Q2 2025 Olympic Steel Inc Earnings Call

Operator: Good morning and welcome to the Olympic Steel 2025 second quarter financial results conference call. At this time, all participants are on a listen-only mode. A question and answer session will follow the formal presentation. To access the queue, please press star one on your telephone keypad. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. At this time, I would like to hand the conference over to Rich Manson, Chief Financial Officer at Olympic Steel. Please go ahead, sir.

Good morning and welcome to the Olympic Steel. 2025 second quarter Financial results conference call.

At this time, all participants are on a listen-only mode. A question and answer session will follow the formal presentation to access the queue. Please press star 1 on your telephone keypad.

If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad. As a reminder, this conference is being recorded.

At this time, I'd like to hand the conference over to Rich Manson Chief Financial Officer at Olympic Steel, please go ahead sir.

Rich Manson: Thank you, Operator. Welcome to Olympic Steel Inc.'s earnings call for the second quarter of 2025. Our call this morning will be hosted by our Chief Executive Officer, Rick Marabito, and we will also be joined by our President and Chief Operating Officer, Andrew Greiff. Before we begin, I have a few reminders. Some statements made on today's call will be predictive and are intended to be made as forward-looking within the safe harbor provisions of the Private Security Litigation Reform Act of 1995 and may not reflect actual results. The company does not undertake to update such statements, changes in assumptions, or changes in other factors affecting such forward-looking statements. Important assumptions, risks, uncertainties, and other factors that could cause actual results to differ materially are set forth in the company's reports on Form 10-K and 10-Q and the press releases filed with the Securities and Exchange Commission.

Thank you, operator. Welcome to Olympic Steel's earnings call for the second quarter of 2025 our call. This morning will be hosted by our Chief Executive Officer, Rick mirabito. And we will also be joined by our president and Chief Operating Officer Andrew greif.

Before we begin, I have a few reminders, some statements made on. Today's call will be predictive and are intended to be made as forward-looking within the safe harbor, provisions of the private Securities. Litigation Reform, Act of 1995, and may not reflect actual results.

The company does not undertake to update such statements, changes and assumptions, or changes in other factors affecting such forward-looking statements.

Rich Manson: During today's discussion, we may refer to adjusted net income per diluted share, EBITDA, and adjusted EBITDA, which are all non-GAAP financial measures. A reconciliation of these non-GAAP measures to the most directly comparable GAAP financial measures is provided in the press release that was issued last night and can be found on our website. Today's live broadcast will be archived and available for replay on Olympic Steel Inc.'s website. Now, I will turn the call over to Rick.

Important assumptions, risks, uncertainties and other factors that could cause actual results to differ materially are set forth in the company's reports on form 10K and 10 q, and the press releases filed with the Securities and Exchange Commission.

During today's discussion, we may refer to adjusted net income per diluted share, EBITDA, and adjusted EBITDA, which are all non-GAAP financial measures.

A reconciliation of these non-GAAP measures to the most directly comparable GAAP financial measures is provided in the press release that was issued last night and can be found on our website.

Rick Marabito: Thank you, Rich, and good morning, everyone. Thank you for joining us today to discuss Olympic Steel Inc.'s 2025 second quarter results. I will begin by providing some perspective on our performance in the second quarter and how we are navigating the current environment. Andrew will then review our second quarter performance, and following that, Rich will discuss our financial results in more detail. As always, we will open the call up for your questions. As we all know, news around tariffs has been dominating the headlines and creating uncertainty throughout the manufacturing industry, the metal supply chain, and with our customers. Despite that uncertainty, our strategies and disciplined approach, combined with a strong foundation we have built for a more resilient Olympic Steel Inc., resulted in solid performance in a challenging environment. In the second quarter, we reported sales of $496 million and net income of $5.2 million.

Today's live broadcast will be archived and available for replay on Olympics, Steel's website. Now, I'll turn the call over to Rick.

Thank you, Rich and good morning everyone. Thank you for joining us today to discuss Olympic Steel's 2025 second quarter results.

I'll begin by providing some perspective on our performance, in the second quarter and how we're navigating the current environment.

Andrew will then review our second performance and following that rich will discuss our financial results in more detail. And then as always, we'll open the call up for your questions.

as we all know news around tariffs has been dominating the headlines and creating uncertainty throughout the manufacturing industry, the metal supply chain, and with our customers,

despite that uncertainty our strategies and disciplined approach combined, with a strong Foundation, we have built for a more resilient Olympic Steel resulted in solid performance in a challenging environment.

Rick Marabito: As we mentioned on our last call, we saw significant buy-ahead activity by our customers late in the first quarter as they reacted to the initial steel and aluminum tariffs and the potential for reciprocal tariffs. As a result, there was some sequential volume pullback in the second quarter, yet our flat-rolled shipping volumes for the first half of 2025 remained slightly ahead of volume for the first half of 2024, while the industry actually experienced contraction for that period. While second quarter volumes were down sequentially, margins from our flat-roll business improved, and we delivered adjusted EBITDA of $20.3 million. That is a 26% increase compared with the first quarter. Importantly, all three of our business segments continued to deliver positive EBITDA. This performance is the result of our strategy to build a stronger, more resilient Olympic Steel Inc.

In the second quarter, we reported sales of $496 million and net income of $5.2 million.

As we mentioned on our last call, we saw significant buy ahead activity by our customers late in the first quarter, as they reacted to the initial steel and aluminum tariffs and the potential for reciprocal tariffs.

As a result, there was some sequential volume pullback in the second quarter. Yet our flat rolled shipping volumes for the first half of 2025 remained slightly ahead of the volume for the first half of 2024, while the industry actually experienced contraction for that period.

And we delivered adjusted ebitda of 20.3 million. That's a 26% increase compared with the first quarter.

And importantly, all three of our business segments continued to deliver positive EBITDA.

