Steel Dynamics Inc (STLD) 2013 Q2 法說會逐字稿

Good day, and welcome to the Steel Dynamics second quarter 2013 earnings conference call.

At this time, all participants are in a listen-only mode.

After management's remarks, we will conduct a question-and-answer session and instructions will follow at that time.

Please be advised this call is being recorded today, July 18, 2013, and your participation implies consent to our recording this call.

If you do not agree to these terms, simply disconnect.

At this time, I would like to turn the conference over to Marlene Owen, Director, Investor Relations.

Please go ahead.

Thank you, Christine.

Good morning, everyone, and welcome to Steel Dynamics' second quarter 2013 earnings conference call.

As a reminder, today's conference is being recorded and will be available on the Company's website for replay later today.

Leading today's call are Mark Millett, President and Chief Executive Officer of Steel Dynamics; and Theresa Wagler, Executive Vice President and Chief Financial Officer.

We also have the Company's operating platform leaders, including Dick Teets, President and Chief Operating Officer for our Steel Operations; Russ Rinn, President and Chief Operating Officer for our Metals Recycling Operations; and Chris Graham, President of our Fabrication Operations.

Please be advised that certain comments made today may involve forward-looking statements that by their nature are predictive.

These are intended to be covered by the Safe Harbor protections of the Private Securities Litigation Reform Act of 1995.

Such statements, however, speak only as of this date, today, July 18, 2013, and involve risks and uncertainties related to our metals business, or to general business and economic conditions which may cause actual results to turn out differently.

More detailed information about such risks and uncertainties may be found at the investor center advisory information tab on our Steel Dynamics website, in our Form 10-K annual report under the captions Forward-Looking Statements and Risk Factors, or as applicable in subsequently filed Forms 10-Q filed with the Securities and Exchange Commission.

For opening remarks, I'm pleased to turn the call over to Mark.

Well, thanks, Marlene.

Good morning.

Again, thanks for joining us today to discuss our second quarter results and to hear our view of the steel industry, and along with the opportunities that lay ahead for SDI that I believe will further differentiate us from our peers and continue to grow shareholder value.

But before I turn the call over to Theresa for comments regarding our financial results for the quarter, I would like to introduce Chris Graham, who recently became President of our Fabrication business at New Millenium Building Systems.

Chris has been with Steel Dynamics from the very beginning.

He has a broad experience in both our Steel and our Fabrication operations and we are more than happy to have him join the leadership team.

So welcome, Chris.

It's good to have you aboard, mate.

So Theresa?

Thank you, Mark.

Good morning, everyone.

For the second quarter of 2013, our net income was $29 million, or $0.13 per diluted share, at the upper range of our earnings guidance of between $0.10 and $0.14.

Net sales of $1.8 billion were basically unchanged from the first quarter.

However, comparative consolidated operating income decreased $27 million, or 28%, as our consolidated gross margin percentage declined over 160 basis points compared to the first quarter.

Despite somewhat higher revenues, which stem from higher volume, operating income from our Steel Operations decreased $34 million, or 28%.

The culprit was metal spreads.

Steel metal margins compressed in the second quarter, as our average overall steel price per ton shipped decreased more than the cost of scrap used in our furnaces, most notably, at our sheet and structural steel operations.

Overall operating income per ton shipped for our Steel Operations decreased from $85 in the first quarter of this year to $59 in the second quarter, a 31% decrease.

Operating income from our Metals Recycling Operations, or OmniSource, decreased $9 million from first quarter results resulting in second quarter profitability of $16 million.

During the quarter, ferrous volumes decreased slightly and metal spread expanded 2%.

In contrast, nonferrous volumes decreased 9% and metal spread declined 10%.

Directionally, fabrication continues to be a bright spot for us, which is a positive sign for non-residential construction.

Shipments increased 11% in the quarter compared to first quarter results and operating income, although a smaller number compared to our other segments, improved more than 50%, making it our fifth consecutive quarter of profitability since the severe downturn in non-residential.

Gross interest expense for the second quarter was $32 million compared to $35 million in the first quarter, and $41 million in the second quarter of last year, over a 21% reduction from a year ago, a significant benefit derives from our refinancing activities.

We're very pleased with the execution of our capital structure initiatives that were initiated in the fall of 2012 and more recently in March and April of this year.

In early April, as part of the completion of our most recent transaction, we decreased total outstanding debt by $100 million.

We have created even greater long-term strength and sustainability in our capital structure through both debt reduction, the extension of our debt maturity profile, and through the meaningful reduction in interest burden.

Our year-to-date effective tax rate was 36.5%.

However, our second quarter rate increased to 40.3%, as the first quarter effective rate included a favorable adjustment related to 2012 research and development tax credits that were approved by Congress in January.

Based on current expectations, our full-year effective rate is expected to be closer to 38%.

You may have noticed that our diluted shares in the second quarter were lower than usual.

We were required to exclude the share impact of our convertible note because the result would have been anti-dilutive, or in other words, would have actually slightly increased our diluted EPS during the quarter.

At June 30, outstanding shares were 220.7 million.

Cash flows from operations provided $33 million of funding during the second quarter, similar to the sequential first quarter result of $30 million.

Customer receivables rebuilt from lower levels at the end of March as net sales increased in May and the June time frame.

There has not been deterioration in portfolio quality.

Days outstanding and overall credit profiles remain good.

Reduction in accounts payable and accruals, including a $28 million payment for estimated taxes, reduced cash flow in the quarter by $42 million.

We currently don't expect significant working capital fluctuations any time in the second half of the year.

At March 31, our liquidity totaled $1.3 billion, just less than the $1.4 billion that we had available at the end of the first quarter.

That includes available cash of $244 million and the benefit of a $1.1 billion revolving credit facility that remains undrawn.

Our credit metrics remain strong and well within any covenant requirements.

Total debt is $2.1 billion with minimal secured borrowings of less than 15%.

Our net debt is $1.85 billion, resulting in net debt to trailing adjusted EBITDA of 3.2 times.

If you add back the refinancing charges and the trailing EBITDA number, that add-back is about $25 million and our net adjusted leverage is [then 3.08] times.

It's still slightly above our preferred level of 3.0 times, but we believe we will be back in line very shortly.

Capital investments in the quarter totaled $49 million.

Of that, $35 million related to our Steel Operations, primarily for the continuation of the engineered special bar quality rolling mill expansion and the addition of premium rail capabilities.

Both projects are on schedule to be commissioned at the end of this year.

