Earnings Transcript for X - Q2 Fiscal Year 2022

Operator: Good morning, everyone, and welcome to United States Steel Corporation’s Second Quarter 2022 Earnings Conference Call and Webcast. As a reminder, today’s call is being recorded. I’ll now hand the call over to Kevin Lewis, Vice President, Investor Relations and Corporate FP&A.

Kevin Lewis: Thank you, Tommy. Good morning and thank you everyone for joining our second quarter 2022 earnings call. Joining me today on today’s call is U.S. Steel President and CEO, Dave Burritt; Senior Vice President and CFO, Christie Breves; and Senior Vice President and Chief Strategy and Sustainability Officer, Rich Fruehauf. This morning, we posted slides to accompany today’s prepared remarks. These can be found on the U.S. Steel Investors page under the Events and Presentations section. Before we start, let me remind you that some information provided during this call may include forward-looking statements that are based on certain assumptions and are subject to a number of risks and uncertainties as described in our SEC filings, and actual future results may vary materially. Forward-looking statements in the press release that we issued yesterday, along with our remarks today, are made as of today, and we undertake no duty to update them as actual events unfold. I would now like to turn the conference call over to U.S. Steel President and CEO, Dave Burritt, who will begin on Slide 4.

Dave Burritt: Thank you, Kevin, and good morning to everyone joining us today. We appreciate your continued support of U.S. Steel. I am bullish on U.S. Steel’s future because we are executing. And most importantly, we are executing safely. We are on pace for a third consecutive year of record safety performance as measured by days away from work and building on our already industry-leading position, which is second to none. We take our role as the industry leader in safety very seriously. At U.S. Steel, safety is always first. When safety is great, our operations are great. Thank you to our employees. We appreciate you for your continued focus and commitment to our shared safety goals. As we continue to execute our best for all strategy, we are progressing towards a less capital and carbon-intensive business. We are pleased to share an update on our latest sustainability disclosure later in our prepared remarks. The rapid progress we’ve made demonstrates our continued commitment to become the best. To become the best, we are expanding our competitive advantages by leveraging our unique competitive advantage and lowest cost iron ore, combining highly capable integrated assets with low-cost and technologically-advanced mini mills and investing and finishing capabilities that best serves our customers. As we’ve said before, to become the best for all, we need the best from all. I want to take a moment to recognize the continued trade enforcement by the current administration. We are very pleased with the ITC’s recent decision to continue design of the – anti eight AD/CVD orders on cold-rolled steel for another five years. Continued strong trade enforcement from the United States government supports our national economic security and gives the domestic steel industry the opportunity to advance actions that make steel more sustainable. The United States remains the leader in sustainable steelmaking as many in our industry have embraced the electrification of the steelmaking process, which is the most sustainable way to make steel. We are doing what is best for all because our customers, our employees and our stockholders are counting on it. As geopolitical and macroeconomic impacts shift, our best for all strategy remains constant. We’ll spend the next few moments highlighting three key messages shown on Slide 5