Rick Marabito: Our efforts to diversify into higher-value metal-intensive products, expand our fabricating capabilities, and lean into our operational disciplines have put us in a position to deliver profitable results, even when industry shipping volumes and pricing are falling. With a strong balance sheet and more than $300 million of borrowing availability, we are in an excellent financial position to make additional accretive acquisitions, as well as fund our organic investments to drive profitable growth, further efficiencies, and enhance safety in our operations. As we previously announced, our robust 2025 CapEx plan, which includes new processing and automation equipment, continues to proceed as scheduled. Andrew will share more specifics in a few moments. Our track record on the M&A front has been highly successful, completing eight acquisitions in the last seven years. The integration of our most recent acquisition, Metalworks, has gone seamlessly, and their results have been accretive to earnings.

This performance is the result of our strategy to build a stronger, more resilient Olympic Steel.

Our efforts to diversify into higher value, metal intensive products. Expand our fabrication capabilities and lean into our operational disciplines have put us in a position to deliver profitable results. Even when industry shipping volumes and pricing are falling.

With a strong balance sheet and more than $300 million of borrowing availability, we are in an excellent financial position to make additional accretive acquisitions as well as fund our organic investments to drive profitable growth, further efficiencies, and enhance safety in our operations.

As we've previously announced, our robust 2025 capex plan, which includes new processing and automation equipment, continues to proceed as scheduled.

Andrew, will share more specifics in a few moments.

Our track record on the m&a. Front has been highly successful completing 8.

Rick Marabito: As we look ahead to the second half of the year, we expect the environment will remain challenging. We do, however, see a few positive emerging trends, like resolution of reciprocal tariffs and the new tax legislation that reinforce our optimism for the longer-term outlook for the steel industry and especially for Olympic Steel Inc. Andrew will have more to share on that in his comments. As always, I am proud of our team for their hard work and dedication to Olympic Steel Inc. I am confident that together we continue to build on our strengths and ensure Olympic Steel Inc. continues to deliver profitable results no matter the market environment. I will now turn the call over to Andrew.

The integration of our most recent acquisition, Metal Works, has gone seamlessly, and their results have been accretive to earnings.

As we look ahead to the second half of the year, we expect the environment will remain challenging.

We do however, see, a few positive emerging trends like resolution of reciprocal tariffs and the new tax legislation that reinforce our optimism, for the longer term outlook for the steel industry, and especially for Olympic Steel.

Andrew will have more to share on that in his comments.

As always, I'm proud of our team for their hard work and dedication to Olympic Steel.

I'm confident that together we continue to build on our strengths and ensure Olympic Steel continues to deliver profitable results. No matter the market environment.

Andrew Greiff: Thank you, Rick, and good morning, everyone. We continue to navigate an unprecedented environment for the metals industry. As previously noted, the 25% sequential increase in first quarter 2025 volume was generated by purchasing ahead of anticipated price increases. Shipping data from our trade association indicates that for most products, service center shipping rates in 2025 are below 2024. Despite this negative trend, our first half 2025 flat-roll shipments remain above our first half 2024 shipping levels. As Rick discussed, our team has done an excellent job positioning Olympic Steel Inc. for success in even the toughest markets. During the second quarter, we improved margins for our flat-roll products. This improvement, combined with the steadiness of our end products businesses, helped to drive a 26% sequential increase in adjusted EBITDA, showing once again our ability to be profitable in the face of challenging conditions.

I'll now turn the call over to Andrew.

Thank you, Rick. And good morning, everyone.

We continue to navigate in unprecedented environment for the metals industry, as previously noted. The 25% sequential increase in first quarter, 2025 volume was generated by purchasing a head of anticipated price increases.

Shipping data from our trade Association indicates that the most products service center shipping rates in 2025 are below 2024.

Despite this negative trend, our first half 2025 flat roll shipments remain above our first half 2024 shipping levels.

as Rick discussed, our team has done an excellent job, positioning Olympic Steel for success, and even the toughest markets,

During the second quarter, we improved margins for our flat roll products. This improvement, combined with the steadiness of our end product businesses, helped to drive a 26% sequential increase in adjusted EBITDA.

Andrew Greiff: This was an outstanding effort by our team to stay focused on controlling what we can control. Second quarter activity in our carbon segment reflected the overall metals industry sentiment. Profitability remained solid with second quarter EBITDA of $12.5 million, with strength from our manufactured product companies. The tubular and pipe products segment recorded adjusted EBITDA of $6.7 million. The tubular and pipe products team continues to focus on fabrication with the goal to grow this business and drive margin improvement. We expect improved second half 2025 demand for data center work related to tubular and pipe products. Business conditions for both stainless and aluminum products began to improve during the second quarter, resulting in sequential improvements in both volume and profitability for the specialty metals group. EBITDA was $5.9 million, a more than 60% improvement from the first quarter.

Showing once again, our ability to be profitable in the face of challenging conditions, this was an outstanding effort by our team to stay focused on controlling what we can control.

Second quarter activity, in our carbon segment, reflected the overall medals industry sentiment profitability remains solid with second quarter ebitda of 12.5 million with strength from our manufactured product companies.

The Pipe and Tube segment recorded, adjusted ebitda of 6.7 million, the Pipe and Tube team continues to focus on fabrication with the goal to grow this business and drive margin Improvement.

We expect improved second half 2025 demand for data center, work related to Pipe and Tube.

Business conditions, for both stainless and Aluminum Products began to improve during the second quarter. Resulting in sequential improvements in both volume and profitability for the Specialty Metals group.

