Radius Recycling(RDUS) - 2022 Q2 - Quarterly Report

Forward-Looking Statements This section defines forward-looking statements and outlines their inherent risks and uncertainties Nature of Forward-Looking Statements This section defines forward-looking statements as non-historical, made under safe harbor, regarding future events and strategies - Statements in this report that are not purely historical are considered forward-looking statements under Section 21E of the Securities Exchange Act of 1934 and the Private Securities Litigation Reform Act of 1995[9] - Forward-looking statements address future events, expectations, intentions, beliefs, and strategies, including impacts of pandemics, equipment issues, market trends, acquisitions, supply chain disruptions, and regulatory changes[10] Risks and Uncertainties Forward-looking statements involve inherent uncertainties, with actual results differing due to global economic conditions and market risks - Forward-looking statements are inherently uncertain, and actual results may differ materially due to changes in domestic and global economic conditions and various risks[12] - Key risks include the impact of pandemics (e.g., COVID-19), equipment failures, environmental cleanup costs (e.g., Portland Harbor Superfund site), market cyclicality, global market changes (sanctions, tariffs), economic/geopolitical instability, volatile supply/demand, and supply chain disruptions[12] PART I. FINANCIAL INFORMATION This section presents unaudited condensed consolidated financial statements and management's financial discussion Item 1. Financial Statements (Unaudited) This section presents Schnitzer Steel Industries, Inc.'s unaudited consolidated financial statements and accounting notes Unaudited Condensed Consolidated Balance Sheets Balance sheets show total assets increased by $230 million and liabilities by $165 million from debt and acquisitions | Metric | February 28, 2022 (in thousands) | August 31, 2021 (in thousands) | Change (in thousands) | % Change | | :--------------------------------- | :------------------------------- | :------------------------------- | :-------------------- | :------- | | Total current assets | $659,305 | $543,114 | $116,191 | 21.4% | | Property, plant and equipment, net | $597,262 | $562,674 | $34,588 | 6.1% | | Goodwill | $232,537 | $170,304 | $62,233 | 36.5% | | Intangibles, net | $23,220 | $3,980 | $19,240 | 483.4% | | Total assets | $1,724,329 | $1,494,363 | $229,966 | 15.4% | | Total current liabilities | $329,171 | $352,850 | $(23,679) | -6.7% | | Long-term debt, net | $254,126 | $71,299 | $182,827 | 256.4% | | Total liabilities | $819,680 | $654,584 | $165,096 | 25.2% | | Total equity | $904,649 | $839,779 | $64,870 | 7.7% | - Goodwill increased significantly from $170,304 thousand to $232,537 thousand, primarily due to the acquisition of Columbus Recycling business[14] - Long-term debt, net of current maturities, saw a substantial increase from $71,299 thousand to $254,126 thousand, reflecting increased borrowings[14] Unaudited Condensed Consolidated Statements of Income Income statements show significant revenue increases, but net income attributable to SSI shareholders varied across periods | Metric (in thousands) | 3 Months Ended Feb 28, 2022 | 3 Months Ended Feb 28, 2021 | % Change (3 Months) | 6 Months Ended Feb 28, 2022 | 6 Months Ended Feb 28, 2021 | % Change (6 Months) | | :------------------------------------ | :-------------------------- | :-------------------------- | :------------------ | :-------------------------- | :-------------------------- | :------------------ | | Revenues | $783,198 | $600,111 | 30.5% | $1,581,316 | $1,092,218 | 44.8% | | Cost of goods sold | $670,539 | $487,025 | 37.7% | $1,353,783 | $907,119 | 49.2% | | Operating income | $52,165 | $58,584 | -11.0% | $111,986 | $81,354 | 37.7% | | Net income attributable to SSI shareholders | $37,615 | $44,588 | -15.6% | $83,814 | $58,692 | 42.8% | | Diluted EPS | $1.27 | $1.54 | -17.5% | $2.81 | $2.05 | 37.1% | - Revenues increased significantly by 30.5% for the three months and 44.8% for the six months, driven by strong market demand for recycled metals[16] - Net income attributable to SSI shareholders decreased by 15.6% for the three-month period but increased by 42.8% for the six-month period, indicating stronger performance in the first fiscal quarter[16] Unaudited Condensed Consolidated Statements of Comprehensive Income Comprehensive income statements show net income decreased for three months but increased for six, with positive other comprehensive income | Metric (in thousands) | 3 Months Ended Feb 28, 2022 | 3 Months Ended Feb 28, 2021 | % Change (3 Months) | 6 Months Ended Feb 