Steel Dynamics Inc Q1 FY2024 Earnings Call

Good day, and welcome to Steel Dynamics First Quarter 2024 Earnings Conference Call. Please be advised this call is being recorded today, April 24, 2024, and your participation implies consent to our recording of this call. If you do not agree to these terms, please disconnect. At this time, I'd like to turn the conference over to David Lipschitz, Director, Investor Relations. Please go ahead.

Thank you, Matthew. Good morning, and welcome to Steel Dynamics First Quarter 2024 Earnings Conference Call. As a reminder, today's call is being recorded and will be available on our website for replay later today. Leading today's call are Mark Millett, Chairman and Chief Executive Officer of Steel Dynamics; Theresa Wagler, Executive Vice President and Chief Financial Officer; and Barry Schneider, President and Chief Operating Officer. The other members of our senior leadership team are joining us on the call individually. Some of today's statements, which speak only as of this date, may be forward-looking and predictive, typically preceded by believe, expect, anticipate, or words of similar meaning. They are intended to be protected by the Private Securities Litigation Reform Act of 1995 should actual results turn out differently. Such statements involve risks and uncertainties related to integrating or starting up new assets, the aluminum industry, the use of estimates and assumptions in connection with anticipated project returns, and our steel, metal recycling, and fabrication businesses as well as to general business and economic conditions. Examples of these are described in the related press release as well as in our annually filed SEC Form 10-K under the heading Forward-Looking Statements and Risk Factors, found on the Internet at www.sec.gov and, if applicable, in any later SEC Form 10-Q. You will also find any referenced non-GAAP financial measures reconciled to the most directly comparable GAAP measures in the press release issued yesterday entitled Steel Dynamics Reports First Quarter 2024 Results. Now I'm pleased to turn the call over to Mark.

Super. Thanks, David, and good morning, everybody. It's good to be with you for our first quarter '24 earnings call today. Once again, our teams achieved a strong first quarter financial and operational performance. Quarterly steel shipments were a near-record 3.3 million tons. The team successfully began operating our 4 new value-added flat rolled steel coating lines, which adds about 1.1 million tons of higher-margin product diversification to our portfolio. The Sinton team continues to make significant headway hitting record milestones and achieving positive EBITDA for the quarter, with significant improvements on the way. And we're also making fast progress on our aluminum flat rolled investments. There continues to be strong commercial support for a new and innovative supply chain solution provided by Steel Dynamics, as we are a well-known and highly regarded metals producer. And financially, the team continues to excel. They consistently achieve superior financial metrics and best-in-class return on invested capital. It's a product of the passionate can-do performance-driven culture and our high-margin value-added growth strategy. A stark and persuasive indicator of the effectiveness of our business model is our relative EBITDA per employee generation, which is substantially higher than any of our competition. I'm incredibly proud of the Steel Dynamics team. They are the foundation of our company, and they drive our success, and I'm proud to stand among them. They are special, and we're focused on providing the very best for their health, safety, and welfare. We're actively engaged in safety at all times and at every level of our company, keeping safety top of mind and an active conversation each and every day. Despite excellent safety performance compared to industry peers, there's more to do. We will not rest until we consistently achieve our goal of zero injuries.

