Russel Metals Aktie

Good morning, ladies and gentlemen, and welcome to the 2026 First Quarter Results for Russel Metals. Today's call will be hosted by Mr. Martin Juravsky, Executive Vice President and Chief Financial Officer; and Mr. John Reid, President and Chief Executive Officer of Russel Metals. Today's presentation will be followed by a Q&A period. [Operator Instructions]

I will now turn the meeting over to Mr. Martin Juravsky. Please go ahead, Mr. Juravsky.

Great. Thank you, operator, and good morning, everyone. I plan on providing an overview of the Q1 2026 results. And if you want to follow along, I'll be using the slides that are on our website. You can go to the Investor Relations section, and it's located in the conference call submenu or alternatively, you can click on the link that is in the investor conference call paragraph of our recent press release.

If you go to Page 3, you can read our cautionary statement on forward-looking information. To begin, I would characterize Q1 as a very positive inflection point for 2 primary reasons. One, a number of the strategic initiatives that have been discussed over the past year or so have translated into positive impacts within our Q1 results. And two, we are starting to see the benefits from favorable market conditions. In particular, the market conditions improved through Q1 with the end of the quarter being stronger than the start of the quarter. This sets the stage well for Q2.

On Page 5, we got a snapshot of our quarter. In Q1, we had record overall revenues and also record shipments for our steel service center segment, and this was the result of 3 items: one, the Kloeckner acquisition that we closed on December 31, 2025, a seasonal rebound in same-store volume versus Q4 and good pricing and market conditions. More specifically on the last point related to market conditions, we saw a 111 basis point improvement in our service center same-store gross margins in Q1 versus Q4.

The Kloeckner business generated about CAD 8 million of EBITDA contribution, which was in line with our near-term expectations for the business as it currently is, but we have many incremental initiatives that will benefit the business over the next year or so. We completed the sale of our property in Delta, BC. And as most people know, this was an initiative that started quite some time ago.

This resulted in proceeds of $39 million, a pretax gain of $36 million and an after-tax gain of $31 million. More importantly, it was the final piece in pulling capital out of Western Canada that was part of the Samuel acquisition strategy. In total, we have now taken out around $100 million worth of capital as compared to the original announced purchase price of $225 million. So it's a pretty meaningful change in the valuation metrics and implied multiple from that transaction.

This real estate monetization also highlights another example of how the inherent market value for some of our legacy real estate is significantly higher than the book values. In this case, the realized cash proceeds of almost $40 million compared to the book value, which was only around $3 million. On the middle row of the diagram, our Q1 CapEx was $18 million, which was a pickup from the last couple of quarters, and I'll talk more about this later, but I expect the discretionary CapEx to increase in the later part of 2026 and into 2027 as John and I are seeing more projects being reviewed and approved.

Capital deployed is around $1.8 billion. Our capital grew from $1.3 billion at the end of '23 to $1.6 billion at the end of 2024, and there's additional opportunities on the come. We generated a strong return on invested capital. Our annualized return on invested capital in Q1 was 22% versus 15% over the past 2 years, and these levels compare well against our industry peers and against our stated target of greater than 15% over the cycle.

We grew in strategic ways. Our U.S. platform now represents 53% of revenues. And in Q1, it represented 58% of operating profit. And this is the first time that our U.S. business units contributed more revenue than our Canadian business units. Also, the market conditions in the U.S. are currently strong and have resulted in a higher relative profitability in our U.S. units versus our Canadian units, which is why there's a higher proportion of operating profits coming out of the U.S. than revenues coming out of the U.S.

Our nonferrous business was 10% of revenues in Q1, which was down from 11% in 2025 as the former Kloeckner branches were carbon-based and added to our total sales, but not necessarily to our nonferrous mix. On the last row of the diagram, returning capital to shareholders, our balanced approach is pretty simple. In Q1, we returned $7 million via share buybacks, $24 million via dividends for a total of about $31 million. In addition, we just announced an increase in our dividend to $0.44 per share. This is now the fourth consecutive year of a per share dividend increase, which in aggregate totaled 16% since we started to increase the dividend back in 2023.

In the bottom right box on the page, maintaining capital structure is critical as we operate in a cyclical industry. We've talked about this a lot in the past, and it's a key tenet for us. As a result, our liquidity is strong. We have flexible bank covenants, no financial covenants in our term debt and our maturities are several years down the road.

Let's turn to market conditions on Page 6. Quick summary. Market conditions are pretty good right now. We saw sheet and plate prices exhibit increases on a steady basis over the last 6 months. Hot-rolled coil and plate prices in the U.S. were up in Q1 versus Q4, and those prices are currently prevailing higher than the Q1 averages. Overall, demand is solid and supply is tight with mill operating rates tracking near 80%, which is a very healthy level. Lead times are extended and supply chain inventories are modest. This suggests continued optimism going into Q2.

On Page 7, you see a summary of our trend EBITDA. And we've talked a lot in the past about changing our EBITDA profile to raise the cycle floor, raise the cycle ceiling and as a result, raise the cycle average in addition to focus on reducing the volatility through the cycle. And this chart represents those elements as each of the EBITDAs are on a trailing 12-month basis at various points in time, 2 charts showing on the left pre-COVID period and the right being more of the post-COVID period. And the takeaways, if you look at the right-hand chart, our trailing 12-month trend results continue to improve.

Our LTM EBITDA and our Q1 2026 annualized EBITDA, if we were to exclude some of the nonrecurring items in Q1 like the gain on sale and the mark-to-market on our stock-based compensation are both around $370 million, which is slightly above the recent multiyear average as we are now realizing the benefits from our recent initiatives. This is another example of how the change in our business mix has really shaped our earnings profile over the cycle and such that now our average cycle EBITDA is trending higher than it has in the past and our volatility is lower than it has been in the past.

Page 8 view of our EBITDA and working capital trends on a longer-term basis. And if I can focus more on the bottom chart, which is the working capital changes. And in particular, if you look at most Q1 periods over the past several years, we do use cash for working capital purposes due to the seasonal items, including our company-wide annual incentive compensation payments. And this factor plus the impact of higher product prices led to the use of $46 million of cash for working capital in Q1, which you see on the far right-hand side of the bottom chart. That being said, the use of cash for working capital in Q1 '26 was within the normal range for comparable Q1 periods from other years.

