Ryerson : Reports Fourth Quarter and Full-Year 2020 Results Transcript

Ryerson Holding Corporation

February 25, 2021

10:00 AM EST

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Ryerson Holding Corporation

February 25, 2021

10:00 AM EST

Operator:

Ladies and gentlemen, good day, and welcome to the Ryerson Holding Corporation's Fourth Quarter 2020 Conference Call. Today's conference is being recorded. [Operator Instructions]. At this time, I would like to turn the conference over to Justine Carlson with Ryerson's Investor Relations department. Please go ahead, ma'am.

Justine Carlson:

Good morning. Thank you for joining Ryerson Holding Corporation's Fourth Quarter and Full Year 2020 Earnings Call. I'm here this morning with Eddie Lehner, Ryerson's President and Chief Executive Officer; and Jim Claussen, our Executive Vice President, Chief Financial Officer and President of CS&W; Kevin Richardson and Mike Burbach, our other North American regional Presidents; John Orth, our Executive Vice President of Operations; and Molly Cannon, our Controller and Chief Accounting Officer, will be joining us for Q&A.

Before we get started, let me remind you that certain comments we make on this call contain forward-looking statements within the meaning of the federal securities laws. These forward-looking statements involve a number of risks and uncertainties, including the impacts of COVID-19 and related economic conditions that could cause actual results to differ materially from those implied as the forward-looking statements. Such risks and uncertainties include, but are not limited to, those set forth under risk factors in our annual report on Form 10-K for the year ended December 31, 2020. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date they are made and are not guarantees of future performance.

In addition, our remarks today refer to several non-GAAP financial measures that are intended to supplement, but not substitute for the most directly comparable GAAP measures. A reconciliation of the non-GAAP financial measures discussed on today's call to the most directly comparable GAAP measures is provided in our fourth quarter 2020 earnings release filed on Form 8-K yesterday, which is available on the Investor Relations section of our website.

I'll now turn the call over to Eddie.

Edward Lehner:

Thank you, Justine. And thank you all for joining us this morning to discuss our fourth quarter and full year 2020 results. I hope this call finds you all safe and well. As we completed a quarter and a year without compare, I thank my Ryerson teammates for cohering and persevering through the myriad of adversities encountered throughout 2020. We extend our heartfelt thanks to all essential workers whose heroic efforts and response in the COVID-19 pandemic will long be remembered as we emerge stronger from a period of profound loss. At Ryerson, we adapted and found greater purpose and progress in our efforts to recover and build enduring value in our organization and for all of our stakeholders.

In summary, for the full year of 2020 and Q4 2020, we put punctuation on balance sheet and operating model improvements as we ended the year with our lowest outstanding net debt in more 10 years while continuing to derisk legacy liabilities.

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We significantly reduced our fixed cash commitments; refinanced our bonds on vastly improved terms, extended our ABL; normalized around a lower, more variable and performance-based cost structure; and completed a difficult ERP conversion at CS&W. We worked safer, as evidenced by our best safety performance in more than 10 years. Our operating cash flow and free cash flow yield performance was excellent. And our working capital management has never been better as we attained a cash conversion cycle of 62 days in Q4, a 29-day improvement from Q2.

Taken all together, we have reached a point where we have a clear line of sight and execution path to reducing net debt to 1x to 3x adjusted EBITDA, excluding LIFO, over the next 18 to 36 months with further improvements to the operating model, driving profitable growth, throughout the Ryerson group of companies. Moving through year-end and past the midpoint of Q1, we can similarly say that for a multitude of well-reported reasons, demand and capacity utilization, while still below pre-COVID-19 levels, are exceeding supply chain capabilities to meet that demand.

It is a reality, whether as seen through a lens of lumber, steel and semiconductor constraints, to name just a few that we have, as an economy, a major hitch in our catalog. Before we could even get to a point in time, equilibrium of supply and demand, we have to restock first and that has proved difficult over the past 6 months, since hot-rolled carbon steel chute prices bottomed at $434 per ton per the CRU index in mid-August and now are at their highest levels since 2007 and 2008.