Andrew Greiff: We also gained market share across our stainless and aluminum product lines. We are seeing momentum in the market for the second half of 2025 following the doubling of Section 232 tariffs on steel and aluminum to 50% and subsequent domestic mill price increases. Our robust CapEx plan for 2025 includes $35 million of spending, primarily on organic growth opportunities, which include a new cut-to-length line in Minneapolis, Minnesota, a new white metals cut-to-length line in Schaumburg, Illinois, the automation of our warehouse in Chambersburg, PA, and the expansion of Action Stainless's presence in Houston, Texas, along with a new high-speed stainless slitter at our Berlin Metals operation outside of Gary, Indiana. With the exception of the slitter, the other projects are expected to be operational by the end of 2025 and will help fuel our growth in 2026 and beyond.

Ebitda was 5.9 million and more than 60% improvement from the first quarter.

We also gained market share across our stainless and aluminum product lines.

on steel and aluminum to 50% and subsequent domestic Mill, price increases

our robust capex plan for 2025 includes 35 million of spending primarily on organic growth opportunities, which include a new cut-to-length line in Minneapolis Minnesota.

A new white metals cut-to-length line in Schaumburg, Illinois; the automation of our warehouse in Chambersburg, PA; and the expansion of Action Stainless’s presence in Houston, Texas, along with a new high-speed stainless slitter at our Berlin Metals operation outside of Gary, Indiana.

Andrew Greiff: The Berlin slitter is expected to be operational by the end of the first quarter of 2026. While we expect market uncertainty to remain in the near term, we are encouraged by the emerging trends and opportunities for the steel industry. For example, we are seeing increased inquiries for fabrication services, especially amongst OEMs looking to onshore, outsource, or expand their first stages of manufacturing in the U.S. Olympic Steel Inc. is well-positioned to capitalize on the trend to increase U.S. manufacturing in the months and years to come. We are a resilient organization with the right strategy to lead us into the future, drive our growth, and help us deliver profitable results under all market conditions. With that, I'll turn the call over to Rick.

With the exception of the slitter, the other projects are expected to be operational by the end of 2025 and will help fuel our growth in 2026 and Beyond.

The Berlin slitter is expected to be operational by the end of the first quarter of 2026.

While we expect Market uncertainty to remain in the near term, we are encouraged by the emerging Trends and opportunities for the steel industry. For example, we are seeing increased inquiries for fabrication Services especially amongst oems looking to onshore Outsource or expand, their first stages of manufacturing in the US.

Olympic Steel is, well, positioned to capitalize on the trend to increase U.S. manufacturing in the months and years to come.

Rich Manson: Thank you, Andrew. As you have heard from both Rick and Andrew, our team did an excellent job delivering solid results during the second quarter, despite significant macroeconomic challenges and uncertainty. The benefits of our focus on controlling what we can control are apparent in our results. Before I discuss the results in more detail, I want to remind everyone that comparisons are impacted by the November 2024 acquisition of Metalworks, whose results are included in the carbon segment. Second quarter net income totaled $5.2 million, compared with $7.7 million in the second quarter of 2024. Adjusted EBITDA in the quarter was $20.3 million, compared with $21.3 million in the prior year period. These results include $750,000 of LIFO expense in the second quarter of 2025, compared with $1 million of LIFO pre-tax income in the second quarter of 2024.

We are a resilient organization with the right strategy to lead us into the future, drive our growth, and help us deliver profitable results under all market conditions. With that, I'll turn the call over to Rich.

Thank you Andrew. As you've heard from both Rick and Andrew, our team did an excellent job, delivering solid results. During the second quarter despite significant, macroeconomic challenges, and uncertainty.

The benefits of our focus on controlling, what we can control is apparent in our results.

Before I discuss the results in more detail, I want to remind everyone that comparisons are impacted by the November 2024, acquisition of Metal Works whose results are included in the carbon segment.

Second quarter, net income totaled, 5.2 million, compared with 7.7 million in the second quarter of 2024.

Adjusted ebta in the quarter was, 20.3 Million compared to the 21.3 million in the prior year period.

Rich Manson: Adjusted EBITDA for the second quarter of 2025 was 26% stronger than the adjusted EBITDA for the first quarter of 2025. Consolidated operating expenses for the second quarter totaled $110.4 million, compared with $104.6 million in the second quarter of 2024. Our second quarter 2025 operating expenses reflect the addition of Metalworks, which does not report tons sold. Therefore, operating expenses per ton at the consolidated level and for the carbon segment will appear higher year over year. As a reminder, we do not report tons sold for McCullough Industries, EZ Dumper, Metal Fab, Shaw Stainless, or the entire pipe and tube segment. Second quarter consolidated operating expenses included $2.5 million of Metalworks operating and acquisition-related expenses and $200,000 of lower incentive expenses when compared to the second quarter of 2024.

These results include 750,000 of lifo, expense in the second quarter of 2025 compared to 1 million dollars of lifo, pre-tax income in the second quarter of 2024.

Adjusted dbta for the second quarter of 2025 was 26% stronger than the adjusted dbta for the first quarter of 2025.

Consolidated operating expenses for the second quarter totaled, 110.4 million compared to 104.6 million in the second quarter of 2024.

Our second quarter 2025 operating expenses reflect the addition of Metal Works, which does not report tons sold.

Therefore operating expenses per time at the Consolidated level and for the carbon segment will appear higher year-over-year.

As a reminder, we do not report tons, sold for McCulloch Industries EZ dumper Metal Fab Shaw stainless, or the entire Pipe and Tube segments.

Rich Manson: We reduced debt during the second quarter, bringing our total debt to $233 million, which is $39 million lower than year-end levels. We have approximately $305 million of availability under our asset-based revolving credit facility, providing us with an excellent source of flexible, low-cost capital to fund our strategic growth initiatives. Total capital expenditures totaled $17.5 million in the first half of 2025, compared with depreciation of $13 million. We estimate that 2025 capital expenditures will be approximately $35 million. The investment is higher than historical levels as we focus on supporting our automation and additional organic growth initiatives, as Andrew noted. Our second quarter 2025 effective tax rate was 29.1%, compared with 28.4% in the same period last year. We expect our 2025 tax rate to approximate 28% to 29%. In addition, we paid a quarterly dividend of $0.16 per share in the second quarter.