On Page 9, a little bit of a trend on some of our historical results. If we look across the various charts going from top left, revenues were a quarterly record at over $1.4 billion. EBITDA of $124 million was up from Q4 '25 due to favorable conditions that I previously mentioned and the gain on the property sale. EBITDA margin came in at 8.7% for the quarter, which was a very nice level, including the property sale or 6.2% if we exclude it. Either metric is very favorable in the context of the market that we've seen. EPS was $1.30 per share in Q1, which was a higher level than the comparable periods in the chart.

Even if you exclude the gain on sale of the property and the mark-to-market on stock-based comp, the Q1 EPS was noticeably higher in Q1 than Q4 2025 and the comparable Q1 of 2025. As I mentioned earlier, our return on capital for Q1 annualized at 22%, and our 3-year average remains above our internal hurdle of 15%.

A few more details on the financials on Page 10. From an income statement perspective, some of the high-level items I've already covered off, but a few other items to note. Revenues up 30% from Q4, up 21% from Q4 -- Q1 of 2025. I'll talk more about volumes later, but it was a record shipping quarter in spite of some weather-related issues that impacted most of the eastern side of North America in late January. Our gross margin percent was up slightly in Q1 versus Q4 -- the margin profile from the former Kloeckner branches was around 300 basis points lower than our equivalent same-store gross margins due to their product mix and the legacy business approach.

That being said, those former Kloeckner branches contributed around CAD 8 million of EBITDA in Q1. And as I've mentioned already, there were a couple of nonoperational items in the quarter included in our results, $36 million pre-gain, which was $31 million after-tax gain on the sale and a positive. The mark-to-market on stock-based comp was an expense of $5 million in Q1. It was also an expense of $3 million in Q4, but the comparative period to Q1 2025 was a $3 million recovery.

One of the items that we have shown in both our press release and in our MD&A is a table that illustrates the quarterly EBITDA on an apples-to-apples basis to exclude both the gain on the property sale and the mark-to-market on stock-based comp. And if you look at that table, it shows that we generated $93 million of EBITDA in Q1 2026, which was a $21 million increase versus Q4 of 2025 and a $10 million increase from Q1 2025.

So under any basis of measure, we are pretty proud of the results that came in, in Q1. From a cash flow perspective, in Q1, we used $46 million of cash and working capital, which typically happens in Q1, as I mentioned earlier, Kloeckner acquisition closed and the final purchase price based upon refined working capital was USD 94 million. As a result, we received an $8 million or about CAD 11 million payment back from Kloeckner in April to adjust for what was otherwise paid on a preliminary basis in December. And to put that USD 94 million purchase price into context, it equates to around CAD 128 million. And the former Kloeckner branches has generated CAD 183 million of revenues, CAD 8 million of EBITDA in Q1. And based upon the early results and our expectations going forward, this transaction should equate to a purchase price multiple of around 4x EBITDA.

Share buybacks were $7 million in Q1, cumulative share buyback since August 2022, 14% of our then shares outstanding for $333 million at an average cost of $38.13. So again, the theme of us being opportunistic in the past approach, I think, has worked out very well. Our quarterly dividend was $0.43 that was paid in March. And as I said earlier, we just declared an increase to $0.44 that will be paid in June. Our CapEx was $18 million was up a bit from Q4. Balance sheet perspective, we remain in a strong position with only $130 million of net debt, and our book value per share is just above $30 per share.

On Page 11, EBITDA variance last quarter to this quarter and looking -- starting at the left-hand side of the page, service centers. Same-store volumes were up versus Q4, which translates to about a $15 million EBITDA pickup. Same-store margin showed an improvement of $36 per ton, which equated to a $14 million EBITDA pickup. Same-store costs were higher by $13 million due to greater volumes and greater profitability. I said earlier, the Kloeckner part of the business contributed about CAD 8 million of EBITDA. Energy field stores had a nice quarter -- a slow start to the year. But when we look at Q1 in totality, field stores were up $5 million, and it was a nice pickup in the tail end of the quarter.

Steel distributors were down a little bit, but comparable to Q4 if we were to exclude the $2 million tariff recovery that we picked up in Q4 of 2025. In the other bucket, there was an increase in corporate expenses due to higher profitability, a negative variance from the mark-to-market on stock-based comp, which I mentioned earlier, and the seasonal dynamic at our Thunder Bay terminal operation.

Page 12, segmented P&L. Service centers, I'll go through this in more detail on the next page, but it was a really nice and favorable improvement versus Q4. Energy field stores revenues were up and gross margins were flat, remaining at a very healthy level in Q1 versus Q4, and that translated into the higher profitability in the energy field store segment. Distributors revenue, as I mentioned earlier. Revenues were up a little bit. Gross margins, EBITDA were very comparable in Q1 versus Q4.

Page 13, a deeper dive into the metrics within our service center segment, and there are some really nice and noticeable changes quarter-over-quarter. Starting with the top right graph is tons shipped. Q1 was a record by a lot. Shipments were up 32% over Q4 and up 18% over Q1 2025. The Kloeckner branches contributed about 17% to our Q1 shipments. And on a same-store basis, shipments were up 9% versus Q4 and very comparable with Q1 of 2025. Said another way, the market conditions are good, leading to increased demand and the actions that we have taken, in particular, related to acquisitions have also translated into impactful results.

Margins picked up in Q1 versus Q4. Margin dollars were up $25 per ton and $36 per ton on a same-store basis. As I mentioned earlier, the Kloeckner margin profile is lower than our average that we had in our same-store basis. And gross margin in percentage terms was up 60 basis points overall, but 111 basis points if we look at on a same-store basis. So again, contributions and improved market conditions as part of the outcome that we saw in Q1.

Page 14, inventory turns. Overall, inventory turns improved to 4.2 in Q1. Inventories are tight as business conditions are strong. Page 15, we have illustrated our inventory dollars. Total inventory at March 31 was comparable to what it was at December 31, which is a combination of lower tonnage as our folks are doing a really nice job in managing through the environment we're in right now, but higher cost per ton within the service center segment. If we go to Page 16, a quick update on our capital structure. Liquidity is strong, which gives us a lot of flexibility. We recently had DBRS reaffirm our investment-grade rating, which goes along with our investment-grade rating from Standard & Poor's. Since last quarter, our net debt was reduced by $14 million and our liquidity remains right around $0.5 billion.

