Ryerson - Q3 2024

Executive Summary

• Q3 2024 was a bottoming quarter: revenue of $1.13B met the low end of guidance, but diluted EPS missed, printing a $(0.20) loss; margins compressed as ASP declines outpaced inventory cost deflation, especially in carbon steel.
• Free cash flow was strong at $103.4M on $134.6M operating cash flow driven by $129M working capital release; net debt fell to $487.1M; net leverage rose to 3.8x given lower LTM EBITDA while the investment cycle winds down.
• Q4 2024 outlook: shipments down 8–10% q/q; revenue $1.00–$1.04B; ASP −1% to +1%; LIFO income ~$10M; adj. EBITDA ex-LIFO $10–$12M; diluted EPS loss $(0.53)–$(0.47) as seasonal and cyclical bottoming persists.
• Cost actions ahead of plan: annualized cost savings tracking toward ~$60M (from $40M previously) as start-up and reorg costs tail off into early 2025; management reiterated 2025 capex of ~$50M on the call.
• Potential stock catalysts: evidence of cycle turn (contango across metals, improving indicators), commissioning of Shelbyville, sustained FCF/deleveraging, and execution on $60M cost program versus a still soft OEM contract backdrop and weather disruptions that weighed on Q3 volumes.

What Went Well and What Went Wrong

• What Went Well

  • Strong cash generation: $134.6M operating cash flow and $103.4M FCF, aided by working capital release; inventory reduced by $80.8M FIFO basis.
  • Cost reduction momentum: opex down $2.1M q/q; management now “progressing well toward” ~$60M annualized cost savings target as investment-related expenses fade.
  • Capital returns sustained: $42M returned (repurchasing ~1.85M shares for $36M plus $6M dividends); $38.4M remains on authorization; Q4 dividend declared at $0.1875 per share.
  • Management tone on cycle: “Two things can be true…”—a cyclical bottom with compressed margins while record investments position RYI for the next upturn.

• What Went Wrong

  • Volumes missed guidance: 485k tons, below the company’s range due to soft demand and Hurricane Helene; ASP down 3.7% q/q and carbon prices fell sharply, compressing margins.
  • EPS miss vs company expectations: adjusted EBITDA ex-LIFO hit low end ($21M), but net loss $(6.6)M and diluted EPS $(0.20) were below expectations on volume shortfall and acute margin pressure.
  • Leverage elevated: net leverage at 3.8x (above 0.5x–2.0x target) as EBITDA troughs while the investment cycle draws on the ABL; global liquidity declined to $491M.

Transcript

Operator (participant)

Good day and welcome to the Ryerson Holding Corporation's Third Quarter 2024 conference call. Today's conference is being recorded. There will be a question-and-answer session later. If you would like to ask a question, please press star one on your telephone keypad at any time. Again, that is star one to ask a question. I'll now turn the call over to Pratham Dher, Manager of Investor Relations. Please go ahead, sir.

Pratham Dher (Manager of Investor Relations)

Good morning. Thank you for joining Ryerson Holding Corporation's Third Quarter 2024 earnings call. On our call, we have Eddie Lehner, Ryerson's President and Chief Executive Officer, Mike Burbach, our Chief Operating Officer, Jim Claussen, our Chief Financial Officer, and Molly Cannan, our Chief Accounting Officer and Corporate Controller. John Orth, our Executive Vice President of Operations, and Jorge Beristain, our Vice President of Finance, will be joining us for Q&A. Certain comments on this call contain forward-looking statements within the meaning of the federal securities laws. These statements involve a number of risks and uncertainties that could cause actual results to differ materially from those implied by the forward-looking statements.

These risks 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 31st, 2023, our quarterly report on Form 10-Q for the quarter ended September 30th, 2024, and in our other filings with the Securities and Exchange Commission. 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 non-GAAP measures to the most directly comparable GAAP financial measures is provided in our earnings release filed on Form 8-K yesterday and also available on the Investor Relations section of our website. I'll now turn the call over to Eddie.