Second quarter Consolidated. Operating expenses included 2.5, million of Metal Works operating in acquisition related expenses and dollars of lower incentive expenses. When compared to the second quarter of 2024,

We reduced debt during the second quarter, bringing our total debt to $233 million, which is $39 million lower than year-end levels.

We have approximately $305 million of availability under our acid-based revolving credit facility, providing us with an excellent source of flexible, low-cost capital to fund our strategic growth initiatives.

Total capital expenditures totaled $17.5 million in the first half of 2025, compared with depreciation of $13 million.

We estimate that 2025 capital expenditures will be approximately $35 million.

The investment is higher than historical levels as we focus on supporting our automation and additional organic growth initiatives, as Andrew noted.

Our second quarter, 2025 effective tax rate was 29.1% compared to 208.4% in the same period last year. We expect our 2025 tax rate to approximately 28 to 29%.

Rich Manson: Our board of directors approved our next regular quarterly cash dividend of $0.16 per share, which is payable on September 15, 2025, to shareholders of record on September 2, 2025. The company has now paid regular quarterly dividends dating back to 2006. Before we open the call for your questions, I would like to thank the entire Olympic Steel team for all their efforts in the second quarter. We know there are challenges and uncertainty, but we also know our business, our markets, and our customers very well. Our team is executing in a consistent and strategic manner that enables us to deliver these results and to continue to build shareholder value. Operator, we are now ready for questions.

In addition, we paid a quarterly dividend of 16 cents per share on the second quarter.

To shareholders of record on September 2, 2025.

The company has been paying regular quarterly dividends dating back to 2006.

Before we open the call for your questions, I would like to thank the entire Olympic Steel team for all their efforts in the second quarter.

We know that we have challenges and uncertainty, but we also know our business, our markets, and our customers very well. Our team is executing in a consistent and strategic manner that enables us to deliver these results and to continue to build shareholder value.

Operator: Thank you. At this time, we will be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. One moment, please, while we poll for questions. Our first question comes from Samuel McKinney with KeyBanc Capital Markets. Please proceed with your question.

Operator: We are now ready for questions.

Thank you.

At this time, we'll be conducting a question-and-answer session. If you'd like to ask a question, please press star 1 on your telephone keypad.

A confirmation will tell you that your line is in the question queue. You may press star 2 if you would like to remove your question from the queue.

1 moment, please while we polish for questions.

Samuel Mckinney: Morning, guys.

Our first question comes from Samuel McKinney with KeyBanc Capital Markets. Please proceed with your question.

Rick Marabito: Morning.

Andrew Greiff: Morning.

Samuel Mckinney: Hi, Sam.

Guys.

Andrew Greiff: Thanks for the color earlier, Andrew, on some of the new equipment that you are getting in. Wanted to dive a little more into the new processing and automation equipment that is beginning to arrive. Just maybe talk a little more about the benefits that you will see once those pieces start to contribute and, if possible, quantify some of the benefits that you will glean from those.

Good morning morning. Hi Sam.

Thanks uh for the color earlier Andrew on some of the new equipment that you're getting in 1 of the dive, a little more into the new processing and automation equipment. That's beginning to arrive.

Rick Marabito: Yeah, great question. Thanks, Sam. This has been a project that has been years in the making. The equipment is a combination of things, including high-speed lasers, in addition to a whole CASTO system that allows us to move product throughout the building with very little touch from employees. Part of the automation will be, number one, to improve safety so that we are touching the product less. It will, at some point, reduce the number of employees that we have in that specific location as the automation gets going.

Just maybe talk a little more about the benefits that you'll see once those pieces start to contribute. If possible, quantify some of the benefits that you'll glean from those.

Yeah, great question. Thanks, Sam. Um,

So, this has been a project that, uh, has been, uh, years in making, um, the equipment is, uh, a combination of things, including, uh, high-speed lasers. Um,

Samuel Mckinney: Some of the other CapEx that Andrew Greiff talked about also really will enhance productivity. Maybe you could talk about some of the new cut-to-length lines and the slitter also. I think those are.

In addition to, uh, a whole, uh, Casto system that allows us to move product throughout, uh, the building with very little, uh, touch from employees. So part of the automation will be number 1 to improve safety so that we're touching the product less. Um, and it will at uh, at some point. Um, reduce the number of employees that we have in that specific location as the automation gets, uh, gets going.

Rick Marabito: Yeah, sure. So we have, as you know, we have two cut-to-length lines. One is going into our Minneapolis facility. The other is going into our Schaumburg facility. The Schaumburg facility cut-to-length line will be primarily for aluminum. It is a very fast-growing product line for us. As you know, Sam, the Minneapolis line is going to be a light gauge line, so we are going to be focusing a lot on galvanized and other tandem products, as well as the new slitter that is going to be going into our Berlin operation. That will not be operational until the beginning of next year, but that is a very light gauge, so somewhere in the, call it in the O10 range, is what that will end up doing for us.

And then some of the other, uh, capex that, um, Andrew talked about, uh, also really will enhance uh, productivity, so maybe you could talk about, um, some of the new cut the length lines and the, and the Slither. Also, I think those are sure. So we have, uh, as you know, we have, uh, 2 cut the length. Lines 1 is going into our Minneapolis facility. Uh, the other is going into our schanberg facility, the schanberg facility cut to length line will be primarily for aluminum. It's

it's a it's a very fast, uh, growing product line for us as, you know, Sam

Samuel Mckinney: Then, Samuel McKinney, in terms of kind of quantification, obviously, as Andrew Greiff said, most of the equipment is just becoming operational, I will call it in Q4, with the exception of the Berlin Metals slitter, as he mentioned. So really, the ramp-up in terms of seeing the results in our results will be more towards next year. As you know, we do a pretty rigorous process in terms of justification on CapEx and acquisitions. So we are pretty excited about the return profiles of all five of these big projects. But you would start to see them phasing in early next year.