Page 17, last page. We have -- excuse me, second last page. We have an update of our capital allocation priorities going forward. On the left part of the page, we show our investment approach, seek average returns greater than 15% over the cycle. And as I've mentioned a couple of times already, we've delivered that pretty consistently, including this most recent quarter. On the right side of the page, we show our approach to returning capital to shareholders and continue to be that flexible approach.

And over the last 2 years, we have returned an average amount on an annual basis of about $99 billion (sic) [ $99 million ] to shareholders via the NCIB, while the annual run rate for our dividend is now $97 million after taking into account both the reduced share count and the increased dividend to $0.44 per share. So pretty balanced and very comparable amounts between both the historical NCIB and the dividend level.

Page 18 provided context on our capital reinvestment program. In Q1, we invested $18 million in CapEx, which is a slight increase from the recent quarters and expect the pickup in discretionary projects to gain some momentum in the back half of this year as there have been a series of projects that have crossed my desk in John's desk and others desks in the last little bit and have been recently approved and should be underway shortly. These projects are spread across many of our operating divisions on both sides of the border.

Page 19. This is now the last page. We show a deeper dive on returning capital to shareholders. Top left graph, our longer-term dividend profile with the most recent dividend increase to $0.44 per share per quarter. And this represents, as I said earlier, the fourth year in which -- fourth increase in 4 years and represents about a 16% cumulative increase since the early 2023 dividend level. Bottom left chart, we show our quarterly NCIB activity since it was put in place back in August of 2022. It's an opportunistic way to buy back shares, and we've been aggressive at certain price points more so than others.

In Q1, we acquired 150,000 shares at an average price of $47.42 per share. As I mentioned earlier, our cumulative NCIB since 2022 has been a 14% reduction in our share count at an average cost of $38.13 per share. Top right chart, the aggregation of dividends and NCIB over the past 2 years shows a pretty balanced approach. It's worth noting on the chart that even though our dividend per share has increased in a meaningful amount, our total dividend outlay, which is the darker blue part of that chart, has remained at around $24 million per quarter as a result of the continuing reduction in our share count, which is also illustrated in the bottom right chart on the page.

So in closing, on behalf of John and other members of the management team, I just really like to express our thanks to everyone on the Russel team for their contributions. This has been a really nice start to 2026 and look forward to more opportunities on the come. Operator, that concludes my introductory remarks. You can now open the lines for questions please.

Ladies & gentlemen, we'll now begin the Q&A session.

[Operator Instructions]

The first question comes from James McGarragle from RBC Capital Markets.

Yes. I just wanted to ask on the Q2 commentary on volumes. You mentioned kind of stable volumes quarter-over-quarter. So it seems like the early part of the Q1 was impacted by some tough operating conditions, things picked up into March. And then when we look at transportation reporting, it seems like that strength from March carried into April, which I assume is kind of consistent with what you guys are seeing. So why the commentary for flat volumes quarter-over-quarter when all indications are that things kind of accelerated throughout the quarter and that strength from March is continuing into April?

Yes. James, your observation is pretty accurate, which is the tone today is better than probably the tone a month ago or 2 months ago. So we're continuing to see that positive trend. So your observation is not unreasonable. So if we were to actually extrapolate that into Q2, flat volumes would be a conservative point of view, slightly up volumes, which is probably a little bit more realistic the way we look at it right now.

Okay. Perfect. And then on the margin commentary, again, you mentioned the improvement quarter-over-quarter. It seems like there's still a little bit of a favorable pricing lag on steel prices, potentially higher volumes. So can you kind of help us quantify that quarter-over-quarter margin improvement a little more just to help with our modeling into Q2?

Yes. Thanks, James. Again, good observation. You do have very steady demand from a steel mill perspective, especially in the U.S. Right now, they're bouncing right around 80%. Keep in mind, you also have scheduled mill shutdowns in Q2, which will tighten supply. So it gives further pricing opportunity to the steel mills. So we anticipate price increases throughout the quarter. We are seeing demand improve. It's strong in the U.S., steady and slightly improving in Canada. If you look at the Architectural Billing Index, it's now above 50. If you look at the Purchasing Manager Index, it's now above 50.

So all those are good signs for our business going forward. We think we'll see continued margin improvement in our Kloeckner acquisition. Again, they do not have the value-added component that our traditional service centers do. So we'll start to implement some of that with some of our pricing metrics. So we think there'll be continued margin improvement in the service centers. I would say, on the energy side and the steel distribution side, it would be more of the same on the margin.

Next question comes from Maxim Sytchev from National Bank Capital Markets.

John, maybe if you don't mind, if you can discuss the Kloeckner integration. Maybe if you don't mind addressing sort of the operational sort of things you're focusing on kind of change management. And I guess the second part of the question would be in relation to Marty around sort of the margin normalization over which time frame we should be modeling?

Yes. So Max, on the Kloeckner integration, again, the first quarter was really a focus. Again, you're doing a shared services agreement with the computer system, so we make sure we're stabilized. We started to implement our approach to the market and pricing is different than Kloeckner. So we've seen an increase throughout the quarter in the gross margin percentage.

We think we'll continue to see that into second quarter. We'll move to our computer system late third quarter, early fourth quarter. Also, we'll be spending some CapEx in the latter part of the year to introduce the value-added -- the higher-end value-added products that we do and services that we offer. So we think that will be a gradual improvement over the course of the year and early into next year to where they start to look and feel more like our service centers from a gross margin profile.

And Max, does that last comment from John address the time horizon?

That you were asking? And I guess -- and Marty, like in terms of, I guess, the margin normalization dynamic, is this sort of a 12 months or 24 months type backdrop?

Yes. I think the way you should think about that is there's probably 2, if not 3 phases to margin normalization. We're in the middle and the early stages of Phase 1, which is just business practices. And some of that is around procurement. Some of that is around customer approach and pricing in the market. And we're at the early stage, but actively in that Phase 1. Phase 2 will involve integrating into the rest of the Russel system in the regions.

That's going to be happening later in 2026 and into early 2027. And so that will also have an additional component attached to margin normalization. And then the third phase is really triggered around CapEx opportunities. As John talked about, we do a lot more value-add in our comparable operations than they do. And we're mapping out what those investment opportunities will be in the Kloeckner branches.

And as a practical matter, just the lead time attached to putting equipment in and getting it up and running and getting the benefits of it. That's why I put that into that third phase. And that first phase will be happening in 2026. The second phase will be happening in late 2026 and early 2027. And that third phase is probably latter part of 2027 before we start to see the benefits of some of those investments.