Our current estimates for full year 2013 capital investment is in the range of $200 million.

This is slightly less than our early estimates, most of it has to do with the timing of payments toward the end of the year with our larger projects.

We consider over 75% of that $200 million investment to be growth oriented, or projects that are intended to increase capacity, efficiency, and margin in future periods.

Current maturities of long-term debt increased in the quarter to $324 million.

This primarily represents the $287.5 million convertible senior notes that mature in June of next year.

There are 16.7 million shares underlying this security.

We are comfortable with the timing of the maturity and believe we have many options available to us, including partial or full repayment with available cash, and various other refinancing alternatives.

The strength of our balance sheet is derived from our low-cost, highly variable operating platforms, which provide strong cash flow generation.

Our strong, resilient capital structure has the flexibility to sustain only current operations, but to support future growth.

Lastly, I know there are many of you on the call that like to track the specific commodities within our Flat Roll Division.

So I would like to give you the second quarter shipments now.

We shipped 307,000 tons of hot rolled, 102,000 tons of pickled and oiled, 24,000 tons of cold rolled, 119,000 tons of hot rolled galvanized, 53,000 tons of cold rolled galvanized, 89,000 tons of painted product, and 26,000 tons of Galvalume, resulting in 720,000 tons of shipment.

With that, I'll turn the call back over to Mark.

Great.

Thanks, Theresa.

And to begin, I would like to commend our team for their continued safety improvement.

Our performance has consistently been better than industry standards and we strive towards zero incidents, absolutely no accidents.

And we continue to make progress toward that goal.

Roughly 75% of our 125 locations worked the first half of 2013 without a single recordable incident.

My hat's off to each and every one of those facilities.

It's a tremendous, tremendous record.

And my thanks to each and every one of our dedicated employees for continuing to keep safety the top priority.

There's nothing more important, we believe, than the safety and welfare of each and every member of the SDI family.

Switching gears, from my perspective, the domestic economy continues to experience constrained growth.

The GDP, although slightly improved since our last call, though, remains weaker than we need it to be to support meaningful growth on a sustainable basis.

Misunderstood, or perhaps, misinterpreted, messages from the Federal Reserve seem to fuel general skepticism about the likelihood of sustainable growth absent [QE] support.

Although consumer confidence improved in the second quarter, it is still not where it needs to be, and the broader market dynamic continues to be influenced by forecasts of negative growth in the European community and slow growth in China.

For us, steel order input rates softened early in the quarter as import activity spiked and as many customers expected steel prices to decrease in sympathy with ferrous scrap prices.

April flat roll imports were over 10% higher than the 2013 monthly average.

And May long product imports were over 30% higher.

These factors, coupled with continued domestic over supply, decreased sequential quarterly steel prices, especially in our sheet products and our structural business.

However, later in June and certainly so far in July, our sheet operations have experienced extended lead times for certain products, and as such, pricing has increased in tandem and is supporting the recent range.

This is supported by incremental improvement in demand, coupled with reduced domestic sheet production capacity that has gone off temporarily, off line for various reasons.

I continue to think that the key macro drivers that predict steel consumption still support optimism for the second half of 2013 and certainly in the years ahead.

The most recent growth forecasts for the automotive market indicates a 16 million build rate for 2013.

Construction spending, albeit still low, continues to improve, up over 6% for 2013.

And a seasonally adjusted construction spending in May was 5.4% higher than a year ago.

Despite the disappointing June downtick, I believe residential construction appears to have sustainability, as these starts increased through May and are materially improved over 2012.

June housing starts were still up 10% year-over-year and permits were up 16% year-over-year.

This generally bodes well for future non-residential construction activity and the overall ABI Index also benched up over 50 after taking a one-month dip.

And more importantly, I think beyond the macro market indicators, we are seeing these improvements incrementally in our order book.

In addition, and perhaps a little longer term, there are still many companies with significant cash positions and coupled with the low-interest rate environment, will eventually lead to fixed asset investment.

And as I have mentioned before, over the even longer term, inexpensive shale gas has the potential to make the US energy long providing a tremendous incentive for fixed asset investment and associated job growth, and thus, strong growth for steel-related consumption.

We will be the beneficiaries of that associated economic growth, as we leverage our [latent] production capacity.

Since 2008, we've expanded capacity and though we have been shipping at record levels these past two years, and so far in 2013, market conditions have prevented us from leveraging our full production capability.

As non-residential construction strengthens, all our platforms can benefit.

In 2012, we had approximately 1.5 million tons of steel capacity that was not utilized due to these market conditions.

Of that, about 55% of those turns had a very high correlation to the non-residential construction market.

As the domestic steel mill utilization improves, so will the demand for ferrous scrap, benefiting our Metals Recycling Operations.

Similarly, we have over 150,000 tons of additional Fabrication capacity directly tied to non-residential construction in our pocket.

In aggregate, I believe we have greater leverage to a recovering construction sector than our peers.

Focusing on steel, it was a challenging quarter, particularly for our steel sheet and structural operations.

As noted, steel imports increased and [semi] values declined thus compressing metal margins.

Heading into the third quarter, however, we believe the recent price increases for steel sheet will remain intact, as the supply and demand dynamic has resulted in extended mill lead times.

In spite of a challenging market, coupled with planned maintenance downtime in our Flat Roll and Engineered Bar divisions, our second quarter production utilization rate was still 83% as compared to 89% in the first quarter.

But more importantly, on the year-to-date basis, we continued to perform above the industry average, which attests to the dedication of our employees and the diversity within our product portfolio.

Our Structural Rail Division's utilization rate continued to improve, achieving 65% in the second quarter, slightly higher than the prior quarter, and 12.5% ahead of the second quarter 2012.

Domestic metals recycling industry experienced another volatile quarter.

As we indicated in our second quarter guidance, we anticipated some challenges and that was indeed the case.

Where ferrous volumes to metal spreads were relatively flat, nonferrous was quite the opposite.

Volumes there and margins decreased meaningfully, as indexed nonferrous pricing declined between 10% and 15% in some cases.

I think China's enforcement of the Green Fence has definitely reduced nonferrous export demand and in turn has contracted metal spread.

In Fabrication, once again, we are pleased to report that our Fabrication business delivered its fifth consecutive profitable quarter, so the momentum there is great.

The team continues to make inroads in the market using the benefit of our national footprint.

We see a strengthening trend in our quote and more importantly, order activity.