Eddie Lehner (CEO)

Thank you, Pratham, and thank you all for joining us this morning. I want to start by recognizing the dedicated efforts of our entire Ryerson team and Ryerson family of companies for prioritizing a safe and productive operating environment for our over 110 facilities across North America and China. Since the cyclical peak demand and pricing environment last seen during the first half of 2022, we have experienced extended countercyclical conditions over the ensuing 24 months, characterized by falling average selling prices, unrelenting gross margin compression, and declining demand. We experienced and are experiencing this particular industry downturn in parallel with a record Ryerson investment cycle. So two things can be true at the same time.

We can soldier through a protracted industry downturn while curing an investment deficit of the prior 20 years to come through to the other side and into the next upturn as the best version of Ryerson in several generations. Despite some upsets and discomfort along the way and some tough weather, figuratively and literally, the investments we have made are necessary, worthwhile, and will prove out in the years to come. This has been a long manufacturing downturn going on its 25th month. However, evidence is mounting that we're moving off this countercyclical bottoming as we move through the balance of 2024 and on to 2025.

More specifically, this third quarter, China's economy weakness, 24-month moving average PMI readings well below 50, demonstrating ongoing manufacturing contraction, steel capacity utilization ratios in the low 70s, high interest rates, a strong dollar, as well as post-pandemic residuals and geopolitical turbulence, are taking us through a longer-than-usual manufacturing and industrial metals downturn. Looking further ahead through Q4 and into 2025, probabilities are increasing that cyclical drivers are improving as the destocking abates, industrial metal commodity price curves are showing contango moving into 2025, and China economic policies are turning stimulative along with incrementally declining interest rates across the G7 economies to go with plenty of latent secular manufacturing and industrial metal demand. Pertaining more specifically to Ryerson in Q3, we were within our guidance range for Adjusted EBITDA, excluding LIFO, as ongoing investment activities and extreme weather events impacted results to the downside.

But fundamental company indicators of service levels, positive account churn, and on-time delivery continued to improve. Our spot bill of material transactional business outperformed our OEM contract business on a relative basis, as the OEM contract business has continued its relative underperformance through the year to date. Other positives in the quarter included $103 million of free cash flow generation, $42 million of capital returned to shareholders, plus aligning equity and operating leverage for the next upturn and ongoing cost reductions ahead of target. As our new investments continue coming online and our service center fundamentals continue to improve, we are setting the table for realization of our next stage financial targets. With that, I'll turn the call over to Mike.

Mike Burbach (COO)

Thanks, Eddie, and good morning, everyone. During the third quarter, Ryerson earned $1.13 billion in revenue, which met the low end of our guidance expectations, and was influenced by an average selling price of $2,323 per ton, which also came within our guidance expectations. Our sales volume of 485,000 tons was below our guidance range and was impacted by a slow demand environment and the impacts of Hurricane Helene towards the end of the quarter. Our average selling price per ton was down 3.7% quarter over quarter, meeting expected pricing pressure across our product mix.

Due to a combination of lagged pricing in our customer contracts in a lower demand environment, metals commodity pricing led to margin compression during the quarter and was most acutely felt in our carbon products, whereby our average selling prices for carbon products decreased 6%, following the trend of baseline carbon steel prices as measured by CRU's hot rolled coil prices, which decreased by 13% quarter over quarter. On the other hand, in our bright metals franchise, we saw a 1% increase in aluminum and a 2% decrease in stainless steel average selling prices over the quarter. Turning to the demand environment, Ryerson's sales volume of 485,000 tons was 4.5% lower quarter over quarter, as a historically slower period met with a lower demand environment and extreme weather events during the quarter.

In the third quarter, North American industry volumes, as measured by the Metal Service Center Institute, or MSCI, decreased 5.1% compared to the prior three months. Over the same period, Ryerson North American shipments decreased by 5.5%. Year to date 2024, industry volumes for the MSCI were down 3.2%. This is compared to down 1.4% for Ryerson's North American volumes, with Ryerson noting market share gains across all three product lines led by stainless steel and followed by carbon and aluminum. Ryerson's overall volume decrease in the third quarter of 2024 was driven by contractions across most end markets, which were partially offset by volume increases in HVAC, and with that, I will turn the call over to Jim for third quarter financial highlights as well as our fourth quarter 2024 outlook.