Okay. Super helpful. And then last question in terms of real estate optimization. Obviously, you continue to sort of streamline your platform. Is there anything else that is sort of a hidden value that you can surface in the future? Maybe any thoughts there?

Yes. It's a good question, Max. And in some ways, the Delta One monetization highlights there is a lot of inherent market value well in excess of our book value. And as I mentioned earlier, that was a deal where we ended up realizing close to $40 million on something that was on the books for $3 million. That being said, we're always looking at the portfolio. And there's probably a couple of smaller things that are in the works right now, nothing near close to that order of magnitude, but we're constantly looking at the portfolio.

But as a minimum, whether we monetize some real estate or don't monetize some real estate, there is this notion of there is an awful lot of market value in excess of our book value. And the Delta One highlights it, and we're always looking at stuff. Near term, though, there's a couple of situations that we're looking at, but they don't come anywhere close to the orders of magnitude attached to the Delta One.

Next question comes from Frederic Bastien from Raymond James.

More higher level, I guess, the changes made in the past 5 years have obviously strengthened Russel and raised the ceiling and floor earnings growth profile, as you mentioned. But have these improvements enhanced your visibility on revenue and earnings? In other words, does your visibility extend beyond the current quarter and perhaps into Q3 and even Q4 now?

Let me tackle it from one angle, then. It's less about the revenue visibility and the profitability visibility because we are still a highly transactional business. I think if you look back at Russel's history over a longer term, it wasn't so much the revenue visibility that were -- that caused the volatility, it was the negative surprises.

And the streamlining and changes to the business have substantially reduced, perhaps even, dare I say, eliminated some of those meaningful negative surprises. But the core of the business is still highly transactional, highly adaptable. That is part of the underpinning of how Russel is set up.

Yes. I think that's very fair, Marty. And Fred, it continued. And again, Marty was, I think, alluding to the OCTG line pipe was something that was very volatile for us. There are some other areas that we have tightened up in. And so what that's done is actually given us more flexibility and that the ability to react to the market as it changes due to our transactional nature, we can now move very quickly with the market and mitigate any downside risk, and we can also move to maximize upside risk quicker than we have in the past.

So again, long-term visibility is still that same 2 to 3 months out, but we can adjust so much faster now because we don't have that lagging risk that's over our head.

Okay. That's super helpful. And if we look maybe 5 years ago, you were less right around 30% U.S., you're now over 50%. Where do you think that settles? I mean, presumably, you're going to continue to increase that proportion of revenue coming out of the U.S. pending some acquisitions. So if you were to venture to say, where would you be in 5 years or perhaps 3 years in terms of exposure?

I think logically, the U.S., there's a lot more opportunity for us. We're growing in the U.S. We're strong in the U.S. South right now. We've got some in the Midwest. We're starting on the East and East Coast, but there's just a lot more geographic opportunity in the U.S. We're pretty much #1 or #2 in every market across Canada. So growth there is more targeted. That being said, we'll remain opportunistic.

So if there are opportunities either in Canada or in the U.S., would remain opportunistic. More specific to your question, over the next 5 years, we'll probably move more towards the U.S. in growth just because there's so much more opportunity there. So it's a 60-40 mix. Could it go 70-30? We'll just play it opportunistically and see. But I think directionally, the U.S. will continue to grow at a little bit faster clip.

Okay. And one of the -- sorry, I'm going to throw in one more. One of the frustrations by a lot of our management teams is that multiples in private sector haven't really, really come down. There's still a lot of private equity competition. Are you feeling the same kind of environment? Are you still seeing some pretty hefty prices there? Or is it reasonable?

Are you talking for M&A deals, Fred?

Yes.

There's surprisingly not that much private equity competition in the world that we operate in. I mean it does pop up every now and again. But it is a group of -- the competitors that we find on M&A deals are tactically strategics. And I think when we have been successful on M&A, it's because of the unique things that we can bring to the table, and it's not necessarily just paying more. And in fact, a number of cases, we haven't paid more the way we've approached it is to be very targeted in our approaches. And private equity hasn't really been our competition.

The next question comes from Michael Tupholme of TD Cowen.

Just to pick up on that last line of questioning. Just with respect to M&A, obviously, you've recently closed in the last several years, several larger transactions, a little more involved in terms of some of the work that needs to be done. Obviously, lots of work to do still on Kloeckner. But regardless, just wondering if you can comment on other potential M&A opportunities. Is this something you're focused on? What are you seeing in the market right now opportunity-wise?

So yes, Mike, we're seeing opportunities that are out there right now. The pipeline is still steady, I would say. I think a lot of private investors are looking at this turn in the market and saying how long is the run? What are they looking at the separation in the 2 economies, be it Canada and the U.S. right now, people may be looking at things a little differently. So we are seeing some activity.

We'll continue to look at opportunities that fit with us. But again, we're -- as you know, from our past history, we are very selective and work very diligently to make sure it fits culturally with our company and also fits into our financial metrics model.

And if I could make one adjacent comment to that. When we look back at, as John was alluding to our acquisition history, there's been times where we've been active and there's times where we haven't completed any deals. And it's not for lack of looking. It's a lack -- it's been remaining disciplined. And if we look back at was it 2022, 2023? We didn't close a single acquisition in those 2 years.

And a primary component was not for lack of opportunity or for lack of looking, it was lack of stuff that met our criteria. Markets were really good and valuations were exceptionally high. And so there's times where you stay on the sidelines and there's times that you're active, and it really is a function of being adaptable to whatever the market conditions are.

So if valuation expectations move up in conjunction with the market environment we're in right now, we're probably more likely to be on the sidelines than the periods of time where we've been aggressive where valuations make a lot of sense.

Okay. With respect to CapEx, you had previously talked about $100 million was the expectation for the year. The level you're at in Q1 is a little bit lower than sort of the -- what that would imply on a full year basis run rate level. Just wondering how we think about CapEx is it going to ramp from here? And if you can provide a little bit more detail on some of the projects that you're pursuing this year, that would be helpful as well.

Yes. Mike, maybe, John, you can talk about the projects. But when I think about the $100 million, Mike, that's a multiyear average. And we don't really have it so hardwired of this is what it's going to be in this quarter or this year, even though technically, there is a piece of paper somewhere that says that because it's always ebbing and flowing and a 12-month period of time is a little bit of an artificial frame of reference for us, at least to measure that. Think of that $100 million as a multiyear average. John?