And we continue to see improvements in that business, as Chris and the team focus on the right market opportunities, continue to gain market share, and improve operating efficiency at our newer locations that are ramping up.

Our pioneering efforts in Minnesota continue to make steady progress.

As we indicated in our first quarter report, we took a planned outage during the month of April in order to make certain equipment and process changes.

The upgrades were installed successfully and the gradual restart of capacity is going well.

The facility achieved production of 25,500 metric tons in June, with a plant availability of 84%.

With continued improvement in plant availability and operating rates, production is still expected to reach a 30,000-metric-ton monthly rate before the end of the year.

We anticipate the impact of losses related to Minnesota operations for the third quarter to be somewhat similar, maybe a little improved when compared to this past quarter, as we focus on production ramp-up and most importantly, production yield and consumption rates.

We believe we could be at a monthly break-even run rate exiting 2013, so our expectations to date anyway have not changed, although there is still much work to be done.

Relative to our other iron operation, Iron Dynamics, I believe another congratulations to the team is in order.

They achieved a record quarterly production of 62,500 metric tons of liquid PI.

Their contribution to the Flat Roll Division's productivity shouldn't be overlooked, and I think it's a wonderful sustainability story as they are now 100% recyclers of steel mill waste.

The reflection of our entrepreneurial culture, we continuously work to create opportunities rather than just wait for market dynamics to improve.

I think several organic growth projects have been implemented in 2013 that will provide increased earnings potential specific to Steel Dynamics.

I talked about each of them last quarter and I'm happy to say that those projects are all on track and on budget.

And I think a quick recap of the two larger, more impactful projects at Engineered Bar Division, it's adding 325,000 tons of production capacity for high precision, smaller diameter bars that will further broaden our product portfolio.

This project will make our facility the largest single-site supplier of engineered and SBQ bars in North America with an annual production capacity of 950,000 tons.

As I said, the project is on schedule, on budget, and is expected to be commissioned in the fourth quarter of this year, with no material interruption of current operations.

Also, at capacity, the potential 200,000 tons of semifinished blooms could be supplied by our Structural Rail Division, thereby effectively diversifying their product mix and increasing through-cycle utilization.

And that should moderate earnings volatility at the bottom of the cycle in the future.

We are also excited about the addition of premium rail production capability at our Structural Rail Division, an additional avenue to increase the mill through-cycling utilization and to further diversify our markets with value-added products.

Construction has also started on this project and it, too, is on budget, on schedule, and set for commissioning close to the end of this year.

We will have a capability to produce up to 350,000 tons of standard strength and premium rail for North America's railroad industry.

Test material has already been approved by several of the major domestic railroads, and I think that the new rail capabilities will position us to become North America's preeminent rail manufacturer for rail quality and straightness and dimensional control.

Furthermore, the product will provide exceptional customer value, having the capability of 320-foot rolled lengths that can be further welded into 1,600-foot strings which significantly reduces the installation time and track maintenance costs for the rail customer.

As I believe you can see, the Company continues to drive towards maximizing opportunities to effectively and efficiently perform through the cycle to maintain a sustainable, differentiated business from our peers.

We believe our superior operating and financial performance clearly demonstrates the sustainability of our business model, whether in good or challenging times.

In keeping with the entrepreneurial spirit that flows through at the Company, we will continue to assess opportunities for growth, whether in new products, new technologies, or new business lines.

We are focused on providing exceptional value to our customers, committing to the highest levels of quality and timeliness, and as importantly, to partnering with them to deliver not only their needs of today, but their needs for the future.

The focus is toward not only top-level revenue growth, but growth that will enhance and provide consistency to our margins and provide our shareholders with the returns that demonstrate our commitment, making Steel Dynamics the preferred investment decision.

The strong character and fortitude of our employees continue to demonstrate is exceptional.

Their passion and spirit drives them to excellence and to outperform our peers both operationally and financially, while maintaining our low-cost, highly competitive position.

I would like to thank each and every one of them for their continued hard work and dedication and to remind them, guys always be safe, both at work and at home.

So with that, Christine, I would like to open the call for any questions, either for me, or for the leadership team.

Thank you.

(Operator Instructions) Our first question comes from the line of Brett Levy with Jefferies.

Please proceed with your question.

Hey, guys.

Good job sort of hanging in there in a tough operating environment.

You said that lead times have extended significantly, particularly in sheet.

Can you give some sense as to sort of how far out, and maybe even break it down a little bit between the various grades of sheet, your lead times have gotten to at this point?

I think Dick can probably give greater color, but I think in sheet, the value-add finished products are probably through August and September and I think hot band, Dick, is --

August.

In August, pickled and oiled.

End of August.

And hot roll galvanized is in late August.

And --

Couple weeks.

Yes, into September, and so forth.

Yes.

And in terms of -- I don't know, additional price increases, is that something that's being contemplated or is it just sort of, kind of catching up with the ones that have already been announced at this point?

I think the market is certainly firmly entrenched and solid where it is and should remain at least stable there.

I think the, obviously, the market will dictate pricing going forward.

There is a little bit of a headwind currently, I guess, for great upward movement because of the spread between domestic and global pricing, but certainly would suggest it's stable to maybe slightly up for the rest of the year.

And then the last one actually, this is probably a tougher question with prices now going back up again.

But on the trade front, can you guys sort of talk about anything you're doing to kind of stem the tide of imports at this point or sort of how discussions went in Washington?

I would just say that we watch all of the products that we, that we produce and also ones that we supply to customers and we talk to our trade attorneys and we know that they also represent competitors of ours, and we participate in any and all trade cases where we believe we have a legitimacy and will continue to aggressively pursue what we believe are unfairly traded products that enter our markets.

All right.

Thanks, guys.

I think, Brett, the recent OCTG filing could be beneficial to us in sheet and (inaudible).

I think just generally, we would wish that the administration would just enforce, if nothing else, enforce the current laws.

We have a reasonably effective gauge relative to import licenses and our problem in this country is that we have to prove harm for any action is taken, as opposed to being a little proactive and utilizing the system that we have in place.

Thanks very much, guys.

Our next question comes from the line of Martin Englert with Jefferies.

Please proceed with your question.

Hi, good morning, everyone.

Good morning.

Was there a negative impact on results from the outages during the quarter and the previous inventory build in anticipation of those outages?

Well, needless to say, any time have you an outage, there is a negative impact because you're not producing, you're not compressing your fixed costs and so forth.

So of course.

We anticipated our outages.

They went as planned.

We were very satisfied with the durations and the extent of the expenses that were incurred.