Jim Claussen (CFO)

Thanks, Mike, and good morning, everyone. Before discussing guidance for the fourth quarter, I'd like to highlight the drivers of our third quarter performance compared to our guidance expectations. In the quarter, with Adjusted EBITDA excluding LIFO of $21 million and net sales of $1.13 billion, we met the low end of our guidance range. Due to the combination of lower-than-expected sales volumes, as well as acute and greater-than-anticipated margin compression, our results of a net loss of $6.6 million and diluted loss per share of $0.20 were below expectations. Looking to the fourth quarter of 2024, we expect volumes to be down 8%-10% sequentially compared to the third quarter. As such, we expect revenues to be in the range of $1 billion-$1.04 billion, with average selling prices between 1% up and 1% down for the quarter.

Based on these expectations, we forecast Adjusted EBITDA for the fourth quarter of 2024, excluding LIFO, in the range of $10 million-$12 million on seasonally and cyclically bottoming conditions and a loss per share in the range of $0.53-$0.47 per diluted share. We expect approximately a $10 million LIFO credit for the quarter. In the third quarter, we generated $135 million of cash flow from our operations. We ended the period with $522 million of total debt and $487 million of net debt, which decreased from $525 million and $497 million, respectively, as of the prior quarter. The company's available global liquidity remains healthy but decreased to $491 million in the third quarter from $585 million in the second quarter. Finishing off our investment cycle has led to a greater drawdown on our credit facility over lower Adjusted EBITDA generation.

We ended the quarter above our two-times target range for net leverage at 3.8 times. Our credit facility has allowed Ryerson the flexibility to engage in our investment cycle without the high fixed overhead of structured debt and fits the nature of our business, where we can fluctuate our borrowings up and down based on our needs. While we remain mindful of our balance sheet and reaffirm the importance of a healthy balance sheet as a central long-term fulcrum balancing growth and financial discipline, we anticipate being above 2.0x net leverage as we complete our investment cycle and begin generating revenue and cash across recent and near-term new assets, with our continued commitment to our long-term range of 0.5x to 2x net leverage.

As we announced in the first quarter of 2024, in order for Ryerson to operate more efficiently, we initiated a cost reduction plan to help us reduce operating expenses by $25 million during 2024 and annualizing to $40 million. Over the second and third quarters, we were able to achieve a reduction in expenses, partially driven by the reduction of startup, pre-operating, reorganization, and duplicative expenses related to logistics and SG&A from our completed investments over the prior few quarters, as well as streamlining our workforce. While we are still working through the temporary higher investment-related expenses, we are progressing well towards our updated forecast of $60 million in annualized cost savings.

In the third quarter, we invested $32 million in capital expenditures, which included most notably the modernization, automation, and expansion of our Shelbyville, Kentucky non-ferrous coil processing facility and strategic equipment and infrastructure upgrades throughout our network to increase productivity and value-added capabilities. The investments we are making are expected to drive better customer experiences, improve asset utilization, improve working capital efficiency, increase productivity, and provide a safer operating environment for our employees. We are very excited about the modernization efforts across our network and the better customer experiences they will provide. Turning to shareholder returns, Ryerson returned $42 million in the quarter, which was comprised of $36 million in share repurchases and $6 million in dividends. We paid a quarterly dividend of $0.1875 per share and have announced a fourth quarter cash dividend of the same amount.

As for share repurchases, after repurchasing just under 1.85 million shares for approximately $36 million in the open market during the quarter, we ended the quarter with about 38.4 million remaining in the share repurchase authorization. As we look forward to the fourth quarter and into 2025, we will continue to prudently evaluate our shareholder return opportunities, as well as our overall capital allocation strategy to maximize long-term shareholder value. With that, I'll turn the call over to Molly to provide further details on our third quarter financial results.

