Q3 2023 Russel Metals Inc Earnings Call

November 9, 2023

Good morning, ladies and gentlemen, and welcome to the Russel Metals, Inc. Third quarter 2023 earnings conference call. At this time all lines are in a listen only mode. Following the presentation, we will conduct a question and answer session.

Speaker 1: Good morning, ladies and gentlemen, and welcome to the Russell Metals Inc. 3rd Quarter 2023 Earnings Conference Call. At this time, all lines are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session.

Speaker 2: If at any time during this call you need assistance, please press star zero for the operator.

Any time during this call you need assistance, Please press star zero for any operator.

Speaker 3: This call is being recorded on Thursday, November 9, 2023. I would now like to turn the conference over to Marty Juravsky, Executive Vice President and Chief Financial Officer. Please go ahead.

This call is being recorded on Thursday November nine 2020.

I would now like to turn the conference over to Marty Zawacki Executive Vice President and Chief Financial Officer. Please go ahead.

Speaker 4: Great, thank you, operator. Good morning, everyone. I'll start off and John Reed is also on the call. So, as as I finish off, we'll both be available for questions.

Great. Thank you operator, and good morning, everyone I'll start off and John Reed is also on the call. So.

As they finish off will both be available for questions. So I plan on providing an overview of the Q3 2023 results and if you want to follow along I'll be using the Powerpoint slides that are on our website and you could just go into the Investor Relations section. If you go to page three you can read our cautionary statement on forward looking information.

Speaker 5: So I plan on providing an overview of the Q3 2023 results. And if you want to follow along, I'll be using the PowerPoint slides that are on our website. You can just go into the investor relations section. If you go to page three, you can read our cautionary statement on forward looking information.

Speaker 6: So let me begin with just a little bit of a perspective on the quarter. I think that Q3 was a nice example of how we have a lot of inherent flexibility that is built into our business model. And our team really did a great job in navigating through volatile steel market conditions.

So let me begin with just a little bit of a perspective on the quarter.

I think that Q3 was a nice example of how we have a lot of inherent flexibility that is built into our business model and our team really did a great job in navigating through volatile steel market conditions, one of the things that John and I have said multiple times over the past few years is that the changes that we've made to our portfolio.

Speaker 7: One of the things that John and I have said multiple times over the past few years is that the change that we've made to our portfolio, the low should be higher, the high should be higher, and we've reduced the cash flow volatility through the cycle. And I think this quarter illustrated that very well, as it was one of our best quarters from a free cash flow perspective.

<unk> should be higher the high should be higher and we've reduced the cash flow volatility through the cycle and I think this quarter illustrated that very well as it was one of our best quarters from a free cash flow perspective.

Speaker 8: We had solid profitability plus the counter-sick capability of our business provided for cash generation from working capital. In addition, we realized proceeds in selling our tri-mark equity interest. And at the same time, we returned about $45 million to our shareholders through a combination of both dividends and share buy-back.

<unk> solid profitability plus the counter cyclicality of our business provided for cash generation from working capital. In addition, we realized proceeds and selling our try mark equity interest and at the same time, we returned about $45 million to our shareholders through a combination of both dividends and share buybacks.

Speaker 9: So let's turn to market conditions to start off on page 5.

So, let's turn to market conditions to start off on page five.

Speaker 10: Steel prices have moved around quite a bit over the past few months, with hot rolled sheet prices coming down from around $1,200 per ton in April to a level that was below $700 in late September , in part driven by the uncertainty related to the UAW strike. More recently though, we have seen a bit of a pick up, there's been a lengthening of mill lead times and an increase in prices, and they are back over $900 per ton.

Steel prices have moved around quite a bit over the past few months with hot rolled sheet prices coming down from around $200 per ton in April to a level that was below $700 in late September in part driven by the uncertainty related to the UAW strike more recently, though we have seen a bit of a pick up there has been a link.

Inning of mill lead times, and an increase in prices in their back over $900 per ton.

Speaker 11: On the plate side, it hasn't been as volatile. It was over $1,500 a ton through September . And it's now closer to $1,400 a ton as producers have been proactive in managing the marketplace.

On the plate side it hasnt been as volatile it was over $500 a ton through September and it's now closer to $4500 a ton as producers have been proactive in managing the marketplace.

Speaker 12: Overall, it seems like producers have been reasonably disciplined in managing supply, which is constructive for our part of the supply chain.

For all it seems like producers have been reasonably disciplined in managing supply, which is constructive for our part of the supply chain.

Speaker 13: Somewhat related, you can see from the charts that are on the right-hand side of the page related to service center inventories that the industry remains at relatively modest levels at the same time that demand is steady.

Somewhat related you can see from the charts that are on the right hand side of the page related to service center inventories that the industry remains at relatively modest levels at the same time that demand is steady.

Speaker 14: If we go to page six, there's a snapshot of our Q3 results. And if we look across the various charts starting on the top left.

If we go to page six there is a snapshot of our Q3 results.

And if we look across the various charts starting on the top left revenues were $1 $1 billion versus $1 2 billion in Q2. The decline was due to both price declines as well as summer seasonal dynamics that impacted volumes in the service Center segment EBITDA.

Speaker 15: Revenues were $1.1 billion versus $1.2 billion in Q2. The decline was due to both price declines as well as summer seasonal dynamics that impact volumes in the service center segment.

Speaker 16: EBITDA was $96 million versus $131 million in Q2 due mostly due to margin compression or service centers in steel distributors. That being said, our overall gross margin of 9% was down from Q2 but remained at a pretty healthy level compared to pre-COVID frames of reference, 2018-2019 type timeframes.

EBITDA was $96 million versus $131 million in Q2.

<unk>, mostly due to margin compression in our service centers and steel distributors that being said our overall gross margin of 9% was down from Q2, but remained at a pretty healthy level compared to pre COVID-19 frames of reference 2018 2019 type timeframe.

Speaker 17: From a bottom line perspective, EPS was 99 cents per share and our annualized return on invested capital was 23%. Even without the non-recurring gain from the sale of our Trimark joint venture, our return on invested capital was an annualized 20%. As we've always discussed, we have a strong internal focus on return on capital and that has led to industry leading results over an extended period of time.

From a bottom line perspective, EPS was <unk> 99 per share and our annualized return on invested capital was 23% even without the nonrecurring gain from the sale of our <unk> joint venture our return on invested capital capital was an annualized 20% as we've always discussed the strong internal focus on.

Return on capital and that has led to industry, leading results over an extended period of time.

Speaker 18: Lastly, in terms of capital structure, in the bottom right-hand chart, we have a net cash position of $272 million versus net debt of almost $500 million at the end of 2019. This approximately $775 million increase in free cash flow gives us a lot of financial flexibility going forward.

Lastly in terms of capital structure in the bottom right hand chart, we have a net cash position of $272 million versus net debt of almost $500 million at the end of 2019. This approximately $775 million increase in free cash flow gives us a lot of financial flexibility going forward.

Speaker 19: We're disciplined in what we do with shareholders' capital, which is why we'll continue to be active in looking at reinvestment opportunities, both internally and externally, as well as returning capital to shareholders by both dividends and share buybacks. Going to our more detailed...

We're disciplined in what we do with shareholders' capital, which is why we will continue to be active in looking at reinvestment opportunities, both internally and externally as well as returning capital to shareholders by both dividends and share buybacks.

Going to a more detailed financial results on page seven.

Speaker 20: From an income statement perspective, I've covered some of the high level items on the previous page, but a few other items of note. Revenues of $1.1 billion, which I mentioned before, down 7% from Q2. Price realizations were down in the service center business, and we had our normal seasonal decline in volumes that we get in Q3s in a typical year. On the flip side, we had a sequential increase in revenues from our energy fields store business as that activity continues to do well.

From an income statement perspective, I've covered some of the high level items on the previous page, but a few other items of note revenues of $1 $1 billion, which I mentioned before down 7% from Q2 price realizations were down in the service Center business and we had our normal seasonal decline in volumes that we get in Q3.

I mean, the typical typical year on the flip side, we had a sequential increase in revenues from our energy field store business as that activity continues to do well on margins all segments were down and I'll discuss these in more detail in a minute interest expense came down to $2 million as the increase of interest rates and the increase of our cash.

