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Executives

Robert McPherson - Senior Vice President and Chief Financial Officer

Lourenco Goncalves - Chairman, President and Chief Executive Officer

Presentation

Metals USA Holdings Corp. (MUX) Q2 2008 Earnings Call July 15, 2008 11:00 AM ET

Operator

Welcome to the Metals USA second quarter 2008 earnings results conference call. (Operator Instructions) At this time for opening remarks and introduction I’d like to turn the call over to the Senior Vice President and Chief Financial Officer, Robert McPherson.

Robert McPherson

Welcome to the Metals USA conference call reviewing our results of operations for the quarter ended June 30, 2008. We are pleased you could join us and appreciate your interest in our company. Anyone interested in receiving an e-mail of our earnings release before our conference calls may go to our website at www.metalsusa.com, provide us with your contact information and we will add you to our distribution list.

For your convenience, a replay of today's call will be available for about 30 days. You may access this replay either by going to our website or using the dial-in instructions included in the press release we issued yesterday morning.

The press release and the information on this call contains certain forward-looking statements which involve known and unknown risks, uncertainties or other factors not under the company's control which may cause the actual results, performance or achievements of the company to be materially different from the results, performance or other expectations implied by these forward-looking statements. These factors include but are not limited to those disclosed in the company's periodic filings with the Securities and Exchange Commission.

Finally, due to our Form S-1 currently on file with the Securities and Exchange Commission we are in a quite period and as a result we will not be hosting a question-and-answer session today and this call will be limited to our prepared remarks.

I would now like to turn the call over to Lourenco Goncalves, Metals USA Chairman, President and Chief Executive Officer.

Lourenco Goncalves

Welcome to the Metals USA conference call. As stated in our press release yesterday morning, Metals USA set an all time quarterly record, adjusted EBITDA of $93 million and revenues of $593 million for the quarter ended June 30, 2008. On a year-to-date basis we have generated $133 million of adjusted EBITDA and $1.1 billion in sales revenue.

I am very pleased with our results as they reflect the excellent performance of our very capable Metals USA team. I believe Metals USA has a fine group of professionals who are capable of generating extraordinary results, as evident not only by this quarter’s performance, but by our results over the last five years.

With this being said, I would like to discuss three topics. First, I will go over current market trends. Second, I would like to discuss the demand trends we have seen for our products and third, I will discuss how Metals USA has positioned itself to maximize our opportunities in this context. So, let me start with current market trends both at home and abroad.

We believe the fundamentals that have caused the latest round of price increases are still in place. Commodity inputs including iron ore, energy, coking coal and coke as well as the scraps continue to rise to new heights. As of today, we see no indications that current input cost trends will moderate in the foreseeable future. Perhaps equally as important, we do not think the last round of cost increases have worked themselves through the supply chain yet. As a result, it’s our view that costs will continue to put further upward pressure on finished steel prices.

There appears to be a fair amount of concern in the media that new efforts to pass along surcharges to their annual contract customers have met a steep resistance and as a result there seems to be a media consensus that this represents a peak in the market. We see it differently, that the issue, our annual contract prices set between MUSA and large OEM’s. The MUSA are attempting to offset the steep cost increases they have recently incurred. In our opinion, it’s a sign of strength that MUSA would attempt to modify contracts mid-year.

Since most steel consumers have no solicitude for skewing their products we believe MUSA will succeed in their cost recovery efforts, as contract renewals occur. The current trend in the market remains clear to us; MUSA intents to remain profitable and our increasing prices to cover their increased costs to manufacture steel.

Next, I would like to talk about the net. There can be no argument at this point that residential construction is weak, financial markets are weak and the automotive industry is weak. Service center industry reports so far this year, reveal that average base shipments are lower than shipments last year; however Metals USA’s shipments are increasing year-over-year.

Tons shipped by our flat-rolled and non-ferrous division, increased 4% this quarter over second quarter 2007 and our Plates and Shapes group increased the current quarter shipped tonnage by 60% compared to the same period last year. We believe our success in increasing shipments in a weak economy is the consequence of the specific initiatives we have implemented.

First, we have focused our sales efforts on customers and end-use applications that we believed were better than average prospects during uncertain economic times and second, our increased sales tonnage this quarter is also attributable to our growth in new customers who were experience the stock-outs and no quote excuses from our competitors. Our experiences during similar market conditions lead us to believe that once this new customers experience our service levels, we have an opportunity to retain this new accounts.

Now, I’ll turn to what we anticipate going forward. We believe, many of our end-use applications such as marine, defense, infrastructure, energy and industrial construction have good prospects for the balance of this year and for next year. We are pleased with the resilience of the U.S. economy and its participants during these difficult times and our results demonstrate such resilience.

