RADIUS RECYCLING, INC. This section includes a discussion of our operations for the three months ended
General
Founded in 1906,
We sell recycled ferrous and nonferrous metal in both foreign and domestic
markets. We also sell a range of finished steel long products produced at our
steel mill. We acquire, process, and recycle end-of-life (salvaged) vehicles,
rail cars, home appliances, industrial machinery, manufacturing scrap, and
construction and demolition scrap through our facilities. Our retail
self-service auto parts stores located across
We operate seven deepwater port locations, six of which are equipped with
large-scale shredders. Our deepwater port facilities on both the East and West
Coasts of the
Our results of operations depend in large part on the demand and prices for
recycled metal in foreign and domestic markets and on the supply of raw
materials, including end-of-life vehicles, available to be processed at our
facilities. Our results of operations also depend substantially on our operating
leverage from processing and selling higher volumes of recycled metal as well as
our ability to efficiently extract ferrous and nonferrous metals from the
shredding process. We respond to changes in selling prices for processed metal
by seeking to adjust purchase prices for unprocessed scrap metal in order to
manage the impact on our operating results. We believe we generally benefit from
sustained periods of stable or rising recycled metal selling prices, which allow
us to better maintain or increase both operating results and unprocessed scrap
metal flow into our facilities. When recycled metal selling prices decline,
either sharply or for a sustained period, our operating margins typically
compress. With respect to finished steel products produced at our steel mill,
our results of operations are impacted by demand and prices for these products,
which are sold to customers located primarily in the
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SCHNITZER STEEL INDUSTRIES, INC.
Our quarterly operating results fluctuate based on a variety of factors including, but not limited to, changes in market conditions for recycled ferrous and nonferrous metal and finished steel products, the supply of scrap metal in our domestic markets, varying demand for used auto parts from our self-service retail stores, the efficiency of our supply chain, and variations in production and other operating costs. Certain of these factors are influenced, to a degree, by the impact of seasonal changes including severe weather conditions, which can impact the timing of shipments and inhibit construction activity utilizing our products, scrap metal collection and production levels at our facilities, and retail admissions and parts sales at our auto parts stores. Further, sanctions, trade actions, and licensing, product quality, and inspection requirements can impact the level of profitability on sales of our products and, in certain cases, impede or restrict our ability to sell to certain export markets or require us to direct our sales to alternative market destinations, which can cause our quarterly operating results to fluctuate.
Steel
On
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SCHNITZER STEEL INDUSTRIES, INC.
Everett Facility Shredder Fire
On
Coronavirus Disease 2019 ("COVID-19")
We continue to monitor the impact of COVID-19 on all aspects of our business. Following the onset of COVID-19 and its negative effects on our business, most prominently reflected in our fiscal 2020 results, global economic conditions improved beginning in fiscal 2021 and continued to improve through most of fiscal 2022. However, there are ongoing global impacts resulting directly or indirectly from the pandemic including labor shortages, logistical challenges, and increases in costs for certain goods and services including due to the impact of inflation, which have negatively impacted our sales volumes, operating costs, and financial results to varying degrees. The ongoing effects of the COVID-19 pandemic could negatively impact our results of operations, cash flows, and financial position in the future.
Use of Non-GAAP Financial Measures
In this management's discussion and analysis, we use supplemental measures of our performance, liquidity, and capital structure which are derived from our consolidated financial information, but which are not presented in our consolidated financial statements prepared in accordance with GAAP. We believe that providing these non-GAAP financial measures adds a meaningful presentation of our operating and financial performance, liquidity, and capital structure. For example, we use adjusted EBITDA as one of the measures to compare and evaluate financial performance. Adjusted EBITDA is the sum of our net (loss) income before results from discontinued operations, interest expense, income taxes, depreciation and amortization, asset impairment charges, restructuring charges and other exit-related activities, charges for legacy environmental matters (net of recoveries), business development costs not related to ongoing operations including pre-acquisition expenses, and other items which are not related to underlying business operational performance.
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SCHNITZER STEEL INDUSTRIES, INC.
See the reconciliations of supplemental financial measures, including adjusted EBITDA, in Non-GAAP Financial Measures at the end of this Item 2.
