Ryerson(RYI) - 2022 Q2 - Quarterly Report

Part I. Financial Information Financial Statements The company reported significant year-over-year growth in revenue and net income for the three and six months ended June 30, 2022, driven by higher average selling prices Condensed Consolidated Statements of Comprehensive Income For the six months ended June 30, 2022, Ryerson's net sales grew 36.1% to $3.49 billion, and net income attributable to the company increased by 160.5% to $360.0 million compared to the same period in 2021 Financial Performance Summary (Six Months Ended June 30) | Financial Metric | 2022 (in millions) | 2021 (in millions) | YoY Change | | :--- | :--- | :--- | :--- | | Net Sales | $3,492.3 | $2,566.3 | +36.1% | | Gross Profit | $876.0 | $454.9 | +92.6% | | Operating Profit | $521.6 | $212.5 | +145.5% | | Net Income Attributable to Ryerson | $360.0 | $138.2 | +160.5% | | Diluted EPS | $9.26 | $3.57 | +159.4% | Condensed Consolidated Statements of Cash Flows For the six months ended June 30, 2022, net cash provided by operating activities was $168.0 million, a significant turnaround from the $51.1 million used in the same period of 2021, primarily due to higher net income Cash Flow Summary (Six Months Ended June 30) | Cash Flow Activity | 2022 (in millions) | 2021 (in millions) | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $168.0 | $(51.1) | | Net cash provided by (used in) investing activities | $(43.4) | $152.1 | | Net cash used in financing activities | $(136.1) | $(124.0) | | Net change in cash | $(9.8) | $(23.3) | Condensed Consolidated Balance Sheets As of June 30, 2022, total assets increased to $2.68 billion from $2.37 billion at year-end 2021, driven by higher receivables and inventories Balance Sheet Summary | Balance Sheet Item | June 30, 2022 (in millions) | Dec 31, 2021 (in millions) | | :--- | :--- | :--- | | Total Current Assets | $1,898.2 | $1,593.0 | | Total Assets | $2,682.9 | $2,365.6 | | Long-Term Debt | $514.3 | $610.5 | | Total Liabilities | $1,832.4 | $1,821.0 | | Total Equity | $850.5 | $544.6 | Notes to Condensed Consolidated Financial Statements Key notes highlight a change in the LIFO inventory valuation method, several small acquisitions, and significant debt management activities, including an increase in the Ryerson Credit Facility to $1.3 billion and the repurchase of $250.0 million of its 2028 Senior Secured Notes - The company changed its interim LIFO inventory calculation method to project year-end levels and allocate them pro-rata, resulting in LIFO income of $71.6 million for H1 2022 versus a LIFO expense of $188.6 million in H1 2021[24][25] - In H1 2022, the company acquired Apogee Steel Fabrication, Ford Tool Steels, Inc., and a 30% interest in FreeFORM Manufacturing, LLC to expand its value-added processing and additive manufacturing capabilities[32][33][35] - The company repurchased and retired $250.0 million of its 8.50% Senior Secured Notes due 2028 during the first six months of 2022, leaving $50.0 million outstanding as of June 30, 2022[48] - Following a secondary offering by Platinum Equity and a concurrent $47.7 million share repurchase by Ryerson, Platinum's ownership decreased from 54% to 43%, and Ryerson is no longer a 'controlled company'[19][80] - Subsequent to the quarter end, the company redeemed the remaining $50.0 million of its 2028 Notes, authorized a new $75.0 million share repurchase program, and declared a quarterly dividend of $0.15 per share[98][99][100] Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes the strong performance in the first half of 2022 to a robust pricing environment, with average selling prices up 42.6% year-over-year, which more than offset a 4.5% decline in tons shipped Industry and Operating Trends The metals service center industry experienced strong pricing in the first half of 2022, with Ryerson's average selling prices increasing 42.6% over H1 2021 - The company experienced stronger pricing in H1 2022 compared to H1 2021, with average selling prices 42.6% higher due to strong commodity prices, global demand