into their both appliance and construction-type products, as Mark mentioned, some of the automotive where we will envision down there as well as some general – just general service center-type applications, so I do think there is a reason to expect that we will be somewhere above 200,000 tons into that marketplace in the next couple of years, but we're not limiting what we do. We have very good freight access to the area and we have developed a Mexican strategy that will purpose all of our platforms together. Alessandro Abate - Joh. Berenberg, Gossler & Co. KG (United Kingdom): Thanks. Just a little follow-up. Out of these couple of hundred thousand tons of shipment, could you also give me a split between HVAC and automotive?

That would be very difficult at this point. Alessandro Abate - Joh. Berenberg, Gossler & Co. KG (United Kingdom): Okay. Thank you very much.

The next question comes from the line of Sean Wondrack with Deutsche Bank. Please go ahead with your questions.

Hi, good morning, Mark and Theresa. Mark D. Millett - President, Chief Executive Officer & Director: Good morning.

I think I have a question about again in terms of scrap pricing and it's more of a dynamic of domestic versus international. Can you talk a little bit about what you've been seeing in the market? Have you been seeing Turkey import scrap out of the U.S.? Have you been seeing the scrap come over from Turkey? How the flow has been and how is kind of the state of the market with respect to that? Russell B. Rinn - Executive Vice President of Metals Recycling; President and Chief Operating Officer of OmniSource Corporation: Sean, This is Russ. I think Turkey continues to be in and out of the market, as they balance off the billet cost or the slab cost against what it takes to get scrap. Again with the events in Turkey last weekend, I'm not sure what the Turks are going to be doing in the next – at least the next two weeks or three weeks. So I would anticipate that that's going to be – well, it's going to be a tough question to answer. The bulk of the scrap that has been imported in the U.S. today is generally of the higher grade scraps that is coming from Europe, again based on the strength of the U.S. dollar. So I think those are same – those are similar types of origins of scrap that the Turks have access to as well, so if it makes sense for the U.S., it more than likely makes sense for the Turks as well.

Great. And have you seen that – how has that trended this year? Have you seen that increase or decrease over time into the last couple of months? Russell B. Rinn - Executive Vice President of Metals Recycling; President and Chief Operating Officer of OmniSource Corporation: Sean, are you talking about imported scrap?

Yes, please. Russell B. Rinn - Executive Vice President of Metals Recycling; President and Chief Operating Officer of OmniSource Corporation: I think I read an article just a week or so ago, but the volumes in the south of – Southern U.S. and based on everything that I gathered out of that article, it looked to me like the amount of imports in the first half of 2016 are already more than the entire 2015 level of imports.

Okay. And then has a lot of that been – a lot of that hasn't been offset by exports, right, because the dollar has been strong. So nobody can buy our scrap?. Is that the right way to think about it? Russell B. Rinn - Executive Vice President of Metals Recycling; President and Chief Operating Officer of OmniSource Corporation: That's the ample supply of scrap in the United States.

Great. Russell B. Rinn - Executive Vice President of Metals Recycling; President and Chief Operating Officer of OmniSource Corporation: Via imports and via lack of exports.

Right. Hey, thank you very much, Russ. I appreciate it. Mark D. Millett - President, Chief Executive Officer & Director: Yeah. And I think it'd be our position that given the economic turmoil and the fact that the U.S. economy is strong that most of that dollar strength will remain for some time to come. And so, that will just continue to dampen the export market and encourage import.

Thank you.

Our next question comes from the line of Garrett Nelson with BB&T. Please proceed with your question. Garrett Scott Nelson - BB&T Capital Markets: Hi. Thanks. Most of my questions have been answered, but just wondering whether your full-year CapEx guidance has changed at all since the April call? Theresa E. Wagler - Chief Financial Officer & Executive Vice President: Yeah. The full-year guidance right now is $225 million, and obviously that's pretty much back loaded to the second half of the year. This really primarily relates to the expected payment stream to support the Columbus (01:04:50) paint line. Garrett Scott Nelson - BB&T Capital Markets: Great. Thanks a lot, Theresa.

Ladies and gentlemen, that concludes our question-and-answer session. I'd now like to turn the call back over to Mr. Millett for any closing remarks. Mark D. Millett - President, Chief Executive Officer & Director: Super, Brenda. Well, just quickly, thank you for your support. I think we are uniquely positioned for growth, and we'll take advantage of the opportunities that come our way. I was supported by a phenomenal group of employees and a phenomenal group of customers. So we are in a great shape. We are excited, so from Russ, from Barry, from Chris, from Glenn, and Theresa and I, thank you for your time today.

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