Christie Breves: Thank you, Dave. And thank you to the whole team at U. S. Steel, our stockholders, our board and our customers. It’s been the highlight of my career to serve as CFO of this iconic organization. To be a part of this company’s incredible transformation has been an exciting and rewarding experience. I can’t wait to see how the progress we’ve made to date and the strategy underway delivers for all of our stakeholders. I’m confident that you, Jessica and the rest of the team will succeed in getting U. S. Steel to its best for all future. I’ll begin on Slide 12. We delivered a record second quarter adjusted EBITDA of over $1.6 billion generated from revenue of nearly $6.3 billion. Our 26% adjusted EBITDA margin represents another strong quarter of profitability. At the segment level, Flat-Rolled EBITDA was $902 million or 23% EBITDA margins in the second quarter, compared to $636 million and 21% in the first quarter. Higher volumes and the absence of first quarter iron ore mining seasonality were partially offset by raw material inflationary headwinds, as well as higher steel-making additions costs. Higher utilization rates and the related efficiencies also helped to improve our Flat-Rolled segment margin performance versus the first quarter. In our Mini Mill segment, we delivered EBITDA of $309 million and EBITDA margins of 31% in the second quarter. Higher volumes were more than offset by the combination of lower average selling prices and higher metallic costs. In Europe, our Slovakian operations again overcame significant geopolitical hurdles to deliver EBITDA of $302 million and EBITDA margins of 22% in the second quarter, compared with the $287 million and 23% in the first quarter. Higher average selling prices more than offset rising raw material costs in the second quarter. And in Tubular, we reported a strong quarterly performance. EBITDA totalled $119 million . The flow through of higher steel selling prices and the benefits we’re starting to see from pending trade cases, outpaced higher scrap costs resulting in continued improvements and profitability. Our second quarter EBITDA translated into free cash flow of nearly $650 million to contribute to our record cash and liquidity. This performance gave us the confidence to accelerate our stock buybacks in the second quarter, returning another $413 million of cash to stockholders, including our quarterly dividend payout. We repurchased over 17 million shares in the quarter and have repurchased another seven million shares in July. We have completed our authorized share buyback program and are pleased to announce another 500 million share repurchase program. Our business continues to perform well above through cycle averages and remains on track against our clearly defined capital allocation priorities. Unsurprisingly, the declining steel price environment through much of the second quarter and into the third quarter has kept some buyers on the sidelines. This is expected to result in sequentially lower EBITDA for our Flat-Rolled segment. Conversations with customers and recent customer inquiries suggest in market demand is healthy. Customers are just waiting for the right time to re-enter the market. In our Mini Mill segment, greater market based, monthly contract exposure versus the Flat-Rolled segment is expected to accelerate the flow through of lower steel selling prices. We also continue to work through more costly inventory and therefore expect meaningfully, sequentially lower EBITDA at Big River Steel in the third quarter. In Europe, the conflict in Ukraine and negative impact on raw material and energy prices are reducing industrial and manufacturing demand. As a result in the third quarter, our USSE segment is experiencing significant margin compression as steel prices have softened, while raw material costs remain elevated. Lastly, our Tubular segment continues to capture higher selling prices and is running at elevated utilization rates to meet strong customer demand. With the support from the ongoing OCTG trade cases we expect another meaningful increase in segment EBITDA in the third quarter. Spot prices falling from high levels over the past several months are expected to negatively impact results in the third quarter. Our diverse end market exposure and increasingly flexible operations are expected to business more resilient than in the past with EBITDA in the third quarter expected to be just under $1 billion. Opportunities in working capital in the third quarter are expected to keep cash from operations resilient and the business continuing to generate free cash flow, while also advancing our strategic projects as planned. The market remains dynamic and we can’t stand still. That’s why we’re taking advantage of the temporary slowdown by moving a planned outage originally scheduled for October to September at Mon Valley. This decision allows us to be better prepared for the anticipated recovery as steel prices bottom. Dave back to you.

Dave Burritt: Thank you, Christie. Before we get to questions, let me summarize today’s remarks on Slide 13. Record second quarter performance was a result of continued execution across each of our operating segments. For U.S. Steel, we must execute, execute, execute a differentiated strategy, and we have. Sure, the economic environment is uncertain, but we know and you know that this isn’t the same U.S. Steel from just a few years ago. We now have industry-leading mini mill operations, a rock-solid balance sheet and record cash with liquidity of over $5 billion. All of these factors support our Best for All strategy execution and are expected to deliver an additional $800 million of run rate through cycle EBITDA. We are delivering on our objectives and capital allocation priorities and look forward to earning a re-rating of our stock. Kevin, let’s move to Q&A.

A - Kevin Lewis: Thank you, Dave. Our first two questions today come from Say Technologies. The first question, Dave, we received several questions about domestic steel demand, our outlook across key end markets. Can you share your perspectives on our markets and customers?