And so they weren't negative as far as any surprises that resulted.

But from a financial perspective overall, of course, they were impacted.

But the results were as expected.

The only thing that I would add to that, they were particularly impactful only because of the two divisions that ended up taking their maintenance outage in April because they are two of our more profitable divisions at most times, which are our Flat Roll Division and Engineered Bar.

We also took outage at Roanoke.

We took outages as we require them in any of the divisions that had them scheduled.

So it just became more visible at those two, yes.

Are you able to quantify at all how much that impacted EPS overall for the quarter?

I'm not prepared to do that today, no.

Okay, and for the Magnetation operation and Mesabi there, is Mesabi beginning to see any benefit from the lower-cost concentrate yet?

I think it's starting to see benefit later in the quarter.

It didn't see full benefit, in all honesty, because the mine resource operation kind of struggled a little bit with the spring thaw.

It was the first time we've gone through that and we sank a couple of -- some pretty large pieces of equipment in the muck, and we will certainly stockpile and be prepared for that next year, next time around.

So the, the Magnetation material, mining resource material flowing to Mesabi Nugget wasn't at that, quite at that $50 a ton range.

But I think we'll see some continued benefit through the rest of the year.

Thanks.

I think what is worth talking about, Mesabi, because I'm sure it's going to be the question, a question at some point, but as I said, I think they have seen some significant progress since April in both availability and potential operating rates, and the transition actually there, or the focus is transitioning from sustaining present operating rate, I guess you could say, to reducing our consumption rates and getting our yields in shape such that we can be at the expected break-even by year end.

Thank you.

That's helpful.

If I could, one last question, just looking at the pickup in lead times there within the Flat Roll Division, and, I guess, how does overall utilization look across the steel operations now in July?

Well, as I say, they were masked a bit because of the outage that occurred, but we are running very well.

We ran our two casters basically full at Butler, so we're in the mid-90s, upper-90s at the Butler operation, so we're well set.

And I think currently, we would expect utilization to be similar to what we saw in the first quarter versus the second quarter overall.

Okay.

Excellent.

Thank you very much.

Our next question comes from the line of Evan Kurtz with Morgan Stanley.

Please proceed with your question.

Hi.

Good morning, everyone.

Just one on SBQ.

It seemed like SBQ market was firming up a little bit in April and it slipped a little bit in May and June.

Just wanted to get your thoughts there, what you are seeing as far as the destocking.

Is it mostly behind us, is there any restocking at all in sight?

And also, what sort of impact on the SBQ market could we expect from this OCTG case?

Well, from the inventory perspective, it remains steady.

It has improved slightly, but it's not as robust as anyone would like.

We continue to operate at the same rate at Pittsboro, but we continue to see a redefining of what products we are receiving.

We are constantly taking orders for qualification for products that we have not made in the past, but we will be making on the new mill once it's up and running, and so we are doing those tests in product deliveries and performance qualifications now and so we're satisfied with that.

But we're not running the mill shop during the day, during the weeks, and when we don't need to from a cost effectiveness perspective.

From the OTG standpoint, sure.

All SBQ suppliers will see the benefit of it because there is definitely an impact that will come as people become worried about being affected by the case and ramifications of the charges that occur, financial charges.

Great.

And then just maybe one on Mesabi.

We haven't talked about this in a long time, but I assume you're still pursuing the mining permits for the operations up there, for the, for the existing iron ore mine.

Is that something that's still kind of on your radar?

Is that where those stand?

I think given the activity at Mine Resources and their ability to supply all our concentrate requirements at a good cost, the priority, I guess, is lessened up there.

We do continue to pursue a permit.

We've got the rights and the land to eventually reopen there, so there's a lot of value in that mine that we could avail ourselves in the future at some point in time.

But I would say, yes, we are still pursuing, still on the radar screen, but not as actively, perhaps, as we were a year and a half ago.

Got you.

Okay.

I'll turn it over for someone else.

Thanks.

Thanks.

Our next question comes from the line of Curt Woodworth with Nomura.

Please proceed with your question.

Yes, hi.

Good morning.

Good morning.

Mark, I was wondering if you could comment on some of the divergence we're seeing in growth rates among the portfolio.

It seems like the bar markets are showing pretty meaningful year-on-year declines, whereas beam is flat, and the sheet markets showing modest growth.

Do you feel like that's indicative of just the fact the non-residential cycle is sort of stabilizing and maybe we're seeing, at least on the bar side more weakness and on the industrial equipment side?

I'm not so sure that we're seeing our bar side depreciate like that.

I think we're somewhat steady.

I think the, generally, our order rate at the structural is sort of steady to up incrementally.

It is, and to the point of the bar, like SBQ, it has rebounded, but stabilized.

Again, you're right, off road and so forth, because I think of worldwide command.

Many of our domestic customers do supply worldwide and when it cooled off in South America and in China and so forth, it became lower demand issue and definitely domestically because of the, needless to say, coal mining and so forth have really gotten damper.

But when you compare them with the flat rolled, it's a much bigger market, and as we have specialized in a number of products, even small improvements in the residential, garage doors and so forth, as those improve, the truck/trailer markets, those have strengthened due to distribution opportunities, we see that improvement both in Steel West Virginia and in Butler.

They correspond very closely.

And so those have strengthened in both of those arenas.

So, yes, there's some truth to what you're saying, but I wouldn't characterize the bar market as being, falling.

I think we've been very steady.

We don't see any rapid growth to it in the second half.

But we see it very steady and slightly improving.

Okay.

And, honestly, the largest decrease, I guess, would be Engineered Bar, year-over-year or first half over first half.

And we all recognize, I think, that that was associated with the inventory realignment.

And we're optimistic with our expansion with our new products coming on.

That will be a growth opportunity for us, and not necessarily the market, but we are always looking for opportunity to bring product differentiation into the marketplace.

Okay, and then just one final question on long product pricing.

Seems like the last couple of months you've seen more of a shift in the industry to settle bar and beam prices ahead of the scrap settlement and representing potential ship away from scrap surcharge mechanisms in the long products.

Do you guys see that happening?

Is that happening in response to trying to establish a price in the market that kind of regardless where scrap [settles] month-to-month, you'll have a price that will be competitive versus an import, which you identified earlier as seeing a little bit more pressure there at least in May?

I think the reasoning, obviously, [nickel] tends to be out there ahead of everyone else, and I wouldn't want to speculate on why they are doing it at this moment in time.

Okay.

Thanks a lot.