Speaker 21: On margins, all segments were down and I'll discuss these in more detail in a minute.

Speaker 22: interest expense came down to $2 million as the increase of interest rates and the increase of our cash balance is allowing us to generate interest income on our cash reserves. As I mentioned earlier, overall we had earnings per share of $0.99 per share and $61 million in total.

<unk> is allowing us to generate interest income on our cash reserves as I mentioned earlier overall, we had earnings per share of <unk> 99 per share and $61 million in total.

Speaker 23: Our Q3 results were impacted by a few non-operating items. Tri-mark. On the sale, we picked up a gain, but overall, it was $12 million, a combination of the $10 million gain, as well as $2 million worth of earnings in the period prior to the sale closes.

Our Q3 results were impacted by a few nonoperating items try Marc on the sale, we picked up a gain but overall it was $12 million a combination of the $10 million gain is.

Well as $2 million worth of earnings in the period prior to the sale closing.

Speaker 24: The stock-based comp had a $1 million negative impact versus a $2 million impact in Q2, and we had a $5 million increase in our inventory and our V-reserves in the quarter. Now to put this $5 million in our V-adjustment and context, many of you are aware that in previous years we had some very sizable in our V-hits.

Stock based comp had a $1 million negative impact versus a $2 million impact in Q2, and we had a $5 million increase in our inventory and RV reserves in the quarter now to put this $5 million in RV adjustment in context. Many of you are aware that in previous years, we had some very sizable and our.

<unk> hits, we've always had a very conservative bias in managing inventories by not taking speculative.

Speaker 25: We've always had a very conservative bias in managing inventories by not taking speculative inventory positions. However, more recently, the sale of our OCTG line pipe business and other capital control measures have substantially reduced NRV risks that we have experienced in the past.

Inventory positions. However, more recently the sale of our OCG line pipe business and other capital control measures has to have substantially reduced the NRG risks that we have experienced in the past.

Speaker 26: If we go further down the page from a cash flow perspective in Q3, we generated $58 million from working capital, primarily driven by reduction in inventory.

If we go further down the page from a cash flow perspective in Q3, we generated $58 million from working capital primarily driven by a reduction in inventory and as previously discussed we picked up $60 million on the sale of our <unk> joint venture interest as it closed in early September capex of $50 million.

Speaker 27: And as previously discussed, we picked up $60 million on the sale of our Trimark joint venture interest as it closed in early September .

Speaker 28: CapEx of $50 million was similar to Q2. As we continue executing on our discretionary projects, our annual CapEx should pick up to around $75 million per year on average over a few years.

With similar to Q2 as we continue executing on our discretionary projects, our annual Capex should pick up to around $75 million per year on average over a few years.

From a balance sheet perspective, we're in a net cash position with net cash of $272 million. This is a $118 million pick up in the past quarter. Our liquidity is almost a $1 billion and we have the strongest balance sheet that we've ever experienced.

Speaker 29: From a balance sheet perspective, we're in a net cash position with net cash of $272 million. This is $118 million pickup in the past quarter. Our liquidity is almost a billion dollars and we have the strongest balance sheet that we've ever experienced.

Speaker 30: put the balance sheet in perspective. We manage the company with a very conservative investment great credit type bias. And I think we've demonstrated this approach through market volatility over the past couple of years.

To put the balance sheet perspective, we manage the company with a very conservative investment great credit type bias and I think we've demonstrated this approach through market volatility over the past couple of years.

Speaker 31: In the quarter, we picked up about 500,000 shares under our NCIB, which brings the total to about 2.8 million shares since we put the NCIB in place in August of 2022. Our cumulative average price is $33.42. Our book value moved up again and is now over $27 per share, notwithstanding the share buybacks that we did in the quarter. And lastly, we have declared a quarterly dividend of $0.40 per share.

In the quarter, we picked up about 500000 shares under our and CIB, which brings the total to about $2 8 million shares since we put the CIB in place in August of 2022 are cumulative average price is $33 42 sets.

Our book value moved up again and is now over $27 per share notwithstanding the share buybacks that we did in the quarter and lastly, we have declared a quarterly dividend of <unk> 40 per share.

On page eight I have included an update of the <unk> transaction that we summarized at the end of last quarter.

Speaker 32: On page 8, I have included an update of the Trimar transaction that we summarized at the end of last quarter. So the staged monetization is now complete, with the final piece being the $60 million sale. We have repatriated all of our capital back that was tied up in OCTG line pipe, which when aggregated total approximately $375 million.

So the staged monetization is now complete with the final piece being the $60 million sale.

We have repatriated all of our capital back that was tied up in OCG line pipe, which when aggregated totaled approximately $375 million.

This approach provided for a very profitable exit, including this last tranche that realized a $10 million gain, virtually all of which was shielded from tax.

This approach provided for a very profitable exits, including this last tranche that realized a $10 million gain virtually all of which was shielded from tax.

More importantly, our goal with the portfolio changes was to reduce the volatility of earnings, lower the risk profile, and enhance our margins and returns over a cycle. Also, we now have a tremendous amount of financial flexibility as a result of that repatriation in capital to pursue a range of alternatives, some of which we have already done, some of which are on the

More importantly, our goal with the portfolio changes was to reduce the volatility of our earnings lowered the risk profile and enhance our margins and returns over a cycle also we now have a tremendous amount of financial flexibility as a result of that repatriation and capital to pursue a range of alternatives some of which we've already done.

Some of which are on the come.

On page nine you can see our EBITDA variance analysis between last quarter and this quarter.

On page nine, you can see our EBITDA variance analysis between last quarter and this quarter. In looking at the service centers, the volumes were down from Q2, but the biggest factor in Q3 was a decline in margins that impacted results by $29 million. In terms of operating costs, that was a positive variance as operating costs came down by $6 million as our variable compensation model is tied directly to financial performance and creates a direct toggle up and down with our financial results.

Looking at the service centers the volumes were down from Q2, but the biggest factor in Q3 was the decline in margins that impacted results by $29 million in terms of operating cost that was a positive variance as operating costs came down by $6 million as our variable compensation models tied directly to financial performance increase.

The direct toggle up and down with our financial results.

Energy field stores were mostly flat quarter of a quarter with steel distributors down $8 million due to lower steel prices in March.

<unk> field stores were mostly flat quarter over quarter with steel distributors down $8 million due to lower steel prices and margins.

In the other category, there was an $8 million favorable variance, which included the pickup of our Trimark gain, a small pickup in our Thunder Bay terminal operation, and lower mark-to-mark on our stock-based compensation.

In the other category there was an $8 million favorable variance, which included the pickup of our trademark gain.

Mall pick up in our Thunder Bay terminal operation and lower Mark to Mark on our stock based compensation expense.

We go to page 10, we have our segmented P&L information.

For service centers, revenues were down and margins came off as did EBIT. I'll go through some more detailed metrics for the service centers on the next page in a minute, but are overall revenues and margins per ton remain very healthy by historical comparisons. More importantly, the steel market seems to have found a floor and some price increases have occurred in the past few weeks.

For service centers revenues were down and margins came off as did EBIT I'll go through some more detailed metrics for the service centers on the next page in a minute, but our overall revenues and margins per tonne remained very healthy by historical comparisons more importantly, the steel market seems to have found a floor and some price increase.

<unk> have occurred in the past few weeks and.

In energy field stores, we are continuing to see solid performance. Q3 2023 revenues were up versus Q2 and were up versus Q3 of last year. Margin's did come off a bit as one of our divisions moved some volume for project work. That was it below normal margin.

In the energy field stores, we're continuing to see solid performance.

3023 revenues were up versus Q2 and were up versus Q3 of last year.

Margins did come off a bit as one of our divisions moved some volume for project work that was at below normal margins.

Our steel distributors' revenues, margins, and profitabilities were down with the adjustment in steel prices.

Our steel distributors revenues margins and profitability were down with the adjustment in steel prices.

If we go to page 11, we are having a deeper dive on some of the metrics for our mental service center business.

If we go to page 11, we are having a deeper dive on some of the metrics for our metal service Center business. The top right graph is the past number of years for tons shipped in the Q3 volumes were down from Q2 because of the normal seasonal summer slowdown, but the volumes were very similar to Q3 of 2022.