Dave Burritt: Thanks, Kevin. I can see how that’s top of mind for so many people that as that line of questioning. I’d break it up in a couple. The near turn, of course, there’s a lot of uncertainty. And the growth we’re talking about growing capability, creating profitable growth. In the near-term, there’s different dynamics across many of the markets we serve. But our order book and end market diversification, it’s a great advantage. We’re not dependent upon just one market. It’s not just auto for us. We got multiple markets that we serve. Not one dominates. We’re a lot more balanced. As far as automotive and appliance, the supply chain issues are persisting. I’d say they’re a bit less, but we’re still going to have those challenges. The good news is mine melted made in the USA. We basically find ourselves in a much more resilient position especially with strong trade enforcement. Industrial construction and service centers, I’d say that we’re seeing mixed or cautious buying. Just saw the inflation headline here. Obviously, that’s an impact on everyone. But while we saw GDP negative in the first quarter and second quarter, that doesn’t mean that U.S. Steel is tied to those GDP numbers. What it means is we’re more resilient than ever before, and we’re preparing for the future and being ready for whatever markets we serve. But the really bright spot here for us is in energy. It’s a unique exposure and really strong demand for us today. The Tubular business, for example, is so very different than a year ago, and it’s a much more meaningful contributor to EBITDA. So as the near-term goals, the actions we’re taking, we’re managing the inventory, optimizing our loading plans, matching our production with the order books, and it’s going fine. But there is a lot of uncertainty, and the third quarter will definitely be lighter. As far as growth, profitable growth, it’s about being low cost and/or high capability. Those are the things that we’re pursuing with our differentiated strategy. And frankly, we’re – I’d say I’m more than just a little excited about the future here because the strategic market growth is outpacing overall market growth, and we’re winning in the strategic markets. There’s growing demand for advanced high-strength steel. There’s a higher interest in green steels. There’s rapid electrification. And the infrastructure bill has been passed, and we expect to see the benefits of that come through sometime next year. And we know that we must win in these strategic markets, advanced high strength deals in automotive and the non-automotive applications. We’re seeing many opportunities there. And electrical steels, we’ve got the world-class NGO line that will be soon completed and we’re just really excited about the potential there. Then, of course, green steel with our verdeX line of sustainable steels that we’ve come out with and the much lighter carbon footprint than we’ve had in the past. We’re again performing very well. So we’re investing in capabilities. We’re investing in talent. And we’re making sure that we’re investing in profitable growth in the markets that we serve and growing the strategic markets.

Kevin Lewis: Okay. Thank you very much, Dave. The second question that we received is related to the adoption of green energy in our sustainability road map. So Rich, can you please provide your thoughts on that question?

Rich Fruehauf: Sure, Kevin. Thank you for that question. Well, first, as we say, U.S. Steel, we’re committed to doing our part to address climate change and advance sustainable steelmaking technologies. We’ve issued just last week our latest sustainability report, so I encourage everyone to take a look at that on our website. Look, there’s a global race going on right now to decarbonize steelmaking, and we wanted to be part of the solution. That requires developing and deploying new technologies in collaboration with governments and other companies and communities. So what have we been doing in this space? Let me start with in February, we announced an alliance with leading companies, the likes of GE, Power, EQT, Equinor, Shell, Marathon, Mitsubishi Heavy Industries for the Tri-State region of Ohio, Pennsylvania, West Virginia, who share our vision for a more sustainable industrial future. And that alliance, that partnership, we’re looking for ways to create a national model for sustainable energy and production systems. And that includes things like hydrogen, carbon capture. In the more immediate future, we are working with utility providers towards more renewable sources of energy. So for example, at our Big River Steel, Big River 2 complex and OCOR, our partner is Entergy for electricity supply. And they’ve already – they are today, I guess, is the way I put it, they are today already supplying significant amounts of non-greenhouse gas, nuclear power generation to Big River. But they’ve also committed as part of our Big River 2 project development to supply more renewable power like solar. So we’re looking forward to continuing that partnership with Entergy. And at our Mon Valley Works, we have obtained emission-free energy certificates from our local utility partner. So that’s – those are some of the things we’re working on. We have other projects in other parts of our footprint, looking at renewable power generation as well. And then I would say on the customer side, we are playing an increasing role in making renewable energy possible by selling sustainable steels, for example, into the solar market. We have a new partnership with Nextracker, which just last month opened a new facility here to make solar tracking systems. DOE Energy Secretary Granholm was there for the ribbon cutting. So we’re really proud to partner with Nextracker. So what I would say is while we aren’t standing still as a company, if we truly want to unlock the full potential of green steelmaking in the U.S, we need these kinds of partnerships across the public and private sector. For us, it’s about making profitable steel solutions. We need to be able to make money in these investments. But it also – its clear action is required. It’s not just about concept. So anyway, these are a few examples. So hopefully, that helps address the question. It was a good question.

Kevin Lewis: Okay. Thanks so much, Rich. And thanks, Dave. So now, operator, if you may queue the line – the phone line for questions. And we remind each participants please ask one question and a follow-up, so everyone has the opportunity to ask a question this morning.

Operator: Certainly. Thank you. And our first question on the line from David Gagliano from BMO Capital Markets. Go ahead.