Thanks, Mark. Good morning, everyone. Thanks for joining us. I add my sincere thanks to our teams for another strong performance. Our first quarter 2024 net income was $584 million or $3.67 per diluted share, with adjusted EBITDA of $879 million. First quarter 2024 revenue of $4.7 billion was 11% higher than sequential fourth quarter results, supported by strong volume and higher realized selling values across the steel platform. Our first quarter operating income of $751 million was 45% higher than fourth quarter results, driven by steel metal spread expansion, especially within our flat-rolled operations. A quick note, as we construct the aluminum facilities, non-capitalizable expenses are required to flow through SG&A until startup. So you will see increased costs in that line item as we start operations mid-2025. In the first quarter, that additional amount was about $14 million. As we discuss our business this morning, we see positive industry fundamentals for 2024 and beyond, and we're focused on our continued transformational growth initiatives. Our Sinton, Texas flat-rolled steel division operated close to 70% of capacity for the quarter, and, as Mark said, generated positive earnings. Our steel operations generated strong operating income of $675 million in the first quarter, supported by near-record shipments and increased realized product pricing. For those of you tracking flat-rolled products by type, in the first quarter, hot-rolled shipments were 1.62 million tons, cold-rolled shipments were 130,000 tons, and coated shipments were 1.22 million tons. Operating income from our metals recycling operations was $23 million, significantly higher than sequential fourth quarter results as increased domestic steel demand supported higher volumes. As many of you already know, we're the largest North American metals recycler, processing and consuming ferrous scrap and nonferrous aluminum, copper, and other metals. The team continues to effectively leverage the strength of our circular manufacturing model, benefiting both our steel and metals recycling operations, as well as shortly, our aluminum flat-rolled operations. Our steel fabrication segment achieved strong operating income of $178 million in the first quarter, lower than sequential fourth quarter results due to weather impacts and seasonally lower shipments and metal spread compression as realized pricing declined and steel raw material input costs increased. Our joist and deck backlog extends through the third quarter of 2024 with strong forward pricing, and pricing has stabilized at historically strong levels during the quarter. Infrastructure Inflation Reduction Act and DOE decarbonization support and manufacturing onshoring are expected to increase domestic fixed asset investments later this year and into next year, which will support our steel operations and our fabrication business. Our cash generation continues to be strong based on our differentiated circular business model and highly variable cost structure. During the first quarter of 2024, we generated cash flow from operations of $355 million, which was reduced by an annual company-wide profit-sharing contribution of $265 million. We ended the quarter with strong liquidity of $3.1 billion. For 2024, we believe full year capital investments will be in the range of $2 billion, of which approximately $1.4 billion relates to our aluminum flat-rolled investments and $175 million toward our biocarbon facility. In February, we increased our cash dividend by 8% to $0.46 per common share, continuing our increasing dividend profile as through-cycle cash flow grows. We also repurchased $298 million of our common stock, representing 1.5% of our outstanding shares. At March 31, $1.1 billion remained available for our share repurchases under our new $1.5 billion plan. Our capital allocation strategy prioritizes high-return strategic growth with shareholder distributions comprised of a base positive dividend profile that's complemented with a variable share repurchase program. While we remain dedicated to preserving our investment-grade credit designation, our free cash flow profile has fundamentally changed over the last 5 years from an annual average of $540 million from 2011 to 2015 to currently $2.9 billion. We've strategically placed ourselves in a position of strength to have a sustainable capital foundation that provides the opportunity for meaningful strategic growth and strong shareholder returns while maintaining investment-grade metrics. We believe our track record proves itself with an average 3-year after-tax return on invested capital of 32%, clearly a best-in-class performance across industries. We're squarely positioned for the continuation of sustainable optimized long-term value creation. Sustainability is also a significant part of our long-term value creation strategy, and we're dedicated to our people, our communities, and our environment. We're committed to operating our business with the highest integrity. In that regard, we remain excited about our joint venture with Aymium, a leading producer of renewable biocarbon products. We believe our first joint venture facility, which we plan to start operating late in the fourth quarter, could decrease our steel Scope 1 greenhouse gas emissions by as much as 35%. We have an actionable path toward carbon neutrality that is more manageable and, we believe, considerably less expensive than they lay ahead for many of our industry peers. Our sustainability and carbon reduction strategy is an ongoing journey, and we're moving forward with the intention to make a positive difference. We plan to continue to address these matters and continue our leadership role moving forward.

Thanks, Theresa. Our steel fabrication operations performed well in the first quarter, achieving strong earnings. At the end of the first quarter, our steel joist and deck order backlog was solid, extending through the third quarter of 2024. Additionally, current pricing has stabilized at historically high levels during the first quarter. We continue to have high expectations for the business. Continued onshoring of manufacturing, coupled with infrastructure spending and fixed asset investment related to the IRA programs, should provide momentum for additional construction spending later this year and through 2025. Our fabrication platform provides meaningful volume support for our steel mills, critical and softer demand environments, allowing for higher through-cycle steel utilization compared to our peers. It also helps mitigate the financial risk of lower steel prices. Our metals recycling operations improved earnings in the first quarter as increased demand from North American steel producers supported higher ferrous scrap volume and the team continues to grow our volume and recycled aluminum in advance of starting our new aluminum flat-rolled operations.