Molly Cannan (Chief Accounting Officer and Corporate Controller)

Thank you, Jim, and good morning, everyone. In the third quarter of 2024, Ryerson reported net sales of $1.13 billion, which was 8.1% lower than the second quarter of 2024, driven by lower volumes and lower average selling prices. Gross margin during the quarter contracted by 30 basis points versus the prior quarter to 17.9%, partially supported by $18 million in LIFO income recorded in the third quarter of 2024, compared to $10 million of LIFO income recorded in the second quarter of 2024. Excluding LIFO, gross margin contracted 110 basis points from the second quarter to 16.3%, as compression in our average selling price for our sales mix outpaced a decreased cost of goods sold. This is especially true for our carbon products, as Mike explained earlier.

On the expense side, warehousing, delivery, selling, general, and administrative expenses decreased by $2.1 million, or 1% quarter over quarter, to $197 million, driven by reductions in expenses related to personnel, operating expenses, and general administrative expenses. Decreases in expenses were partially offset by increases in startup expenses related to our investment cycle projects. For the third quarter of 2024, net loss attributable to Ryerson was $6.6 million, or $0.20 a loss per diluted share, compared to net income attributable to Ryerson of $9.9 million and diluted earnings per share of $0.29 in the prior quarter. Finally, Ryerson achieved adjusted EBITDA, excluding LIFO, of $21 million in the third quarter of 2024, which compares to $42.6 million in the prior quarter. And with this, I'll turn the call back to Eddie.

Eddie Lehner (CEO)

Thank you, Molly. As we are emerging from what has been a long countercycle and bring our three-year investment cycle to harvest, I couldn't be more optimistic about what comes next as we flex our optimization cycle to maximize the growth and earnings potential of our facilities, our network, and our overall business to the benefit of all Ryerson stakeholders. While countercycles don't last forever, Ryerson has improved over each preceding downturn, and this one will be no different despite some upsets and growing pains along the way. We wish all of you a safe, healthy, and joyous holiday season with lots more metal. I look forward to being with all of you in the new year. With that, we look forward to your questions, operators.

Operator (participant)

As a reminder, that is star one if you would like to ask a question. If you are using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. We'll take our first question from Katja Jancic with BMO Capital Markets.

Katja Jancic (Analyst)

Hi, thank you for taking my questions. I might have missed this, but of the $60 million in cost savings you're targeting, how much of that has already been realized so far?

Eddie Lehner (CEO)

Hi, Katja. Good morning. I'm going to go ahead and I'm going to kick that over to Jim Claussen, and he's going to fill you in on that.

Jim Claussen (CFO)

Hi, Katja. Good morning. Yeah, as we look through the expense reductions, I would say the heavy lifting has been done. There's always some optimization that can be done as we further implement the automation at our facilities. But as you look at our expense per ton from the first quarter to the third quarter, you see a trend down there. So we would expect as our projects play out, we'll finish through those optimizations and cost reductions, but the heavy lifting has been done.

Eddie Lehner (CEO)

Yeah, Katja, and this is Eddie. I would append to that by saying we've been carrying some redundant investment costs that you just carry because you need to ship over greater distances. You need to maintain more inventories. The magnitude of some of the things we've done, like University Park, 900,000 sq ft, Centralia, 250,000 sq ft, Shelbyville, and it's a long list of major improvement projects that we're going to see the benefit of, but while you're going through it, you carry excess costs, so in addition to the controllable and some costs we've taken out, as we wrap up this investment cycle, we'll see other costs start to melt away from our P&L, which, of course, we're looking forward to.

I would direct you to the slide that we put in the investor deck that shows productivity at University Park and Central Steel and Wire as an example of how you go from a very antiquated model and a very antiquated facility to something that is modern and highly productive and is already showing really good emerging signs of really hitting its KPIs for service and growth, even as we kind of bottom through this cycle.

Katja Jancic (Analyst)

Maybe looking, you generated a very strong free cash flow this quarter, aided by working capital release. When we look to 4Q, is there still any opportunity to further working capital release, or how should we think about that?

Eddie Lehner (CEO)

Yeah, there is more opportunity to generate working capital release through the quarter. We see this as a seasonal and cyclical bottom. We expect 2025 to be a better year. Of course, we don't have a perfect crystal ball, but it looks like indicators are turning more favorable than what we've seen over 2023 and 2024. And it's been a Paul McCartney would have written a song about it. He would have titled it "The Long and Grinding Road." It's been a long grind. It's been a long grind downturn. But we see it ending, and we look forward to 2025, and there is more cash flow that we can generate as we move through Q4.