Just to be a little more granular, Mike, we probably got right now roughly $40 million for the projects that are approved. We probably got -- that plus some that are coming forward for approval that we're already aware of and starting to see information on. It really comes back to lead time on equipment, depending on what the project is, does it require building. So some of those lead times can be 6 months, 9 months, 12 months, 24 months. And so you can get some of this gets lumpy from time to time based on those lead times. But again, we still have a healthy pipeline right now of projects coming forward.

Okay. That's helpful. And is -- is a lot of that value added? Or how does that sort of break down across different types of initiatives?

I would say that it's probably 30%, 40% value add. Some of it is modernization that's going to allow us to operate more efficiently that we're looking at out there right now and then some of that may be expansion that we're again expanding and growing the market.

Okay. Perfect. And then just last one. In terms of energy field stores, obviously saw some year-over-year growth in revenues in the first quarter. I think the outlook commentary is consistent with the way you've been describing that segment in terms of expecting solid activity to underpin the segment in the business.

Just wondering if you can elaborate a little bit on how we should think about that business. The segment was down year-over-year in revenues last year. Again, you started the year up here. I think the comp is a bit easier in the third quarter. So any assistance in just terms of how to think about that business? And obviously, we've got strong energy prices right now as well. So any commentary on that would be helpful.

You're exactly right. We've got strong energy prices. Obviously, energy prices move up and down. Some of that's driven by what's going on with the U.S. war right now. But when we look at the energy field stores, there's a lot of projects going on in Canada. It looks like they're moving forward now in Canada, especially in Northern BC, Northern Alberta. So we're seeing more project-based business than we've seen in several years. So we think that's coming to fruition.

We're starting to see things that we do on the front end of those projects now turn into orders. So we're very optimistic about what's going to happen on the energy side for the energy field stores in Canada over the next year or 2. Also on the U.S. side, we're seeing, again, high oil prices leading to high profits. That means repair and maintenance. There's nothing being held back there that they'll be running full bore on that side. We'll see project business pick up as well. The Permian is very busy, and we're obviously very strong in the Permian Basin. So we think it's a good year in the energy side with a lot of potential upside barring a dramatic change in the oil price.

The next question comes from Aryan Arora with BMO Capital Markets.

This is Aryan on for Devin. Are you able to provide any commentary on the disconnect between U.S. and Canadian steel prices and if it varies more by product or category?

Yes. So historically, Aryan, it's been a U.S. price currency adjusted. With the tariffs that are out there, it's disconnected. Obviously, currently, you're seeing Canada currency adjusted on a lower price for the Canadian steel producers, there's more steel being supplied in Canada than it is being used right now.

So that's keeping the price pressure on with the tariffs being there, with the derivative tariffs not being there. So that is putting a lot of pressure on the Canadian steel mills, which has kind of put a top on the Canadian steel prices catching up to the U.S. steel prices, if you will, currency adjusted. However, we are seeing increases now in Canada and things are moving forward. Scrap prices are moving up, and we're starting to see demand pick up in Canada.

So again, I think as long as the tariffs remain where they are today, as long as the derivative tariffs remain in place, the Canadian government will have to continue to react to do things to keep Canada from becoming a dumping ground for the rest of the world. If you're going to move product into North America, obviously, Canada will be a logical choice. And so to help the Canadian steel mills and again, maintain their demand with inside of Canada, I think they're going to need some further assistance.

Understood. Appreciate the color on that. And just touching on the tariffs again. Within the steel distributors segment, has there been a lot of disparity between the performance on the U.S. and Canadian side?

Not really compared to historically. There are opportunities there. There are certain products that are not made. So it ebbs and flows. Obviously, you have some weather conditions with the St. Lawrence Seaway freezing up. So we always have a historic -- the seasonal downturn, if you will, in Canada because we just can't get product in during that time frame.

But overall, both of those have remained remarkably steady throughout the tariff environment, and we're seeing unique opportunities that are different within the U.S. and Canada. And some of that's working with domestic steel mills and some of that's working with imports that can come in that are not made within the countries.

The next question comes from Jonathan Goldman with Scotiabank.

Maybe just circling back to the conversation on tariffs. Do you see the new S232 rules as an incremental positive net-net for your business? And you talked about some of the dynamics in Canada and the U.S., but I imagine you have a benefit now with higher exposure to the U.S. So how do you see that overall holistically for your business?

Yes. So from the U.S. side, again, it's obviously keeping pricing higher. It's helping demand, again, with the derivative product change that's come in recently. So that's helping demand in the U.S. side. We're very, very busy on the U.S. side. So we think it's very positive for us in that regard. On the Canadian side, again, still adjusting to the new world to some degree.

So manufacturing is still adjusting. Can they send across snowmobiles and those things, what does the derivative tariff mean? So I think they're working through that. But I think the Canadian government is implementing a lot of capital right now into the Canadian economy to support manufacturing, to support industrials. And so I think that's going to really help us during this year. But again, it's going to take some time to get that into play. The energy business is booming in Canada right now. It looks like it's in for a nice run.

A big user of steel there, mining, big user of steel. Obviously, data centers benefit us on both sides, and that's a very steady component for us, both in Canada and the U.S. So the tariffs have definitely had an impact in Canada, a very positive impact in U.S. a negative impact in Canada, but I think Canada is slowly adjusting to that.

Okay. That's good color. And maybe thinking about some of the end markets a little more granular. Can you remind us how you play in data centers and your exposure there and nation building, a couple of these positive thematics that keep coming up. I just want to know how Russel is involved in those themes.

Yes. So from data centers, we'll be involved, obviously, with structural steel, the facility itself, the racking that goes into them, a lot of conduit galvanized pipe that uses hangers. So we'll be involved in those projects extensively in both Canada and the U.S. The nation building projects as well, depending on what you're looking into, whether again, we're doing the Navy vessels right now with ship on the East Coast.

We're participating in that project in a big way. When you look at things out there for the oil and gas or for the mining sector, again, we're participating in all those sectors. Whether it's in the service centers or in the energy field stores. So in Alberta, again, we're doing rig mats, we're doing tanks. We're doing those type of things that are out there for the service centers. Obviously, ballast, fittings, flanges, those type of things for the energy field stores.

Okay. That's good color. And then maybe one for you, Marty. I guess the focus this year might be on the integration of Kloeckner. But with the capital allocation priorities you laid out, does it change the pace at which you deploy capital if bandwidth is taken up for the integration?

