Schnitzer Reports Fourth Quarter and Fiscal 2022 Financial Results

Second Best Fiscal Year Earnings in Company's History

Strong Operating Cash Flow of $180 Million in the Fourth Quarter

Schnitzer Steel Industries, Inc. (NASDAQ: SCHN) today reported financial results for the fourth quarter and fiscal year ended August 31, 2022.

Fourth Quarter and Fiscal 2022 Highlights

• Diluted earnings per share from continuing operations of $0.36 in the fourth quarter. Diluted earnings per share from continuing operations of $5.72 in fiscal 2022.
• Adjusted diluted earnings per share from continuing operations in the fourth quarter of $0.50, which excludes charges of $4 million, or $0.14 per share, related primarily to legacy environmental matters. Adjusted diluted earnings per share from continuing operations of $6.07 in fiscal 2022, which excludes charges of $10 million, or $0.34 per share, related primarily to legacy environmental matters.
• Net income of $11 million in the fourth quarter. Net income of $172 million in fiscal 2022.
• Adjusted EBITDA of $40 million in the fourth quarter. Adjusted EBITDA of $313 million in fiscal 2022.
• Strong operating cash flow of $180 million in the fourth quarter and $238 million in fiscal 2022. Total debt of $249 million at the end of the fourth quarter and debt, net of cash, of $205 million.
• The Company repurchased approximately 1.8% of the outstanding shares of its Class A common stock during the quarter. Share repurchases in fiscal 2022 totaled approximately 3.5% of outstanding shares.

Fiscal 2022 results were the second-best year in the Company's history, driven by a combination of high demand for finished steel and recycled metals, increased ferrous and nonferrous sales volumes, two acquisitions, and benefits from productivity initiatives. After delivering record performance in the first nine months of fiscal 2022, fourth quarter performance was adversely impacted by declining ferrous and nonferrous sales prices and demand, tighter supply flows, and disruptions due to an extended metal shredder outage at the Company's Everett, MA recycling facility, offset in part by the benefits of strong prices for the Company's finished steel products.

Tamara Lundgren, Chairman and Chief Executive Officer, stated, “I am proud of what our team has accomplished during a year of significant volatility. Our results in fiscal 2022 were the second best in the Company's history. We stayed focused on our sustainability framework of People, Planet and Profit, and made significant progress on our strategic initiatives. These include our investments in advanced metal recovery technology systems, launching GRN Steel™, our line of net zero carbon emissions products, and two acquisitions in the Southeast, including our first metal shredding operation in the region. We also delivered our strongest annual operating cash flow since fiscal 2012 and continued to return capital to shareholders through our quarterly dividend and share repurchases."

Ms. Lundgren continued, "Despite current headwinds, we expect the long-term structural trends for recycled metal demand to remain positive, supported by the transition to low carbon technologies, the increased focus on decarbonization, and the expected funding related to the Infrastructure Investment and Jobs Act and the Inflation Reduction Act, including Buy Clean provisions.”

Fourth Quarter Fiscal 2022 Financial Review and Analysis

Net income of $11 million and adjusted EBITDA of $40 million in the fourth quarter reflected a sharp sequential decline in selling prices for recycled metals due to lower demand and the weaker economic environment. This led to both a compression in metal spreads and an approximate $23 per ferrous ton adverse impact from average inventory accounting. In the lower price environment, supply flows also tightened. Lower SG&A expense, primarily as a result of lower incentive compensation accruals, and productivity initiatives helped to partially offset inflationary pressure on operating costs, rising regulatory compliance costs, and the impact of the aforementioned Everett shredding operation outage since late June to replace equipment damaged by the December 2021 fire, net of insurance recoveries.

Ferrous sales volumes were up 12% sequentially, primarily resulting from shipments delayed from the third quarter. Compared to the previous quarter, nonferrous sales volumes were down 8%. Ferrous and nonferrous sales volumes were impacted by tighter supply flows resulting from the drop in prices and the extended shredding operation outage at the Company's Everett facility. Average ferrous and nonferrous net selling prices decreased sequentially by 28% and 7%, respectively. Average net selling prices for finished steel products were down 1% sequentially, remaining near the all-time high achieved in the prior quarter, and finished steel sales volumes were down 7%. The mill achieved an average utilization rate of 93%.

