Cytosorbents Q4 2023 Earnings Call Transcript

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February 22, 2024

There are 7 speakers on the call.

Operator

Morning. Thank you for joining Ryerson Holding Corporation's 4th quarter and full year 2023 earnings call. On our call, we have Eddie Lehner, Ryerson's President and Chief Executive Officer Mike Burbach, our Chief Operating Officer Jim Clausen, our Chief Financial Officer and Molly Cannon, our Chief Accounting Officer and Corporate Controller. John Orth, our Executive Vice President of Operations Mike Hamilton, our Vice President of Corporate Supply Chain and Jorge Berestain, our Vice President of Finance, will be joining us for Q and A. Certain comments on this call will contain forward looking statements within the meaning of the federal securities laws.

Operator

These statements involve a number of risks and uncertainties that could cause actual results to differ materially from those implied by the forward looking statements. These risks include, but are not limited to, those set forth under Risk Factors in our annual report on Form 10 ks for the year ended December 31, 2023, and in other filings with the Securities and Exchange Commission. You are cautioned not to place undue reliance on these forward looking statements, which speak only as of the date they are made and not guarantees of future performance. In addition, our remarks today refer to several non GAAP financial measures that are intended to supplement, but not substitute for, the most directly comparable GAAP measures. A reconciliation of non GAAP measures to the most directly comparable GAAP financial measures is provided in our earnings release filed on Form 8 ks yesterday and also available on the Investor Relations section of our website.

Operator

I'll now turn the call over to Eddie.

Speaker 1

Thank you, Pradim, and thank you all for joining this morning. As we reflect on the Q4 and full year of 2023 results, I want to start by recognizing our 4,600 strong Ryerson team for prioritizing a safe and productive operating environment for our over 110 facilities across North America and China. Through the Q4 and full year, our service center network became stronger, denser and more robust as planned. Since 2021, Ryerson has embarked on its largest investment and shareholder return cycle in more than a generation and is an important marker in our 182 year history. As much as I wish we could microwave it, we are timing our investments to the next industry upturn while managing the business intelligently.

Speaker 1

2023 in Q4 did not favor Ryerson's end markets as automotive, aerospace and non residential outperformed consumer, general industrial and machinery and equipment metal consuming end markets. Commodity bellwether averages for carbon, aluminum and stainless all declined year over year. And while Ryerson grew market share in aluminum and stainless, the margin compression for stainless in particular was severe and unrelenting. We expect current countercyclical conditions for non ferrous industrial metals consumption to be transient as we're well into a non ferrous bottoming and we maintain a strong conviction around positive longer term secular demand trends for aluminum and stainless and industrial metals writ large. When looking at Ryerson through a year over year prism, I want to note that same store expenses and headcount are both lower when comparing year over year benchmarks and same store headcount is still 8% below pre pandemic levels.

Speaker 1

Additionally, we increased book value per share to its highest level since Ryerson's IPO in 2014, increased the dividend, continued prudent share buybacks, generated strong free cash flow and free cash flow yields, grew PP and E by 20 percent, started up the Centralia, Washington Service Center facility and finished construction at University Park, Illinois with construction and equipment installation expected to be completed in Shelbyville, Kentucky by the end of 2024, while converting 17 of our service centers to SAP for ERP consistency throughout our general line service center business. Now this is not the entire list, but a point of emphasis that there is no growth of any meaning or magnitude without some growing pains. We've been doing the hard but necessary things to create a better operating model centered on value add and speed to market to generate higher through the cycle earnings with less volatility when our investments fully phase in and begin generating operating cash flow. Despite the noted countercyclical conditions that pervaded Q4 and 2023 overall, I want to share several proof points. We welcomed 3 exceptional value added businesses into our family of companies during the Q4.

Speaker 1

Norlin Incorporated, which we introduced on our last call is joined by TSA Processing and Hudson Tool Steel Corporation. TSA headquartered in Houston has been providing excellent toll processing capabilities for over 30 years and operates across the Midwest and Southern States. Hudson Tool Steel headquartered in Cerritos, California has been supplying high quality and specialty grade carbon and alloy tool steels for 20 years and has operations on the East Coast as well as the Midwest. The addition of Hudson allows Ryerson to create a tool steel center of excellence by combining the skill sets of Hudson with 4 Tool Steel and Southern Tool Steel Throughout 2023, both organically and through acquisitions, Ryerson increased its value added percentage of sales from 14% to 18% year over year, helping mitigate the harsh margin compression noted in stainless in Q4 and for the whole of 2023. Counter cycles are never enjoyable, particularly when undertaking significant operating model investments over a multiyear investment period.