The short answer is no. We don't put an artificial time line on we have to do this in this quarter and we have to do this in this year when it comes to capital allocation. We've built an inherent flexibility and a multiyear orientation around how we deploy capital. And so your point is well taken, which is our focus is very much on the integration right now.

We do have a lot of flexibility, but it's not going to change our predisposition to accelerating things for the sake of it. And it's always -- M&A is probably a really good context for that and sort of what John was saying and what I was saying earlier. We don't really create artificial targets to say this is what we want to buy this year, period, full stop, no matter what. And I'd say that's true with all of our capital allocation decisions.

We try to be flexible. We try and be adaptable and we try and be opportunistic. And there are some periods where more things come to the table as those opportunities, and there are some times where it's less. But we try not to put an artificial time line on it. We're looking at the benefits that may accrue over multiyears. So long answer is no. The short answer is no to changing our orientation.

We have no further questions. I'll turn the call back over to Martin Juravsky for closing remarks.

Great. And thank you, operator. Thanks, everyone, very much for joining our call. If you have any follow-up questions, please feel free to reach out. Otherwise, we look forward to staying in touch during the balance of the quarter. Take care, 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.

Good morning, ladies and gentlemen, and welcome to our 2025 year-end and fourth quarter results for Russel Metals. Today's call will be hosted by Mr. Martin Juravsky, Executive Vice President and Chief Financial Officer; and Mr. John Reid, President and Chief Executive Officer of Russel Metals Inc. [Operator Instructions] I will now turn the meeting over to Mr. Martin Juravsky. Please go ahead, Mr. Juravsky. Thank you.

Great. Thank you, operator. Good morning, everyone. I plan on providing an overview of the full year and Q4 2025 results. And if you want to follow along, I'll be using the PowerPoint slides that are on our website and just go to the Investor Relations section, and it's located in the conference call submenu. If you go to Page 3, you can read our cautionary statement on forward-looking information. So before I go into detail on the fourth quarter, I want to provide a little context.

I view Q4 and even full year 2025 as continuations of a broader game plan that has been unfolding over several years. And if you go to Page 5, you'll get a bit of a snapshot of the significant changes over the last several years, including 2025. On the left graph, you see that we generated about $2.2 billion of cash flow since 2020. This has been asset sales such as the OCTG line pipe monetizations back in '21 and '23 and then the cash flow from operations. The right graph shows how we've deployed that $2.2 billion of capital. In the orange section, it shows about $1 billion of reinvestments through both internal investment initiatives as well as acquisitions. And this capital has really materially reshaped the portfolio.

For example, we closed 3 acquisitions over the past 16 months being Samuel, Tampa Bay and most recently, the Kloeckner operations. For the Samuel and Tampa Bay acquisitions in 2024, we've started to see the contributions from those acquisitions. When we acquired the Samuel branches in October -- and excuse me, in August of 2024, we had a plan to reduce the footprint, gain efficiencies and also repatriate redundant capital.

When the sale of the Delta property in BC is completed in the coming couple of months, we'll have reduced the initial capital by almost 50% and the implied purchase price multiple will be close to 4x average EBITDA. Going forward, we are now positioning the Western Canadian business for new investments, and we see some interesting new opportunities that are expected to unfold in 2026 and 2027.

When we acquired Tampa Bay Steel in December of 2024, it was a very, very good stand-alone business with strong value-added and nonferrous components in its product mix. Equally important, it provided us with a literal and figurative beachhead to further grow into the Florida market. And if we jump forward from that acquisition to 2025, Tampa Bay was a really nice and steady contributor to our results. And it also allowed us to look at Kloeckner Metals, where we picked up 7 new branches in the U.S. in total, including 2 in Florida that complement the Tampa Bay presence in that market. And I'll talk more about Kloeckner acquisition in a minute, but the geography is exceptionally good fit for us. In the blue bar, it shows we returned about $900 million to shareholders by both dividends and NCIB.

In the past, the approach was skewed to dividends only. But since 2022, we have taken a more balanced and flexible approach by also using the NCIB. And lastly, in the green, we reduced our leverage by over $300 million since 2020 at the same time that we grew and derisked our business. The result is that our credit profile has changed significantly, and we are now rated investment grade by both S&P and DBRS. On Page 6, the summary shows how the previously mentioned portfolio changes and initiatives have enhanced our EBITDA generation profile. We've talked a lot in the past about changing our profile to raise the cycle floor, raise the cycle ceiling and a result, raise the cycle average. In addition, we focused on reducing the volatility through the cycle where possible. This chart shows each of those elements.

One, just by way of background of the way the chart is set up, the continuity takes out the quarter-to-quarter noise as it's sometimes hard to see trends when looking at individual quarters due to seasonal factors. All the data on this chart shows trailing 12-month periods at the various points in time. And I want to show 2 periods of time being both pre-COVID and post-COVID. The pre-COVID period is the 3 years between 2017 and 2019, then excluded the COVID period of 2020 to '22. Those years were so unusual and not really all that meaningful in looking for medium-term trends. and the right chart reflects the most recent 3-year period being 2023 to 2025.

Takeaways are really threefold: One, the pre-COVID period shows an average EBITDA of $270 million versus the post-COVID chart. The average EBITDA is $354 million for a 30% increase. Also, the chart on the right doesn't fully reflect the impact of the acquisitions that were completed in 2024 and 2025. The point being that our average cycle EBITDA is now substantially higher than the past. If we look at the circled areas, it shows the peak to trough range in the last cycle had a variance of $167 million in the 2017 to 2019 period versus a much lower variance of $127 million on the right chart for the most recent 3-year period. The point being that we have raised the cycle average EBITDA and also reduced the cycle volatility.

Lastly, if we look at the chart on the right, it shows the arrow being the sequential improvement in trend over -- of the trailing 12-month period over the last 4 quarters, including the most recent quarter. If we go to Page 7, there's a snapshot of our 2025 results. For 2025, revenues are up 9%, gross margins are up 90 basis points. EBITDA dollars are up 13%. This improvement is a function of the 2024 acquisitions making contributions as well as the impact from some of the recent CapEx initiatives and generally improved market conditions on average in 2025 versus 2024.