The top right graph is the past number of years for tons shipped, and the Q3 volumes were down from Q2 because of the normal seasonal summer slowdown, but the volumes were very similar to Q3 of 2022.

Demand continues to be solid going into Q4, but we typically have a reduction of operating days in Q4, which results in lower volumes in Q4 versus Q3, and you can see that trend that has occurred over the past few years. It's typically down about 7 to 10% Q4 versus Q3 because the lost operating.

Demand continues to be solid going into Q4, but we typically have a reduction of operating days in Q4, which results in lower volumes in Q4 versus Q3, and you could see that trend that has occurred over the past few years, it's typically down about 7% to 10% Q4 versus Q3 because of the lost operating days.

On the bottom left graph, we have revenue and cost of goods sold per ton.

On revenue per ton, our price realizations decreased by $131 per ton versus only a $37 per ton decrease in cost of goods sold, which resulted in a $94 per ton drop in margin.

On revenue per ton or price realizations decreased by $131 per ton versus only a $37 per ton decrease in cost of goods sold which resulted in a $94 per ton drop in margin.

As a reminder, there's usually a three to four month lag between steel price changes and when that flows through our inventories and into our cost of goods sold. So even though our cost of goods sold came down in Q3, that lag effect should cause our cost of goods sold to come down further in Q4, all of the things being equal.

As a reminder, there is usually a three to four month lag between steel price changes and when that flows through our inventories any into our cost of goods sold so even though our cost of goods sold came down in Q3 that lag effect should cause our cost of goods sold to come down further in Q4, all other things being equal.

For Q3, our gross margin was $442 per ton, which remains higher than our historical average of closer to $300 per ton and as I said earlier, we've repeated over time, we expect to realize average higher average margins and lower volatility over the cycle as compared to pre COVID-19 margins due to our ongoing <unk>.

For key three, our gross margin was $42 per ton, which remains higher than our historical average of closer to $300 per ton. And as I said earlier, we've repeated over the time. We expect to realize higher average margins and lower volatility over the cycle as compared to pre-COVID margins due to our ongoing investment initiatives. On page 12, we have ill-

Investment initiatives.

On page 12, we illustrate our inventory turns.

This chart shows the inventory turns by quarter for each segment with energy in red, service centers in green, and steel distributors in yellow. In addition, the black line is the average for the entire company. Overall, our inventory turns improved from 3.9 to 4.0 as we remain focused on tight inventory controls.

This chart shows the inventory turns by quarter for each segment with energy and read service centers in Green.

And steel distributors in yellow condition. The black line is the average for the entire company.

Overall, our inventory turns improved from three nine to 4.0 as we remain focused on tight inventory controls to reduce risk during periods of market volatility by sector service centers were four six turns which again is industry leading versus our publicly traded peers are energy field stores improved from two six to three.

to reduce risk during periods of market volatility.

By sector, service centers were 4.6 turns, which, again, is industry leading versus our publicly traded peers. Our energy field stores improved from 2.6 to 3.3, while steel distributors also improved from 2.9 to 3.2 in the quarter.

Three three while steel distributors also improved from two nine to $3 two in the quarter.

On page 13, we have the impact of inventory turns on inventory dollars. Total inventory declined by $65 million in the quarter compared to the end of Q2. And as mentioned earlier, the counter-cyclical nature of our cash flows provides for a drawdown in inventory when prices come off. I do expect to see some further declines into Q4 given the lag effect that I mentioned earlier between prices coming in and how that flows into our inventories and then ultimately cost gets sold.

On page 13.

We have the impact of inventory turns on inventory dollars.

Inventory declined by $65 million in the quarter compared to the end of Q2 and as mentioned earlier the countercyclical nature of our cash flows provides for a drawdown in inventory when prices come off.

Do you expect to see some further declines into Q4, given the lag effect that I mentioned earlier between prices coming in and how that flows into our inventories and then ultimately cost of goods sold.

If we go to page 14, you can see the overall impact on capital utilization and returns. Our capital deployed came down to just below $1.4 billion because of our working capital reduction. More importantly, our returns continue to be industry leading. Our last 12-month return stands at 26%. If we go to page 15, I want.

If we go to page 14, you can see the overall impact on capital utilization and returns our capital deployed came down to just below $1 $4 billion because of our working capital reduction more importantly, our returns continue to be industry, leading our last 12 month return stands at 26%.

If we go to page 15, I want to update our capital structure.

The continuation of our strong free cash flow and disciplined approach to capital utilization gives us a lot of financial flexibility.

On the left table, you can see that our cash position went up to $569 million which was a $119 million increase over June 30th and a $365 million increase since this time last year. We are now realizing a return on our cash balance that substantially offsets the interest cost on our outstanding notes.

On the left table you can see that our cash position went up to $569 million, which was $119 million increase over June 30, and a $365 million increase since this time last year. We are now realizing return on our cash balance that substantially offset the interest cost on our outstanding notes are.

Our equity base is almost $1.7 billion. And if you look at the chart on the right, you can see the continuation of our growth in our equity base. Our book value per share is over $27 per share, which is a $0.90 increase since June 30, and a $2.61 per share increase since this time last year.

Our equity base is almost $1 $7 billion and if you look at the chart on the right you can see the continuation of our growth and our equity base. Our book value per share is over $27 per share, which is a 90% increase since June 30, and $2 $61 per share increase since this time last year.

If you go to page 16, we have an update on our capital allocation priorities going forward.

Given our strong balance sheet, we have a multi-pronged approach to capital allocations. For investment opportunities, we seek average returns over the cycle greater than 15%. And as some of those charts that we've talked about earlier have demonstrated, we have more than delivered on that target.

Given our strong balance sheet, we have a multi pronged approach to capital allocation for investment opportunities. We seek average returns over the cycle of greater than 15%.

And if some of those charges that we've talked about earlier have demonstrated we have more than delivered on that target. The ongoing opportunities are threefold. One we are continuing to identify and pursue.

The ongoing opportunities are threefold. One, we are continuing to identify and pursue a new value added project.

New value added projects in total we have approximately 30 equipment projects on the go throughout North America. It is extremely active right now and we expect to see an impact of those items tail end of this year and into 2024 and frankly beyond.

In total, we have approximately 30 equipment projects on the go throughout North America. It is extremely active right now and we expect to see an impact of those items tail into this year and into 2024 and frankly beyond.

Facility modernizations, we have five modernizations underway, some of which we've talked about in the past, and they are tracking for completion at various times in 2024. When combined with other projects on the go, we have a robust series of initiatives that should grow our volumes, increase operating efficiencies, generate attractive returns, and in many cases, improve health and safety conditions.

Facility Modernizations, we have five modernizations underway, some of which we've talked about in the past and they are tracking for completion at various times in 2024, when combined with other projects on the go we have a robust series of initiatives that should grow our volumes increase operating efficiencies generate attractive returns.

And in many cases improve health and safety conditions.

In terms of acquisitions, we've seen a lot of deal flow over the past while, and we are actively looking at opportunities. In Q3, we closed the acquisition of Alliance Supply, which is a small tuck-in to our Canadian Energy field store business. In addition, we are pursuing a number of opportunities that could fit within our mental service centre business.

In terms of acquisitions, we've seen a lot of deal flow over the past, while and we are actively looking at opportunities in Q3, we closed the acquisition of alliance supply, which is a small tuck in to our Canadian energy field store business. In addition, we are pursuing a number of opportunities that could fit within our metal service Center business.

In terms of returning capital to shareholders as we've talked about in the past we've adopted a flexible approach for dividends in may we increased our dividends to <unk> 40 per share and we will continue to.

In terms of returning capital to shareholders, as we've talked about in the past, we've adopted a flexible approach for dividends. In May, we increased our dividends to $0.40 per share, and we'll continue to reevaluate the appropriate level. For purposes of this quarter, we have again done a $0.40 per share dividend.

Reevaluate the appropriate level for purposes of this quarter, we have again done a <unk> 40 per share dividend.

For the NCIB, we acquired 529,000 shares last quarter, and since August of 2022, we have acquired 2.8 million shares at a cost, average cost of $33.42. And we expect to continue to utilize the NCIB on an opportunistic basis.