There is pent-up demand in the system. Supply-side constraints have been very slow to relieve, and our base case assumes higher prices for longer until we see some price reversion to the 10-year averages by mid-fourth quarter of 2021. In the absence of another acute economic shock, current price conditions appear to have more staying power than previously thought as supply side constraints are intensifying, especially following the extreme weather events from the past week.

Additionally, probabilities are increasing that we are moving into a period of higher cyclical demand for our industry. The bell is tolling for a desperately needed infrastructure investment, while favorable demographic, societal and savings rate dynamics, along with stimulative economic policies appear to be creating strong post-pandemic economic recovery prospects.

Despite recent severe weather disruptions, demand has so far recovered to nearly 95% of pre-pandemic levels, and previously lagging end markets, such as machinery and equipment and commercial truck and trailer, are seeing orders and backlogs increase. While experts debate the continuum between skepticism and conviction around the duration of current conditions, our empirical view is we are somewhere between the Cinderella ball and the often jinxed commodity super cycle, and at the very least, it doesn't feel too close to midnight.

Before providing more depth around macro conditions and end markets, I would like to welcome Jim Claussen, President of Central Steel & Wire, as Ryerson's new Executive Vice President and

Chief Financial Officer. Jim has been with Ryerson for over 18 years, and I've had the pleasure of working with him during his time as CFO of the North-West region; General Manager of Ryerson's corporate M&A and business development function and most recently as President of CS&W. Jim's experience and talents, particularly within operations, corporate development, systems and FP&A is a well-timed addition in concert with our next-stage transformative objectives.

Returning to the commodity environment, supply-side tightness amidst the improving demand environment drove pricing increases across all product categories. Carbon hot-rolled prices increased aggressively throughout the fourth quarter and continue to increase in the first quarter toRyerson Holding Corporation

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historically unparalleled levels. LME aluminum ended the fourth quarter more than 15% above the end of the third, while LME nickel increased by more than 13% in the same period. As of the first quarter midpoint, both LME nickel and aluminum have picked up the pace as both metals have reached 12-month highs. At this time, we anticipate that these prices will remain well above their 10-year averages through the third quarter of this year and average mean price reversions will be gradual, given our expectation that stimulus post-pandemic recovery and decarbonization acceleration trends should strengthen demand, while supply chains repair and normalize.

Turning to the demand environment. Macroeconomic indicators in the fourth quarter reflected continued recovery. Fourth quarter North American industry shipments as measured by the Metal Service Center Institute, or MSCI, improved from 10.9% below the year ago period in the third quarter to 0.9% below the year ago period in the fourth quarter, incrementally improving throughout the quarter to match the 10-year monthly average volume by December of 2020.

Ryerson's North American customer activity continued to improve on balance throughout the fourth quarter. Compared to the prior quarter, we note shipment improvement across nearly all of our end markets on a sequential per day basis, and we are encouraged by what we've seen beyond early recovery stories in auto and construction. Even lagging and secularly depressed verticals such as oil and gas have stabilized and are incrementally moving higher. Although supply side shortages and constraints are current obstacles to smoother demand backlog turnover, the recovery across Ryerson's verticals appears broad-based, with inventory restocking being the most relevant current friction point.

Although pandemic-driven uncertainties persist, Ryerson is optimistic about early 2021 demand fundamentals within its end markets and anticipates average selling price increases, given returning demand and persistent tightness in the supply environment across all 3 of Ryerson's primary commodities. Additionally, Ryerson's commodity mix, diversity and composition is very well suited to the current environment, given concurrent strength across carbon steel, aluminum and stainless markets. Therefore, Ryerson's anticipates first quarter 2021 revenues of $1.08 billion to $1.1 billion, assuming sequential average selling price growth of 13% to 15%; and shipment growth of 11% to 13%.