David Gagliano: Hi, thanks for taking my questions. My first question is regarding the capital allocation strategy and the buyback authorization just announced. Obviously, U.S. Steel generated a lot of free cash historically recently. But things are changing, heading into a transition period of very high CapEx and obviously results are coming down. So the cash balance, which is $3 billion now, could get below that $1.5 billion. It’s not inconceivable. So my question is on the – prior to buying back stock. My question is on the authorization. How aggressive U.S. Steel be buying back shares in the near-term, considering the changing environment. That’s my first question.

Dave Burritt: Well, thanks for that question. And I think you know, David, that we’re in this highly desirable position because of the purposeful execution of our strategy. So with $3 billion of cash and well over $5 billion liquidity, we have a lot of opportunities. And as you heard in some of the remarks, how bullish we are about being able to execute on the strategy. You’ve seen our capital allocation framework. We put it in the deck. Again, we’re committed to that capital allocation framework. We’re going to be opportunistic. And you go through the individual pieces of that, we’re guided by the balance sheet strength? The Best for All investments, we’re going to make sure we get all those down; and then we have the direct return. So you kind of go through each one of those and you say, okay, balance sheet strength, check. Strong cash position, check. Advancing the strategy that makes our business, our earnings and our free cash flow more resilient, check. So we felt the authorization was a must. And so we’re within that framework. We will be opportunistic. We’re not going to commit to a certain amount by quarter, but we do feel very good where we are, and we’ll see how the economy unfolds and we’ll be, again, opportunistic within the framework. We’re going to be as active as our framework dictates and executed a pace that maintains a high level of strength and liquidity to support our investments. So we think this is a good program. Again, we’ve completely exhausted the $800 million that we committed to really not that long ago within the last year. So we feel very good about where we are, and we’ll see how the economy unfolds and stay committed to that capital allocation framework because we do need to get these strategic investments done, and we do need to make sure that we’re providing rewards to our stockholders with stock buybacks and dividends.

David Gagliano: Okay. That’s helpful. My follow-up is a two-part follow-up with regards to the European operation. My questions are, A, will Europe be EBITDA positive in the third quarter? And B, as far as the contingency planning that was kind of mentioned in the press release, is U.S. Steel considering either scaling back or shutting it down until things improve in Europe?

Dave Burritt: Well, I think you’ve seen the numbers with USSK. It’s been a significant contributor to U.S. Steel. And obviously, there’s margin compression over the last few months. And we’ve seen Northern European prices, where they reach a peak of about $600, $700 a ton, and now they’ve fallen by $700 a ton. So we definitely have some margin compression. But we will be positive EBITDA, no doubt here. I feel very comfortable that USSK is going to continue to be positive EBITDA. This business, frankly, I think it’s always been positive EBITDA, and it runs very well. There’s a lot of uncertainty due to the war in Ukraine. And while prices have declined, the raw materials basket has only fallen about $400 a ton. So you think about that, and that is quite a squeeze. But we still feel good that USSK is going to continue to contribute, and the thing to remember here is that USSK comes down. And while tubule won’t be able to offset all of that reduction, the Tubular business is continuing to perform extraordinarily well. And I think in the first half, it had EBITDA that was in excess of $200 million, and the second half is going to exceed the first half performance. So we feel good about that in terms of some offsets. And again, the diversified footprint helps us with that. But USSK is an excellent business. These people, our team over there knows how to run this very, very well. And when the Ukraine war hit, they bought ahead and made sure there were no supply disruptions. And so now they’re carrying extra inventories. We typically target about 30 days inventory but have increased that target to 60 days, and we’re currently a little bit higher than that. So the softer demand is going to make the consumption of higher-priced raw materials longer. So yes, there’s going to be some stress on that, but it’s still – it’s a really good business in Europe.

Operator: Thank you very much. I will now proceed to our next question on the line from Emily Chieng with Goldman Sachs. Go ahead.

Emily Chieng: Good morning. And thanks for taking my question. The first one I have is just around the Granite CD granulated pig iron facility. Maybe could you help us frame the strategy behind the potential sale to SunCoke. And maybe help us understand what the technical and capital differences are between that granulated pig iron facility and big Gary Work pig iron unit, which you will be constructing instead?

Dave Burritt: Emily, thanks very much for the question. I’m going to turn it to Rich, but just to punctuate again how important metallics are to our business. This is a sustainable, competitive advantage for U.S. Steel. Let’s face it. They’re not making the iron ore range anymore. God’s not making the iron ore range anymore. So this is something that cannot be replicated. So we feel very good about the strategy and where it’s headed. Rich?