28, 2022 | 6 Months Ended Feb 28, 2021 | % Change (6 Months) | | :------------------------------------ | :-------------------------- | :-------------------------- | :------------------ | :-------------------------- | :-------------------------- | :------------------ | | Net income | $38,165 | $45,679 | -16.4% | $85,441 | $60,743 | 40.7% | | Total other comprehensive income, net of tax | $841 | $1,610 | -47.8% | $116 | $1,589 | -92.7% | | Comprehensive income attributable to SSI shareholders | $38,456 | $46,198 | -16.8% | $83,930 | $60,281 | 39.2% | - Foreign currency translation adjustments contributed $722 thousand to other comprehensive income for the three months ended February 28, 2022, but resulted in a loss of $393 thousand for the six-month period[19] - Pension obligations, net, contributed positively to other comprehensive income in both the three-month ($119 thousand) and six-month ($509 thousand) periods of fiscal 2022[19] Unaudited Condensed Consolidated Statements of Equity Equity statements detail changes in shareholders' equity, including net income, repurchases, and dividends, showing an increase to $900,792 thousand | Metric (in thousands) | As of Feb 28, 2022 | As of Aug 31, 2021 | Change | | :------------------------------------ | :----------------- | :----------------- | :----- | | Total SSI shareholders' equity | $900,792 | $835,764 | $65,028 | - Net income attributable to SSI shareholders for the six months ended February 28, 2022, was $83,814 thousand[26] - The company repurchased 200,000 shares of Class A common stock for $7,865 thousand during the six months ended February 28, 2022[26] - Dividends paid for the six months ended February 28, 2022, totaled $10,750 thousand[27] Unaudited Condensed Consolidated Statements of Cash Flows Cash flow statements show improved operating cash flow, increased investing cash use, and higher financing cash from debt | Metric (in thousands) | 6 Months Ended Feb 28, 2022 | 6 Months Ended Feb 28, 2021 | Change | | :------------------------------------ | :-------------------------- | :-------------------------- | :----- | | Net cash provided by (used in) operating activities | $12,714 | $(2,610) | $15,324 | | Net cash used in investing activities | $(172,299) | $(54,137) | $(118,162) | | Net cash provided by financing activities | $149,631 | $50,011 | $99,620 | | Net decrease in cash and cash equivalents | $(9,995) | $(6,561) | $(3,434) | | Cash and cash equivalents as of end of period | $17,823 | $11,326 | $6,497 | - Cash used in investing activities increased significantly, primarily due to $113,939 thousand for acquisitions (Columbus Recycling business) in fiscal 2022, compared to none in the prior year[29] - Borrowings from long-term debt increased to $405,094 thousand in fiscal 2022 from $265,645 thousand in fiscal 2021, contributing to higher cash from financing activities[29] Notes to the Unaudited Condensed Consolidated Financial Statements These notes provide detailed explanations for unaudited financial statements, covering accounting policies, acquisitions, and environmental commitments - The Company's internal organizational and reporting structure includes a single operating and reportable segment, encompassing scrap metal recycling, used auto parts sales, and finished steel long product manufacturing[36] - On October 1, 2021, the Company acquired eight metals recycling facilities from Columbus Recycling for approximately $114 million, resulting in $62.3 million in provisional goodwill and $19.7 million in identifiable intangible assets (supplier and customer relationships)[57][58][59] - Environmental liabilities totaled $68 million as of February 28, 2022, with $5 million related to Portland Harbor matters and additional amounts for other legacy environmental loss contingencies, including a $4 million accrual for shredder residue remediation and $8 million for a closed facility's environmental matters[66][82][89][90][91] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on financial condition and operational results, including business overview, COVID-19, and liquidity General Business Overview Schnitzer Steel Industries, Inc. is a vertically integrated recycler and steel manufacturer, highly dependent on market demand and prices - Schnitzer Steel Industries, Inc. operates as one of North America's largest recyclers of ferrous and nonferrous metal and a manufacturer of finished steel products, with a network of 50 retail self-service auto parts stores, 52 metals recycling facilities, and an EAF steel mill[115] - The company's financial performance is largely driven by demand and prices for recycled metal and finished steel, raw material supply, and operating leverage