Our non-GAAP financial measures should be considered in addition to, but not as a substitute for, the most directly comparable GAAP measures. Although we find these non-GAAP financial measures useful in evaluating the performance of our business, our reliance on these measures is limited because they often materially differ from our consolidated financial statements presented in accordance with GAAP. Therefore, we typically use these adjusted amounts in conjunction with our GAAP results to address these limitations. Our non-GAAP financial measures may not be comparable to similarly titled measures of other companies. Other companies, including companies in our industry, may calculate non-GAAP financial measures differently than we do, limiting the usefulness of those measures for comparative purposes.
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SCHNITZER STEEL INDUSTRIES, INC.
Financial Highlights of Results of Operations for the First Quarter of Fiscal 2023
•
Diluted loss per share from continuing operations attributable to SSI
shareholders in the first quarter of fiscal 2023 was
•
Adjusted diluted loss per share from continuing operations attributable to SSI
shareholders in the first quarter of fiscal 2023 was (
•
Net loss in the first quarter of fiscal 2023 was
•
Adjusted EBITDA in the first quarter of fiscal 2023 was
Market conditions for recycled metals were weaker in the first quarter of fiscal
2023 compared to the prior year quarter, leading to significantly lower average
net selling prices for our ferrous and nonferrous products and a significant
compression in metal spreads. In the first quarter of fiscal 2023, the average
net selling prices for our ferrous and nonferrous products decreased by 24% and
14%, respectively, and ferrous sales volumes decreased by 26%, compared to the
prior year quarter. The reduction in ferrous sales volumes was primarily due to
disruptions related to an extended shredder outage at our
Selling, general, and administrative ("SG&A") expense in the first quarter of fiscal 2023 increased by 16% compared to the prior year quarter primarily due to higher employee-related, professional services, and travel expenses, partially from higher costs resulting from our acquisitions and other growth-related initiatives, increased legacy environmental charges, and the impact of inflation.
The following items further highlight selected liquidity and capital structure metrics:
•
For the first three months of fiscal 2023, net cash used in operating activities
was
•
Debt was
•
Debt, net of cash, was
See the reconciliations of adjusted diluted earnings per share from continuing operations attributable to SSI shareholders, adjusted EBITDA, and debt, net of cash in Non-GAAP Financial Measures at the end of this Item 2.
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SCHNITZER STEEL INDUSTRIES, INC.
Results of Operations
Selected Financial Measures and Operating Statistics
Three Months Ended November 30,
($ in thousands, except for prices and
per share amounts) 2022 2021 %
Ferrous revenues $ 261,729 $ 465,856 (44 )%
Nonferrous revenues 177,675 194,429 (9 )%
Steel revenues(1) 124,515 103,238 21 %
Retail and other revenues 34,811 34,595 1 %
Total revenues 598,730 798,118 (25 )%
Cost of goods sold 550,011 683,244 (20 )%
Gross margin (total revenues less cost
of goods sold) $ 48,719 $ 114,874 (58 )%
Gross margin (%) 8.1 % 14.4 % (44 )%
Selling, general and administrative
expense $ 64,228 $ 55,267 16 %
Diluted (loss) earnings per share from
continuing operations attributable to
SSI shareholders:
Reported $ (0.64 ) $ 1.55 NM
Adjusted(2) $ (0.44 ) $ 1.58 NM
Net (loss) income $ (17,556 ) $ 47,276 NM
Adjusted EBITDA(2) $ 8,362 $ 78,086 (89 )%
Average ferrous recycled metal sales
prices ($/LT)(3):
Domestic $ 313 $ 431 (27 )%
Foreign $ 356 $ 450 (21 )%
Average $ 340 $ 446 (24 )%
Ferrous volumes (LT, in thousands):
Domestic(4) 432 430 (- )%
Foreign 418 718 (42 )%
Total ferrous volumes (LT, in
thousands)(4)(8) 851 1,148 (26 )%
Average nonferrous sales price
($/pound)(3)(5) $ 0.90 $ 1.05 (14 )%
Nonferrous volumes (pounds, in
thousands)(4)(5) 162,720 153,227 6 %
Finished steel average sales price
($/ST)(3) $ 1,015 $ 979 4 %
Finished steel sales volumes (ST, in
thousands) 118 99 19 %
Cars purchased (in thousands)(6) 69 80 (14 )%
Number of auto parts stores at period
end 51 50 2 %
Rolling mill utilization(7) 81 % 78 % 4 %
NM = Not Meaningful
LT = Long Ton, which is equivalent to 2,240 pounds. ST =
(1)
Steel revenues include predominantly sales of finished steel products, in addition to sales of semi-finished goods (billets) and steel manufacturing scrap.