Rich Fruehauf: Yes. Thanks, Dave. So Emily, yes, let’s start with a little bit of context. So pig iron right now, pre the warn in these Ukraine, about two-thirds of the market for it was coming out of Russia and the Ukraine, right? So with the cutoff of that supply has put pressure on iron ore and HBI DR – excuse me, pig iron HBI DRI. And as we know, you’re talking 75% or more of your cost to produce a ton of steel and an EAF as your metallics. So as Dave said, first and foremost, having these virgin iron ore metallics in our footprint and able to supply the EAF fleet is a huge advantage for us because then we won’t be as exposed to the ups and downs of the scrap market or cut off of supply or price spikes in pig. I think pig hit close to $1,000 a ton delivered to NOLA, New Orleans earlier this year as a result of the cutoff from Russia and Ukraine. So that’s the basic issue we’re addressing with it. So with respect to Granite City, I mean, we already produced low-cost iron ore in Minnesota for our blast furnaces, and what we’re working on doing here is pivoting that to be able to also supply the EIS for the reasons I just indicated. Now with respect to pig iron, pig iron trades at a premium over DRI and HBI because it’s exothermic. You get a value and use. What that means is it gives off heat in the furnace, which means you improve productivity by loading pig iron in your furnaces. You speed up the tap-to-tap times. So having pig iron, whether it’s a Gary or at Granite City is a huge win. Now the difference between what we’re doing at Gary, which is what we’ll call the sort of standard lumpy pig and the granulated pig iron at Granite City, granulated as sort of smaller pellets. It distributes more evenly in the furnace. And so you get a faster and a better melt, and so that’s why we chose to go with the granulated pig iron at Granite City. There’s not a significant risk here. The granulated pig iron will be unique to North America. We’re partnering with SunCoke because we think that’s the best way to get this project underway as quickly as possible. As you know SunCoke is our coke supplier at Granite City. So I mean the basic model is moving the – just doing what we’re doing today, moving iron ore from Minnesota down to Granite City. But instead of turning it into steel, we’re going to turn it into granulated pig iron and reap the benefit of having that vertical integration in our EAF fleet.

Emily Chieng: Thanks, Rich. And maybe just as a follow-up. To be clear, why was this decision for Granite City to be potentially sold to SunCoke instead of U.S. Steel executing on that capital project yourselves? Was it the fact that perhaps Granite City, the granulated pig iron facility might not have met your 15% IRR target? Or was there something else that sort of triggered that decision?

Rich Fruehauf: I think the main thing I would say, Emily, is we’re already in a partnership today with SunCoke for Granite City because they’re the on-site coke provider – so running blast furnaces to make pig versus running blast furnaces to make liquid metal that gets turned into steel. We’re already in a partnership with SunCoke and I think with respect to the path forward, we saw this as an opportunity to take that partnership with SunCoke to the next level. So that’s really what drove this. We think SunCoke is going to be a great partner, a good operator for making the GPI. And this allows us to focus on our core steelmaking talents and skills. And I think with respect to this, we really see this as a win-win for both companies. Because as I said, we’ll be able to benefit from our low-cost iron ore move through Granite City and then turned into pig. I mean, it’s our iron ore that they’ll be converting for us into GPI.

Dave Burritt: Yes. I maybe add, Rich, I’d say it win-win-win because not only is it win for SunCoke, a win for U.S. Steel, it’s preserving 500 jobs that would ordinarily go away. I think people remember when was it March of 2018 when the trade tariffs came into place. That’s when we opened up those blast furnaces at Granite City, and when the tariffs came off in Canada and Mexico with USMCA that challenge, demand that challenge other aspects of the business. So this, I think is the best we can do to preserve as many jobs as what we possibly can. And at the same time, make sure that we take care of the company and also frankly take care of SunCoke as well as the employees.

Operator: Thank you very much. We’ll get to our next question on the line from Seth Rosenfeld with BNP Paribas. Go right ahead.

Seth Rosenfeld: Good morning. Thanks for taking our questions today. I’ve got the first one please on the tubular business with very strong recovery and energy CapEx, obviously, earnings. How do you think about the capacity of the business? Obviously, in recent years, you’ve idled a great deal tubular capacity. Is there an opportunity to restart welded pipe facilities? On the raw material side, can you touch on how the new EAF within tubular impacting your competitiveness versus past cycles? I’ll start there please.