Speaker 1

Keeping to the bigger picture with clarity and focus, we're skating to where the puck is going and then we plan on parking it in the net as we transition back to an industrial metals upturn whose precise timing we all know, but when it comes we'll be ready to make the most of it to the benefit of Ryerson stakeholders. With that, I'll now turn the call over to our Chief Operating Officer, Mike Burbach to further discuss the pricing and demand environment.

Speaker 2

Thank you, Eddie, and good morning, everyone. Overall, Ryerson's 4th quarter revenue of $1,100,000,000 came in line with our guidance expectations with an average sell price of $2,472 per ton and sales volume of 450,000 tons. Average sell price per ton was down 5.2 percent quarter over quarter at $2,472 per ton, which was slightly below the lower range of our guidance expectations, primarily due to weaker than expected conditions in stainless consuming end markets. The index for domestic hot rolled coil prices increased approximately 40% over the quarter in response to mills increasing prices 5 times from late September to late November. While we realized increases in spot pricing as the quarter progressed, our average sale price was lower quarter over quarter due to the lagged pricing impact from our contractual customers.

Speaker 2

Our Bright Metals franchise was affected by continued declining alumine nickel and alumine aluminum prices during the Q4 due to continued global oversupply. Turning to the demand environment, broadly speaking, seasonal demand slowdowns impacted activity overall in the 4th quarter as reflected by weak PMIs and a deceleration in industrial production. Ryerson sales volumes of 450,000 tons were 5.9% lower quarter over quarter and within our guidance expectations. MSCI shipments increased 1.5%, while Ryerson shipments decreased by 4.8%. The difference in Ryerson's year over year volumes compared to the overall industry can partially be attributed by our end markets in product mix.

Speaker 2

As we don't sell heavily into the automotive, aerospace or non residential construction end markets, which were industries with strong growth over 2023. Our Bright Metals franchise outperformed the MSCI but was eclipsed by underperformance in heavier weighted carbon flat rolled products primarily weighted toward the consumer. Despite the decrease in overall tons, we saw full year shipment increases in our commercial ground transportation and oil and gas end markets, following the strength of Class 8 truck orders and rig counts.

Operator

Finally, I would like

Speaker 2

to note that we are continuously working to provide our customers with ever better experiences through our products, network and services, while investing to meet customers' increasing needs from emergent trends through our modernized facilities and increased capabilities. In that regard, Norland, PSA and Hudson are great additions to our service offerings. As we close out the year, our value add percent of sales has increased to 18%, growing from approximately 14% a year ago. And we reiterate our target of at least 20%. And with that, I'll turn the call over to Jim for Q4 financial highlights as well as our Q4 2024 outlook.

Speaker 3

Thank you, Mike, and good morning, everyone. During the Q4, we exceeded our guidance on earnings per share, generated positive cash flow, maintained our net leverage ratio within range and returned cash to shareholders through dividends and share repurchases while continuing to execute our organic and acquisition growth investments. Before discussing guidance for the Q1, I would like to highlight the drivers for our 4th quarter performance compared to our guidance expectations. In the quarter, we generated $26,000,000 of adjusted EBITDA excluding LIFO. This came in just below the low end of our guidance range of $28,000,000 to $32,000,000 and was driven by pricing and margin pressure most acutely in our stainless steel franchise, which represents approximately 25 percent of our revenue.

Speaker 3

Meanwhile, our earnings per share of $0.74 was notably higher than our guidance range of $0.18 to $0.22 per share. The beat on earnings per share was driven largely by the LIFO income recognized over the quarter, which was driven by continued falling costs through the quarter and was representative of the continued price declines realized in our Bright Metals franchise. Looking to the Q1 of 2024, we expect volumes to be up sequentially compared to the 4th quarter in line with normal seasonality and up 8% to 10%. As such, we expect 1st quarter revenues to be in the range of $1,210,000,000 to $1,250,000,000 with average selling price up 1% to 3%. Based on these expectations, we forecast adjusted EBITDA for the Q1 of 2024, excluding LIFO in the range of $58,000,000 to $62,000,000 and earnings in the range of $0.24 to $0.34 per diluted share.