The Minneapolis line is going to be a light gauge line. So going to be focusing a lot on uh, on galvanized, uh, and other tandem products, um, as well as the um, the new slitter that's going to be going into our bin operation, that won't be operational until the beginning of next year. Um, but that is a very light gauge. So, somewhere in the call it in the O, uh, o 10 range. Uh, is, uh, is what that will end up doing for us. Yeah, then Sam in terms of kind of quantification, uh, obviously, as Andrew said, most of the equipment is just becoming operational. Uh, I'll call him in the fourth quarter, uh, with the exception of the Berlin slitter as he mentioned. So um, really the ramp up in terms of um, seeing the results in our results, uh will be more towards next year. Um, as you know, we do a pretty uh, pretty rigorous process in terms of justification.

On capex and acquisition. So, uh, we're pretty excited about the, the return, uh, profiles of all 5 of these big projects. Um, but you'd, uh, you'd start to see them phasing in, um, early next year.

Andrew Greiff: Thank you, guys. That was very helpful. It was great to see tubular and pipe products gross margins stay safely above that 30% mark. I know a component of that segment's profitability transformation over the last few years has been the OEM outsourcing fabrication work. Any more detail you can provide on the work you're doing for those OEMs, the incremental increase in interest since the tariff announcements, or if some of that increase has also been on the carbon side?

Thank you guys, that was very helpful.

And then it was great to see Pipe and Tube. Gross margins, stay safely, above that 30%. Mark, I know a component component of that segment is profitability transformation over the last few years has been the OEM Outsourcing fabrication. Work any more detail. You can provide on the work you're doing for those oems.

uh, the incremental increase in interest since the Tariff announcements or if some of that increases been on the carbon side,

Rick Marabito: It has been a continuation of the customer kind of as on the flat-roll side, Sam, where instead of supplying the tube, they are now looking for something else to be done. We have 19 high-speed tube lasers that are very active and going into a variety of industries. So very strong in the industrial OEMs. Where we are really seeing an increase in that business has been in the data centers. We have seen significant growth on that side of it. So whether it is in the carbon side or even in the stainless side for the pipe and tube, the growth has been pretty extraordinary on the fabrication.

um,

well, the

The tube. They're now looking for something else to be done. We have 19, uh, high-speed 2 Blazers that are very active, uh, and going into a variety of Industries. So, uh, very strong in the industrial oems and where we're really seeing, uh, an increase in that business has been in the data centers. We've seen significant growth on that side of it, um, and so whether it's in the carbon side or even in the uh, in the stainless side, for the Pipe and Tube. Uh, the growth has been, uh, pretty extraordinary on the fabrication.

Andrew Greiff: Okay. Last one for me. Obviously, Q1 demand with some pull forward and then coming off the Q2 volume decline in carbon flat. How were trends in July, and how do you think things are shaping up for August?

Rich Manson: Hey, Sam. It's Rich. I think what we typically see is this is a typical seasonal year, right? What we've seen historically, say, over the last five to six years, is Q3 is typically down 5% to 6% sequentially from Q2. That's really all due kind of to the July holiday. The first two weeks of July typically are very slow. We didn't see anything different this year than we typically see in other years.

Okay. And then, last one for me: obviously, first quarter demand was some pull forward, and then coming off the second quarter volume, declining carbon flat. How were trends in July, and how do you think things are shaping up for August?

Hey Sam. It's rich. And and I think what we typically see is this is a a typical seasonal year, right? And what we've seen historically over the last 5 to 6 years, is third quarter, is typically down 5 to 6%, sequentially from Q2 and that's really all due kind of to the July holiday. The first 2 weeks of July typically are, are, are very slow and didn't see anything different this year than we typically see in other years,

Andrew Greiff: Okay. Thanks, guys, and congrats on the solid quarter.

Rick Marabito: Thank you. Thank you.

Okay, thanks guys, and congrats on the solid quarter.

Operator: Our next question comes from David Storms with Stonegate Capital Partners. Please proceed with your question.

Thank you. Thank you.

David Storms: Morning, everyone, and thanks for taking my questions. I just wanted to start with some of the flat-roll margin improvements that you mentioned. How should we be thinking about the main drivers of this margin improvement?

Our next question comes from Dave storms with Stonegate Investment Group. Please proceed with your question.

Rich Manson: David, it's Rich. I think it was just really kind of a function of how the index pricing changed throughout the first half of the year. So obviously, index pricing shot up after the announcements in February with the tariffs. We had secured some inventory at lower pricing. That allowed you to sell that at higher prices coming into the second quarter. That's essentially the margin improvement that you see based on index pricing.

Morning everyone, and thank you for taking my questions. I just wanted to start with some of the flat roll margin improvements that you mentioned. How should we be thinking about the main drivers of this margin improvement?

Rick Marabito: Yeah. The other thing I would add, this is Rick Marabito, Dave. The other thing I would add is, obviously, we have talked a lot about it the last several years. Strategically, as we have also tried to enrich our mix. When I say enrich our mix, it is everything, including on the carbon side, doing more coated product, a product that carries a slightly higher pricing point and better margins. It is doing more fabricating and value-add work. A big piece of it is our acquisition strategy, where we have gained diversification by owning some companies that make some end products. It is all of that. Sometimes, when the markets start to recede, is the time you see the manifestation of that.