Dave Burritt: Yes. Maybe first I’ll start with the EAF. It’s being run extraordinarily well. Great safety performance there now and we got some really strong talent that understands how to run the EAF. So that’s a big improvement to us. The investments we made through the energy downturn are paying off significantly with that EAF providing about a $100 million in annual cost savings. So that’s a big deal for us. We now control the supply of rounds at Fairfield and we’re leveraging that wide range of seamless capabilities that we have. So the cost actions we’ve taken to invest in EAF capabilities, plus the opportunity to continue to earn higher average selling prices in the second half, frankly, I’m very optimistic about the tubular business. But again, we’re counting on strong trade enforcement so that we can continue to profitably serve the domestic energy market and create value for our stockholders. But I’d say this, there are no current plans to open anything up or increase that would be far too soon to suggest anything like that.

Seth Rosenfeld: Okay. Thank you. And the second question, please, with regards to Mini Mill segment. In your prepared remarks, you commented on elevated raw materials costs working through inventory. I think back in April, you discuss some effort to de-risk pig iron supply following Russia’s invasion of Ukraine. Can you just walk us through with the impact of that spend with regard to potentially safety stocks. In short is Big River Steel now sitting on typically elevated inventories of pig iron or prime scrap procured back peak prices a few months ago? How’d we think about that?

Dave Burritt: Well, I think, this was an issue, obviously, when the war in Ukraine started. So we had to have surety of the supply it’s been critical. And so we secured new raw material sourcing from Brazil and India and have of course shifted away from the Ukrainian supply, especially, the pig. And so we have elevated pig iron and HBI inventory. And so that we do have to manage that out and that obviously high cost. And so we’re going to have some compression on price there with the Mini Mill business and have to manage that very closely. So on the good new side, we expect to release some working capital at Big River of about $250 million, which would be a nice favorable uplift, but there’s no doubt with spot prices falling through the quarter. We expect EBITDA to be sequentially lower at the Mini Mill segment. But we’d expect similar volumes third quarter versus the second quarter.

Operator: Thank you very much. We proceed for our next question on the line from Michael Glick with JPMorgan. Go right ahead.

Michael Glick: Good morning. Just on your raw material strategy going forward, beyond the pellet investment, how are you thinking about DRI fitting into the picture?

Kevin Lewis: Yes, so I think Michael, this is Kevin. I think we’ve said that it’s not a matter of if it’s when and where, when it comes to DRI. So the investment that we are making a Keetac to produce DR-grade pellets I think further expands the optionality we have to advance a DR strategy in the future, however, as Rich articulated and as we laid it out in our prepared materials, the actions underway relatively capital, light actions underway to advance a pig iron strategy, meaningfully increase our self sufficiency of metallic. So I think that is where our near term focus will be on pig iron, no regrets decision to invest in DR-grade capabilities at Keetac. It’s our best ore body. It’s our longest life of mine. So very logical choice to add that capability to their already kind of blast furnace pellet production capabilities and that puts us in a great position moving forward to explore DRI, but Rich, maybe anything else to add?

Rich Fruehauf: Yes, Kevin, I think, you touched on it. I mean, we’re focused on pig first and foremost because of the benefit pig gives you versus DRI in the furnace. And we saw sooner opportunities, sooner near term opportunities to get those metallics converted into pig iron and into our EAF. But as you said, DRI is an opportunity for the future. And what’s the announcement of the float plant at Keetac that allows us to get started. I will tell you that we’ve had tremendous outreach to us once we went public with that. So we see a lot of commercial opportunity in there, as Kevin said, potentials for partnerships that we might look at as well in the future when we think about DRI, which as Kevin said, it’s not a question of if it’s when and where.

Dave Burritt: I think the key word in all this, what I heard was optionality. That’s what everybody should think of. We need to make sure that we have nimbleness flexibility, adaptability, and right now there’s nothing in the CapEx related to DRI, even though that wouldn’t necessarily be a huge number, because we have, again, lots of options in terms of how to put that in and when we put that in. So we feel pretty good about where we are with our footprint and the CapEx that we’ve announced, and we need to make sure that we live to our capital allocation strategy and make sure that not only do we show up with good results on the bottom line, but we make sure that we take care of our stockholders. And that’s why we issued this stock buyback program. That’s important to us. We continue to reward stockholders.