Thanks, Barry. Thanks, Theresa. Well, consistently strong through-cycle operating and financial performance continues to support our cash generation and growth investment strategies. As mentioned, the 4 value-add flat-rolled steel coating lines are now online and in various modes of startup. And certainly, the line in Sinton was an absolute unqualified success. The team has done a phenomenal job there. And Sinton should see a step function improvement in operations and profitability as those 2 new lines ramp up after the April maintenance, which occurred actually 2 weeks ago, and they're up and running again. The aluminum strategy, our growth is especially compelling. Responses from existing and new customers across all markets remain incredible and only strengthening as we move forward. We are currently in discussions with numerous customers who wish to locate on site with us, and this co-location strategy provides a sustainably competitive model for all of us, conserving time, money, and reducing emissions across the supply chain. And this model has already proven itself tremendously successful in Sinton. And to just sort of review the project itself, 650,000 metric tons of aluminum flat roll capability in Columbus, Mississippi, the state-of-the-art plant, has served the sustainable beverage and packaging sector, automotive and industrial markets as well. The roughly 300,000 metric tons a year of can stock, about 200,000 tons of auto and 150,000 tons of industrial and construction. Actually at the site in Columbus, we'll have a metal cast slab capacity of around 600,000 metric tons and that will be supported by 2 satellite facilities, one out west around Gila Bend and one in Central Mexico, which are located in scrap-rich regions. We can capture the scrap, turn it into the cast slab, and transport it very effectively and cost-efficiently to the mill itself. Expanded the project scope to include additional scrap processing and treatment to maximize aluminum recycled content. The metals recycling team has also developed a commercially viable sorting solution at volume for 5000 and 6000 series aluminum scrap, which represents an incredible competitive advantage for us. Our startup plans have not changed. The rolling mill should be operating mid-2025, the Mexico Slab Center at the end of '24, and then Arizona mid-'25. The total project cost, including the recycled slab centers, remains at $2.7 billion. And with virtually all equipment and construction contracts complete, we feel confident in the expected amount of investment. We also are confident that it will add around about $650 million to $700 million of through-cycle annual EBITDA plus an initial $40 million to $50 million from the Omni platform as well. The investment premise, if you think about it, the market environment is similar to the domestic steel industry when we started SDI 30 years ago. They have older assets, they've had difficulty earning their cost of capital. So there's been a little reinvestment, heavy legacy costs, inefficient operations that are typically high cost. And also, a significant aluminum flat-rolled supply deficit exists in North America, which is expected to grow. And this will be the first time we've ever entered a market where there's a supply/demand gap, which is pretty positive for us, for sure. We have business alignment, and we can leverage our core competencies of construction and operational know-how. We can leverage Omni's recycling footprint. As many of you know, we're the largest aluminum scrap recycler in North America. And again, we are developing some pretty exciting new separation technologies. So it's going to be cost-effective. It's a very high-return growth for us. Moving on, I think by our future growth plans, as they will continue to drive the high-return growth momentum we have consistently demonstrated over the years. We have the highest, most recent 5-year average after-tax return on invested capital within the S&P 500 materials companies. And in the most recent 3 years, we have had an average of after-tax return on invested capital of 32%, which I think is a stunning number and an affirmation of the ability of all our team. Our disciplined and intentional growth strategy, focused on differentiated value-added supply chain solutions, has provided sustainable and growing cash generation, and we'll continue to do so in the future. So I'm incredibly optimistic moving forward. I believe the market dynamics are in place to support increased demand across our operating platforms in '24. North America will benefit from continued onshoring of manufacturing businesses. And the U.S. will benefit from the allocation of public monies from the infrastructure program, the Inflation Reduction Act, and other public programs. Steel Dynamics is positioned to benefit from those programs through increased steel joist and deck demand, flat and long product steel demand, and the associated higher demand for recycled scrap and aluminum. As I said earlier, our teams are our foundation. I thank each and every one of them for their passion and their dedication. We are committed to them. And I remind those listening today, the safety for yourselves, your families, and each other is our highest priority. Our culture and business model continue to positively differentiate our performance, leading to best-in-class operating and financial metrics. We're no longer a simple steel company. We're an industrial metals business providing enhanced supply chain solutions to numerous industries that are essential to global economies. This differentiation and diversification mitigates cash generation volatility in all market cycles, as we've just seen in this past quarter. We are competitively positioned and continue to focus on providing superior value for our companies, for our customers, team members, and shareholders alike, and we look forward to creating new opportunities for all of us today in the many years ahead. With that said, Matthew, could you open the line up for questions, please?