LIFO expense in the first quarter is expected to be in the range of $49 million to $53 million, provided replacement costs continue to increase relative to average inventory cost. Given these expectations, adjusted EBITDA, excluding LIFO, is expected to be in the range of $102 million to $106 million, and earnings per diluted share are expected to be in the range of $0.81 to $0.92.

With that, I'll turn the call over to Jim for an introduction and discussion of our fourth quarter and full year financial highlights.

James Claussen:

Thank you, Eddie, and good morning, everyone. As Eddie mentioned, I've been with Ryerson for nearly 20 years and have held positions throughout the organization in finance, operations and strategic leadership where I have developed a passion for both the industry and the transformative progress underway at Ryerson. I would also like to take this opportunity to thank our Controller and Chief Accounting Officer, Molly Cannon, for her leadership as Interim Principal Financial

Officer for the past year, during which she led the company through both the bond refinance and ABL amend and extend, while successfully implementing our COVID response. These achievements are not only impressive but they are also representative of the hard working, dedicated, [indiscernible] culture of our Ryerson people, who I am proud to now be serving and leading into our next phase of growth as CFO.

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Turning to our performance. In the fourth quarter of 2020, Ryerson achieved revenues of $853 million, an increase of 2.6% compared to $831.5 million in the third quarter of 2020, with tons shipped up 0.6% and average selling prices up 2 %. On a per day basis, shipments increased by 5.6% sequentially, which exceeds the expectation of 2% to 4%, communicated on our third quarter earnings call.

Compared to the fourth quarter of 2019, revenues were down by $108.5 million or 11.3%, with tons shipped 9.1% lower and average selling prices 2.4% lower. Affected by lagging contract price resets and ongoing restructuring activities at CS&W, gross margin contracted sequentially to 18% in the fourth quarter of 2020 compared to 18.7% of the third quarter of 2020 and 18.8% for the same quarter last year.

Included in fourth quarter 2020 gross margin is LIFO expense of $10.7 million, which represents a $27.6 million swing compared to the third quarter, when we reported LIFO income of $16.9

million. This unfavorable swing, coupled with the equally-sized favorable swing of $31 million reported last quarter, illustrates the extreme pricing conditions navigated in 2020. In the fourth quarter of 2020, gross margin, excluding LIFO, expanded considerably to 19.3%, up 260 basis points from 16.7% in the third quarter. Compared to the same quarter last year, gross margin, excluding LIFO, expanded by 120 basis points.

Fourth quarter warehousing, delivery, selling, general and administrative expenses rose by $23.7 million or 18.9% compared to the prior quarter.

Compared to the same quarter last year, warehousing, delivery, selling, general and administrative expenses rose by $6.2 million or 4.3%. During the fourth quarter, we restored pandemic-induced compensation reductions across our organization to pre-pandemic rates, while bringing back production capacity to meet improving demand.

Given improving conditions through the fourth quarter, our teams also met various variable incentive compensation attainment thresholds while we noted increases at delivery expense and ERP-related conversion expenses at CS&W. With the CS&W ERP conversion behind us and with enhanced operating leverage, realized through the pandemic-response actions taken, we begin 2021, well positioned for a cyclical recovery.

Fourth quarter net loss attributable to Ryerson Holding Corporation was $16.7 million or a loss of $0.44 per diluted share, compared to a net loss of $39.9 million or a loss of $1.05 per diluted share in the prior period. Included in fourth quarter net loss is a nonrecurring $12.1 million pension settlement charge driven by an offer of lump sum payouts that terminated vested pension plan participants during the quarter. Adjusted net loss attributable to Ryerson Holding Corporation, excluding gain on sale of assets, restructuring and other charges, loss of -- retirement of debt, nonrecurring pension settlement charges and the associated income taxes on these items was $6.6 million for the fourth quarter of 2020 or a loss of $0.17 per diluted share, compared to $11.6

million of adjusted net income or $0.30 per diluted share in the prior year period.