Michael Glick: Understood. And then, in Europe, I guess just from a high level, how should we think about the longer-term strategic direction of USSK, I think in the Slovakian papers, it looks like there was a recent MOU on the energy side there. So just curious to get any of your thoughts there.

Dave Burritt: Well, USSK has been an awesome business for us. Again, as I said, we have a great talent on this. These guys are Kaizen progressive improvement experts. And obviously right now, we’re in transition with Ukraine, just 60 kilometers from the border. We’ve been very fortunate that we haven’t had any disruption over there. But this is one of those things that we have to get through the current geopolitical concerns. We have to manage this well, and then we’ll figure out what that future is. Meanwhile, this business has always put up positive EBITDA and we expect that to continue.

Operator: Thank you very much. We now proceed to our next question on the line from Karl Blunden with Goldman Sachs. Go right ahead.

Karl Blunden: Hi, good morning. Thanks for the time. Just wanted to focus on your CapEx, number of investments and process right now. When you think about how things are running relative to your budget, your planning assumptions, I wonder if you could comment on which elements are above or below and give us a sense for what’s still uncontracted the major buckets that you’re focused on there?

Dave Burritt: Let me just take the first part of that. One of the things that we really focus on is on budget, on time, and we’re really pleased, frankly, with the work that’s going on with the NGO, the Galvalume and Big River 2, you think about all the inflationary costs that have come in. This team really knows how to work across our entire footprints, not just Big River, but it’s the integrated folks, our procurement people, and looking for creative ways to make sure that these things are on time and on budget. And whether it be the NGO electrical steel which I think was what $240 million or Big River 2, everything’s on track, on plan and the coding lines on plan, the metallic strategy everything’s on plan there, the pig iron machines on plan. You go through each one of these things it’s on budget, maybe ahead of plan in many cases. We feel good about where the way the whole team is managing this. There’s a lot of rigor.

Christie Breves: Yes. I would just add Dave, I think that team there, they, our long lead time items they got that in quick and early, so they’ve been placed a long-time ago, as well as I think the team there just does an excellent job looking for multiple different suppliers of something so that they have some choices. They’ve done a good job widening the supplier base to create a little bit more competition, that team’s just really on top of it there.

Karl Blunden: That’s helpful. Thanks. The second one is just a follow-up on a potential HBI investment. Is there a date we should think about and not before date for that? Or could you accelerate that if you see good progress and enough cash flow to go after that? Or do you want to get some of the existing investments done and understand the optionality better?

Dave Burritt: Well, I think we need to go back to the capital allocation strategy and look at those individual pieces there and are keeping the healthy balance sheet. We are going to take care of the investments that we’ve laid out, and that’s what we need to get focused on. There’s no commitment to anything else at this point. We’re going to let the economy tell us what the solution is here, but don’t look for anything big anytime soon. We feel very good about where we are executing the strategy and delivering value to our stock. Let’s face it, there’s a lot of uncertainty. Some people say more uncertainty than ever before. I’m not so sure that’s true, but we do know that these are different times, challenging times and we need to make sure that what we say we’re going to do, we do and that’s something that we haven’t been always able to say, but we’ve got integrated assets that are running extraordinarily well and the minimi assets are running well. Europe’s performing in spite of all the challenges there and now the Tubular business is coming back. So I wouldn’t look for anything here. We’re again – we’re again keeping optionality available, if there’s a big opportunity here that adds a whole lot of value of course we do it, but there isn’t anything committed to at this point.

Operator: Thank you very much. We’ll get to our next question on the line from Carlos De Alba with Morgan Stanley. Go right ahead.

Carlos De Alba: Yes, thank you very much. Good morning, everyone. So just coming back to the DRI strategy, is there – I understand that is an opportunity for the future and kind of optionality what you have created. But any color that you could add in terms of the potential timing of when you might exercise that that exercise that option that you have now available? And then my second question, if I may, it has to do with a little bit more color on the end markets, you mentioned the consumer related sectors like auto and appliances are a little bit soft but could you comment on a little bit more on those two plus the other key end markets that that you supply?