Additionally, the continued weakness of the U.S. dollar continues to serve not only as a barrier to entry to imported metal but also as a barrier to competitive products made out of metal. We also expect to see continued export opportunities for both, domestic MUSA and domestic OEMs as well as a growing number of foreign manufacturers increasing its existing or implementing new “Made In USA” production capacity.

Now, let’s turn the discussion to Metals USA specifically. We are firm advocates that service centers must sell their products based on replacement cost. I am pleased to say we’re very effective at this during the second quarter. As a result our second quarter 2008, adjusted EBITDA of $92.6 million is our best result ever. We continue to watch our inventory closely and we are keeping our customers informed about availability and price trends. Perhaps equal importance to preparing our inventory is that we prepared our customers.

We regularly give our customers advice and guidance regarding the reality in the marketplace. We take great pride ensuring that we keep our customers in Metal and knowledgeable about market conditions.

With that I will turn it over to Robert to talk about our results.

Robert McPherson

Our net sales increased $112 million or 23% from $481 million for the three months ended June 30, 2007 to $593 million for the three months ended June 30, 2008. The Lynch Metals acquisition which closed on July 2, 2007, contributed more than $8 million of incremental net sales for the current period compared to the same quarter last year.

Also increasing net sales was a 12.9% increase in averaged realized prices and 11.4% increase in volume excluding the effects of the Lynch Metal acquisition and partially offset by a $9 million decrease in building products and net sale.

Quarterly, net income of $39.8 million for the second quarter of 2008 exceeded by $28.1 million to $11.7 million in net income posted for the quarter ended June 30, 2007. Adjusted EBITDA for the quarter ended June 30, 2008 was $92.6 million, a 104% increase from the $45.5 million recorded for the second quarter 2007.

Adjusted EBITDA for the first six months of 2008 was $132.9 million, exceeding by $52.7 million to $80.2 million posted for the same period in 2007. I refer you all to the reconciliation of operating income to EBITDA and adjusted EBITDA that was provided in our press release issued yesterday morning and now it’s for our segment information; Plates and Shapes Group.

Our Plates and Shapes Group net sales were $326 million, $99 million higher than second quarter 2007. Adjusted EBITDA for the period was $66 million a 127% improvement over the $29 million posted for the same period last year. Ship tonnage was up 16% between the two periods. For our flat-rolled and non-ferrous group, flat-rolled and non-ferrous group net sales were up almost $22 million during the second quarter versus last year at $235 million compared to $213 million. Second quarter 2008 adjusted EBITDA was $31 million; $14 million better than second quarter 2007 adjusted EBITDA. Ship tonnage excluding the Lynch impact was up 4% between the two periods.

Regarding our building products group, current business conditions continue to lag prior period as the home remodeling industry continues to be negatively impacted by restrained homeowners spending patterns. As a result net sales for the quarter ended June 30, 2008 were at $36 million approximately $9 million less than the $45 million in net sales achieved during the second quarter of 2007.

Adjusted EBITDA of $1 million was approximately $3 million lower than the same period a year ago. Net debt on June 30, 2008 was $918.5 million, $75 million higher than our net debt at the end of 2007. Our ABL balance at quarter end was $362 million. Excess availability at June 30, 2008 was $148 million. Capital expenditures were $2.1 million for the second quarter of 2008.

Net cash used in operating activities for the first six months of 2008 was $73 million. Net income for the period was $44 million, which included non-cash cost of approximately $9 million. Additionally changes in operating assets and liabilities resulted in cash outflow of $126 million for the period, an amount that was primarily attributable to increases in inventory and accounts receivable, partially offset by an increase in accounts payable.

We were in compliance with all covenants on June 30, 2008 and remain in compliance today. On July 1, 2008 Metals USA Inc. exercised its options under its loan and security agreement as amended to increase the ABL facility by $100 million bringing the total facility size to $625 million. All other existing terms under the ABL facility remained unchanged.

The company had $365 million drawn under its ABL facility on July 1, with excess borrowing availability of $210 million and excess uncollateralized availability of $36 million on that date. The expansion was undertaken to support future growth objectives and working capital on needs of the company as steel prices have increased significantly over the past several quarters.

This is the conclusion of our prepared remarks and as we stated at the beginning of the call, due to the fact we have a Form S-1 filed with the Securities and Exchange Commission we are in a quite period and will not be hosting the question-and-answer session today. We thank you for you interest in Metals USA. Have a good day.

Question-and-Answer Session

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