Our next question comes from the line of Michelle Applebaum with Steel Market Intelligence.

Please proceed with your question.

Hi.

Good morning.

Nice to hear all the progress.

I think this was the first time Mesabi Nugget has beaten your guidance and it looks like the numbers on rail were particularly good, SBQ.

Everything is kind of cooking in a market that's not.

So good for you guys.

Thank you.

I wanted to ask a question about what the outlook for the scrap market is.

And in particular, with Nucor starting up their DRI facility in the late third quarter, I was wondering if you could talk about what impact that might have on the scrap market as well?

Russ?

Michelle, I think, again, you've got to go through the start-ups and certainly that will have some impact.

But that predominantly, I think, will impact the pig iron, the other substitute markets.

Currently, the pig iron markets are showing some strength and the recent numbers that are being quoted for September/October delivery are actually up.

So I think until those plants come on line and start producing material that gets out in the marketplace it's just too early to tell.

Certainly, there's other factors that are going to impact scrap, whether the strength of the euro versus the dollar is going to determine where the Turks buy, and that will have a big impact, particularly on our footprint.

But, again, I think mill utilization rate is going to be a key driver we've got for scrap.

So you're saying that the DRI facility would not -- the start-up of DRI would not provide new capacity of, or impact supply of pig, for primes?

No, I think it will impact the supply of pig over time.

It's just a matter of how long it takes for that to get up and running.

Certainly, that's the primary target that that's going to displace, at least first.

Can you give me some idea--

I think we would imagine Nucor is going to displace the (inaudible), yes.

So wouldn't that depress pig iron prices?

It will either depress it or make it unaffordable to bring in.

Okay, and so wouldn't that lower your raw materials -- wouldn't that have a knock-on effect on primes?

It should impact it some.

Again, they will track, they will track -- it's all talking about iron units in the end.

It's whatever iron units, what the cost of an iron unit is.

So, certainly, any impact is going to move it up or down, depending upon what the variabilities are.

Does it depend on where --

But I think, Michelle, your point, perhaps, longer term is right on point, because we expect sort of a softening environment as iron ore starts to come off.

Obviously, there's an inter-connectivity between scrap and iron ore.

So that will bring it down.

We're going to have hopefully economic recovery in America, which is going to generate a little bit more flow.

And as Russ said, depending on where foreign exchange goes, but in a world where the American economy should rebound before everyone else one would expect that the dollar is going to strengthen and that's going to mitigate exports.

So, generally, I think longer term, we feel scrap is going to moderate.

By moderate, you mean decline?

Yes.

Yes.

Okay.

As a result of declining iron ore prices?

A combination of things, it just won't be just iron ore, but it's dropping the commodity prices, a mitigation from export, and slightly increased generation domestically as the -- our economy comes back.

Okay.

Have you talked about the conversation out there about a potential Turkish rebar case?

You'd have to say more than that.

Okay.

There's a conversation out there about a potential Turkish rebar case.

Is it coming and do you think there are damages and could you win one?

Was that good, Dick?

We're not -- we aren't a big enough rebar producer to really worry about it, participate in it.

I think the legal cost would surpass the earning that we make on a little bit of rebar we sell.

So we're not discussing it.

Okay.

Thanks.

I'll go back in the queue.

Thanks, Michelle.

Our next question comes from the line of Timna Tanners with Bank of America Merrill Lynch.

Please proceed with your question.

Yes, hey, good morning.

Good morning, Timna.

Can you please remind us of the timing and, if possible, some of the piece of benefit for the start-up of the rail expansion and SBQ expansion, when we should expect benefit and how much and when it will be fully on, if you could give us some of that timing detail?

Well, the SBQ construction, Dick and I were down there just two weeks ago, and as I said earlier, it's going to schedule right now, to budget, and they anticipate commissioning November to December this year.

And so I think you'll see ramp-up through 2014.

Barry and the team are doing a good job.

They are already pre-approving certain customer products applications.

So that hopefully will expedite the market penetration and it's -- I wouldn't call it a pioneering effort in any way.

It's standard technology.

The guys are more than familiar with the mills, the controls, the drives and everything.

So from an equipment start-up perspective, it should go very rapidly.

So our expectation is a good ramp-up there through 2014.

So annualized full start-up end of the year?

Sorry?

Sorry.

Just clarifying.

Annualized full start-up by the end of the year then?

Well, I never say full start-up by the end of the year.

It's not like you turn the key on and it runs.

There is always a learning curve with new equipment.

But we'll be, maybe, at the full rate by the end of the year.

That could -- Barry and his team are very optimistic, yes.

Okay.

Thanks.

And, sorry, I interrupted on the rail side.

That's okay.

Head on in rail, again, construction is in progress.

It's on budget.

It's on schedule.

Probably start seeing some product go through, Dick, sort of December, January?

Is that right?

Yes, sir.

Yes.

And so, again, ramp-up, ramp-up through 2014.

If you look at just the earnings catalyst for us, 2013 is a little bit of kind of an implementation year, and we have, I think, a lot of good things going on for 2014.

We should see some material change in the losses at Mesabi.

We are going to see the ramp-up at SBQ, ramp-up at rail.

Timna, all I would add about the rail is that is a new process and a new product for SDI, and that definitely will not be as speedy of a ramp-up in production and sales and so forth as the SBQ bars.

We're very optimistic about it.

We have full confidence in it.

But it is new for us and customers will always be a little more leary and they will want to see a little bit more testing and so forth, and we've been supplying them with prototype testing.

But it's always -- the proof's in the pudding of the final products, so there will be some skepticism.

And it will have to be earned.

So I just want to put a little cautionary note on that ramp-up.

Okay, good.

That's super helpful.

My second question was really about Mesabi.

I just was a little surprised given that there won't be an outage until the third quarter, I think, unless I missed it.

Why are you guiding to more flat to slightly improved quarter if you're going to be running better and have completed this outage?

Well, again, we are guiding to similar to a little better.

Obviously, we would like it to be a lot better.

But it depends on the rate of improvement in yield performance and the consumption of materials there, more than anything else.

Okay.

That makes sense.

Thank you.

Our next question comes from the line of Andrew O'Connor with BMO Asset Management.

Please proceed with your question.

Thank you.

Good morning, guys.

Mark, overall, how would you compare and contrast the current domestic market environment with the cycles the Company's been through since the crash in 2008?

If you were to boil it down to just a few lines.

Thanks so much.

I would describe it with optimism, I guess.