Dave Burritt: Okay. The first part, can I give more color on DRI? No. I think you got all the color we’re going to give you on DRI right now as we talked about the metallic strategy; we say it’s inevitable, not anytime soon. And so we’ll just leave it at that. As far as the actual markets, maybe I’ll talk a little bit about each one of these. The auto, maybe the auto rebound, we’re staying very, very close to the customer and ensuring we’re well positioned to what feels like an inevitable ramp up in auto. Anyway we’re not seeing like some might say this hockey stick increased but we feel pretty good about what’s coming. There obviously the semiconductor shortages, this is a big bottleneck and by the way we’re very supportive of the chips and science act from Congress and reassuring critical industries, it’s so important in national security. Everybody needs to get this. We need to make sure that we are self-sufficient in the USA. If we learn nothing from the pandemic, it’s that. We got to be able to take care of ourselves and we’re big on mind melted and made in the USA as you well know. But alleviating the semiconductor bottleneck is critically important and it’s taken longer, I think, than anybody imagined. And it’s still going to take longer. There’s a lot to be done, but we’ve seen in auto consistent order entry rates across the diversified domestic and foreign OEMs. And this is steady pace of pull has allowed us to use some auto oriented assets to service other pockets of accelerating demand to optimize loading. Kevin?

Kevin Lewis: Yes. And Dave, along those lines and other pockets of demand I would say, across the industrial space we continue to see good pour rates and expect that to be stable in the second half. If you look at the construction market, particularly the non-residential value added construction market that’s been quite resilient. Service centers, I would say generally speaking are mixed. We’ve seen good shipments out of service centers, but as we acknowledged earlier more cautious buying. So when you look at that type of relationship, that can’t continue, that imbalance can’t continue where you have more shipments and less buys meaning they’ll have to start buying soon. So if you couple that with the energy, which is certainly as Dave mentioned earlier, the brightest spot in the order book, Big River that facility is particularly well positioned to serve the strong OCTG demand that we’re seeing. We’ve talked about it before, our Gary Works and the unique capabilities there related to line pipe. And we’ve also addressed Tubular today, which is performing extremely well and is certainly a key area of differentiation and a big competitive advantage for us in today’s market. So given that balanced portfolio of products we have there’s certainly different dynamics manifesting themselves in different pockets, but I think we’re – we feel like the balanced book that we have will provide us some, some resiliency here. So we’ll stay focused on creating value together with our customers. We know they want partners to provide green steel are willing to innovate for the future. And we look forward to continuing to build long-term and mutually beneficial relationships with them.

Rich Fruehauf: Yes. I think this; this diverse end market exposure really does keep us insulated from having too much dependence on just one set of customers. We got automotive with 30% to 35%, construction 15% to 20%, tin something like 50%, appliance 10%, energies and line pipe to 10%. So there’s just a lot more diversity and of course with the footprint in USSK and then also with energy this really bright spot with Tubular but also Big River. There’s a strong OCTG demand there as well and Gary – Gary line pipe, that’s a good deal too. So as Kevin said, the brightest spot in the book is energy. And again, the short-term uncertainty, uncomfortable but what better time to have $3 billion in cash and over $5 billion liquidity, we can navigate through anything and still make sure we’re pleasing the stockholders.

Carlos De Alba: All right. Thank you very much.

Operator: Thank you. It does conclude the Q&A. I’ll now turn the call back to U.S. Steel’s CEO for any closing remarks.

Dave Burritt: Thank you for time this morning and your interest in U.S. Steel. It’s been in another incredible quarter and we look forward to continuing to demonstrate the increasing power of our Best for All strategy. None of this is possible. However, without the commitment and hard work of our employees who deliver for our customers every day. We were recently awarded a top score of 100 from the disability equality index and are among the best places to work for disability inclusion. We are pleased to see the recognition for, and our commitment to a workplace that works for all. We appreciate our employees. Thank you for using your talents to drive our business forward and for doing it safely. When you do well – when we do well, you do well, and we’re pleased to continue to reward you with record pay to match record performance. Of course, none of us could do this without our customers. Thank you for entrusting your products and reputations with U.S. Steel. You continue to deliver the quality steel you need to meet your own customer’s demand. We look forward to growing with you towards a greener future, and finally, and importantly to our investors, thank you for your continued support of our mission and strategy. We’re aligned on executing the strategy while rewarding you with continued direct stockholder returns in line with our capital allocation priorities. We look forward to our shared success and becoming the best steel company together. Now let’s get back to work safely.

Operator: Thank you very much. And that does conclude the call for today. We thank you for your participation and please disconnect your lines.