(2)
See the reconciliations of Non-GAAP Financial Measures at the end of this Item 2.
(3)
Price information is shown after netting the cost of freight incurred to deliver the product to the customer.
(4)
Ferrous and nonferrous volumes sold externally and delivered to our steel mill for finished steel production.
(5)
Average sales price and volume information excludes PGMs in catalytic converters.
(6)
Cars purchased by auto parts stores only.
(7)
Rolling mill utilization is based on effective annual production capacity under current conditions of 580 thousand tons of finished steel products.
(8)
May not foot due to rounding.
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SCHNITZER STEEL INDUSTRIES, INC.
Revenues
Revenues in the first quarter of fiscal 2023 decreased by 25% compared to the
prior year quarter primarily due to significantly lower average net selling
prices for our ferrous and nonferrous products driven by weaker market
conditions for recycled metals globally. In the first quarter of fiscal 2023,
the average net selling prices for our ferrous and nonferrous products decreased
by 24% and 14%, respectively, compared to the prior year quarter. Ferrous sales
volumes in the first quarter of fiscal 2023 decreased by 26% compared to the
prior year quarter primarily due to extended operational disruptions at our
Operating Performance
Net loss in the first quarter of fiscal 2023 was
SG&A expense in the first quarter of fiscal 2023 increased by 16% compared to the prior year quarter primarily due to higher employee-related, professional services, and travel expenses, partially resulting from our acquisitions and other growth-related initiatives, increased legacy environmental charges, and the impact of inflation. These higher expenses in the first quarter of fiscal 2023 were partially offset by benefits from productivity and cost reduction initiatives when compared to the prior year quarter.
In
See the reconciliation of adjusted EBITDA in Non-GAAP Financial Measures at the end of this Item 2.
Income Tax
The effective tax rate from continuing operations for the first quarter of
fiscal 2023 was a benefit on pre-tax loss of 25.6% compared to an expense on
pre-tax income of 19.0% for the comparable prior year quarter. Our effective tax
rate from continuing operations for the first quarter of fiscal 2023 was higher
than the
Liquidity and Capital Resources
We rely on cash provided by operating activities as a primary source of liquidity, supplemented by current cash on hand and borrowings under our existing credit facilities.
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SCHNITZER STEEL INDUSTRIES, INC.
Sources and Uses of Cash
We had cash balances of
Operating Activities
Net cash used in operating activities in the first three months of fiscal 2023
was
Uses of cash in the first three months of fiscal 2023 included a
Uses of cash in the first three months of fiscal 2022 included a
Investing Activities
Net cash used in investing activities was
Cash used in investing activities in the first three months of fiscal 2023
included
Cash used in investing activities in the first three months of fiscal 2022
included
Financing Activities
Net cash provided by financing activities in the first three months of fiscal
2023 was
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SCHNITZER STEEL INDUSTRIES, INC.
Cash flows from financing activities in the first three months of fiscal 2023
included
Debt
Our senior secured revolving credit facilities, which provide for revolving
loans of
Under the credit agreement, we may establish one or more key performance indicators ("KPIs") to measure our performance with respect to certain of our environmental, social and governance targets. Subject to the terms and conditions of the credit agreement, we may propose to amend the credit agreement to modify (i) the pricing spread and (ii) the commitment fee rate. Such modifications would be tied to our performance against the KPIs and would allow for (i) the pricing spread to be increased or decreased by no more than (a) 0.025% per KPI and (b) 0.05% for all KPIs, and (ii) the commitment fee rate to be increased or decreased by no more than 0.005% for all KPIs. Such adjustments would be determined on an annual basis and would not be cumulative.