The NCI, we acquired 529000 shares last quarter and since August of 2022, we've acquired two 8 million shares at a cost average cost of $33 42.

And we expect to continue to utilize the NCI b on an opportunistic basis.

Overall, given our capital structure, we have the financial flexibility to pursue a variety of alternatives and initiatives, including share buybacks, dividends, acquisitions, and internal reinvests.

Overall, given our capital structure, we have the financial flexibility to pursue a variety of alternatives and initiatives, including share buybacks dividends acquisitions and internal reinvestments.

In closing on behalf of John and other members of the management team I would like to express our appreciation to everyone within the Russell family.

In closing, on behalf of John and other members of the management team, I'd like to express our appreciation to everyone within the Russell family. We couldn't be happier with how Russell has navigated its way through the markets over the past few years and we really look forward to some exciting and new opportunities ahead. Thanks to everyone across the company for your contribution.

Couldn't be happier with how Russell has navigated sway through the markets over the past few years and we really look forward to some exciting new opportunities ahead. Thanks to everyone across the company for your contributions operator that concludes my introductory remarks, and if you would now like to open the line for questions that would be great.

Operator, that concludes my introductory remarks, and if you would now like to open the line for questions, that would be great.

Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press the star followed by the one on your touchtone phone. You will hear a three-tone prompt acknowledging your request. If you are using a speakerphone, please lift the handset before pressing any

Thank you.

Ladies and gentlemen, we will now begin the question and answer session should you have a question. Please press the star followed by the one on your Touchtone phone.

We'll hear with Sweet home farm to acknowledging your request.

Speaker phone please lift the handset before pressing any clues.

The first question comes from James McGregor from RBC Capital Markets. Please go ahead.

First question comes from James Lee.

From RBC capital markets. Please go ahead.

Take it morning, Marty. And thanks for taking my question. Hey James.

Hey, good morning, Marty Thanks for taking my question.

Hey, James.

Hey, so on the M&A front, you've completed some plucked-in acquisitions in successive quarters. You said you're evaluating some deals, and your U.S. peers also made some similar commentary during reporting that the pipeline was very strong. So can you just talk a little bit about what you're seeing in terms of target multiples in the market and kind of how that's evolved during the last year?

So on the M&A front is completed.

Acquisitions in successive quarters, you said, you're evaluating some deals in your U S. Peers also made some similar commentary during reporting of the pipeline was very strong. So can you just talk a little bit about what youre seeing in terms of target multiples in the market.

How that's evolved during the last year.

You know, it's hard to make reference for the market as a whole because there's not that many data points. It's not that liquid market. All I can say is how we look at it. And we look at it the same regardless of whether the market is up down sideways, which is we're trying to generate an appropriate return on capital. We're very public of our target return on capital over cycle is over 15%. So you can reverse engineer into multiples for that. Sometimes vendors.

It's hard to make a reference for the market as a whole because theres not that many data points. It is not that liquid market.

I can say is how we look at it and we look at it the same regardless of whether the market is up down sideways, which is we're trying to generate an appropriate return on capital and we're very public of our target return on capital over a cycle is over 15%. So you can reverse engineer into multiples for that.

Sometimes vendors.

meet those criterias and sometimes they don't. One of the fascinating things, I think, for John and myself over the last little while is

Meet those criteria and sometimes they don't what are the fasting things I think for John and myself over the last little while is.

You know, when we look back to 2022, for example, there was a lot of opportunities that we had looked at, and we didn't complete a single acquisition in 2022, and it wasn't for lack of looking. It was for finding, we couldn't find the right opportunities that made either economic sense, commercial fence, or in some cases they just weren't cultural fit.

When we look back to 2022 for example, there was a lot of.

A lot of opportunities that we had looked at and we didn't complete a single acquisition in 2022 and it wasn't for lack of looking at was.

We couldn't find the right opportunities that made either economic since commercial sense or in some cases, they just werent.

Cultural fits.

there have been a lot of deals that have come back to market a second time, a third time, and sometimes it's not the first kick at the can that allows vendors and buyers to find an alignment. So for us, we stick to our criteria regardless of what the macro economy is and regardless of what vendor expectations are. We don't chase stuff for the sake of chasing stuff and so sometimes things come back to us at values that work for us.

There hasn't been a lot of deals that have come back to market, a second time or third time and.

Sometimes it's not the first kick at the can that allows vendors and buyers to find an alignment so for us we stick to our criteria regardless of what the macro economy is and regardless of what vendor expectations are we don't chase stuff for the sake of chasing stuff and so sometimes things come back to us at values that work for us.

And as a follow up to that, clearly, you have a lot of cash available. You know, are you limited in any way from a management perspective in terms of evaluating deals and potentially integrating acquisitions versus the amount of dry powder that you have available on the balance sheet?

And as a follow up to that.

Clearly you have lots of cost available.

Are you limited in any way from a management perspective in terms of evaluating deals.

And potentially integrating acquisitions.

This is the amount of dry powder that you have available on the balance sheet.

The short answer is no. I mean, we're in really good shape from a capital structure perspective to look at a variety of things. We are sensitive to making sure that things that we look at can be properly brought on from a system's people, cultural fit perspective. So we're very conscious of that, but we don't see any significant limitations for the things that we're looking at right now. We're set up very well if they make sense.

The short answer is no I mean, we're in.

In really good shape from a capital structure perspective to look at a variety of things we are sensitive to making sure that things that we look at can be properly brought on from a systems people cultural fit perspective. So we're very conscious of that but we don't see any significant limitations for the things that we're looking at right now.

Set up very well if they make sense.

And just one more follow up for me before I turn it over on infrastructure spending in the air showing

And just one more follow up for me before I turn it over on infrastructure spending and near shoring.

I know the U.S. steel producers were highlighting during reporting that they expect to benefit from infrastructure spending starting early in 2024. I know you have a little bit more towards Canada, but do you see a similar line of sight as to when we should start seeing an uptick in volumes at your company related to some big infrastructure projects in Canada and the U.S.?

The U S steel producers were highlighting during reporting that they expect to benefit from infrastructure spending starting early in 2024.

I know you have a little bit more towards Canada.

Towards Canada, but do you see.

Similar line of sight as to when we should start seeing an uptick in volumes.

The company related to some big infrastructure projects in Canada and U S.

Hey James, this is John . Good question. And again, we're about a 60-40 split Canada-U.S.

Hey, Thanks. This is John good question and again, we're about 60 40 split Canada U S.

So, we're seeing benefits on both sides. I think early in 2024, there's some anticipated infrastructure spend, especially when you look at clean energy. Solar, wind.

We're seeing benefits on both sides I think early in 2024.

Dissipated infrastructure spend.

Especially when you look at clean energy solar wind will.

will be heavy users, if they'll, along with other infrastructure spends that are being government funded when you shift to Canada.

We will be heavy users of steel along with other infrastructure.

Blended with the ship to Canada.

We're seeing some of that in energy as well, and there's some large energy projects that we're looking at right now that we'll participate in through our energy field stores. As well as our Western Canadian service centers, so we see a really nice opportunity going into 2024 for that spin to impact our business in a positive way.

We're seeing some of that in energy as well. So there are some large energy projects that we're looking at right now, but we will participate in through our energy field stores as well as our Western Canadian Service Center. So we see a really nice opportunity going into 2020 full for that spend to impact our business in a positive way.

Thank you very much.

Great. Thanks James.

Thank you. The next question comes from Devon Dodge from BMO Capital Markets. Please go ahead.

Thank you. The next question comes from Devin Dodge from BMO capital markets. Please go ahead.

Alright, Thanks, Hey, good morning, guys Hey.

Hey, Devin.

Within the service center segment, I believe activity levels in BC and Quebec have been a bit slower than maybe some other regions in your network. Can you speak to some of the drivers behind that and if you see any signs that these markets are starting to improve?

Within the service Center segment.

I believe activity levels in D C in Quebec had been a bit slower than maybe some other regions. In your network can you speak to some of the drivers behind that and if you see any signs that these markets are starting to improve.