The -- the general -- the general market, I think, has a lot of good things going for it.

If you look at just the macro drivers out there compared to the crash in 2009, I guess, is what we're comparing it to.

Sure.

You've got automotive solidly strong, 16 million unit type rate, and our conversations with the automotive folks are suggesting that that can be sustained for some time to come.

As I said earlier, residential, and I guess my greatest optimism comes from the revamp in residential this year that we just haven't seen in '09, '10, '11, or '12, for that matter.

That is in my mind the foundation for a sustainable sort of jobs-based sort of economic growth.

And as I said earlier, it's beyond the macro market indices.

We're actually starting to see that in our order book.

Dick has seen it somewhat in the sheet business, in [studs] on (inaudible) HVAC and [rate] garage panel material.

Chris has seen a little bit of greater activity on the choice fabrication side of things.

So I think in aggregate, any one data point wouldn't necessarily make me excited.

But when you put them all together, I think things will, the momentum is positive.

And you couple that with the fact that the service center and supply chain inventory is at an incredible low.

I don't know what it is but it's the lowest it's been for several years.

I think, and I've said this before, but I think we're closer to an inflection point than a lot of people think, with an industry at a utilization rate at 79%, with service center inventories down at 2.3 months, they are living, or have been living off our short lead times, and as they start to stretch out, I think one will see a dramatic change as we did in, whenever it was, March/April time frame with 2011, when things got a little out of kilter.

They were short and we saw some great expansion of spreads.

Got you.

That's helpful.

Thanks.

And then, secondly, what would be the priority for any free cash flow generation by the Company in the second half of '13?

Thanks again.

Well, we're continually looking at our opportunities.

Obviously, I think we've done a pretty good job here recently paying down a little bit of debt.

We also increased our dividend incrementally earlier this year to bring a little value to our shareholders.

But I think we are squarely focused on, first and foremost, leveraging our existing assets through organic expansion.

You've seen the implementation this year of the SBQ, the (inaudible).

Smaller, but material, I think, the sheet correction line going in up in Butler, a few other little projects.

And I think Dick and the team has some other opportunities for next year, so squarely focused on really effective capital use of expansion.

And then, obviously, looking at potential opportunities either growing product, growing in other businesses.

Our next question comes from the line of Mark Parr with KeyBanc Capital Markets.

Please proceed with your question.

Thanks very much.

Good morning, guys.

Good morning, Mark.

Just -- Mark, and Theresa, I really appreciate all the color that you've given this morning.

It's been really helpful.

And actually, I think it is important to note the utilization rates continue to creep up in the face of very low service center inventories.

That could create some very interesting upside for the group, especially in light of the recent under performance that we've seen in the stocks.

But one thing, I was just wondering if you could add, and give a little more color on some of the cost reduction and productivity enhancements going on at OmniSource.

This is something a couple years ago that I think you had spent some time working on, and Russ has been very involved in that.

Just like to get an update there, if I could.

Russell?

Yes, Mark, good morning.

Good morning.

We continue -- as we look at the available marketplace and the economic dynamics that are involved in, across our spectrum, Mark, we continue to look at what the size of our business is versus the markets it is serving.

And, certainly, we had an awful lot of areas where we were probably overstaffed, and I think in the last couple of years, year and a half or so, we've made a concerted effort to right size our business to the markets that they serve.

And I think our team has done a successful job with it to try to get that in balance.

I think we're seeing the benefits of it.

If you look at the year last year versus this year, certainly, we are seeing that benefit as we're more aligned with what our markets are.

Again, our business is a trading business.

It's a buy/sell business.

So we've got to make sure we're keenly focused on it.

Again, our team has done a tremendous job of focusing on those markets that make sense for us.

And, again, moving away from those that don't.

Again, at the end of the day, we've got a certain amount of capital that's been invested in this and we've got to make the return.

I think the other thing, some of the other things we have done, we've continued to look at refining our downstream.

We've, this year, have got the benefit of two new automotive shredder residue plants, ASR plants, one in Toledo, one in Indianapolis, that have come on line very well.

They got bumped up a little bit with the Green Fence in China, but, again, our team continues to work on the resolution of that and I think those things will pay us, pay us dividends very well as we further segment the material and recover the material that was actually going in the landfills.

So projects like that, where we're tweaking and tuning our business opportunities, have worked well for us.

Mark mentioned the automotive rebound that has occurred in the last year.

And certainly that's had a benefit for us, as many of those customers that are our customers that we are buying material from are serviced or coming out of the automotive, as well as many of the customers we still sell products to.

So, again, we're trying to focus on the things that make sense for us, both short term and long term.

Russ, there was some -- if I could just ask a follow-up -- earlier, I would say in the April/May time frame, there was some discussion that the auto carcass collectors were withholding material from the market and just flows in general were a bit weaker than what people were looking for.

Could you give an update on how scrap folds are unfolding here for the June/July time frame?

Have they picked up from where they were later in the second quarter?

Mark, they have been steady.

They are not robust, they are not overrunning us, but they have been steady.

And so I think that's the best categorization for it.

I think the inventory in the scrap yards, inventories in the mills, mill scrap supplies, just like those service center inventories, are pretty thin.

So I think you've got almost direct pull from the consumer.

So as the mill rates ramp up, I think you'll see more scrap coming out of the fields.

But it has not been a concern, at least not in the last 60 days of being able to get the flows in.

Okay.

Are you seeing any material coming in from the East Coast, stuff that was originally headed for export markets and been reverting back to mills here in this country?

No, it's -- the answer to that question is, yes, particularly when the Turks find Europe much more attractive.

Again, they have got the ability to play the currency game between Europe and the US and when the US dollar gets strong, they are going to go to Europe.

So we did see, particularly early in the quarter, we did see a pretty significant impact of mills, of product flowing back off the coasts.

All right.

Do you see that continuing here in the third quarter?

Mark, I think we will see -- again, it's going to depend on those currencies and on the appetite.

I think the Turks are certainly the driver in that gate.

There has been some discussion or some rumors of Europe trying to restrict their scrap exports.

If that happens, that certainly will change the game with the Turks in a different direction.

But all that is all pure speculation.

Okay.

All right.

Thanks for the color.

I really appreciate it.

Good luck on the third quarter.

Thanks, Mark.

Our next question comes from the line of Chris Haberlin with Davenport Securities.

Please proceed with your question.

Hi, good morning.

Good morning.

Good morning, Chris.

You all have showed some nice growth off the bottom in engineered bar.