Katja Jancic (Analyst)

Just one last one on the CapEx. I know in the past you said next year CapEx should go down to $50 million. Is this still true?

Eddie Lehner (CEO)

Yes.

Katja Jancic (Analyst)

Okay, perfect. Thank you.

Eddie Lehner (CEO)

Thank you.

Operator (participant)

And as a final reminder, that is star one if you would like to ask a question. We'll now take a question from Samuel McKinney with KeyBanc Capital Markets.

Samuel McKinney (Analyst)

Hey, good morning.

Eddie Lehner (CEO)

Hey, Sam. How are you doing?

Samuel McKinney (Analyst)

Good. I will start by following up on the working capital question. You took your inventory days of supply down a few days, and your balance sheet inventory decreased about $60 million. How do you feel about your current inventory levels and given your expectation for relatively stagnant pricing in the fourth quarter? How should we think about them?

Eddie Lehner (CEO)

Yeah, sure. I think we are seeing a bottoming, and we referenced this in the script and in our release, but we do see this as being a seasonal and cyclical bottoming. Our days of supply can still come down relative to lead times from the mills. I think stainless will be a little bit slower to recover as we move into 2025. Aluminum's improving, carbon's improving, but that said, there's plenty of capacity in the market to supply on shorter lead times, and so we can still keep our service levels high and still take, say, four to five days out of DOS, and that includes replacement costs still moving below average costs, so you'll get some what I'll call cost variants that will be favorable to cash flow, and you'll get some volume variants that will be favorable to cash flow.

Samuel McKinney (Analyst)

Okay, thanks, Eddie. And then reorganization expense was about $13 million in the second quarter, $16 million this quarter. A two-part question. First, trying to bucket that out of the $16 million in the third quarter, how much do you feel that cost of goods sold in OPEX are theoretically overstated because of these frictional costs? And then secondly, how much longer do you expect these costs to weigh on earnings?

Eddie Lehner (CEO)

Yeah, that's a good question. I mean, we roll it up and give you that number. When you think about something you're familiar with from other companies that you cover, when you look at pre-operating startup and reorganization costs without really teasing that out into those three buckets, I'll put names to it. University Park, that's certainly coming to an end as we move to the balance of the year in terms of additional costs that we're carrying on that major investment. Shelbyville is coming through really its peak now. It's commissioning and starting up, so there's still costs associated with Shelbyville, but those will be completed by the first quarter of 2025. We've had costs associated with a brand new splitter at Norcross.

The ERP conversion expenses, which have been a big item for us, those are starting to tail out, and those should really be all said and done by, I'd say, again, Q1 of 2025. So we're coming to the end of carrying these costs of seeing startup and reorg and pre-operating costs as we start to normalize that CapEx spend more to maintenance and some targeted growth CapEx projects, a little bit of carryover. And then we're going to get a really good, clean look at what all of our investments have done as we move through 2025, a more modern Ryerson, much more productive company that really can create the customer experiences that we've been speaking to for some time now.

Samuel McKinney (Analyst)

I appreciate that. Any way to frame up what we should think about with reorganization this quarter and next quarter versus the $15 million average we've seen the last few?

Eddie Lehner (CEO)

Yeah, I think it's going to start to trend down. I mean, it'll still be probably, if I had to give you the best educated guess, I would say it's going to be between $8 and $12 million in Q4. We had some flood-related costs in Connecticut with Production Metals. We had some storm costs with Hurricane Helene, but those are insurable expenses that we expect some recovery from. So if I gave you an estimate right now, I'd say $8 to $12 million.

Samuel McKinney (Analyst)

Okay. Thanks, guys.

Eddie Lehner (CEO)

Thanks, Sam.

Operator (participant)

It appears there are no further telephone questions. I'd like to turn the conference back to our presenters for any additional or closing comments.

Pratham Dher (Manager of Investor Relations)

We've got some written-in questions from investors.

Eddie Lehner (CEO)

Sure.