Speaker 3

We expect the impact of LIFO to be relatively neutral in the Q1. In the Q4, we generated $90,000,000 of cash flow from our operations, which included $15,000,000 released from lower working capital requirements. We ended the period with $436,000,000 of total debt $382,000,000 of net debt. Ryerson's net leverage ratio ended the year at 1.7 times and remains within our leverage target range of 0.5 times to 2.0 times, while the company's available global liquidity remains healthy $656,000,000 For the full year, we generated $365,000,000 of operating cash. In the Q4, we invested $25,000,000 on capital expenditures, which included new equipment at our service center at University Park, Illinois, as well as automation and expansion at our Shelbyville, Kentucky facility.

Speaker 3

Our full year capital expenditures of $122,000,000 also included an expansion of our Atlanta facility, investment in a new facility in Las Vegas, Nevada, automation at our Portage Indiana Laser and Fabrication Center, a state of the art cut to length line in Dallas and the rollout of SAP in our South region for ERP uniformity across our general line service center business. As we look forward to internal growth strategic initiatives in 20 24, we anticipate full year capital expenditures includes completion of our state of the art facility in University Park, Illinois and the expansion of our facility in Shelbyville, Kentucky. The investments we are making are expected to drive better customer experiences, enhance long term potential of our equipment, improve asset utilization, increase productivity and provide a safer operating environment for our employees. We are very excited about the modernization efforts taking place across our network and the better customer experiences they will provide to our customer base. Turning to shareholder returns, Ryerson returned $12,600,000 in the quarter, which was comprised of $6,300,000 in dividends and $6,300,000 in share repurchases.

Speaker 3

We paid a quarterly dividend of $0.185 per share and have announced a 1st quarter cash dividend of $0.1875 per share, our 10th consecutive raise. As for share repurchases, after repurchasing just under 220,000 shares for approximately $6,000,000 in the open market during the quarter, we currently have approximately $39,000,000 remaining on our $100,000,000 authorization, which expires in April of 2025. On a full year basis, Ryerson returned approximately $139,000,000 to shareholders, which comprises of $114,000,000 for 3,300,000 shares repurchased and 0 point 7 $7.2 of dividends declared per share. During the year, due to secondary share sales by Platinum Equity, our free floating shares increased from 57 percent to 88.5 percent. As we look forward to 20 24 and beyond, we will continue to prudently evaluate With that, I'll turn the call over to Mollie to provide further detail on our Q4 and full year financial results.

Speaker 4

Thank you, Jim, and good morning, everyone. In the Q4 of 2023, Ryerson reported net sales of $1,100,000,000 which was 11% lower sequentially driven by roughly an equal split of lower period, gross margin of 22.2 percent was an expansion of 220 basis points versus previous quarter. Excluding LIFO, gross margin fell 40 basis points from the 3rd quarter to 16.9% as average selling price for our sales mix decreased faster than cost of goods sold. On the expense side, warehousing delivery, selling, general and administrative expenses increased 6% sequentially to $204,000,000 driven primarily by higher depreciation expense, higher expenses related to recent acquisitions and higher reorganization expenses related to ERP systems conversions and startup costs associated with the University Park service center. These increased expenses were partially offset by lower personnel expenses, lower delivery expenses and lower fixed and variable operating expenses.

Speaker 4

For the Q4 of 2023, net income attributable to Ryerson was $25,800,000 or $0.74 per diluted share compared to net income attributable to Ryerson of $35,000,000 and diluted earnings per share of $1 in the prior quarter. For the full year, net income attributable to Ryerson was $145,700,000 or $4.10 per diluted share. Finally, Ryerson achieved adjusted EBITDA excluding LIFO of $25,900,000 in the Q4 of 2023, which compares to $45,000,000 in the prior quarter. Free cash flow generation was $65,100,000 in the 4th quarter and compares to $56,900,000 in the prior quarter period. For the full year 2023, Ryerson has generated $231,000,000 in adjusted EBITDA excluding LIFO and $244,000,000 in free cash flow.