Ryerson achieved adjusted EBITDA, excluding LIFO, of $33.6 million in the fourth quarter of 2020, a decrease of $13.3 million compared to the fourth quarter of 2019 and an increase of $2.2

million compared to the third quarter of 2020, even with the previously mentioned rollbacks of compensation-related cost reductions and variable incentive compensation earned for exceptional performance in the recovery from the pandemic-induced economic shock.

Turning to our full year results. 2020 revenues were $3.47 billion, a decrease of 23% compared to 2019, as tons shipped decreased 15.6% and average selling prices decreased 8.7%. Net lossRyerson Holding Corporation

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attributable to Ryerson Holding Corporation was $65.8 million or a loss of $1.73 per diluted share in 2020 compared to $82.4 million of net income or income of $2.17 per diluted share for 2019.

Adjusted net loss attributable to Ryerson Holding Corporation, excluding gain on sale of assets, gain on insurance settlements, restructuring and other charges, loss on retirement of debt, nonrecurring pension settlement charges and the associated income tax on these items was $3.1

million for 2020 or a loss of $0.08 per diluted share, compared to $67.9 million of income or income of $1.79 per diluted share for 2019. Adjusted EBITDA, excluding LIFO, was $120 million in 2020 compared to $190.1 million in 2019. Ryerson continued to illustrate strong working capital management in the fourth quarter as the company maintained inventory days of supply of 68 days, consistent with the prior quarter and in line with the current market environment. This compares with 84 inventory days of supply for the fourth quarter of 2019. The company also continued to improve receivables and payable cycles in the fourth quarter, contributing to a cash conversion cycle of 62 days for the period compared to 70 days for the third quarter and 86 days for the year ago period.

In the fourth quarter, Ryerson used $18.8 million in cash from operations, primarily to finance working capital. This compares to operating cash flow generation of $120.6 million in the prior period and generation of $62.6 million in the year ago period as we began the shift from countercyclical to emerging cyclical conditions. On a full year basis, Ryerson's excellent working capital management generated significant cash from operating activities of $277.9 million. This led to 2020 free cash flow, calculated as cash flow from operating activities and asset sales, less capital expenditures of $252 million, and resulted in a cash flow yield of 48.5%.

The company again reduced its outstanding net debt during the fourth quarter, decreasing it by approximately $13 million during the fourth quarter to $679 million as of December 31, 2020, achieving its lowest net debt in 10 years for the third consecutive quarter. On October 30, 2020,

Ryerson redeemed $50 million of its outstanding senior secured notes due 2028. This transaction marked the first exercise of the company's optional redemption features secured in the July 2020 refinance and is expected to provide approximately $4.3 million in annual interest expense savings.

In November, we completed the amendment and extension of our credit facility, marking another important advancement in the improvement of our balance sheet and cost of debt capital. And finally, at the end of the fourth quarter, we also offered a lump sum buyout to a portion of our pension participants to continue to reduce pension expenses.

Even with these fourth quarter balance sheet actions, Ryerson retained a strong liquidity position of $373 million as of December 31, 2020 compared to $398 million as of September 30, 2020.

During the fourth quarter, we invested $8.1 million in capital expenditures, bringing our 2020 total spend to $26 million, in line with our COVID-19 revised budget of $25 million. Given our positive outlook at the outset of 2021, we anticipate a maintenance and growth CapEx budget base case of $40 million for 2021.

In summary of 2020, Ryerson reduced net debt at $244 million and achieved milestone improvements in its balance sheet, including the notes refinance, partial pension motivation as well as the aforementioned amendment and extension of our credit facility, first exercise of the notes redemption features and lump sum pension buyout. All of these accomplishments were realized despite unique uncertainties, risks and operational challenges, and they have created aRyerson Holding Corporation

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vastly improved balance sheet with lower fixed cash commitments and the triggers to further accelerate deleveraging and cash interest cost reductions.