Pratham Dher (Manager of Investor Relations)

That'll ask. The first one is, Can you discuss more about the investment efforts at Shelbyville? How will they competitively differentiate our offerings in that region?

Eddie Lehner (CEO)

Yeah, that's a great question. We had a group go through Shelbyville, and I can have John speak to this in just a minute, but the reviews from Shelbyville have been just outstanding. But let me sketch it out for you. The epicenter now of non-ferrous supply of aluminum and stainless supply is within a 500-mile radius of Shelbyville. So when we think about the freighting costs and we think about the efficiencies coming into Shelbyville from aluminum and stainless suppliers, and we think about the size coils that we can bring in now, we can bring in very, very heavy coils. We can process mill-edge coils, and we can do all the value-add in line.

And when you combine that with other investments we made at SMP Specialty Metals Processing, when you think about the investments we made in TSA, when the stainless market recovers, and it will, it will. It's been long, but it will. When that market recovers, we've got really what I think is the industry-leading value-added network for stainless value-add in the U.S. and really in North America for that matter. So that investment, it looks really sensational, and we're really just excited to get it started up and get it operationalized fully as we move into 2025. And I'm going to have John give you some more color on that.

John J. Orth (EVP of Operations)

Thanks, Eddie. Really well said. Our investments at Shelbyville include a state-of-the-art cut-to-length line, a highly automated storage and retrieval system, along with the packaging system for our bright metal sheet products. These investments will improve the safety, the ergonomics of our operation, and most importantly, also our productivity and throughput. As Eddie mentioned, we are on schedule with this project and beginning commissioning of all of our systems, including systems integration, and we see a path to being fully operational in Q1.

Pratham Dher (Manager of Investor Relations)

We have some more written-in questions. Second one is, when will we see cost reductions from recently acquired plants? Do you expect Ryerson will be able to cut costs and improve efficiency at those locations?

Eddie Lehner (CEO)

Yeah, we look at it more as how do we evaluate the entire network of service centers, whether it's recent acquisitions or all the existing service centers we have. There is certainly optimization work to be done. We started an initiative several years back called Copernicus, which was all about how do you optimize the total footprint as you bring on new investments, as markets change, as customer and supplier patterns change. So there are some really good Copernicus opportunities. As we operationalize and bring these investments online, we'll continue to do that work. We've identified areas to do that work. John and his team, headed up by some really talented people.

They're looking right now at cut-to-length line optimization throughout our network, given the investments we've made in Shelbyville, University Park, Singer Steel, Norcross, Dallas. It opens up a lot of opportunities for us to really optimize that CTL network where you take out maintenance costs, you free up more space, and you can position inventory now, especially A and A1 item inventory. You can position that inventory to do really quick service fills to your customers, which really, really improve the customer experience. So we look at it as a beneficiation opportunity. When you come through this investment cycle, it opens up a lot of other opportunities to take costs out because you want to realize the full productivity and benefit of those investments throughout that network.

Pratham Dher (Manager of Investor Relations)

Thanks, Eddie. As a follow-up, can you discuss the Production Metals acquisition? What does this bring to Ryerson?

How does it complement our other offerings in the aerospace industry?

Eddie Lehner (CEO)

Yeah, sure. I mean, going back to 2015, when I presented my first SWOT analysis to the board, strengths, weaknesses, opportunities, and threats, we identified three things that we really wanted to address in that SWOT analysis. All things considered, which is a longer conversation than what we have time for on this call, but let me summarize it like this. We identified digitalization being a digitally enabled enterprise. We identified 3D printing and additive manufacturing. And then we also identified finding an entry point into aerospace, defense, and semiconductor. Now, if you look at valuations of companies since the middle of 2022, the ones that had more exposure to non-residential construction, the ones that had more exposure to aerospace, defense, and semiconductor, for example, they have tended to perform better since the middle of 2022.

We found a really good entry point with Production Metals. We're really happy to have them on board. And it also gives us an opportunity to expand that Production Metals expertise through our network as well. So given that we have 110 service centers, we can start to move that capability and that product expertise and that value-added processing to other parts of Ryerson's network and footprint. So we've addressed. There's always new things that are going to come up on that SWOT analysis, but I'm pleased to say that given the acquisition of Production Metals, we've made really, really good inroads into turning those maybe threats and weaknesses into opportunities and strengths.