We had borrowings outstanding under our credit facilities of
We use the credit facilities to fund working capital, capital expenditures, dividends, share repurchases, investments, and acquisitions. Our credit agreement contains various representations and warranties, events of default, and financial and other customary covenants which limit (subject to certain exceptions) our ability to, among other things, incur or suffer to exist certain liens, make investments, incur or guaranty additional indebtedness, enter into consolidations, mergers, acquisitions, and sales of assets, make distributions and other restricted payments, change the nature of our business, engage in transactions with affiliates, and enter into restrictive agreements, including agreements that restrict the ability of our subsidiaries to make distributions. The financial covenants under the credit agreement include (a) a consolidated fixed charge coverage ratio, defined as the four-quarter rolling sum of consolidated EBITDA less defined maintenance capital expenditures and certain environmental expenditures divided by consolidated fixed charges, and (b) a consolidated leverage ratio, defined as consolidated funded indebtedness divided by the sum of consolidated net worth and consolidated funded indebtedness.
As of
Our obligations under our credit agreement are guaranteed by substantially all of our subsidiaries. The credit facilities and the related guarantees are secured by senior first priority liens on certain of our and our subsidiaries' assets, including equipment, inventory, and accounts receivable.
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SCHNITZER STEEL INDUSTRIES, INC.
While we currently expect to remain in compliance with the financial covenants under the credit agreement, we may not be able to do so in the event market conditions, COVID-19, or other negative factors have a significant adverse impact on our results of operations and financial position. If we do not maintain compliance with our financial covenants and are unable to obtain an amendment or waiver from our lenders, a breach of a financial covenant would constitute an event of default and allow the lenders to exercise remedies under the agreements, the most severe of which is the termination of the credit facility under our committed bank credit agreement and acceleration of the amounts owed under the agreement. In such case, we would be required to evaluate available alternatives and take appropriate steps to obtain alternative funds. We cannot assure that any such alternative funds, if sought, could be obtained or, if obtained, would be adequate or on acceptable terms.
Other debt obligations, which totaled
Capital Expenditures
Capital expenditures totaled
Environmental Compliance
Building on our commitment to recycling and operating our business in an
environmentally responsible manner, we continue to invest in facilities that
improve our environmental presence in the communities in which we operate. As
part of our capital expenditures discussed in the prior paragraph, we invested
approximately
We have been identified by the
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SCHNITZER STEEL INDUSTRIES, INC.
Dividends
On
Share Repurchase Program
As of
Assessment of Liquidity and Capital Resources
Historically, our available cash resources, internally generated funds, credit facilities, and equity offerings have financed our acquisitions, capital expenditures, working capital, and other financing needs.
We generally believe our current cash resources, internally generated funds, existing credit facilities, and access to the capital markets will provide adequate short-term and long-term liquidity needs for working capital, capital expenditures, dividends, share repurchases, investments and acquisitions, joint ventures, debt service requirements, environmental obligations, and other contingencies. However, in the event of a sustained market deterioration, we may need additional liquidity which would require us to evaluate available alternatives and take appropriate steps to obtain sufficient additional funds. There can be no assurances that any such supplemental funding, if sought, could be obtained or, if obtained, would be adequate or on acceptable terms.
Contractual Obligations
There were no material changes related to contractual obligations and
commitments from the information provided in our Annual Report on Form 10-K for
the fiscal year ended
We maintain stand-by letters of credit to provide support for certain
obligations, including workers' compensation and performance bonds. As of
Critical Accounting Estimates
There were no material changes to our critical accounting estimates as described
in the "Management's Discussion and Analysis of Financial Condition and Results
of Operations" section of our Annual Report on Form 10-K for the year ended
Recently Issued Accounting Standards
We have not identified any recent accounting pronouncements that are expected to have a material impact on our financial condition, results of operations, or cash flows upon adoption.
Non-GAAP Financial Measures Debt, net of cash
Debt, net of cash is the difference between (i) the sum of long-term debt and short-term borrowings (i.e., total debt) and (ii) cash and cash equivalents. We believe that presenting debt, net of cash is useful to investors as a measure of our leverage, as cash and cash equivalents can be used, among other things, to repay indebtedness.
The following is a reconciliation of debt, net of cash (in thousands):
November 30, 2022 August 31, 2022
Short-term borrowings $ 6,379 $ 6,041
Long-term debt, net of current maturities 351,200 242,521
Total debt 357,579 248,562
Less cash and cash equivalents 3,539 43,803
Total debt, net of cash $ 354,040 $ 204,759
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SCHNITZER STEEL INDUSTRIES, INC.