Speaker 4

And with this, I'll turn the call back to Eddie.

Speaker 1

Thank you, Molly. Overall, in the Q4 of 2023 and when reflecting on all of 2023, Ryerson navigated through headwinds of mixed pricing and slow demand, which were characterized by a continuation of decreasing bright metals commodities prices driven by global oversupply as well as a holiday related slowdown in industrial and consumer purchasing activity. Despite the challenges of navigating through a contractionary manufacturing environment, our business generated cash from our operating model as well as our balance sheet invested in the growth of our network through new and enhanced service centers, acquisitions and technological integrations to build out our next generation operating model and prudently deliver returns to shareholders. As we look at the full year 2023, it's evident that we faced a terrain change in the market landscape from 2022 with both consumer and industrial manufacturing related end markets experiencing demand slowdowns combined with corresponding challenges in metals commodities pricing related to global and domestic supply and demand imbalances. While Ryerson navigated the headwinds of this market cycle, we've remained resolute in continuing to invest in the modernization, expansion and integration of our service center network, which serves as the engine of growth in our operating model.

Speaker 1

2023 marked the 2nd year of our most significant investment cycle in more than a generation. Our investments in modernized facilities, increased value added services and ERP network integration are aligned with our long term vision for Ryerson with the goal of adding value to our customers through greater levels of service, speed and efficiency and providing the industry's best customer experience. As we look ahead to the Q1 and the rest of 2024 and over the rainbow, we firmly believe that our services as a trusted partner to our customers provides a greater good as recyclable industrial metals are the gifts that keep giving and which support and enable emergent trends of near shoring technological advancement and sustainability. Even more importantly, investment in industrial metals and manufacturing continues to show its undisputed magic in generating higher quality of life and well-being for humankind when we're smart enough to invest what is required. The investments Ryerson is making throughout our network of intelligently connected industrial metal service centers is to deliver those great customer experiences with joy, speed, scale, value added consistency to position Ryerson and its stakeholders well for an enduring and valuable future.

Speaker 1

With that, we look forward to your questions. Operator? Hello?

Speaker 5

Yes. We'll take our first question from Srinath Kastavan with KeyBanc Capital Markets. Your line is open. Please go ahead. And sir, your line is open.

Speaker 5

You may want to check your mute button. And at this time, I don't have any questions holding. Mr. Lehner, I'll turn the conference back to you for any additional remarks.

Speaker 1

Thank you. We appreciate your continued support of an interest in Ryerson. Stay safe, be well and I hope you're not interested in this call. Wait, wait, we've got a late arrival.

Speaker 5

And we do have a question. Srinivas Sravan with KeyBanc Capital Markets. Your line is open, sir. Please go ahead.

Speaker 6

Yes. Am I audible now?

Speaker 5

Yes, sir. You are. Yes.

Speaker 6

Sorry about that. I just wanted to ask about the $20,000,000 of adjustments that you have for 1Q 'twenty four guidance. Could you elaborate on

Speaker 1

that? On the adjustments? Yes.

Speaker 6

Do you have any non cash items or

Speaker 1

Yes. We expect to continue to have pre operating and start up costs as we bring up University Park and as we continue the construction and modernization of Shelbyville, Kentucky and also as we continue to really come back from the ERP conversions in the Q4 of 2023, particularly across our largest business unit. So we'll have some adjustments in the Q1, but all in good cause and for good effect.

Speaker 6

And do you expect this to continue for the next few quarters?

Speaker 1

Well, I think as University Park starts up in the second quarter and operationalizes and really comes into its full operational curve that we expect those adjustments to come down at University Park. They'll probably peak in Shelbyville, Kentucky in the second and Q3 of this year and we expect to be able to move through any of the remaining residuals or remnants of the SAP ERP conversion in the second half of twenty twenty three that will start to tail out in 2024.

Speaker 6

Got it. Thanks.

Speaker 3

Thank you.

Speaker 5

All right. And there are no other questions holding at this time.

Speaker 3

All right. Thank you.

Speaker 5

And Mr. Lehner, did you have any additional remarks?

Speaker 1

I do not.

Speaker 5

All right. Ladies and gentlemen, that will conclude today's program. We thank you for your participation. You may disconnect your phone line at this time.

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Earnings Conference Call
Cytosorbents Q4 2023
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