And I just wanted to see kind of what your outlook is there.

Can you maintain that trajectory or are you starting to see demand levels starting to flatten out?

We see it going up, continuing, so we're comfortable with that direction and there is no indication that it will flatten out.

Again, we started from a pretty low low, at the depths of the drop-off, but, again, we are very comfortable with the direction, with the pace, and with the expansion to help continue that.

I think, as Dick mentioned earlier, I found it a little exciting that the team down there is getting a lot of new interest with different products, different applications, as they are going through the approval process, parts that we hadn't necessarily been available to us before.

Just one general comment, I know, Chris, you didn't ask it in this manner, but when Mark and I making our trip to many of the plants, the enthusiasm across the board at Steel West Virginia and Roanoke, Pittsboro, we're making new parts.

Columbia City on the number two mill, we are developing new parts, new products at all of these and the enthusiasm is -- but we're not sitting around just waiting for a market to increase.

It's not going back to where it was.

We recognize the economy isn't going to be 2007 again.

So we're out there beating the bushes, looking for new opportunities, who is doing what, what parts and sections are being imported, who should we be going after and so forth.

So it's very enthusiastic, whether it be engineered bar, whether it be Steel West Virginia.

Roanoke is making new small [merchant sections A] and they are adding to their portfolio.

Columbia City, again, on the number two mill.

So, hey, whether it be engineered bar or others, we're very thrilled with the taste of product development.

So is it safe to say that your optimism is a function of both underlying improving demand trends, as well as expanding product, expanded product offerings?

Most definitely, most definitely.

As you may have seen -- sorry.

As you may have seen, again, Dick's point is absolutely on point, we've been challenging the teams to do just that, to use the creativity and the innovation that's driven us success in the past.

And as sort of an emphasis on that, you might say, you may have seen John Nolan transition to a high level product development position.

And, again, that is to try and identify for us what are the needs of the customers, what steels will the automotive guys need three, five years from now?

What can we do in paint, what can we do in appliance?

Trying to penetrate new markets, partner with our customers to get into that value add and keep ahead of the rest of the industry.

And then, Mark, you mentioned elevated long product import levels entering the second quarter.

How has that impacted margins and kind of what's your outlook for imports over the back half of the year?

Don't know relative to the rest of the year.

I think, structural (inaudible) picked up a little bit.

Interesting enough, I think if you looked at the service center shipments in June, structural was up, which, again, if you think there's a little bit more import here and service centers (inaudible) a little bit more it tends to solidify the thought that things are slowly, incrementally improving.

Where they are going to be going forward, I would hesitate to speculate.

It shouldn't be greater than where they are, there are no drivers for them to be greater.

That's going to be very fluid.

And as someone pointed out -- asked earlier -- there's going to be trade case discussion and there's so many external forces that are going to be influencing the desire to buy, the timeliness of it, the exchanges rates and so forth, that I don't know how you would speculate through the end of the year.

And then just last question for me.

As you look out into 2014, with the SBQ expansion and the rail expansion kind of wrapping up here at the end of the year, how do you all think about CapEx just directionally looking into next year?

Well, I'll jump on that real quick.

I've got a backlog of stuff I would love to present and I know there's limits.

So we are very creative on the steel side.

I know Chris and Russ also have theirs and there's limits to everything.

I think we're being very astute with what we're doing here.

We have a plan.

I think Mark is guiding us down that path, and so there's just lots of opportunities and we're trying to pick and choose them.

We're doing our maintenance where we need to.

We have focused very much this year on safety projects, quality projects.

We haven't looked at a lot of expansion projects.

We've done product expansions, but not necessarily capacity expansion because we have capacities.

We're trying to utilize the existing capacity that we have by bringing things to market.

But I just want to have fun and throw that out.

I'll just add to that.

We -- Dick's exactly right.

We're laughing, because it's usually the push/pull between he and I. But additionally, from a maintenance capital perspective, the Company can run at anywhere between $75 million to $100 million a year.

So it's -- when we decide that there's an opportunity to actually add bottom line benefits then we start to go outside of that.

And the hurdle rates that we do look at are internal rate of return of at least 15% and return on assets of at least 20%.

So those -- the projects that everybody has, they understand where they have to, where they have to get to from a hurdle perspective.

Mark, I don't know if you have anything to add?

No, I think that is well said.

Okay.

Thank you very much.

Our next question comes from the line of Brian Yu with Citi.

Please proceed with your question.

Great, thanks, and good morning.

Mark, it seems like at Mesabi Nugget the team there is making good progress and the needle is moving in the right direction.

With the 30,000-ton run rate guidance you guys are giving, that, obviously, takes the facility to 75% capacity utilization.

What -- how are you guys thinking about the next steps to get it closer to the name plate and perhaps begin to get a return on capital from that investment?

The recent improvements -- again, the confidence of getting to that 30,000 monthly run rate has been boosted here since April.

And that has been with, again, some of the equipment enhancements we made and also some process changes.

We have not yet implemented the option enrichment.

And, again, part of the downtime was to put in different burners for oxygen enrichment at the rotary-hearth furnace.

We're waiting on the installation of the actual option plant, which is going in, I think, as we speak and should be available to us.

So the expectation is the utilization of the oxygen should increase the thermal efficiency of the furnace and give us some boost in productivity to get us from the -- sort of a 360,000-a- year run rate up to the 400,000, 425,000 that we had mentioned.

I think we also mentioned that the original sort of capability of 450,000 to 500,000 is going to be a long way out.

So our target is, again, by the end of the year, kind of a 360,000 annualized rate and then get it up to the 400,000, 425,000-ish, 450,000-ish, something like that.

Okay.

So the oxygen enrichment, that's helping you get to the 360,000 already, or is that going to take you from the 360,000 to 400,000 to 425,000?

No, the expectation is that gets us beyond that 30,000-a-month rate.

Got it.

And a separate question I've got is on the nonferrous recycling, where you guys had some margin squeeze in the quarter, can you remind me, I thought you guys had hedged out your metal exposure historically, so that you're making that a constant spread on the product.

Is that not correct?

We hedge out the marginal spread at that moment in time, but unfortunately, the spreads that we're hedging to are contracted.

You can't, you can't mix your margin, the same margin indefinitely.

The margin will move with the market.

We're just not taking risk with either too much inventory supply or too many fixed contracts.

So we're keeping a flat book, but that margin contracts and expands.

Okay, and the way it's reported, are there mark-to-market losses on those hedge positions that flowed through this quarter, or are they treated as operating cash flow hedges so there's no mark-to-market?