Thanks, Devin. Yes, John . Yeah, in Quebec, again, when you look through Q3, keep in mind, you have the construction holiday. So, again, they took 2 weeks off. And so that's some of the impact that we saw on demand during that period. Again, we've seen import put some pressure in that market, but overall, we think that's improving nicely. We think the construction backlogs are very stable.

Thanks, John.

Quebec, So again when you look through Q3 keep in mind you have the construction holiday, so but again two weeks off.

Some of the impact that we saw in demand during the period.

Again, we've seen imports put some pressure in that market.

But overall, we think that's improving nicely, we think construction backlogs are very stable.

And so we're anticipating a good Q4 and really going into 2024 being very strong for Quebec.

And so we're anticipating good Q4 2024 being very strong.

When you move out to BDC, it's a different market out there we've seen again a lot of.

When you move out to B. C. it's a different market out there. We've seen again a lot of.

Changes to the market, as far as our carbon based business or non Paris business has been very strong out there. But again, there has been some manufacturing. It's left some pulp and paper industry has slowed down or actually idle or closed facilities. And so we've seen some market degradation out there.

Changes to the market as far as our carbon based business. Our nonferrous business has been very strong out there, but again there has been some manufacturing slips in pulp and paper industry has slowed down.

Actually idle or closed facilities and so we've seen some market degradation out there.

But overall, we're pleased with where we are in B.C. as far as a market perspective on demand. And our model is so flexible, we can adjust to what is very positive. We just don't see that as a big growth market for us in the near future.

Overall, we are pleased with the RBC scores at market.

Demand in our model. So flexible we can adjust that what is very positive. We just don't see that as a big growth market for us in the near future.

Okay, that makes sense, thanks Sean. Okay, and then I was about M&A, obviously lots of drive counter based on your under comments, optimism around putting some of that capital to work. So within Russell, is there a desire, or is there an openness to expand your energy field store business in a more meaningful way? You know, in a thought was there a preference between Canada and the US?

Okay that makes sense. Thanks, John Okay, and then as you ask about.

M&A, obviously lots of dry powder.

On your earlier comments optimism around putting some of that capital to work.

So within Russell is there a desire or at least an openness to expand your energy field store business in a more meaningful way.

Is there a preference between Canada and the U S.

We'll look at them again on a business by business perspective, as Marty said. Again, we're very comfortable with our energy field stores. It's really a distribution model, but we, again, we exited OCPG LimePipe as a different model. And just frankly underperformed for years on.

So we will look at it from a business by business perspective, as Marty said.

Very comfortable with our energy field stores, it's really a distribution model, we exited at a strategic level, but it's a different model.

Frankly underperformed for years old capital.

and our return on capital. But when we look at the field source, we think there's a great opportunity both in Canada and the US to continue to grow, but we'll be very strategic about how we do that. Being able to use existing networks that we have to share in the employees to make sure that we're hitting the return metrics that we want is critical for us. But yeah, there's really not a bias one where another we just look at a field that they'll perspective to make sure they do the right things for our metrics for our company and our share.

Return on capital, but when we look at the field stores, we think Theres a great opportunity both in Canada, and the U S to continue to grow.

But we'll be very strategic about how we do that.

Being able to use the existing networks that we have to share inventories to make sure that we're getting return.

Return metrics that we want this.

It is critical for us.

There's really not a bias one way or another.

Oh perspective to make sure they do the right things for our metrics for our company and our shareholders.

Okay thanks for that, I'll turn it over. Great, thanks Devon.

Okay. Thanks for that I'll turn it over.

Great. Thanks Devin.

Thank you. The next question comes from Michael Jumey from School Shurink. Please go ahead.

Thank you. The next question comes from Michael <unk> from Scotiabank. Please go ahead.

Hey, good morning, guys.

Hey, Michael.

Okay, so on the on the metal service centers, you know, you highlight the impact of the higher cost inventories on the segment margin.

Okay. So on the.

On the metals service centers.

You highlighted the impact of the higher cost inventories on the segment margins.

You know, given that 80 day age inventory, the recent price action for steel, is that mostly behind you?

Given the HDD age of inventory the recent price action for CLO is that mostly behind you.

Marty, I might have missed this but just how are you thinking about, you know, gross margin percentage Q4, dollar margin for Q4?

Yes.

Marty I might've missed this but just how are you thinking about.

Gross margin percentage Q4 dollar margin for Q4.

Yeah, it's an interesting inflection point because we're in the middle of two things moving in two different directions. So our inbound inventories have been coming down and will continue to come down.

Yes.

It's an interesting inflection point because we're in the middle of two things moving in two different directions. So our inbound inventories have been coming down and will continue to come down.

At the same time, we are starting to see some price increases on new orders and product going out the door. So Q4s, it's a long-winded way to say there's a bunch of moving pieces happening. All things being equal, cost goods old would have come down in Q4 just because of that lag effect that we're still seeing with lower cost inventory coming in versus our average cost of inventory that we have in place.

At the same time, we are starting to see some price increases on.

New orders and product going out the door, so Q4s.

It's a long winded way to say Theres, a bunch of moving pieces happening all things being equal.

Cost of goods sold would've come down in Q4, just because of that lag effect that we are still seeing with lower cost inventory coming in versus our average cost of inventory that we have in place.

the pickup that we're starting to see in prices, that's, we're probably gonna see a little bit of that, starting to take place on the top line, but that's probably more of a Q1 phenomenon before we start to see that show up in March.

The pickup that we're starting to see in prices.

We're probably going to see a little bit of that starting to take place on the topline, but thats probably more of a Q1 phenomenon before we start to see that show up in margins.

Got it okay, so all else equal assuming steel prices.

Got it. Okay. So all of us equal over assuming still a process.

I'll move around the time. It feels like Q1 margins should be presumably a little bit better than Q4. Is that the right way to think about it? Spot on. That's exactly spot on. Perfect. Okay.

Around the time it feels like Q1 margins should be presumably a little bit better than Q4 is that the right way to think about it.

<unk> eggs exactly spot on.

Perfect, Okay and then.

$440 of gross profit per ton, this quarter.

$440 of gross profit per ton this quarter.

Just wondering how you think about that versus what you'll be earning on average going forward. And I know you talked about the historical average, but you know, you're also talking about value add. So any way you can contextualize how much gross profit is coming from value add today, where that can go in the next couple of years and maybe where that was before.

Just wondering how you think about that versus what youll be earning on average going forward and I know you talked about the historical average but.

Youre also talking about value add so any way you can contextualize how much gross profit is coming from value add today.

Where that can go in the next couple of years, and maybe where that was before.

Michael, as we bring these products on, and again, the value-add services as they come on, we think so far we've picked up about two points of gross margin over a cycle. Again, sale prices will move up and down, but as we continue to do these, they're either performing at or above expectations. And we've got several of these products will come on in Q4, will continue throughout 2024 and beyond.

Hey, Mike Michael as we bring these products.

Again, the value add services as they come on.

So far we picked up about two points of gross margin over a cycle.

Steel prices will move up and down, but we continue to do that.

Performing well above expectations and we've got several of these projects will come on in Q4 will continue throughout 2024 and beyond with each projects. So we think it will continue to make an impact on that gross margin.

with these projects. So we think it will continue to make an impact in that gross margin.

You can ask those products, come on, they move up very quickly into the profitability within the quarter that they come up.

As those projects come on.

Very quickly.

During the quarter that they come on.

So we see that continuing to expand that out. Again, we've said before we don't, we think we're less than halfway there on this overall project than the spend for the value added. So we're very optimistic that we'll continue to spread our growth margin ultimately on our bottom line margin over time. So I would anticipate that continuing to grow in 2024 and 2025 as these projects come into fruition.

So we see that continuing to expand that out.

We've said before we don't we think Melissa pathway there.

The overall project that will spend for the year.

So we're very optimistic that that will continue to improve our gross margin and ultimately our bottom.

Margin overtime.

I would anticipate that continuing to grow with 2024 and 2025, because these projects come into.

Sure.

Thanks, John and maybe just a third.

Thanks John and maybe just a third. I'm gonna show repurchase.

On the share repurchase.

I might be reading to those too much, but I guess that's probably my job, but you slowed the level of repurchases this quarter versus law.