As we wrap up our financial performance summary, I want to express my thanks to our Ryerson operations, sales, supply chain and corporate teams, whose dedication throughout the year made these achievements possible. Now I will turn the call back over to Eddie to conclude.

Edward Lehner:

Thank you, Jim. In 2020, we added new pages to our crisis and countercyclical playbook, and we managed to come out better than we were going in, but have to recognize the many hardships we all endured along the way. While acknowledging that every year presents its own unique challenges, we also acknowledge that 2020 was something very different. There will be a time and a place to come to understanding fully everything that happened over the past year, but I am extraordinarily proud of our organization and our people for giving our best and to quote Sir Paul, "Taking a sad song and making it better."

Embarking on the first chapter of 2021 with indications of strong pricing tailwinds, pent-up demand and supply side tangles, we are fully engaged in our mission of providing great customer experiences with speed, scale, value-add and consistency through our network of intelligently connected industrial metal service centers. As we begin our 179th year in business, it is hard to be in the prediction business, but we continue earning our way in the adaptation business.

Looking back over the last year and decade, we continue in our self-help ways toward making the best of any and every environment we are in. The tangibles and intangibles are proof of that. We look forward with great enthusiasm to a post-pandemic era of renewal and progress with budding optimism as it really is time to build and invest after so many years of puzzling and harmful neglect. If the past year has made one thing abundantly clear, it is time to build. With that, we look forward to your questions. Operator?

Operator:

[Operator Instructions] We will take our first question from Chris Terry with Deutsche Bank.

Chris Terry:

I had a couple of questions I wanted to go through. Just wondered if -- you've talk about whether there's any impact in the first quarter as a result of the snowstorm. So I appreciate you don't have too much exposure there, but just wondered if you could go through that.

Edward J. Lehner:Chris, can you hear me okay?

Chris Terry:

Yes. I can hear you.

Edward Lehner:

Okay. Great. Yes, Chris, I mean, I think like everybody across the country, there were a lot of disruptions that were caused by the storms last week, and you're reading what we're reading and we're experiencing it certainly on the ground. We think we'll catch up over time, but certainly, there was a disruption last week. And I can certainly -- I'd certainly have Mike and Kevin give you some more color on that. But I think over time, the bigger story is pent-up demand and supply coming to meet that demand. So I don't think the demand has gone anywhere. I think it's just been further displaced by the storms. It's going to come back in the absence of some other type of exogenous event, it's there. It's not just going to come back. It's there. So yes, I think everybody took a hit last week. Everybody's still digging out and getting back on plane. But our optimism is really undiminished. We just recognized that we lost a better part of 4 or 5 shipping days. Mike and Kevin?

Kevin Richardson:

Yes. Chris, it's Kevin Richardson. I think Eddie summarized it well. We had about 15 plants that got disrupted last week, and some of our plants only lost a day, but some of them were down forRyerson Holding Corporation

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almost the entire week, but I agree with Eddie's assessment, it will work its way through in the next couple of weeks for the most part.

Chris Terry:

Okay. And then just on the guide, I just wondered if you could go through the $19 million to $21 million of adjustments. So I just wasn't sure what's that related to.

Edward Lehner:

Yes. Sure. Let me give you some color around that. I mean, we really cleaned out the pipes in the company. I mean, we all know what kind of year it was. It was -- put any adjective to it what you want. We know how extraordinarily difficult 2020 was. And we did hard things in 2020. As you know, we refi'ed the debt, we extended the ABL. We did a pension lift out, then we get a lump sum buyout. We did a really difficult ERP conversion at CS&W, which certainly cost us some money in Q4 that we couldn't roll over to restructuring. So if you look at the bridge for Q4, you're going to see that delivery expenses went up by about $4 million sequentially, which is consistent with what we've seen in the industry. And I think we're managing that well. And then we had incentive comp that we did chew up to because we exceeded our targets. I mean, going into the pandemic, I think we were all thinking that we would do well to tread water, and we did so much better than that, that we triggered incentive comp on our bogeys that we're glad to pay out on. So between incentive comp, being about $10 million. And you have to look at that through the lens of really applying that back to the whole year, but taking it into the fourth quarter. Between incentive comp and between ERP conversion costs at CS&W and delivery, we had transient costs. And I think when we look at the operating leverage that we're retaining go on of 2021, and really for 2021, we're positioned better than we've ever been positioned, acknowledging the ongoing risk for the pandemic and acknowledging supply chain risks and the things that we've talked about. But all those things aside, when I think about our ability to generate self-help and the things that we're doing within the operating model, we have a really good glide path and line of sight on further deleveraging, derisking the pension and seeing operating model improvements come through in 2021, which I think you can see in our guidance.