Your first question is coming from Martin Englert from Seaport Research Partners.

Within steel, conversion costs appear to have declined a bit quarter-on-quarter. Taking into account Sinton's continued ramp-up and substrate costs going into 2Q, would you anticipate a comparable reduction in the current quarter?

Martin, the way that you and others are able to calculate what you call conversion costs is a little bit difficult. But yes, with the increasing production at Sinton, which we expect to continue to improve into the second quarter and the second half of the year, you will see that the additional volume will help compress costs across the spectrum, but product mix is also something that you need to take into consideration when you think about flat versus long. But we would expect to see that the conversion rate, as you calculate it, would continue to reduce. I can't speak to the exact magnitude thereof.

Your next question is coming from Curt Woodworth from UBS.

Can you provide a timeline for when you expect to reach EBITDA breakeven for the greenfield aluminum project and what utilization rate would be necessary to achieve that? Additionally, can you update us on the level of commercial commitments or arrangements you have secured so far? Lastly, I noticed you maintained the CapEx guidance at $2.7 billion, but there are some concerns about general inflationary pressures. Are you experiencing any upward pressure on the CapEx number, and are you confident in keeping it at $2.7 billion moving forward?

I'll go backwards. That's the easier way. From a CapEx standpoint, as I mentioned in my sort of preliminary thoughts, virtually everything is now contracted out. We did, and you saw here some months ago, we did bump it up to that $2.7 billion with the knowledge of some inflationary pressures. Those are all baked in to that $2.7 billion, and we see no expansion on that number going forward. From a commercial arrangement perspective, we've been working, obviously, with the major sort of beer can or the beverage can consumers. We've been working with automotive as well. And we're pretty confident that we have the ability to match our customer demand with the ramp-up curve. And as we also mentioned, operations should start mid-'25. There will be some qualifications early on, but we're confident that we can match the demand from those customers with that start-up ramp. From a standpoint of EBITDA breakeven, I would imagine that from the end of the year, I would hope we are in that position.

Okay. And then just a quick follow-up on fabrication. Last quarter, you talked about order entry improving and pricing continues to be stable. But obviously, there's still downward pressure in the business. Can you just give us a sense for maybe volumetrically, how you see things performing into 2Q? I know 1Q is always seasonally weak, and there was some weather-related disruption, but do you think you can get close to getting back to positive growth in fabrication? And then just in joist and deck in general, can you give us a sense for maybe how those products fit into some of these federal programs in terms of the CHIPS Act, IRA battery plants? Do you see any new sources of growth that could mitigate what's been somewhat of an air pocket on the warehouse side?

Yes. From our perspective, shipments kind of leveled off at pre-COVID levels in Q4 and early Q1. We've seen some general seasonality and a few regional weather impacts. However, booking rates increased in March and have risen significantly again in April. Backlogs are about 6 months. We consider this to be a volume trough, and we expect volumes to rise in the second quarter and throughout the year. It's also worth noting that there has only been slight quarter-over-quarter price erosion. The strength in the market supports our belief that there has been a paradigm shift in through-cycle spreads. We hold a very positive outlook on the long-term prospects for fabrication.

I want to highlight something in addition to what Mark mentioned. If you consider that volumes are, as Mark pointed out, at a pre-COVID level, earnings were still around $1,200 per ton from an operating income perspective. Historically, during a very strong market, that figure might have been between $150 and $200 per ton. This indicates a significant structural difference and supports our theory that there has been a structural shift.

There is significant work required at the beginning of the CHIPS Act and the IRA Act. Once project owners and engineering firms are chosen, steel products will begin to flow, particularly joists and decks. Once a concrete plan for construction is established, the timeline for orders is relatively quick, typically within a 3- to 6-month window for shipping. We are optimistic about the communication we are receiving from general contractors and fabricators in the market. Therefore, we believe that the second half of the year will see an influx of these projects transitioning from the conceptual stage to actual construction.

Just maybe continuing with the discussion. The long steel volumes declined quite sharply or meaningfully year-on-year. Can you maybe provide more color as to the different end markets within construction and infrastructure that may be leading to this decline? Clearly, the backdrop for the coming years, for sure, is quite solid. But at least in the first quarter, the numbers just weren't there. So any color on the different construction markets would be great.