David, it's red Jim and I think it was just really kind of a function of, you know, how how the the index pricing changed throughout, you know, the first half of the year. And so obviously index pricing, shut up. Uh, after you know, the announcements in February with the, uh, with the tariffs. You know, we had secured some inventory at lower pricing that allowed you to sell that at a higher prices, you know, coming into the second quarter. You know, that's essentially the margin Improvement that you see uh, you know, based on index pricing. Yeah. And then the other thing I'd add this is Rick did. The other thing I'd add is obviously we've talked a lot about it. The last several years strategically um, as we've also tried to enrich our mix um and when I say enrich our mix, it's everything including on the carbon side, doing more coded product um a product that carries a slightly higher pricing point and better margins. It's doing more fabricating and value, add work and

Rick Marabito: I think that is part of what you are seeing, aside from the basics in the service center, pricing market and where the cost of the metal is.

A big piece of it is our acquisition strategy where we've gained diversification by owning, um, some companies that make some end products. So it's all of that. And sometimes, um, you know, when the markets start to recede, uh, is the time you, you see the manifestation of that. And and so I think that's part of what you're seeing, aside from the basics, in the in the service center, um,

You know, pricing market and where the cost of the metal is.

David Storms: That's very helpful. Thank you. I know you also mentioned in your prepared remarks, you're seeing some inbound inquiries jumping up, and that's a nice leading indicator. Are there any other leading indicators to maybe highlight, maybe some divergence in contract for spot price, lead times extending, anything like that?

it's very helpful. Thank you. Um, I know you also mentioned in your prepared remarks. You know you're seeing some inbound inquiries uh jumping up and that's a nice leading indicator. Are there any other leading indicators? Uh, to maybe highlight uh maybe some Divergence and contract for a spot price? Uh, lead times extending anything like that.

Rick Marabito: I think, from my perspective, as I take a little bit of a longer view, I think getting some of the uncertainties settled out of Washington, D.C., will be helpful. I think we checked the box on the tax legislation, so that's a good thing. The tariffs are still, as evidenced by last night's all the announcements, the tariffs are still in flux. Hopefully, we get some resolution on those in the near term. We do like, and Andrew talked about it, continue to see really strong quoting on fabricating and outsourced value-add work from a lot of our OEMs. I think, that's really a continuation from what we've talked about as far back as coming out of COVID. We see that. Andrew mentioned some strength in data center business, which, we're a big participant in, in really, many of our divisions and many of our products.

Um, no, I think, you know, um, from my perspective as I, I take a little bit of a longer view. Um,

You know, I think getting some of the uncertainties.

Settled, uh, out of Washington DC will be helpful. So um, I think we we check the box on on the tax legislation. So that's a good thing. Um, you know the tariffs are still as evidenced by uh last night's. All the announcements, the the tariffs are still in flux. Uh, hopefully, uh, we get some resolution on those in the near term. Uh, we do like an

Rick Marabito: So those would be some of the positives. I think, July, as Rich said, July is always a more of a muted seasonally slow month. We obviously saw that this year. It'll be good moving into August. I think we'll see some normal pickup in business. That's what we see. I tell you, the general backdrop hasn't changed that much.

Andrew talked about it. Um, we continue to see really strong quoting on fabricating and, uh, outsourced value-added work from a lot of our OEMs, and I think, uh, that's really a continuation from what we've talked about as far back as coming out of Q2. So, uh, we see that. Uh, Andrew mentioned some strength in, uh, the Data Center business, which, uh, we're a big participant in, and really, um, many of our divisions and many of our products.

Seasonally slow month and we obviously saw that this year but um, it'll be good moving into August. I think we'll see uh, some normal pickup in business but um but yeah, that that's what we see and then I I tell you the general backdrop. Uh, hasn't changed though that much

David Storms: That's very informative. Thank you. Just one more for me, if I could. You mentioned that comment, checking the box on tax legislation. I am hoping to spend a little more time there. Are there any other impacts from the tax legislation other than maybe just the bonus depreciation, that could work as a tailwind for you guys? Is there anything else there that you are keeping your eye on as it evolves?

That's very informative. Thank you. Um, and then just one more for me, if I could. You mentioned that comment to check in the box on tax legislation. I hope to spend a little more time there. Are there any other impacts from the tax legislation, other than maybe just the bonus appreciation, that could work as a tailwind for you guys?

Rick Marabito: Well, Rich, why don't you answer for Olympic Steel Inc., and then we can also talk about why it's good for our business in terms of the bonus depreciation?

You know, anything else there that you're you're keeping your eye on as it evolves.

Rich Manson: Yeah, absolutely, Dave. So it is Rich. I think the bonus depreciation of anything is the most significant part of the tax legislation. This has happened a number of times over, say, the last decade through various tax legislation, and it is very helpful to our customer base. For us, it will obviously allow us to depreciate some of the projects, not the current projects, but any projects that we have entered into after January of 2025 on a faster basis. I think the bigger impact really is our customer base. That really does help kind of the OEMs and their customer base feel, it helps drive demand, which is always good for us and good for the industry.

Well, Rich, why don't you answer for Olympic? And then we can also talk about why it's good for our business in terms of the bonus depreciation. Yeah, absolutely. Dave. So it's Rich. Um, yeah. I think the bonus depreciation of anything is is the most significant part of the tax legislation, you know, this has happened a number of times over say, the last decade through through various tax legislation and it's very helpful to our customer base, um, you know, so so for us, you know, it will obviously allow us to depreciate some of the projects that not not the current projects but any projects that we've entered into after January of 2025 on the faster basis but I think the bigger impact really is our customer base uh that really does help you know kind of the oems and their customers.

Rick Marabito: Yeah, I think the depreciation deductibility for customers, when you combine that with when we start to see interest rates come down, whenever that will be, those two things I think will be a pretty powerful boost to demand. So we have got part of the equation in place, but the bigger part is really the interest rates.