And I would say that we would not have triggered our first special redemption right to the paydown $50 million on the original $500 million notion, we would not have triggered that right in Q4 if we didn't have a high degree of confidence in how we're going to operate going forward. So I hope that helps.

Chris Terry:

Yes. And then just in terms of the working capital, how do we think about that over the course of 2021?

Edward Lehner:

Sure. On the working capital side, you look at -- we had a 62-day cash conversion cycle in Q4. We've never managed working capital as well as we did really throughout the year and in Q4. I mean, the teams just did an exceptional job. And I think you know we're going to have a build because we're certainly experiencing notional inflation in our average selling prices based on underlying commodity drivers around aluminum, nickel and carbon sheet.

So we're going to have to finance that inflation with unit growth. I think, again, the big story is the industry has been trying to restock for 5 months, and we really haven't been able to do it. And that's not for lack of putting orders into our suppliers. So the price environment's really strong. We'll build working capital. We've typically been -- we've been at a ratio of between $6 and $7 of revenue for every dollar of net working capital employed. Given the robustness of our Q1 guidance and the EBITDA margins that are associated with that, certainly, we -- you can do the math and see that unlike maybe past cyclical recoveries, most of that working capital build, if not all of it, is going to be financed by EBITDA generation. So that's a really good sign of the improvements we've made as an organization. So we worked within that ratio of $6 to $7 ofRyerson Holding Corporation

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revenue for every dollar of net working capital that we need to support that revenue recovery from the cyclical trough that was brought on by the pandemic.

Operator:

And we will take our next question from Michael Leshock with KeyBanc.

Michael Leshock:

There was -- I wanted to touch on the OpEx in 4Q, a meaningful uptick there. I'm just wondering if you see that as a sustainable baseline going forward, at least in the near term. I mean, you touched on the impact of winter storms, but outside of that, just wondering what your expectations are for OpEx over the next few quarters?

Edward Lehner:

Yes, sure. What I would say is, there are certain OpEx pressures that are in the system, as you would imagine. As our prices are going up, other suppliers, their prices are going up, too, as a result of supply chain constraints and other inflationary forces that are in the system right now.

But I'll tell you, we have a lot of operating leverage going forward based on non-value-added costs that we took out during the pandemic, other variabilization actions we took during the pandemic. So we have a really good amount of operating leverage that we've retained as we go into 2021 with a lot of optionality in terms of how we run cost through our company to maximize utilization of our assets and giving a better service proposition to our customers, which early indications in Q1 are -- we've done a really good job of that. And that's important because across a 100-facility network, give or take, at times, it will be bottlenecked in one place, that we have the ability now because of the way we're interconnected, we have the ability to roll over that processing and that fulfillment over to another service center, and that really helps you with cost absorption so that you don't have stranded costs in in place, and you're not overabsorbing another. So we -- our cost profile and the variabilization of that cost profile is -- we think it's the best it's been in -- certainly in the time that I've been with Ryerson.

Michael Leshock:

Okay. And then you touched on the need for restocking across the industry. I mean Ryerson's inventory saw its first sequential increase in a while, I think, since 1Q '19. To what extent do you think you'll be able to take up your inventory in 2021? And how long do you foresee the restocking cycle to take to get to levels that you're comfortable with?