I might be reading into this too much but I guess thats, probably my job, but you slowed the level of repurchases this quarter versus last.

So does this quarter's level of repurchasing, does that reflect maybe more of a steady state of what you'd like to do? Again, understanding that it is opportunistic or does the lower amount maybe reflect potentially better uses of capital elsewhere?

So does this quarter's level of repurchasing does that reflect maybe more of a steady state of what you'd like to do again understanding that it is opportunistic.

Or does the lower amount maybe reflects potentially better.

Uses of capital elsewhere.

It's a good question and I wouldn't characterize we have a steady state frame of reference of you know There's not a cadence that we're going to be hardwired to it really is a flexible adaptable opportunistic Approach to it. So it's I mean to be blunt it's going to be price dependent and we will be more aggressive at certain price points and other price

It's a good question and I wouldn't characterize we have a steady state frame of reference of.

There's not a cadence that we're going to be hard wired to it really is a flexible adaptable opportunistic approach to it. So I mean to be blunt, that's going to be price dependent and we will be more aggressive at certain price points and other price points.

It makes perfect. Thank you guys okay.

Makes sense. Perfect. Thank you guys. Okay. Thanks Michael.

Okay. Thanks, Michael.

Thank you. The next question comes from Jonathan Lamers from Bank. Please go ahead.

Thank you. The next question comes from Jonathan Lamar's at Laurentian Bank. Please go ahead.

Good morning.

Hey, Jonathan.

With the steel price softness early into Q4 around the UAW strike situation.

the steel price softness early in the Q4 around the UAW strike situation?

Are the metal service centers or the steel distributor business taking on any additional inventory or have they continued to maintain business?

For the metal service centers or the steel distributor business, taking on any additional inventory or have they continued to maintain discipline there.

Thanks, Jonathan. Our approach over the long haul is again, not to be expected to live in the Torvirus. We state our returns. We may buy a little bit more, a little bit less, but overall, we're going to try to turn our inventory faster than the industry. We think that mitigates the risk. And so our approach did not change during that time frame. Unfortunately, some of the industry and we're selling overstocking. People got caught pricing death due to the UAW, as you mentioned.

Okay. Thanks, Jonathan our approach.

Over the long haul is again not to be expected the inventory buyers. We state of returns we may buy a little bit more with less but overall we are.

We're going to turn our inventory faster than the industry.

It mitigates the risk and so our approach did not change during that timeframe.

Unfortunately, some of the industry approach did so.

So overstocking people got caught pricing built into the guide.

AWS you mentioned.

and hot gold coils. So we saw the industry as a whole in a little bit of an overstock position, which is now rebalancing.

So we saw the industry as a whole.

Of an overstock position, which is now rebalance.

and Marty alluded to it earlier in his time and you can see the charge and graphs in in the poor position for the service and the industries of Holt was in a very good position right now. So there's not a lot of slack in the supply chain. So as these increases start to take effect, take hold, graph rises continue to increase, drive up the HRC prices. We think that will move into the market very quickly. We're highly transactional, so we'll move into the market very quickly with that.

You alluded to it earlier in his comments George Congrats to your inventory position for the service center industry.

Good position right now so there's not a lot of <unk>.

<unk> and supply chain.

As these increases start to take a quick take hold scrap prices continued to increase drove up the HRC prices, we think that will move into the market quickly. We're highly transactional so it will move into the market really quickly.

Great color, thanks. And one follow up, John , when you were mentioning that you think the value add processing.

Great color, Thanks, and one follow up John.

You were mentioning that you think the value add processing is.

at two points to the gross margin above and beyond the cycle. Just to confirm, are you talking about the overall revenue of, you know, say, four and a half billion for this year or on the revenue just from the Metal Service Center business? Just for sure.

Added two points to the gross margin above and beyond the cycle.

Just to confirm are you talking about the overall on the overall revenue.

$4 5 billion for this year on the revenue just from the metal service Center business.

Just just for service centers.

Thank you.

And one more, Marty, you mentioned that you're very busy with new value ad processing projects. Does the budget you've spoken to about 50 million per year for growth cap X remain appropriate in the 2024?

And one more Marty you mentioned that you are very busy with.

New value added processing projects does the.

Budget, you've spoken to have about $50 million per year for growth capex remain appropriate and into 2024.

It does for now, but just well technically a budget is for an annual period. It's a constant rolling project list that we have and so things are getting added to it all the time and the exact timing of which sometimes moves around depending upon order to lead time, but for planning purposes $75 million for next year, 50 of discretionary, that's a good frame of reference.

It does for now but just.

While technically a.

Our budget is for an annual period its a constant rolling project list that we have and so things are getting added to it all the time and the exact timing of which sometimes moves around depending upon order lead time, but for planning purposes $75 million for next year 50 of discretionary that's a good frame of reference.

Thanks for your comments.

Okay. Thanks, Jonathan.

Thank you. The next question comes from Maxim Syrgef from National Bank Financial. Please go ahead.

Thank you. The next question comes from Maxim Sanchez from <unk>.

Thank you Vanessa Please go ahead.

Hi, good morning, gentlemen.

Name X. I'm not sure if it's a John and Marty who want to take this, but I guess my question is a bit more sort of broader based. I mean, historically when sort of the business is quite I could good, we had in prior cycles, sort of lots of working capital investment for for, and I mean, typically would be negative free cash flowing right now, but we'll actually see the opposite. Do you mind maybe hypothesizing a little bit in terms of, if you know why the cycle is different?

Good morning.

I'm not sure if it's Joe.

Marty you want to take this but I guess my question is more broad base.

Shortly when some of the businesses is quite good.

In prior cycles sort of lots of working capital investment and so forth that typically would be.

Negative free cash flowing right now.

We've seen the opposite demand maybe hypothesize a little bit in terms of why the cycle is different.

and maybe sort of any thoughts on kind of sustainability of the underpinnings that sort of...

And maybe sort of any thoughts on kind of sustainability.

<unk>.

Supporting the dynamic right now thanks.

Good question. Again, it's there's some unique things going on right now. We freed up cash flow throughout with the OCTG, the FlamPype departure, and then look at ultimately the final seven, the JB here.

Yes.

Good question again.

Sure.

Some of the unique things going on right.

We freed up cash flow throughout the OCG departure.

The final settlement.

I'm going to try Mark, so that freed up cash flow during the cycle when we typically would have been using cash flow.

So that freed up cash flow during the cycle. When we typically would have been using cash flow.

Then we had a little bit of a downturn. We're still pricing things started to come off. We go off again, being counter-cyclic, we'll throw off cash. So we threw off cash again on top of that. So it put us in a very favorable position in the cycle.

Then we had a little bit of a downturn with steel pricing things starting to come off.

Again, being countercyclical will throw off cash.

Well Kash again on top of it so it put us in a very favorable position in the cycle.

And so again, I think it's cleaned our balance sheet up. It's eliminated a lot of the volatility that has caused those some issues in the past in downturn. So that when you look at what we took in the tort provisions, or when we struggled and used a lot of cash in the past, that was typically related to OCTG line by plus Marty mentioned earlier. On some of the capital discipline, we put in some of our other divisions. So those things are keeping our balance sheet in a much better position over a cycle and really constantly not that cash flow.

So again I think it is cleaned our balance sheet. It's eliminated a lot of the volatility. This has caused us some issues of the past downturn. So when you look at.

Took inventory provisions, we struggle the mutual out of cash.

So it's typically related to OTT.

So as Marty mentioned earlier.

On some of the capital discipline, we put them in some of our other divisions.

Those things are keeping our balance sheet at a much better position over a cycle and really kind of smooth it out that cash flow.

Super-huffle, thank you so much. And then maybe if you have any thoughts on kind of the sustainability of the rebound we've seen very recently in H.H.D. Pressing, I think obviously I have fully realized that, you know, you're much more exposed to play that certainly stalk correlates to the former as well. Just curious kind of what you're hearing from clients, kind of on the ground.

Super helpful. Thank you so much and then maybe if you have any thoughts.

Congress sustainability of the rebound we've seen there recently in HRC pricing, obviously realize that you're much more exposed to platelets.