Customer base. Uh, feel the need, you know, help helps Drive demand, which is always good for us and good for the industry. Yeah, I think the the depreciation, um, deductibility for customers when you combine that with

When we start to see interest rates come down whenever that will be um, those 2 things, I think will be um, a pretty powerful boost to demand. Um, so we've got part of the equation in place but the bigger part is really the interest rates.

David Storms: Understood. Thank you for the time, and good luck in Q3.

Rick Marabito: Thank you.

Thank you for the time and uh, good luck in Q3.

Operator: Our next question comes from Chris Sakai with Singular Research. Please proceed with your question.

Thank you.

Our next question comes from Chris Sakai with Singular Research. Please proceed with your question.

Chris Sakai: Yes. Hi, good morning. Hi, Chris. Can you talk about the gross margin in carbon flat? It looks like it improved year over year. What initiatives really helped that improvement?

Rich Manson: Hey, Chris. It's Rich. Rick had addressed a couple of those on the last question, but what you saw was a combination of an increase in index pricing. You saw the better mix that we've had. As Rick indicated, we've got a better concentration in some higher margin products. It's the focus on fabrication. I'll give a shout-out to our end products companies who did have a very strong second quarter, all of that combined to help that gross margin on the carbon side.

Uh, yes. Hi. Good morning. Um, hi, Chris. Can you talk about the gross margin in Carbon Flat? It looks like it improved year-over-year. Um, what initiatives, you know, really helped that improvement?

Hey, Chris. It's rich. And I, I think Rick Rick had addressed a couple of those on the last question, but I think that what you saw was a combination of an increase in index pricing, you saw the The Better Mix that we've had as Rick indicated. We've got a better concentration in some higher margin products. It's the the focus on fabrication. And, uh, you know, I'll, I'll give a shout out to our end products companies, who who did have a very strong second quarter, all of that combined to to help.

Help that gross margin on the carbon side.

Chris Sakai: Okay, great. Can you talk about operating expenses? What should we be expecting for the rest of the year in operating expenses?

Rich Manson: Yeah, Chris. I mean, I think what you saw is operating expenses were relatively flat in Q2 versus Q1. What we try to do is make sure that those operating expenses move on a variable basis with volume. We did, in an earlier question, say that, typically, Q3 is seasonally slower than Q2. With that, we'd expect to take the operating expenses down commensurately with volume.

Okay, great. Can you talk about operating expenses, uh, what should we be expecting for for the rest of the year, an operating expenses?

Yeah, Chris, I mean, I think what you saw is operating expenses relatively flat in Q2 versus Q1. And, you know, what we tried to do is make sure that those operating expenses move on a variable basis with volume. You know, we did in an earlier question say that, you know, typically Q3 is seasonally slower than Q2. With that, we'd expect to take the operating expenses down commensurately with volume.

Chris Sakai: Can you talk about, do you have an outlook for the pricing for hot-rolled steel in the second half of the year? Do you see any stabilization there?

Uh, can you talk about?

I do have an outlook for the pricing for hot rolled steel in the second half of the year. Do you see any stabilization there?

Rick Marabito: Yeah, Chris. This is Andrew Greiff. I think you will see the second half of the year is going to be similar to what you will see, what we saw in the first half. I think there are some variables that could change that. Certainly, you have a 50% tariff. If the tariff is reduced, as you know, it went from 25% to 50%. If it is reduced back to 25%, if the tariff is replaced by a quota and the economy stays, at least with our customers, the way that we see it, you could see some pressure. But barring that, I think you are going to see some stability for the second half of the year.

Uh, yeah. Chris, this is Andrew. Um,

I think you'll see the second half of the year is, is going to be similar to what you'll see what we saw in the first half. I think there's some variables that could change that. Certainly you have a 50% tariff. If the Tariff is reduced, um, as you know, it went from 25 to 50%. If it's reduced back to 25%, if the uh, if the Tariff is replaced by a quota, um, uh and the economy stays at least without customers the way that we see it. You could see

Uh some pressure um but barring that I think you're going to see um some stability for the uh for the second half of the year.

Chris Sakai: Okay, thanks. Last one, this is more of a macro question, but we're seeing some large investments from other countries like Japan and Europe from these tariff deals. Is that going to be affecting demand?

Not going to be affecting uh, demand.

Rick Marabito: Chris, this is Andrew Greiff. I think it's a little early to tell. There have been a lot of numbers that have been reported, I would say, soft on specifics. I think the more manufacturing that can come to the United States, the better it's going to be for the United States and certainly the steel industry. We're encouraged by the news out of Washington and the tariff deals that have been made that's talking about countries investing in the U.S. and the building and potential opportunities for us and manufacturing in general.

Uh, Chris, this is Andrew, I think it's, it's, it's a little, uh, early to tell. Um, they've been a lot of numbers that, uh, that have been reported. Um, I would say soft on specifics. Um, and I think the more manufacturing, uh, that can come to the United States. The better it's going to be for the United States and certainly, uh, the steel industry. And so we're, we're encouraged by the news out of Washington. And, and the Tariff deals that have been made that's talking about countries investing in the US, uh, and the building and, and, and potential opportunities for us, uh, and Manufacturing in general,

Chris Sakai: Okay, great. Thanks for the answers.

Rick Marabito: Thanks, Chris.

Andrew Greiff: Thanks.

Okay, great. Thanks for the answers.

Operator: Our next question comes from Phil Gibbs with KeyBanc Capital Markets. Please proceed with your question.

Thanks Chris. Thanks.

David Storms: Good morning.

Our next question comes from Phil Gibbs with KeyBanc Capital Markets. Please proceed with your question.

Chris Sakai: Good morning.

Rick Marabito: Good morning, Phil.

Hey, good morning.

Chris Sakai: I know there was a question earlier about the big beautiful bill. Are there actual discrete tax benefits that you all will realize in the second half of 2025, given a lot of the investments you're putting in place this year?