Carlos, I would say, as you look at the mix across line products, as we make sections that are lighter sections, that's more responsive to what the marketplace is right now. So we've had a pretty robust level of order input. And Structural and Rail has performed pretty well. We tend to balance between our rail production and our structural production. And I think in general, I would say the market space has changed from one where a lot of fabricators were directly going to mills to more of a service center type relationship. And that's, again, a more historical way to go into the market, after the busy years for the last several years with construction spending. So we see a good response from our customer base, and we have healthy backlogs in our long products right now.

And if I may ask another one on the aluminum project. Have you been able to already secure contracts with some of your customers, or is that still undergoing in terms of discussions with them?

Carlos, that's still under discussion. Obviously, it's a new mill. And so there's a balance between them making sure that they feel confident that the volume is going to be there. But as I said earlier, we have commitments in place that will support, in large part, support the first 12 to 18 months of our ramp-up.

I'm going to rephrase Carlos' question regarding the long product segment. The volumes appear to have significantly decreased compared to last year and the same period last year in the first quarter. Based on your response, it seems there is still strong demand. Should we consider this a temporary dip due to potential weather-related issues, with the remainder of the year aligning more closely with previous years? Or has there been a shift in your perspective on the long products across various divisions like structures and bars?

I believe that much of the situation is influenced by seasonality and weather-related challenges. Recently, there were some price adjustments in the market. However, this wasn't driven by market pressure, but rather the result of some previous discounting that affected the marketplace. We are optimistic about the outlook for the remainder of the year in that area.

Yes, Timna, all 4 of the process lines at this point have actually run product. We staged the start-up to best utilize our teams and also to really focus on improving the start-up process for the other lines. So a paint line in Terre Haute is up and running well, shipping prime product. We expect that, that ramps up through the second quarter, third quarter, getting up closer and closer to what the final production will be. On the converse, the new galvanizing line down in Sinton actually started up very well. It started up in January and is solidly contributing at a very high rate already, which, as Mark said, the team has done a fabulous job getting that line making quality like that so quickly. We have an all hands-on-deck approach. So all the other mills are supporting the team. And we're continually moving people through to keep the energy high. So I see the second galvanizing line in Terre Haute coming up Q2 into more operational status and progressing to the end of the year, the paint line through Q2 through Q3 at Terre Haute. And then the new paint line in Sinton, Texas will actually be maturing to the end of the year. So all 4 units will be contributing soundly in the second quarter and progressing through the third, fourth quarter.

On Sinton, can you provide a bit more color how we should think about the utilization rates in the rest of the year?

As we had talked, we're about 70% through the first quarter. We did take some time for a significant outage in April that was planned to, among other things, address the power problem we had with the primary side voltage at the plant. So we see a really good path to 80% progressing through operational by the end of the year, getting up in the capacity. In front of us, we see better and better performance, routine performance every day. So as the team encounters challenges, they work through them quicker. And through all this, they remain a very safe operation, which is so important during start-up. So the team is in place, and the new assets will allow us to provide the best mix possible upstream so that the efficiency of the plant can really be explored further. So we continue to be very robust on where we're going and the success of the team.

Maybe I missed this, but was there a power issue during the first quarter?

We discussed the primary side power issues last year and the need to replace some transformers, which have long lead times. Our team found some shorter-term solutions that we implemented during the outage. Now that the outage is over, we can install the new equipment safely. We aim to enhance transformer support for the plant’s full operational capacity. Currently, we've been limited to about 80% of the melting furnaces’ power capability, but this upgrade will help lift that restriction. We expect to have it fully operational between now and the end of May. The recent outage was crucial for completing construction on the high-voltage bus, which required turning off power to the entire plant. While it’s unfortunate that these items take a long time to procure, we've addressed the situation that contributed to the delays. We're very optimistic that this issue will soon be resolved.

Mark, Theresa, Barry, thank you for the update today. Could you share your views on the recent robust CRC and HRC spreads? What do you think is driving that? I know you prefer not to guide on pricing, but what are your thoughts on how that might look in the future?