Stock correlates to the homeowner small just curious kind of what you're hearing from clients kind of on the ground. If that's possible. Thank you.

Sure, and again, we start always with scrap pricing being the major input cost into both HRC and plate. We're seeing scrap pricing across North America and the world market improved right now, so that will drive the pricing. When you look at HRC, the recent increase, as Marty mentioned, we were just under $700 a ton. If you look at the list prices that are out there now, they've moved up between $950 and $1,000 a ton. Lead times have stretched out.

Sure.

Historical with scrap pricing.

Major input costs, both HRC unemployed, we're seeing scrap pricing across North America, and the world market improved pricing, so that will drive some pricing.

When you look at Herc the recent increase it as Marty mentioned, we've just under $700.

If you look at the list prices that are out there now.

About $50000 of total lead times have stretched out.

If you clean around four weeks now, they're five to eight most knows from booked out to the end of the year. So we think that's been a nice impact.

They're around four weeks another five to eight most of those were booked out through the end of the year. So we think that's been a nice impact.

Part of the interesting dynamic was an anticipation of the auto workers strike that happened to our industry. So I think there was a surge of people getting in the inventory, getting prepared, making sure they had plenty of product.

Part of the interim.

Interesting dynamic was in anticipation of the auto workers strike that happened to our industry. So I think there was a surge in people getting inventory getting prepared making sure they've got plenty of product.

and the strike lasting longer than was anticipated. I think Carlson bottlenecks in the chain. I think that's now worked through. And so we're in a good place. I think that is sustainable going forward. I think we'll see a good Q1. Things are pointing towards a very strong Q1 for demand.

We strike lasting longer than was anticipated update call. Some bottlenecks in the chain I think that's now worked through and so we're in a good place.

That is sustainable going forward.

Q1.

Thanks for pointing towards a very strong Q1 demand.

on the plate, sat there was an adjustment during the quarter.

On the plate side, there was some adjustment during the quarter.

new core lead, but again, that was really to bring the list price just down to market price. There were some things that were going on in negotiating, so it wasn't a big change. It was highly anticipated throughout the markets. I think they were just cleaning up where the list price should be. The interesting thing is if you look at the spread historically between hot roll coil and plate,

New correlated but again thats really to bring the list price just out of the market price. There were some things that were going on in negotiating it wasn't a big.

It's highly anticipated throughout the market. So I think that we're just cleaning up with a list price should be.

The interesting thing is if you look at the script historically between hot rolled coil and plate.

typically been between $182, $200 a ton and $300 a ton spread between the two products.

Its typically been between.

$8200 totaled $300 a ton spread between the two products, we're getting very close to that line that again, probably be a little bit higher than historically, just due to some of the inflationary pressures.

We're getting very close to that alignment again. There probably will be a little bit harder than it has been historically just due to some of the inflationary pressures that are staking that will stay around in the driven of cost at the mill level.

That will stay at well driven low cost at the mill level.

So overall, we'll talk into our clients to your final part of the question about the man. We feel really good about the man born into Q1. When you look at the reshore and the continues, you look at the infrastructure and the clean energy government initiatives on both sides.

So overall, we're talking to our clients to your final part of the question about demand, we feel really good about demand going into Q1.

When you look at the re shoring continues you look at the infrastructure and the clean energy government initiatives on both sides.

to the border, we think those are going to really start to see some fruit in Q1 in total.

Order, we think those are going to really start to see some fruit in Q1 in Florida.

So the non risk construction thats, great backlogs that are out there right now the only thing we're seeing on the backlogs for pulling back and construction is really related to speculative building housing would be more.

So the non-risk instruction has great backlogs that are out there right now. The only thing we're seeing on the backlogs that are pulling back in construction is really related to spectacular building or housing that would be more...

Inflation sensitive or I'm, sorry interest rate sensitive. So we're just seeing that impact a little bit, but that's something that we don't participate in a luxury of housing.

inflation sensitive and our I'm sorry interest rate sensitive. So we're just seeing that impact a little bit But that's something that we don't participate in a lot be it housing In there be a little bit in the speculative construction that's pulled by some but overall our fabricators are both pretty solid for 2024 And so we see that being a good year of that product as well And user demands very steady and a lot of optimism around next year from our users

And there'll be a little bit of a speculative construction that's pulled back some but overall our fabricators, we're booked pretty solid for 2024, and so we see that being a good year that product as well.

End user demand is very steady and a lot of optimism around next year for nutrition.

Okay.

Thanks Max.

Thank you operator.

Got it.

Thank you. The next question comes from Ian Gillis at Cypher. Please go ahead.

Thank you. The next question comes from Ian Gillies with Stifel. Please go ahead.

Good morning, everyone.

Hey, good morning.

We're heading into that point in the business cycle, where people tend to worry a bit more about small private businesses rather than larger enterprises is there any way.

We're heading into that point of the business cycle where people tend to worry a bit more about small private businesses rather than larger enterprises. Is there any way you're able to articulate the exposure on the metal service center side to call it medium and larger businesses or smaller businesses? Technology, this is tough given volume of transactions you do.

You are able to articulate the exposure on the metal service center side to call. It medium and larger businesses are smaller businesses. Acknowledging this is tough given the volume of transactions you do.

And again, I'm assuming I'm understanding your question correctly, and again, when we look at service centers that are medium to larger, typically, balance sheets are in good position.

Yes.

I'm, assuming the launch during your question correctly and again, when we look at the service centers medium to larger.

Typically balance sheets are in good position.

Lions are in a good position of credit, and so they can, again, ride the cycle.

Lines are in good position of credit and so.

Again, Rob the cycle.

smaller service centers, again, when they go through these cycles.

Smaller service centers.

Go through these cycles.

The use of capital, then they've had the trade in 12 months if there's a downturn next and strain their lines on ABLs. So there are opportunities for limited transactions to pop up. So we'll look through those at the cycle. Again, this morning said earlier, we'll stay to our discipline looking over a long return but to return is what it would do for our shareholder base.

Use of capital than the trailing 12 months, if there is a downturn that's constrained their lines on ABL.

So there are opportunities to them or M&A transactions at Buffalo. So we will look through the cycle again as Marty said earlier, we will stay to our discipline looking over a longer term return.

For our shareholder base.

But I think there'll be opportunities again for more in May for the medium to larger service centers that are well positioned on the balance sheet.

There'll be opportunities for more in the.

Medium to larger service centers that are well positioned on the balance sheets.

Some have been aggressive, some have not. But again, I can only speak to where we're setting. We feel like we're in a really good position to do virtually anything we want to do at this time. And so, those opportunities present themselves will be aggressive.

<unk> been aggressive.

But again.

We're sitting we feel like we're in really good position.

Actually what we do at this time.

And so if those opportunities present themselves.

We'll be aggressive.

So, John , the way I was thinking about that questions was was more on the customer base. I'm just trying to maybe assess the risk to tonnage as we move forward and so on and so forth.

So John the way I was thinking about that question was more so on the customer base I'm, just trying to maybe assess the risk to tonnage as we move forward and so on and so forth.

Yeah, I think customers, again, they're going to weigh based on their size and scale. Again, you can have small customers, medium, large, but based on their size and scale, they get

I think customers again, we're going to go based on their size and scope.

But again you can have small customers medium large with based on their size and scale.

meeting the larger service centers are going to have a deeper breadth of inventory that's out there that's available. There's an easy transaction. The smaller service centers can get caught on that side of it. And then as we move into the value-add and the industry changes, the more value-add, the scale and the size and the liquidity it takes to do the value-add, just one to buy and implement the machinery, the footprint it takes up and the additional capital it takes up really gives an advantage, I think, to the larger services.

Meeting the larger services.

Deeper inventory that's out there that's available but for the ease of transaction.

While our service centers can get call on that side of it so.

And then as we move into the value add and the industry changes the more value add.

Scale themselves.

Liquidity it takes to do the value add just wanted to.

Implement the machinery.

The footprint it takes up additional capital looks like so it really gives us advantage of larger solutions.

And then with respect to where metal service centers is today on percentages sales tied to value at products, can you maybe give us where that would have been, call it two or three years ago, where it is today and where you'd maybe like it to be by the end of 25?

Okay.