Edward Lehner:

Sure. We noted in the script that we don't think this was going to unwind quickly. I mean we think that it's at least another 2 quarters before the mills -- I'll get to a point of -- what I'll call the first stage is restocking equilibrium, that's just to get to a point of normalization relative to long-term industry averages for months on hand.

I mean, right now, we're between 1.7 and 1.8 months on hand of inventory. And the industry typically will run at anywhere between 2.2 to 2.4. So you've got a deficit there that has to get gapped first before you even start to think about how you service secular demand. So as the year unfolds, you don't have any significant imports that are really arriving until Q3 of any consequence and prices are going up overseas as we speak.

If you look at the headlines that came out on Bloomberg last night, you can see that European prices are going up, prices in Asia are going up and conditions are improving. So we think that prices are going to be higher for longer. It's going to take longer for these supply chain tangles to unknot themselves. And we'll go ahead and have the opportunity to build back our inventories. I mean, orders are out there. It's really a function of our suppliers being able to catch up their order books and some capacity coming online and some imports coming in, in the second half of the year.

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I would also say though that one of the capabilities we have that I'm -- again, that we're really proud of is the ability to buy out, the ability to go into the industrial metals external network, not just our internal network, but the external network and find metal for customers where they are not able to get quoting satisfaction from maybe their more traditional sources. So it's a good environment. I mean, reflecting for the ongoing pandemic, it's a good environment, based on the indicators that we see now.

Michael Leshock:

And then just lastly for me on CapEx. How should we think about maintenance levels for the business? And what do you foresee in 2021?

Edward Lehner:

Sure, sure. So last year, when we -- typically, our countercyclical playbook or our recession playbook is, we'll see maintenance CapEx with some growth component of somewhere between $20 million and $30 million. We pretty much hit our midpoint of $26 million, so we came in within our expectations of CapEx. And then at a mid-cycle base case, CapEx for us is $35 million to $45 million, maintenance being about $20 million of that and then growth CapEx being $15 million to $20 million of that. And then if we -- as we move through an upcycle, we can certainly entertain and underwrite and support investments at $50 million, and we can be opportunistic in how we look at really good payback time lines to make those incremental investments to improve the customer experience.

So in a recession, we're $25 million, call it, in this environment, right now, between $35 million and $45 million with maybe -- it's been about X being the balance. And then an up cycle, and we get towards that peak. We can be opportunistic, and we can take that to $50 million.

Operator:

[Operator Instructions]. And we will take our next question from [Peter Engler] with Bank of America.

Peter Engler:

So first, the shelf registration back in January, any intention to issue some equity here at these prices and possibly pay down some debt?

Edward Lehner:

Yes. I think we certainly dropped a hint there that we're going to be opportunistic and looking at those opportunities. I mean we were very purposeful, and we did the high-yield refinance in July of last year. We were very purposeful in negotiating in special redemption features that give us really the right to pay down $200 million of the notional within the first 2 years and $250 million of notional within the first 3 years, leading up to our first call date. And as you can see, we already exercised that first $50 million amortization trigger in the fourth quarter. We also have an equity claw opportunity, as you mentioned. And we'll be opportunistic about that. But yes, I mean, we're going to create a fortress balance sheet at Ryerson, and we've made tremendous progress around that initiative, and we'll continue to make great progress around that initiative. So if we see an opportunity where we think it's compelling to exercise that equity claw and pay down some debt and also increase equity share float and liquidity, we'll certainly evaluate that as we move through the year.

Operator:

[Operator Instructions] And with no additional questions in queue, I would like to turn the call back to Eddie Lehner for any additional or closing remarks.

Edward Lehner:

Well, we thank you for your continued support. We look forward to see you next quarter and vaccinated. And everybody take care, and we'll see you here in a couple of months. Thank you.

Operator:

Ladies and gentlemen, this concludes today's call, and we thank you for your participation. You may now disconnect.