I will start. I would just reiterate what I've always said in past calls. Coated products are gaining more and more market share just generally. And there are some pretty dynamic changes within the marketplace that is even added to that. If you think about the solar market, which is absolutely huge today. You're consuming around about 25 tons of coated product per megawatt. And again, we're selling Nextracker and a whole bunch of folks. I think we're something like 300,000 tons a year or thereabouts or even higher into that marketplace. And that's coated flat roll, people turn that into tubes for the support structure of solar. So there are more and more applications being served by coated products today. It's a tight market, and it's supporting the higher spread.

I'd like to add to that, Mark, too, that the teams have been diversifying our coated profile. So we have many different kinds of coatings that we offer. And those various product lines provide a very good supply solution to our customers. So the whole supply chain has been maturing for these products, and it allows us to move our tons to balance our production needs as well as where the markets are interesting. So, we continue to believe that the spreads between coated and hot roll will be attractive. And it's an area where we've really invested quite a bit of money over the last several years to make sure we have the right capabilities at our disposal and the right supply chain solutions for what the customers are asking for.

Could you provide more details regarding the fabrication order backlog and pricing, which you've mentioned is above pre-COVID levels? Is it accurate to say that pricing for your new bookings and backlog is aligning to some degree, and how does that compare to the levels in 2023?

Lawson, I don't think that we're talking about comparing to 2023 levels. I don't know if you were speaking specifically about pricing if you are speaking about volume. But the pricing that's in the backlog and the current spot pricing that we have, they are converging, to your point, which would be expected as pricing stabilizes.

Your next question is coming from Tristan Gresser from BNP Paribas.

Yes. Maybe a quick follow-up just on the fab business. It was my understanding we should have seen some further moderation in ASP in Q2. You talk about the backlog stability and forward pricing, et cetera. So is this still the base case that we should see another leg down in Q2 before we stabilize?

Tristan, this is Theresa. We are not providing specific guidance on any of our segments from an earnings perspective, but I can discuss certain factors. As Mark mentioned earlier, we expect to see higher volumes in fabrication steel and mills recycling as we progress through the year, which is typical in the second and third quarters as we transition out of seasonality into stronger demand periods. We fully anticipate this growth. Additionally, we foresee potential support from public funding, likely becoming more significant in the second half of the year and even more impactful in 2025, which will drive demand for fixed assets and increased volumes. Regarding pricing in fabrication, we expect the differential in pricing to narrow as it has been stabilizing, particularly in the middle of the fourth quarter, and this trend will likely continue into January, February, and March. It's important to consider that price differential we have discussed. On the topic of steel input costs, they typically maintain about eight weeks of inventory, primarily flat rolled. Therefore, as pricing shifts in the first quarter, those input costs will carry over into the second quarter as well.

Okay, that's really helpful. And maybe another question on the situation in Mexico. You kind of have a unique perspective there; you sell quite some volumes in the country, you're building in the country, but you're also a U.S. steel producer first. So, I mean, the situation, the U.S.-Mexico situation kind of worsened a bit on the trade front, talks of tariffs, retaliation. So what's your view on the latest development? Do you believe that the situation could worsen? And what are kind of your options if it does happen?

Well, today, we haven't seen any, I don't believe, Barry, any direct impact to our business. We grew substantial market share in Mexico last year. We shipped, I think, 600,000 tons or so down there. I think it's more of a wait-and-see situation. It's sort of a tit for tat going back and forth. But I think again, just as you saw with the U.S. MCA some years ago, the U.S. and Mexico are huge trading partners, and these things get worked out.

All right. That's clear. And maybe just the last one. You mentioned in your outlook in your prepared remarks that you expect lower imports. Can you discuss that a little bit? And there have been some discussions at the high level between the U.S. and Europe of potential carbon-based tariffs. Do you believe that's still on the table and that could potentially materialize depending on who is the next president in the United States?

Well, I think our position on the carbon border adjustment mechanisms, we don't see any meaningful change in American policy. There definitely is a lot of interest in Europe, and the EU will continue to go forward with their plans. After the election, we would expect that there will be some kind of a united front to find out how to keep trading with Europe. We do believe that's a good thing for us as these develop, particularly with our incredibly low sustainability position. So we have a great position to lead into these kinds of tariffs. We do see certain coated products moving into the country that are concerning. And as we address those through our downstream distribution and our customer base, we are aware of where certain products are moving in the country. And we do see certain areas where it's elevated. And we're doing our best to respond to that competitive challenge, as other economies kind of flush towards us when they get soft where they are. So, we're always monitoring it. There are solutions we'll look at, but we take that on a day-by-day basis.