And then with respect to where metal service centers is today on a percentage of sales tied to value added products can you maybe give us where that would have been call. It two years or three years ago.

Where it is today and where you'd maybe like it to be by the end of 'twenty five.

Versus two or three years ago, and we've more than doubled where we are on value added. We've been doing it for a while, but we really can put these in, almost franchise these type things. We've got the footprint so we can put them in, so we've more than doubled in the last two to three years. By the end of 25, we'd like to more than double that again.

So versus two or three years ago, we've more than doubled where we are in but <unk> been doing it for a while but we've got we've really.

To put these in.

Almost franchise. These type of things we've got the footprint. So we can put the bit so we've more than doubled in the last two to three years.

At the end of 'twenty, five we'd like to more than double that again.

Okay. Thanks, very much that's all from me.

Great. Thanks, Ian.

Thank you. The next question comes from Michael <unk> from TD Securities. Please go ahead.

Thank you good morning.

Hey, Mike Good morning.

Okay.

First question relates to energy field stores gross margin.

Looking at the quarterly margins. So you mentioned in your prepared remarks that it was weaker.

Little bit in the quarter due to a specific project I think you said I'm just wondering if you can give us a little bit more detail around.

That situation of that dynamic.

Yes. It was basically there was some we have we have.

We have three businesses two in Canada, when the U S and one tends to be a little bit more project oriented that the one company tends to be more project oriented.

And a little bit Lumpier and oftentimes, it's moving that volume at a little bit lower margin than we get in some of the other areas. So there was a little bit higher of that activity in this quarter with some of that project oriented work from that one business segment and comes in it's profitable business. It just comes in at a lower margin and so that brought our weight.

Average margins down for this quarter for energy field stores relative to what is typical through multiple quarters.

Okay. So it sounds like.

Really was sort of a mix issue in the quarter.

Yes.

Good way to characterize it Mike.

Okay.

Do you see that.

Dynamic carrying on into the fourth quarter.

Probably not I mean, the rest of the business is still making the same margins. It was last quarter is just not being pulled down by.

That lumpy stuff the lumpy stuff does pop up every now and again and I don't think there is a ton of that coming in Q4, there's probably a little bit coming in Q4, it was a little bit more disproportionate in Q3.

Or said another way Mike.

Our normalized margins should be for energy field stores should be higher than they were in Q3.

Got it okay. That's helpful. Thank you.

John you made a number of comments earlier about.

Some of the movement in steel prices, we've seen and talked a little bit about what's what's been driving.

Movements I guess going forward from here do you.

What do you see happening sort of.

Over the foreseeable future the next little while in terms of HRC in plate Directionally do you think there is.

Further room to go on HRC and displayed come down any further or is this sort of level now that these moves that occurred where you see things stabilizing.

Okay.

There's further room to run and we'll make sure.

And then again the scrap continues to go up as I mentioned earlier, but I think there's further room to run there.

Inventories are back in balance throughout the supply chain.

The mills are very disciplined as to what's coming forward.

Contractual bidding season for the mills.

Could you keep that price going forward.

Now coming back you'll see that we don't participate in those choices.

On the plate side again, I think Theres, a large corporation, we got new builds come on in North America.

Getting ready for the wind.

<unk> significantly impact 2024.

Tony just going up.

10 times, what it's been in the past so there'll be significant fleet.

Moving into the market also as energy continues to say study Thats, a big driver for the plate market.

So the end use market, there's really good demand on the horizon for 2024.

We feel like it's got room to start to move a lot more in lock step with HRC.

That spread that I mentioned.

It kind of disconnected in 'twenty one early 'twenty.

23.

Just to come back in line, So I think we'll see that.

200 to $400 range between three choices.

Going forward.

Okay and any any.

The commentary around.

Import activity and what what has been happening recently and what you see happening over the foreseeable future there.

I don't see a lot of change due to the $2 32.

Personal opinion, but I don't see the $2 two changing meaningfully there may be some window dressing approximately but again, especially moving into an election year in the U S with the.

Pennsylvania swings, Doug I, just don't see a lot of change in the $2 32, so that will keep that limit.

The imports.

In Canada, we've actually sold.

Greece matured inputs, primarily driven both CTG, but.

Our product does not.

Those will be longer.

But overall, we think it's.

Healthy situations, the imports or at the right level to come in we have the right supply and that we're.

We're in balance in North America, both in Canada, and the U S.

Thank you and Portugal will still play an important role, but it just will not have a role is.

Where it can come in and really create quality markets.

Okay perfect.

There was some discussion earlier about gross margins for service centers, which.

I think it sounds like you're optimistic that there'll be some improvement.

Maybe back to kind of more normal levels in the first quarter of next year.

Marty I take your point that there are a lot of moving pieces at play in Q4, but I'm not sure I totally understood.

If you did suggest where you see margins in service centers going in the fourth quarter versus Q3 like is there.

Is there some improvement, but maybe not back to kind of more normal levels or is it still flattish given the various.

Pieces versus Q3, just not sure how youre thinking about that.

So if you look at Q4, you're right a lot of moving pieces and that is the right way to characterize it.

Given we're sitting here.

Halfway through the quarter on November.

November 9th give or take.

The reality is.

The first part of the <unk>.

Fourth quarter saw continuing challenges on pricing before we saw the recent uplift so youll probably see in Q4.

As a little bit of margin compression into Q4, because of that dynamic and the pickup back will be in Q1. So Q4, I'd, we'd characterize Q4, probably below normal below expectations on a trend line basis.

Okay. That's helpful. Thank you and does the same hold true for steel distributor I know, there's some back to back business, obviously, there, but but not not everything is so.

Or is it sort of following.

Service Center margins, just in terms of the movements quarter to quarter Directionally.

Steel distributors as well for Q4.

Short answer is yes.

Okay.

Thank you and then just very lastly, the gain on sale.

On an after tax basis is it is it identical to what it was on a pre tax basis.

Pretty close there was a little bit of tax leakage of few hundred thousand dollars, but by and large most of it was shielded from tax so for all intents purposes pre tax after tax were very similar.

Alright, Thank you for the time.

Thanks, Mike.

Thank you. The next question comes from Frederic Bastien from Raymond James. Please go ahead.

Hey, good morning, guys.

Hey, Brad.

Sure.

Angie field stores business has been pretty consistent from both a revenue and margin standpoint since the monetization of the CTG in line pipe business, which which was by design I think thats what <unk>.

<unk> been aspiring to for a number of years.

As you look forward what are your goals for this business over the next four five years are there opportunities to grow it meaningfully.

Either organically or through acquisition or are you just happy to hold the line on that business.

Yes.

Bob on your comments, Joe we've been looking to.

This shift in the business.

Overall for wealth solutions through the gross margin.

To perform when we look at it organically growth opportunities throughout their lives with a nice tuck in or bolt ons or in Canada will continue to look at opportunities like that.

Canada and the U S.

Also room for growth and value added on that side.

Actuation.

Areas that are out there if there's a meaningful opportunity to again, we will look at it on a standalone basis as competition for capital within Russell retail script to you just put into our cultural.

Criteria that we have for the company and so.

We're not restricted to say, we're not going to grow in that area service centers again, or something thats, a larger part of our business and which opportunities to grow there as well, but we'll take a look at all of them equally based on their own merits.

Okay, you touched on sorry value added opportunities within that segment can you can you expand on that a bit.

Yes.

We can do.

Actuation. This one but we can do a field services that are very similar to the same concept that we use and so we're doing that in Canada now.

<unk> in our U S operations and so those just to add to the gross margin profile. So again stable.

Business is very stable margins. So it actually allows us to enhance those margins going forward I mean, it's something we have all the products right now we just have put in the facilities.

Locations to perform that value added process will be introduced.

Okay cool that's that's useful thanks, that's all I have.

Great. Thanks, Brett.

Thank you we have no further questions I will turn the call back over for closing comments.

Great and thank you operator, I appreciate everybody very much for.

Joining the call. Thank you for that if you have any questions. Please feel free to reach out directly otherwise we look forward to staying in touch during the balance of the quarter take everyone.

Ladies and gentlemen, this concludes your conference call for today, we thank you for participating and we ask that you. Please disconnect your lines.

Okay.

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