Good morning. Good morning. Phil

Rich Manson: Hey, Phil. It's Rich. Unfortunately, you know, we went forward with this large organic growth opportunity. You know, these opportunities before January of 2025, which that's the cutoff date for those. So we will not get the bonus depreciation on those. But future projects, we certainly will look to get that benefit. But I do not expect to have a significant impact on the 2025 tax rate.

I know there was a question earlier about the big beautiful Bill, uh, are are there actual discrete tax benefits that you, you all will realize. And, and the second half of 25, given a lot of the Investments you're putting in place this year.

Chris Sakai: Okay. Regarding that working capital, you know, typically, the second half is a source of cash from you all. I know pricing has been kind of volatile across products, but you typically do have a second half tailwind and cash inflow associated with that. What are you expecting this year?

Hey Phil, it's Rich. Yeah, unfortunately, you know we went forward with this large organic growth opportunity. You know, these opportunities before January of 2025, which, uh, that's the cutoff date for those. So, we will not get the bonus depreciation on those. But yeah, for future projects, we certainly will look to get that benefit, but I do not expect to have a significant impact on the 2025 tax rate.

Okay.

And then regarding that working capital, you know, typically the second half is a source of cash for you all. I know pricing has been kind of...

Rich Manson: Yeah, Phil, I think we're evaluating that right now. I think the thing that has changed since we had the last call was that the 25% base increase in stainless pricing. So, we're evaluating some opportunities in stainless. So, my outlook right now for Q3 is probably more flattish on debt than a paydown.

It's been volatile across products, but you typically do have a second-half tailwind and cash inflow associated with that. What are you expecting this year?

Yeah, Phil, I think we're evaluating that right now. I think the thing that has changed since we had the last call was that the, uh, the the 25% base increase in stainless pricing, you know. So we're evaluating some opportunities in stainless and so, you know, my outlook for right now, for 2 3 is probably more flattish on debt than than a pay down.

Chris Sakai: In Q4, you typically will still get that release?

Rich Manson: We'll see where pricing goes. So I'm going quarter by quarter right now. Based on what I know, I think we're flattish for Q3.

And then Q4, you typically will still get that release.

Well, we'll we'll see where pricing goes. So I'm I'm going quarter by quarter right now and So, based on what I know, I think we're flattish for Q3.

Chris Sakai: Okay. Lastly, you mentioned having over $300 million of liquidity available to you all. I know M&A has been a big part of your strategy over the last several years. Are there still a swath of decent opportunities out there that you could be exploring?

Okay? And then lastly, we have over $300 million of liquidity available to you. All I know is M&A has been a big part of your strategy over the last several years.

Are there?

Rick Marabito: Yeah, Phil, great, great question. It's Rick. Really, we saw the opportunity flow really slow down towards the end of last year and through Q1. We've seen it pick up in Q2. So we're certainly seeing and looking at more things. Obviously, as we've stated every quarter, M&A is still a big piece of our strategy in addition to the pretty large CapEx plan we went through for this year. So we're actively looking. I think we're starting to see some better candidates that really fit our target zone. More to come on that as we work through Q3. But the good news is I think that little bit of a hesitation and pause that we saw for, call it, three or four months seems to start to be that logjam of nothing happening seems to be opening up a bit. So we'll continue to be active.

Still a, a swap of decent opportunities out there that you're that you could be exploring.

Yeah, I feel great. Great question. It's Rick. Um, really we saw the opportunity flow.

Really slowed down towards the end of last year and through the first quarter, we've seen it pick up in the second quarter. So we're we're certainly seeing and looking at more things. Um, obviously as we've stated every quarter, m&a is still a big piece of our strategy in addition to um, the pretty large capex plan. We went through for this year. Um, so we're actively looking. Um,

Rick Marabito: We're looking at a lot of things, and we'll continue to be disciplined too, Phil. We've said it many times, while growth through a combination of organic growth and our CapEx and acquisition is the way forward for us strategically, we're going to stay disciplined, and we're not going to make an acquisition just to say we have to make an acquisition because it's been a couple of quarters. But I'm optimistic as we work through the back half that we'll continue to see some really good fits for Olympic Steel Inc.

I think we're starting to see, um, some better, uh, candidates that really fit our Target zone. So more to come on that, as we, uh, work through the third quarter, but the good news is, um, I think that little bit of a hesitation and pause that we saw for call it 3 or 4 months, seems to, um, start to be that Log Jam of nothing. Happening. Seems to be, uh, opening up a bit. So, um, so we'll continue to be, um, active. Uh, we're looking at a lot of things and, um, and we'll continue to be disciplined too, Phil. Um, you know, uh, we've said it many times uh, while growth through a combination of organic growth and and our capex and acquisition is the way forward for us strategically. We're going to stay disciplined, and we're not going to make an acquisition. Just to to say, we have to make an acquisition because it's been a couple quarters. But um but I'm optimistic as we work through the back half.

That we'll continue to see some, uh, really good fits for Olympic.

Chris Sakai: Thank you.

Thank you.

Operator: We have reached the end of the question and answer session. I would now like to turn the call back over to Rick Marabito for closing comments.

Rick Marabito: Thank you, Operator. I just want to thank all of you for joining us today on our call. We appreciate your continued interest in Olympic Steel Inc., and we look forward to speaking with you again next quarter. Thank you, and everyone have a great day.

We have reached the end of the question-and-answer session. I'd now like to turn the call back over to Rick Marabito for closing comments.

Operator: This concludes today's conference. You may disconnect your lines at this time, and we thank you for your participation.

Thank you, operator. And I just want to thank all of you for joining us today. On our call, we appreciate your continued interest in Olympic Steel and we look forward to speaking with you again next quarter. Thank you. And everyone have a great day.

This concludes today's conference. You may disconnect your lines at this time, and we thank you for your participation.