Net borrowings (repayments) of debt
Net borrowings (repayments) of debt is the sum of borrowings from long-term debt and repayments of long-term debt. We present this amount as the net change in our borrowings (repayments) for the period because we believe it is useful for investors as a meaningful presentation of the change in debt.
The following is a reconciliation of net borrowings (repayments) of debt (in thousands):
Three Months Ended November 30,
2022 2021
Borrowings from long-term debt
(78,781 ) (86,314 )
Net borrowings (repayments) of debt
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SCHNITZER STEEL INDUSTRIES, INC.
Adjusted EBITDA, adjusted selling, general, and administrative expense, adjusted (loss) income from continuing operations attributable to SSI shareholders, and adjusted diluted (loss) earnings per share from continuing operations attributable to SSI shareholders
Management believes that providing these non-GAAP financial measures adds a meaningful presentation of our results from business operations excluding adjustments for asset impairment charges, restructuring charges and other exit-related activities, charges for legacy environmental matters (net of recoveries), business development costs not related to ongoing operations including pre-acquisition expenses, and the income tax benefit allocated to these adjustments, items which are not related to underlying business operational performance, and improves the period-to-period comparability of our results from business operations.
Following are reconciliations of net (loss) income to adjusted EBITDA and adjusted selling, general, and administrative expense (in thousands):
Three Months Ended November 30,
2022 2021
Reconciliation of adjusted EBITDA:
Net (loss) income $ (17,556 ) $ 47,276
Loss from discontinued operations, net of tax 69 29
Interest expense 3,324 1,372
Income tax (benefit) expense (6,032 ) 11,097
Depreciation and amortization 21,451 17,220
Asset impairment charges(1) 4,000 -
Restructuring charges and other exit-related activities 1,592 22
Charges for legacy environmental matters, net(2) 1,279 456
Business development costs 235 614
Adjusted EBITDA $ 8,362 $ 78,086
Selling, general and administrative expense:
As reported $ 64,228 $ 55,267
Charges for legacy environmental matters, net(2) (1,279 ) (456 )
Business development costs (235 ) (614 )
Adjusted $ 62,714 $ 54,197
(1)
For the first quarter of fiscal 2023, asset impairment charges included
(2)
Legal and environmental charges, net of recoveries, for legacy environmental
matters including those related to the Portland Harbor Superfund site and to
other legacy environmental loss contingencies. See Note 5 - Commitments and
Contingencies, "
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SCHNITZER STEEL INDUSTRIES, INC.
Following are reconciliations of adjusted net (loss) income from continuing operations attributable to SSI shareholders and adjusted diluted (loss) earnings per share from continuing operations attributable to SSI shareholders (in thousands, except per share data):
Three Months Ended November 30,
2022 2021
(Loss) income from continuing operations
attributable to SSI shareholders:
As reported $ (17,719 ) $ 46,228
Asset impairment charges(1) 4,000 -
Restructuring charges and other exit-related
activities 1,592 22
Charges for legacy environmental matters, net(2) 1,279 456
Business development costs 235 614
Income tax benefit allocated to adjustments(3) (1,714 ) (249 )
Adjusted $ (12,327 ) $ 47,071
Diluted (loss) earnings per share from continuing
operations attributable to SSI shareholders:
As reported $ (0.64 ) $ 1.55
Asset impairment charges, per share(1) 0.14 -
Restructuring charges and other exit-related
activities, per share 0.06 -
Charges for legacy environmental matters, net, per share(2)
0.05 0.02
Business development costs, per share 0.01 0.02
Income tax benefit allocated to adjustments, per
share(3) (0.06 ) (0.01 )
Adjusted $ (0.44 ) $ 1.58
(1)
For the first quarter of fiscal 2023, asset impairment charges included
(2)
Legal and environmental charges, net of recoveries, for legacy environmental
matters including those related to the Portland Harbor Superfund site and to
other legacy environmental loss contingencies. See Note 5 - Commitments and
Contingencies, "
(3)
Income tax allocated to the aggregate adjustments reconciling reported and adjusted (loss) income from continuing operations attributable to SSI shareholders and diluted (loss) earnings per share from continuing operations attributable to SSI shareholders is determined based on a tax provision calculated with and without the adjustments.
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