On the middle row of the diagram, our 2025 CapEx was $74 million. This number is below our expected multiyear run rate as some projects were completed, and we are still scoping out some potential new opportunities that should be initiated this year, particularly related to some interesting initiatives in Western Canada as well as opportunities that will emerge from the Kloeckner locations. Capital deployed is now about $1.8 billion, and it grew from $1.3 billion at the end of 2023 and $1.6 billion at the end of 2024. At the same time that we are deploying incremental capital in targeted areas, we are also repatriating capital where the returns are not adequate.

As I mentioned earlier, in September, we announced the closure of a branch in Delta BC and the sale of the related real estate. This will release over $40 million of capital that was not generating an appropriate return and was part of the broader initiatives in Western Canada that emerged as part of the Samuel's acquisition. When that real estate sale closes in the coming couple of months, we'll have reduced over $100 million of capital in Western Canada and thereby reduce the cost of the Samuel acquisition substantially from the original $225 million purchase price.

We generated strong return on invested capital. Our return was 15% in 2025 and averaged 18% per year on average over the past 3 years. These levels compare well against our industry peers and against our stated target of 15% or more over the cycle. We grew in strategic ways. Our U.S. platform represented 44% of 2025 revenues compared to 30% in 2019. Once we take into account the Kloeckner acquisition, our U.S. platform will be over 50% of total revenues. Also, we'll have about 11% -- at about 11% of our revenues as specialty metals such as stainless and aluminum in 2025 versus much lower thresholds in previous years.

On the last row of the diagram, returning capital to shareholders. We have balanced approach. In 2025, we returned $86 million via share buybacks, $96 million via dividends for a total of about $182 million of capital returned to shareholders. And in spite of all the reinvestments that we've done, the acquisitions, returning capital to shareholders, we still have maintained a very strong capital structure as it's critical in a cyclical industry. As a result, we've got really strong liquidity, flexible bank covenants, no financial covenants in our term debt and our maturities are extended to 2029 for bank debt and 2030 for our term debt.

We go to market conditions on Page 8. On top chart, we saw sheet and plate prices exhibit increases in many categories over the past couple of months. Current hot-rolled coil and plate prices are up around $70 or $80 per ton since late November as demand is solid early in the new year and supply chain inventories are reasonable. On the bottom chart, we've shown aluminum and stainless prices as those are now bigger percentages of our product mix. As shown on the chart, those products don't exhibit as much volatility as carbon as they have different supply and demand dynamics and aluminum, in particular, has been an upward trend over the past 6 months. On the right charts, supply chain inventories in both Canada and the U.S. as measured by months on hand in the yellow lines remains reasonable and within the normal range.

On Page 9, a snapshot of our historical results, starting on the top left on the various charts. Revenues were consistent at around $1.1 billion for each of the past several quarters. And if we look on an annual basis, which are the green bars, we had a nice uplift of revenues in 2025 versus 2024 with the contributions from the recent acquisitions. EBITDA of $69 million was down from Q3 2025 due to the typical seasonal decline in volumes, but was higher than Q4 of 2024. EBITDA margins of 6.3% for the quarter and 7.3% for the full year 2025 were up over the comparable periods of 2024.

Earnings per share was $0.55 in Q4 just a little over $3 for full year 2025, which were both up versus the comparable periods of 2024. I mentioned earlier, our return on invested capital, 15% for the year, and our 3-year average was 18%. Both of these are industry-leading figures. And as mentioned earlier, on our capital structure, we're in really, really good shape.

Going to more detailed financial results on Page 10, income statement perspective. I covered some of these items already, so I'm not going to go into too much detail. Revenues were up 6% from Q3 -- excuse me, down 6% from Q3, but up 5% from Q4 of last year. And I'll talk more about volumes later, but it was a reasonably good shipping quarter in spite of the typical seasonal dynamic. Our margins were flat in Q4 versus Q3, and that was frankly better than I expected. the pickup in margins late in fourth quarter helped the Q4 average and it sets the stage for a small pickup on a same-store basis in margins in Q1 2026 versus Q4 of 2025.

There was a little bit of clutter in noise in the quarter, which are included in the results. Some were positive and some were negative. The mark-to-market on our stock-based comp was a $3 million expense in Q4 versus a $2 million recovery in Q3. There was $2 million of operating losses at a couple of our locations in Western Canada that are in transition with some major pieces of equipment moving around, and those can be and were disruptive to the operations.

The good news is those are now largely complete. There's about $1 million of costs related to the Kloeckner transaction. And a couple of items that were positive one-off items. There was a $2 million recovery of the tariff that was charged by the Canadian government for our inventory in transit that was expensed in Q3, and we recovered that back in Q4. And we actually had a small about $1 million gain on the sale of various pieces of equipment. From a cash flow perspective, in Q4, we generated $53 million in cash and working capital, which typically does happen in Q4 due to the seasonal nature.

This is likely to go the other way in Q1 as we'll have a seasonal pickup in activity, we'll experience some higher prices that impact working capital, and we'll make our annual payments of variable compensation in Q1. The Kloeckner acquisition closed and the estimated purchase price is now USD 95 million or CAD 130 million, and this is down from the previous announced level due to refinement of the closing working capital amount.

That being said, I suspect that the level of capital required to operate the former Kloeckner branches under our watch will go up somewhat from the capital deployed at the December 31 closing date. That being said, to put the $95 million purchase price into context, you'll see from our financial statement disclosure that the Kloeckner branches generated around USD 550 million of revenues in 2025 and around USD 30 million of adjusted EBITDA in 2025. So I suspect this transaction will turn into a very economically attractive situation. Share buybacks were $25 million in Q4 and the cumulative share buybacks since August of 2022 or 14% of our shares outstanding for $326 million or a little under $38 per share.

Our quarterly dividend of $0.43 per share was paid in December, and we have just declared a $0.43 per share dividend that will be payable in March. Our CapEx, I'll talk more about this later, $14 million was down a bit, but we still have a meaningful pipeline of projects, and we should average closer to $100 million per year for a few years. Balance sheet perspective, I mentioned this a few times already. We remain in a strong position, only $184 million of net debt.

Lastly, our book value per share remains around $29 per share. Some of the recent decline in book value was due to the strength in the Canadian dollar, both in the Q4 as well as full year 2025, which had a negative impact on the FX translation in our OCI account.