The Company generated operating cash flow in the fourth quarter of $180 million, driven by benefits from working capital. Capital expenditures were $52 million in the quarter, including investments in advanced metal recovery technologies, maintaining the business, and environmental projects. Total debt at the end of the fourth quarter was $249 million, and debt, net of cash, was $205 million. On August 22, 2022, the Company increased the total size of its existing revolving credit facility by $100 million to $800 million and extended its maturity to August 2027. The Company’s effective tax rate for the fourth quarter was an expense of 11% and included discrete tax benefits of $2 million during the quarter.

During the fourth quarter, the Company returned capital to shareholders through its 114th consecutive quarterly dividend and the repurchase of approximately 500,000 shares of its Class A common stock for $16 million in open market transactions pursuant to its authorized share repurchase program. Share repurchases for fiscal 2022 represented approximately 3.5% of the Company's outstanding shares of Class A common stock.

For a reconciliation of adjusted results and debt, net of cash, to U.S. GAAP, see the table provided in the Non-GAAP Financial measures section.

Declaration of Quarterly Dividend

The Board of Directors declared a cash dividend of $0.1875 per common share, payable November 29, 2022 to shareholders of record on November 10, 2022. Schnitzer has paid a dividend every quarter since going public in November 1993.

Analysts’ Conference Call: Fourth Quarter and Fiscal 2022 Results

A conference call and slide presentation to discuss results will be held today, October 24, 2022, at 11:30 a.m. Eastern and will be hosted by Tamara L. Lundgren, Chairman and Chief Executive Officer, and Stefano Gaggini, Senior Vice President and Chief Financial Officer. The call and the slide presentation will be webcast and accessible on the Company’s website under Company > Investors > Event Calendar at www.schnitzersteel.com/company/investors/event-calendar.

Summary financial data is provided in the following pages. The slide presentation and related materials will be available prior to the call on the above website.

About Schnitzer Steel Industries, Inc.

Schnitzer Steel Industries, Inc. operates at the intersection of metals recovery, reuse, recycling, and manufacturing. Schnitzer is one of the largest manufacturers and exporters of recycled metal products in North America with operating facilities located in 25 states, Puerto Rico, and Western Canada. Schnitzer has seven deep water export facilities located on both the East and West Coasts and in Hawaii and Puerto Rico. The Company’s integrated operating platform also includes 51 stores which sell serviceable used auto parts from salvaged vehicles and receive over 4.1 million annual retail visits. The Company’s steel manufacturing operations produce finished steel products, including rebar, wire rod, and other specialty products. The Company began operations in 1906 in Portland, Oregon.

Non-GAAP Financial Measures

This press release contains performance based on adjusted diluted earnings per share from continuing operations attributable to SSI shareholders, adjusted EBITDA, and adjusted EBITDA per ferrous ton which are non-GAAP financial measures as defined under SEC rules. As required by SEC rules, the Company has provided a reconciliation of these measures for each period discussed to the most directly comparable U.S. GAAP measure. Management believes that providing these non-GAAP financial measures adds a meaningful presentation of our results from business operations excluding adjustments for legacy environmental matters (net of recoveries), business development costs not related to ongoing operations including pre-acquisition expenses, asset impairment charges, charges related to non-ordinary course legal settlements, restructuring charges and other exit-related activities, 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. 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. These non-GAAP financial measures should be considered in addition to, but not as a substitute for, the most directly comparable U.S. GAAP measures.

Forward-Looking Statements

Statements and information included in this press release that are not purely historical are forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934 and are made pursuant to the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. Except as noted herein or as the context may otherwise require, all references in this press release to “we,” “our,” “us,” “the Company,” and “SSI” refer to Schnitzer Steel Industries, Inc. and its consolidated subsidiaries.