from processing higher volumes[118] - Quarterly results fluctuate due to market conditions, scrap metal supply, auto parts demand, supply chain efficiency, production costs, and seasonal factors, as well as sanctions, trade actions, and regulatory requirements[120] Impact of COVID-19 and Facility Fires COVID-19 impacts and facility fires caused operational disruptions and losses, partially offset by $15 million and $10 million insurance recoveries - COVID-19 continues to impact the business through labor shortages, logistical challenges (e.g., port congestion), and increased costs for goods and services, negatively affecting sales volumes and operating results[121] - A fire at the McMinnville steel mill in May 2021 caused a shutdown and ramp-up, leading to $15 million in insurance recovery gains recognized in the first half of fiscal 2022[122] - A fire at the Everett metals recycling facility in December 2021 halted shredding operations, resulting in $10 million in initial insurance recovery gains recognized in the second quarter of fiscal 2022[123] Financial Highlights and Operating Performance Strong market demand led to higher revenues and sales volumes, but net income attributable to SSI shareholders decreased, while Adjusted EBITDA increased | Metric | 3 Months Ended Feb 28, 2022 | 3 Months Ended Feb 28, 2021 | % Change (3 Months) | 6 Months Ended Feb 28, 2022 | 6 Months Ended Feb 28, 2021 | % Change (6 Months) | | :------------------------------------ | :-------------------------- | :-------------------------- | :------------------ | :-------------------------- | :-------------------------- | :------------------ | | Revenues | $783,198 | $600,111 | 30.5% | $1,581,316 | $1,092,218 | 44.8% | | Net income attributable to SSI shareholders | $37,615 | $44,588 | -15.6% | $83,814 | $58,692 | 42.8% | | Diluted EPS | $1.27 | $1.54 | -17.5% | $2.81 | $2.05 | 37.1% | | Adjusted EBITDA | $75,259 | $71,411 | 5.4% | $153,345 | $111,666 | 37.3% | | Average ferrous sales prices ($/LT) | $445 | $387 | 15.0% | $446 | $326 | 36.8% | | Total ferrous volumes (LT, in thousands) | 1,071 | 977 | 9.6% | 2,219 | 2,030 | 9.3% | | Average nonferrous sales price ($/pound) | $1.10 | $0.83 | 32.5% | $1.08 | $0.74 | 45.9% | | Nonferrous volumes (pounds, in thousands) | 147,145 | 135,899 | 8.3% | 300,373 | 274,135 | 9.6% | | Finished steel average sales price ($/ST) | $1,045 | $690 | 51.5% | $1,013 | $656 | 54.4% | | Finished steel sales volumes (ST, in thousands) | 106 | 136 | -22.1% | 205 | 270 | -24.1% | - Selling, general, and administrative expense increased by 13% for the second quarter and 12% for the first six months of fiscal 2022, driven by higher legacy environmental charges, employee expenses, and professional services, partially offset by lower incentive compensation accruals[139] - The effective tax rate from continuing operations for the second quarter of fiscal 2022 was 24.0%, higher than the U.S. federal statutory rate of 21%, primarily due to state taxes and permanent differences from non-deductible expenses[141] Liquidity and Capital Resources The company relies on operating cash flows and credit facilities, with net debt increasing to $244 million and projected capital expenditures of $130-$160 million | Metric (in thousands) | February 28, 2022 | August 31, 2021 | Change | | :------------------------------------ | :---------------- | :---------------- | :----- | | Total debt | $261,577 | $74,953 | $186,624 | | Cash and cash equivalents | $17,823 | $27,818 | $(9,995) | | Total debt, net of cash | $243,754 | $47,135 | $196,619 | - Net cash provided by operating activities was $13 million for the first six months of fiscal 2022, a significant improvement from net cash used of $3 million in the prior year[144] - Capital expenditures totaled $69 million for the first six months of fiscal 2022, with a full-year projection of $130 million to $160 million, including $30 million to $40 million for environmental projects[161][162] - The company repurchased 200,000 shares of Class A common stock for $8 million in the second quarter of fiscal 2022, with approximately 506,000 shares remaining authorized under the program[166][194][195] Non-GAAP Financial Measures This section reconciles non-GAAP financial measures like Debt, net of cash, Adjusted EBITDA, and Adjusted diluted EPS for performance evaluation | Metric (in thousands) | 3 Months Ended Feb 28, 2022 | 3 Months Ended Feb 28, 2021 | 6 Months Ended Feb 28, 2022 | 6 Months Ended Feb 28, 2021 | | :------------------------------------ | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Net income | $38,165 | $45,679 | $85,441 | $60,743 | | Adjusted EBITDA | $75,259 | $71,411 | $153,345 | $111,666 | | Adjusted diluted EPS | $1.38 | $1.51 | $2.96 | $2.09 | | Metric (in thousands) | 6 Months Ended Feb 28, 2022 | 6 Months Ended Feb 28, 2021 | | :------------------------------------ | :-------------------------- | :-------------------------- | | Net borrowings (repayments) of debt | $179,699 | $66,416 | - Adjusted EBITDA for the second quarter of fiscal 2022 was $75,259 thousand, an increase of 5.4% from $71,411 thousand in the prior year quarter[176] Item 3. Quantitative and Qualitative Disclosures about Market Risk This section details the company's exposure to market risks, including commodity price, interest rate, credit, and foreign currency - The company is exposed to commodity price risk from variations in market prices for ferrous and nonferrous metals, finished steel products, and other commodities, which are managed by adjusting purchase prices in response to forward selling prices[181] - Credit risk is managed through letters of credit for ferrous scrap metal exports, deposits for nonferrous exports, credit limits, credit insurance, and collateral for advances, though COVID-19 has reduced credit insurance availability[183] - As of February 28, 2022, 40% of accounts receivable were covered by letters of credit, and 99% of the remaining balance was less than 60 days past due[185] Item 4. Controls and Procedures Management concluded disclosure controls were effective, excluding Columbus Recycling (8% of assets, 4% of revenues), with no material internal control changes - The company's disclosure controls and procedures were deemed effective at the reasonable assurance level as of February 28, 2022[187] - The assessment of internal controls excluded the acquired Columbus Recycling business, which represented approximately 8% of consolidated total assets and 4% of consolidated total revenues for the six months ended February 28, 2022[187] - No material changes in internal control over financial reporting occurred during the quarter ended February 28, 2022[188] PART II. OTHER INFORMATION This section covers legal proceedings, risk factors, equity sales, and other disclosures Item 1. Legal Proceedings Information on legal proceedings is incorporated by reference from previous filings and Note 5, detailing environmental contingencies - Information regarding reportable legal proceedings is incorporated by reference from the Annual Report on Form 10-K for fiscal year ended August 31, 2021, and the Quarterly Report on Form 10-Q for the period ended November 30, 2021, as well as Note 5 - Commitments and Contingencies[191] Item 1A. Risk Factors No material changes to risk factors were reported, except for new risks from economic and geopolitical instability, specifically the Russia-Ukraine conflict - No material changes to risk factors were reported, except for new risks related to economic and geopolitical instability, specifically the Russia-Ukraine conflict[192] - The Russia-Ukraine conflict and associated sanctions could materially impact the company's operating results, financial condition, and cash flows through lost sales, supply shortages, commodity price fluctuations, increased manufacturing costs, transportation challenges, and customer credit issues[193] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company repurchased 200,000 shares for $8 million, with 506,000 shares remaining authorized for repurchase - The company repurchased 200,000 shares of Class A common stock for $8 million in open-market transactions during the second quarter of fiscal 2022[194][195] - As of February 28, 2022, approximately 506,000 shares remained authorized for repurchase under the program, which has no stated expiration date and can be suspended or terminated at any time[194][195] Item 5. Other Information This section states that there is no other information to report Item 6. Exhibits This section lists all exhibits filed with the Form 10-Q, including deferred compensation plans and CEO/CFO certifications - Exhibits include Deferred Compensation Plan for Non-Employee Directors, Summary Sheet of 2022 Non-Employee Director Compensation, and certifications from the CEO and CFO as required by the Sarbanes-Oxley Act[197] - The filing also includes various Inline XBRL documents for financial data tagging[197] SIGNATURES This section contains the required signatures for the Form 10-Q, confirming its submission Signatures This section contains the required signatures for the Form 10-Q, signed by the CEO and CFO on April 6, 2022 - The report was duly signed on April 6, 2022, by Tamara L. Lundgren, Chairman, President and Chief Executive Officer, and Richard D. Peach, Executive Vice President, Chief Financial Officer and Chief Strategy Officer[202]