Your next question is coming from Will Peterson from JPMorgan.

Great job executing this quarter. I want to discuss some of the reshoring trends and the data center expansion. There has clearly been a significant increase in data center activity. However, we are also seeing that warehouse performance remains challenging. My question is about the typical steel intensity seen in data centers and how that opportunity stacks up against warehouse opportunities, especially now that we've seen some normalization.

Bill, this is Barry. Each project is quite unique with numerous variables involved. We supply materials for various types of projects, and the specific requirements from the owner and the location of the data center influence the steel intensity. Generally, the construction packages are not drastically different from those in warehousing. It really depends on the project location and its design. Our ability to adapt and offer solutions for different general contractors and engineering firms is key. For some projects, there may be less need for steel but more design work, while others might have straightforward designs requiring larger quantities of steel. There is significant variation among these projects, making it challenging to provide a standard answer. However, there is ongoing interest in this area due to advancements in artificial intelligence and the demands of cloud computing. We remain committed to offering effective solutions for the stakeholders involved in constructing these facilities.

Okay. So I guess it just really depends on the project. If I could ask a second question maybe to Theresa. So CapEx came in a bit lower than expected. But I guess, how should we think about the cadence of CapEx through the remainder of the year, presumably to reach the $2 billion number you've provided in the past?

Yes. The biggest chunk of capital will relate to, obviously, the aluminum investment. And we would expect to see those tick up in the second and third quarter, as equipment continues to arrive and they hit certain milestones. So you should see the bulk of that additional CapEx or remaining CapEx being in the second and the third quarter, probably about equal and then probably go down to about the same level you saw in the first quarter and the fourth quarter.

I see that you're not staggering the 3 aluminum slab melt shops, with 1 or 2 of them to follow. Does that mean that you have a lot of customers pent-up already for the aluminum rolling mill and that you're concerned that you need the raw material because it might sell out fast? Or is the Mexico slab mill getting sequenced first because your scrap collection is very advanced in Mexico? And is there a concern that it might take a little longer to develop the scrap flow in Arizona and Mississippi?

I wish it were all based on absolute strategy, but some of it involves luck, both good and bad. Firstly, the satellite mills will be primarily focused on UBC. The Columbus mill will need to produce automotive products and some industrial goods. At the Columbus mill, at least one or two of the furnaces will come online relatively soon. We are particularly focused on the SLP or the Mexican facility because that property was purchased first, and everything has gone smoothly, including the permitting process. Our Arizona property, on the other hand, experienced some initial delays due to bureaucracy, which pushed back the facility's timeline by several months.

Thank you. That concludes our question-and-answer session. I'd like to turn the call back over to Mr. Millett for any closing remarks.

Thank you, Matthew, and thank you to everyone still on the call. I extend my gratitude to our supporters and shareholders. We believe we have a very positive outlook in the near term, particularly with the start-up at Sinton and other growth opportunities across four lines. What excites us even more is our long-term competitive position as one of the most efficient and lowest-cost producers globally. Our balanced product portfolio and circular manufacturing profile contribute significantly to our success, providing about 2 million tons of strong pull-through volume from our downstream fabrication and conversion plants. This ensures robust and consistent cash generation over time. We achieved 87% utilization compared to the industry average of 77%, a historical norm for us. Furthermore, our sustainability and carbon footprint are major advantages that not everyone recognizes. Our flat roll mills in Butler and Columbus are reported by European automotive manufacturers to have the lowest carbon footprint of any sheet producers worldwide, and Texas is expected to follow suit. This gives us considerable traction in the automotive market, where demand exceeds our current capabilities. While others globally invest billions to reach our level, we benefit from the fact that conversion from blast furnace to electric arc furnace and DRI facilities may increase costs by $200 to $250 a ton for them. This positions us at the bottom of the global cost curve like no other, allowing for higher through-cycle spreads. Our earnings will positively reflect this situation. I'm incredibly excited about SDI's future. I want to thank all the employees on the call for their hard work and contributions each day. We couldn't achieve our success without you, and you have delivered outstanding results that showcase our strong culture and technological advancement, resulting in the best financial metrics in the steel industry. Thank you to our customers, service providers, and everyone else for your support. Have a great day.

Once again, ladies and gentlemen, that concludes today's call. Thank you for your participation, and have a great and safe day.