Pratham Dher (Manager of Investor Relations)

Thanks, Eddie. One more is, can you give an update on the new ERP system implementation? How has this been flowing through the southern service centers? Are there any other major ERP initiatives outside of the southern region?

Eddie Lehner (CEO)

So look, ERP conversions are tough. I'll tell you what, if you go through the graveyard of ERP conversions and transitions, it's a big space. And I'm proud of the team, the way we've weathered it. It was a heavy lift. We're through really the worst of it. I think we're going to get on to the best of it. Once you learn that new language, it's a new language. It really is. You have to learn a new language. You have to remap mission-critical business systems and processes. I mean, we were working with a legacy system that was 50 years old. And as you know with legacy systems, eventually the day finally comes when you have to move on from that legacy system.

When you put in a new system, folks that have been doing things for a long time one way have to learn another way, and that's never easy. And that also causes some pain and disruption. But we are certainly through the worst of it. I believe we're going to get on to the best of it, which is you have one universal ERP platform for the great majority of the organization except for some bolt-on acquisitions. And now you have this base with your data warehouse/data lake where now a lot of the real value-added higher-level application development we're doing can really be done scalably at a lower cost but really delivers some of the benefits to our customers, such as faster quoting, better fulfillment, better visibility.

A lot of things that we've been working on for a long time can really now begin to optimize and scale because we're on one ERP platform, but definitely a tough process to go through, and really, like our investment cycle, now we're more into maintenance and optimization, meaning we don't need to do a lot of new work with an ERP, but we need to optimize with an ERP, and so those costs start to melt away, and we start to see more of the benefits of that conversion as we move forward.

Pratham Dher (Manager of Investor Relations)

Thanks, Eddie. One final one.

Eddie Lehner (CEO)

All right.

Pratham Dher (Manager of Investor Relations)

Let's go, man. Let's keep going.

Eddie Lehner (CEO)

Yeah.

Pratham Dher (Manager of Investor Relations)

I'm just getting warmed up. Related to your opening comments, where do you believe the balance is right now between U.S. steel mill supply and demand?

Eddie Lehner (CEO)

It's a good question. Let me answer it like this. When you see operating rates in the low 70s, there's a lot of capacity. We don't find capacity to be short anywhere right now. There's plenty of capacity. Mills are taking outages because they have the time to make outages. They'd rather run than take the outages that they're taking. Before I got to Ryerson, I spent a good bulk of my career on the mill side, so I haven't forgotten all those learnings. So plenty of capacity in the industry. But as the cycle improves, as we move through, as we move off the bottom and through this counter-cycle and we inflect to an upturn, lead times will go out. Inventories are definitely getting to the point of I think they're at the point of equilibrium now. I don't think anybody's really overstocked, but they're not understocked.

And so the mills have capacity. Operating rates at 73%-74% are historically low. Until you move to utilization rates above 80%, you don't start to see tension come back into the supply side. And when we look at pricing, I'll give you some value-add here on the call. The way we look at price in our industry is supply generally sets what we call the book price, but customers and demand really set the discount to that book price. So when we look at today's market, it's a price market. It's not an availability market. 2021 and 2022 were availability markets. This has been a price market. So plenty of capacity. Lead times are short. But as we inflect and we move through the counter-cycle, you can probably bet and expect that some folks will get caught short with inventory.

They'll have to replenish fast, and the mill lead times will go out. But that's not the case right now.

Pratham Dher (Manager of Investor Relations)

All right. Thanks, Eddie. I'll give it to you for a closing comment.

Eddie Lehner (CEO)

Yeah, look, I appreciate all the questions. This was great. It's a good workout. And I really appreciate everyone's interest in Ryerson. I thank you all for tuning in with us today. And please have a safe, healthy, happy, and joyous holiday season.

Thanks, operations.

Operator (participant)

Thanks, once again. You're welcome. Once again, that does conclude today's conference. We thank you all for your participation. You may now disconnect.