outpacing supply, and trade disruptions[106] - Key industry indicators like the ISM Purchasing Managers' Index (PMI) showed slowing growth with sequential declines in April, May, and June 2022[107] Results of Operations For Q2 2022, net sales increased 22.9% to $1.74 billion, and for H1 2022, they rose 36.1% to $3.49 billion, driven by higher average selling prices per ton which increased 31.1% and 42.6% respectively Key Operating Metrics (YoY Comparison) | Metric | Q2 2022 vs Q2 2021 | H1 2022 vs H1 2021 | | :--- | :--- | :--- | | Net Sales Change | +22.9% | +36.1% | | Tons Sold Change | -6.3% | -4.5% | | Avg. Selling Price/Ton Change | +31.1% | +42.6% | - Gross profit for H1 2022 increased 92.6% to $876.0 million, with gross margin expanding to 25.1% from 17.7% in H1 2021[130] - Other expenses in H1 2022 included a $19.8 million loss on the repurchase of 2028 Notes[135] Liquidity and Cash Flows The company's liquidity position strengthened, with total liquidity (cash plus credit facility availability) increasing to $894 million at June 30, 2022, from $741 million at year-end 2021 Liquidity and Debt Position | Metric (in millions) | June 30, 2022 | Dec 31, 2021 | | :--- | :--- | :--- | | Cash and cash equivalents | $41.4 | $51.2 | | Total Liquidity | $894 | $741 | | Total Debt | $533.5 | $639.3 | | Net Debt | $492.1 | $588.1 | - Working capital needs are counter-cyclical[143] Quantitative and Qualitative Disclosures About Market Risk The company is exposed to market risks from interest rates, foreign currency exchange rates, and commodity prices - The company's primary market risks are changes in interest rates, foreign currency exchange rates, and commodity prices[157] - A hypothetical 1% increase in interest rates on variable-rate debt would have increased interest expense for the first six months of 2022 by approximately $1.8 million[161] - As of June 30, 2022, the company held various commodity swap contracts, including 123,158 tons of hot roll coil and 9,354 tons of aluminum, to manage price volatility[166] Controls and Procedures Management, including the CEO and CFO, evaluated the company's disclosure controls and procedures and concluded they were effective as of June 30, 2022 - Based on an evaluation as of the end of the period, the Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective[169] - No changes in internal controls over financial reporting occurred during the quarter ended June 30, 2022, that have materially affected, or are reasonably likely to materially affect, the company's controls[170] Part II. Other Information Legal Proceedings The company is involved in various claims and legal actions - The company is named as a potentially responsible party for the Portland Harbor Superfund Site, but the ultimate liability and potential loss cannot be estimated at this time[56][62][172] Risk Factors The company highlights a specific risk factor concerning the historical and recent volatility of its stock price - A risk factor was added to address the recent volatility of the company's stock price, cautioning that investors could incur substantial losses[173][174] Unregistered Sales of Equity Securities and Use of Proceeds During the second quarter of 2022, the company repurchased 1,613,022 shares of its common stock in a privately negotiated transaction with affiliates of Platinum Equity, LLC at an average price of $29.56 per share Issuer Purchases of Equity Securities (Q2 2022) | Period | Total Shares Purchased | Avg. Price Paid per Share | | :--- | :--- | :--- | | May 1 - May 31, 2022 | 1,613,022 | $29.56 | | Total Q2 | 1,613,022 | $29.56 | - The company's $50 million share repurchase program authorized in August 2021 was exhausted during the second quarter of 2022[177] Exhibits This section lists the exhibits filed with the Form 10-Q, including certifications by the CEO and CFO as required by the Sarbanes-Oxley Act of 2002 and Inline XBRL documents - The report includes standard exhibits such as CEO/CFO certifications under Sarbanes-Oxley Sections 302 and 906, and financial data in Inline XBRL format[179]