Forward-looking statements in this press release include statements regarding future events or our expectations, intentions, beliefs, and strategies regarding the future, which may include statements regarding the impact of equipment upgrades, equipment failures, and facility damage on production, including timing of repairs and resumption of operations; the realization of insurance recoveries; the impact of pandemics, epidemics, or other public health emergencies, such as the coronavirus disease 2019 (“COVID-19”) pandemic; the Company’s outlook, growth initiatives, or expected results or objectives, including pricing, margins, sales volumes, and profitability; completion of acquisitions and integration of acquired businesses; the impacts of supply chain disruptions, inflation, and rising interest rates; liquidity positions; our ability to generate cash from continuing operations; trends, cyclicality, and changes in the markets we sell into; strategic direction or goals; targets; changes to manufacturing and production processes; the realization of deferred tax assets; planned capital expenditures; the cost of and the status of any agreements or actions related to our compliance with environmental and other laws; expected tax rates, deductions, and credits; the impact of sanctions and tariffs, quotas, and other trade actions and import restrictions; the impact of labor shortages or increased labor costs; obligations under our retirement plans; benefits, savings, or additional costs from business realignment, cost containment, and productivity improvement programs; the potential impact of adopting new accounting pronouncements; and the adequacy of accruals.

Forward-looking statements by their nature address matters that are, to different degrees, uncertain, and often contain words such as “outlook,” “target,” “aim,” “believes,” “expects,” “anticipates,” “intends,” “assumes,” “estimates,” “evaluates,” “may,” “will,” “should,” “could,” “opinions,” “forecasts,” “projects,” “plans,” “future,” “forward,” “potential,” “probable,” and similar expressions. However, the absence of these words or similar expressions does not mean that a statement is not forward-looking.

We may make other forward-looking statements from time to time, including in reports filed with the Securities and Exchange Commission, press releases, presentations, and on public conference calls. All forward-looking statements we make are based on information available to us at the time the statements are made, and we assume no obligation to update any forward-looking statements, except as may be required by law. Our business is subject to the effects of changes in domestic and global economic conditions and a number of other risks and uncertainties that could cause actual results to differ materially from those included in, or implied by, such forward-looking statements. Some of these risks and uncertainties are discussed in “Item 1A. Risk Factors” of Part I of our most recent Annual Report on Form 10-K, as supplemented by our subsequently filed Quarterly Reports on Form 10-Q. Examples of these risks include: potential environmental cleanup costs related to the Portland Harbor Superfund site or other locations; the impact of equipment upgrades, equipment failures, and facility damage on production; failure to realize or delays in realizing expected benefits from capital projects, including investments in processing and manufacturing technology improvements; the cyclicality and impact of general economic conditions; the impact of inflation, rising interest rates, and foreign currency fluctuations; changing conditions in global markets including the impact of sanctions and tariffs, quotas, and other trade actions and import restrictions; increases in the relative value of the U.S. dollar; economic and geopolitical instability including as a result of military conflict; volatile supply and demand conditions affecting prices and volumes in the markets for raw materials and other inputs we purchase; significant decreases in recycled metal prices; imbalances in supply and demand conditions in the global steel industry; difficulties associated with acquisitions and integration of acquired businesses; supply chain disruptions; reliance on third-party shipping companies, including with respect to freight rates and the availability of transportation; the impact of goodwill impairment charges; the impact of long-lived asset and equity investment impairment charges; the impact of pandemics, epidemics or other public health emergencies, such as the COVID-19 pandemic; inability to achieve or sustain the benefits from productivity, cost savings, and restructuring initiatives; inability to renew facility leases; customer fulfillment of their contractual obligations; potential limitations on our ability to access capital resources and existing credit facilities; restrictions on our business and financial covenants under the agreement governing our bank credit facilities; the impact of consolidation in the steel industry; product liability claims; the impact of legal proceedings and legal compliance; the adverse impact of climate change; the impact of not realizing deferred tax assets; the impact of tax increases and changes in tax rules; the impact of one or more cybersecurity incidents; translation risks associated with fluctuation in foreign exchange rates; inability to obtain or renew business licenses and permits; environmental compliance costs and potential environmental liabilities; increased environmental regulations and enforcement; compliance with climate change and greenhouse gas emission laws and regulations; the impact of labor shortages or increased labor costs; reliance on employees subject to collective bargaining agreements; and the impact of the underfunded status of multiemployer plans in which we participate.

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