No, there is a mark-to-market that flows through the quarter.

And if you look at this third page of our press release, we give it to you for each period.

This quarter, we had unrealized loss of $1.6 million.

Okay.

That compares to a $700,000 gain in the first quarter.

Okay.

Great.

Thank you.

Our next question comes from the line of John Tumazos with John Tumazos Very Independent Research.

Please proceed with your question.

Thank you for taking my question.

Good morning, John Tumazos.

Good morning.

My question concerns the Green Fence in China.

Other than radioactive steel scrap, it would seem to me that the dirtiest grades of scrap in any metal are cleaner than virgin output.

So the Green Fence isn't really green.

Do you think that it's just a tact by the Chinese to cause number two or three grades of scrap in each metal to trade at bigger discounts so they can buy at cheaper prices, or do you think they also have such a weak economy that they don't want the scrap, or are trying to protect their aluminum smelters or their copper smelters, or there's -- from competing scrap supply?

Clearly, scrap is green.

I can't believe you're being cynical, John, relative to the environmental wherewithal of China.

But, Russ, do you want to tackle that?

Yes, John, I think one of the driving factors was when the new Premier, or the leader of China went out to, for his opening ceremony, he couldn't see the crowd.

But, again, the Green Fence is actually -- what they are doing, it's not new regulations.

They are actually just enforcing the regulations that are on the books.

What they are really trying to avoid is everybody exporting their trash into China.

Certainly, I understand it.

Certainly, as we work through, we've got the capability of cleaning it up.

But the material that was traditionally exported to China, it certainly was the stuff that we couldn't find at home without adding a lot of cost to in the US.

So is there a bit of cynicism in it?

It could be, it could be partly due to trying to regulate the flow.

But I think as those LME warehouses draw down, they will have to open up again.

And, quite frankly, us included, the scrap industry is going to have to deal with the reality that you're going to have to provide a product that matches up to those specs or face the consequences.

And we've been very diligent in getting to the point where we can do that on a consistent basis before we start going back in there in a big way.

So we're working through that process.

Others may or may not decide to take that chance.

But, again, it's just one of those things --

Now, during better times, the Chinese loved to have containers of electronic scrap so that they could have cheap labor dismantle it and get the copper, or the precious metals, or whatever.

So it would seem like something is different that they don't think it's economically to their benefit to do that anymore.

Well, they are trying to raise the metallic content of what they are buying, so, again, they are not buying a bunch of trash.

I think that's part of the drive towards green in China to try to limit some of the air pollution that they have got.

Again, I was watching CBS News last night and they had an article and you couldn't see the Imperial Palace hardly because it's terrible.

So I understand it was a part of the emphasis, but, again, it's our duty as a supplier to react appropriately and provide the customer with what he wants.

Just one final comment.

I wanted to agree with Michelle that you should sue the Turks.

And my father would have suggested much more.

Thank you.

Thank you, John.

Have a great day.

Thank you.

Have a good one.

Our next question comes from the line of Charles Bradford with Bradford Research.

Please proceed with your question.

Good afternoon.

I guess it's still good morning.

Good morning.

Okay.

A simple question.

Do you have any idea how much of your hot rolled ends up in oil countries, tubular goods?

I understand the difficulty because the pipe mills can vary between making line pipe and OCTG pretty readily.

We're not really a strong pipe and tube supplier, Chuck.

I can't give you the number, but it's not something we focus on because that tends to be the bottom end of the market.

Yes, we don't -- we make X52 and we have dappled into making stronger grades, but it's not something that we pursue very much and so we don't focus on it.

So we don't have access to the river to be shipping down to the Houston market into the tubers.

We have some tubing customers but it's not a big market for us.

I could research it or something, but I don't have any kind of number or even good [guesstimate] for you, Charles.

Well, if you don't know, then it probably isn't important.

It's definitely not.

If that's an acceptable answer, that's my answer.

Okay.

Another question --

Probably, probably, as importantly, it's probably Pittsboro that -- seamless.

Yes, if there's Pittsboro, energy products there, both couplings and line pipe and mechanical pipe and tubing for the energy industry.

We do quite a bit there.

Then maybe that's where the question should have been.

How much of the Pittsboro output ends up in the energy market?

Off the top of my head, I want to say it's something like 10%, but it could be as easily 15%.

I don't know.

I can research it, Charles, and send you an e-mail.

I would be happy to.

But, again, it's fluid.

It's been fluid.

But I'll send you an e-mail.

Okay.

In another area, there's been some talk around the industry about high strength rebar.

Have you seen any penetration of the market by this product or is it something you might be interested in?

There is a conversation about it, we've had discussions with -- with people with the technology.

We actually produced it as a, on a tolling basis at Pittsboro years ago and just got paid to produce it.

So we're experienced with the product and now I know, I know the individuals and so forth and the companies.

And we've had discussions with them.

So we continue to look at it.

We continue to consider the changing marketplace, the different DOTs, the applications, both in construction and in highway, and so, yes, we're aware of it and we have interest, but we haven't done anything with it.

Okay.

I'm assuming that next year when you're facing the large redemption potential or maturity on the convertible, which is, I guess, around $17.50 a share, something like that, that you -- because of your unused revolver, you can use that to pay it off, if necessary, or would you delay some CapEx to see just which way that goes, because your stock could up go to $17.50 or above?

Yes, the strike price now, Chuck, is $17.21.

Okay.

And as I mentioned, given the strength of our cash flow generation, too, because right now we still have $244 million of cash on the balance sheet, and given the generation expectations for the rest of this year, and with no meaningful maturities in the interim, I could see us easily paying that back with cash on hand and revolver.

But, obviously, when we look at all the capital projects Dick's got in his back pocket until November, that's something we'll be mindful of as well.

Because we're looking at always keeping an appropriate capital structure in line with our growth projects.

Well, thank you very much.

Good luck.

Thank you.

Thank you, Charles.

That concludes our question-and-answer session.

I would now like to turn the call back over to Mr. Millett for any final and closing remarks.

Just, thank you, Christine, and thank you, everyone, for your continued loyal support of our Company, and most importantly, to two other constituents, our customers.

We certainly appreciate your loyalty and support and, again, to our employees, thanks for the phenomenal job that you guys do, and from each and every one of us, just be safe out there.

Have a great day.

Bye-bye.

Once again, ladies and gentlemen, that concludes today's call.

Thank you for your participation, and have a great day.