• Adjusted EBITDA: $4 million, reflecting an adjusted EBITDA margin of 0.6%.
• Cash Generated from Operating Activities: $25.4 million.
• Cash and Total Liquidity: $452 million in cash and total liquidity of approximately $800 million.
• Steel Revenue: $539 million, down 19% versus the prior year period.
• Steel Shipments: 520,000 net tons, down 5.2% versus the prior year quarter.
• Net Sales Realization: $1,036 per ton, down 14.6% versus the prior year period.
• Cost per Ton of Steel Products Sold: $1,032, up 1.1% versus the prior year period.
• Inventory: $793 million, down from $808 million at the end of the 2024 fiscal year.
• Insurance Proceeds: Approximately $32 million received related to property damage.

• Warning! GuruFocus has detected 7 Warning Sign with ASTL.

Release Date: November 07, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Algoma Steel Group Inc (NASDAQ:ASTL) delivered solid operational performance despite challenging global steel market conditions.
• The company maintains a strong balance sheet with over $450 million in cash and total liquidity of $800 million.
• Algoma Steel Group Inc (NASDAQ:ASTL) is on track with its transformative Electric Arc Furnace (EAF) project, with commissioning activities expected to begin by the end of the calendar year.
• The company has derisked the EAF project by contracting substantially all remaining items, with over 90% tied to fixed-price contracts.
• Algoma Steel Group Inc (NASDAQ:ASTL) is eligible for reimbursement under Ontario's emissions performance program, which will enhance its balance sheet and liquidity.

Negative Points

• The company experienced a decline in revenues, adjusted EBITDA, and cash flow generation due to softer realized steel prices and lower shipments.
• Market conditions remain challenging with no clear signals of improvement in the near term, impacting expected plate shipments.
• Steel revenue decreased by 19% compared to the prior year period, with shipments down 5.2%.
• Net sales realization per ton decreased by 14.6% versus the prior year period, reflecting weaker market conditions.
• The company faces headwinds from current steel prices, which are expected to continue impacting earnings performance.

Q & A Highlights

Q: Can you clarify the expected working capital build-up for the current quarter and how it relates to the EAF start-up? A: Rajat Marwah, CFO: The EAF start-up will begin at the end of March, so we are not building much material specifically for it. Normally, we build up around $150 million by December, but this year it will be lower, around $100 million. We expect a release of at least $100 million of total working capital by March 2025. During the transition to EAF, we may see a slight build-up, but eventually, we will see a release of at least $100 million when the blast furnace and coke batteries are shut down.

Q: What is the status and expected timing of insurance proceeds related to property damage and lost production? A: Rajat Marwah, CFO: We expect to receive the balance of property damage claims, totaling over $60 million, between this quarter and the next. For business interruption claims, which are estimated at $120 to $130 million, we expect to recover more than 50% by March or possibly into the June quarter.

Q: How should we think about the potential dilution from warrants in the share count? A: Rajat Marwah, CFO: At a share price of $18, the dilution is one-third of the total warrants due to the cashless settlement option. The strike price is $11.5, and the difference between this and $18 is the dilution factor. Accounting rules require us to show full dilution, but the real dilution is one-third at $18.

Q: Are there any plans to adjust the plate production ramp given current market conditions? A: Michael Garcia, CEO: We are not destabilizing the market by chasing plate business. Instead, we are rebuilding strategic inventories and completing modernization work. We are positioning ourselves to take advantage of improved demand when it returns.

Q: Is there any remaining risk of cost changes in the EAF project budget? A: Michael Garcia, CEO: We feel confident that not much will change. Substantially all contracted work is in place, and less than 10% of the budgeted work is under time and material contracts. The project cost increases have been due to inflationary contract placements, not poor execution.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.