On Page 11, there's an EBITDA variance analysis between Q3 and Q4. Starting on the left and looking at service centers. The service centers as a whole was flat quarter-over-quarter. There are some positives and some negatives. Volumes had a negative impact, but that was again the seasonal factor. The margin impact was a slight positive with most of the pickup in margin occurring at the end of Q4, so it didn't really have much of an impact in Q4. We also did have a favorable variance in service center costs, operating costs as Q3 had more nonrecurring items in them, including the $4 million cost that we recorded to wind down the Delta branch.

And as I mentioned earlier, this branch wind down is mostly complete and the sale of the real estate should occur in the coming months, and we expect to recognize a meaningful gain on the sale at that time. Energy field stores down $4 million versus Q3 due to seasonality. Steel distributors had a really solid quarter and it was up $1 million from Q3. But that being said, it did benefit from the $2 million tariff recovery that I mentioned earlier.

In the other bucket, there was a reduction in corporate expenses that was a positive variance, but it was more than offset by the negative variances from the mark-to-market on stock-based comp and the seasonal dynamic where our Thunder Bay terminal operation turns down somewhat in Q4 and then also into Q1.

On Page 12, segmented P&L information. Service centers, I'll go through this in more detail on the next page, but it was a flat quarter versus Q3, which is pretty good for what is typically a down quarter in Q4 versus Q3. Energy field stores revenues and margins were both down from Q3, but they were within our typical range. Distributors revenues were down, but gross margin was up and EBIT was up.

Page 13, deeper dive on the metrics for the Service Center business. Top right graph is tons shipped. Q4 was down a bit from Q3 due to seasonality, but up over Q4 of last year and expect Q1 to exhibit a typical seasonal pickup, notwithstanding some weather-related factors that have impacted pretty much all of our operating regions, both Canada and the U.S. over the past number of weeks. On the bottom left and right graphs, we have revenue, cost of goods sold and margins per ton.

Our price realizations, cost of goods sold, gross margin per ton were pretty much flat in Q4 versus Q3, but there was a slight pickup at the end of fourth quarter that resulted in the end of year gross margins being higher than the Q4 average, which should lead to higher Q4, Q1 versus Q4 margins as measured on a same-store basis.

Page 14, inventory turns. Overall, our inventory turns declined from 3.8 in Q3 to 3.5 in Q4. That is pretty consistent, though, with the normal seasonal factors that occur in Q4. On Page 15, the impact of inventory turns on inventory dollars. Total inventory was up $111 million, but most of the increase, around $96 million related to the Kloeckner inventory that came with the acquisition that closed on December 31.

If you go to Page 16, capital structure. I may sound a little bit like a broker record, but our liquidity is strong, and it gives us a lot of flexibility. As I said earlier, we recently obtained a credit rating upgrade from S&P, and so we are now investment grade by both S&P and DBRS. Since last quarter, our net debt was reduced by $41 million prior to the Kloeckner closing on December 31, and our liquidity increased from $600 million to $653 million. The far right column on the table shows the impact of the Kloeckner acquisition that did close on the last day of the year as we ended the year with net debt to invested capital of 10% after that transaction closed and over $500 million of liquidity.

Page 17, a bit of an update on our capital allocation priorities, which really haven't changed all that much over the last little while. They remain pretty consistent. Starting point for investment opportunities, we do see average returns over the cycle greater than 15%. We continue to focus on all the various initiatives. And when we look at facility modernizations and value-added equipment in particular, our multiyear CapEx pipeline is approximately $200 million at this point. In terms of acquisitions, we are always looking at M&A opportunities and the types of acquisitions that are being considered are similar in nature and scope to what we've done over the last few years.

But that being said, our very near-term focus is on integrating the Kloeckner acquisition that only closed a few weeks ago. For returning capital to shareholders, as I said before, our approach is to be flexible. Over the last 2 years, we've returned an average of a little over $100 million to shareholders via the NCIB, while our average annual run rate for our dividend is currently a little under $100 million per year.

Page 18, a little bit of a context to our reinvestment program, and I've mentioned this a couple of times already. If we look at 2025, it was a little bit of a down year from what our expectation was as we invested $74 million in CapEx, which was down from $90 million in 2024. I expect the 2026 CapEx to be closer to that $100 million mark as our multiyear pipeline, as I said earlier, is about $200 million, and that includes a number of opportunities that we'll pursue at the former Kloeckner branches.

Page 19 is a deeper dive on returning capital to shareholders. Top left graph is dividends, and we show our longer-term dividend profile with the most recent dividend declaration of $0.43 per share that will be payable in March. We'll continue to regularly revisit the appropriate dividend level, taking into account capital structure, earnings profile and the like as was done when we listed the dividend in May of 2023, May of 2024 and most recently in May of 2025.

Bottom left graph, we show our NCIB activity since we put it in place in August of 2022. It is not a fixed approach to the program. It is opportunistic way buy back shares, and we have been more aggressive at certain price points than others. In Q4, we acquired around 600,000 shares at an average price of around $40. On the bottom right graph, the impact of the NCIB has been a gradual reduction in our share count and result in a 14% reduction in our shares outstanding since we initiated it.

On the top right graph, the aggregation of dividends and NCIB over the past few years shows a fairly balanced approach, but it isn't fixed and it isn't the same in any particular quarter. That being said, and in closing, folks, on behalf of John and other members of the management team, I really want to express our appreciation and thanks to everyone on the Russel team for their contributions. A lot was accomplished in 2025 with much more opportunity ahead. And as an example, I've talked about before, we are in the early days of operating the former Kloeckner branches, but we see significant opportunities that will be pursued over time, and we really appreciate everybody's efforts and contribution to realizing on those opportunities. So operator, that concludes my introductory remarks. Can you please open the line for any questions?

[Operator Instructions] The first question comes from James McGarragle at RBC Capital Markets.

I just wanted to ask a question on the return on invested capital. So returns have been really solid in the context of a very weak backdrop, but kind of trended down the past couple of years. So any confidence here that 2025 was a trough and that 2026 should start to show improvement in that metric?

Yes. Well, I guess as a starting point, James, if we kind of compare to the return on invested capital that we realized in '21 and '22 and '23, frankly, that was buoyed not just for us, but for everybody in the industry by some really unusual market activities. So when we look at 2024 and 2025, where we generate around a 15% return in both of those years, both of those years were extremely volatile and involved a lot of challenges, a lot of navigation.

So we're actually quite proud of those levels of returns in what were frankly difficult markets. And that's just not looking at it relative to our internal expectations is also relevant in comparison to what we look at when we compare ourselves to other public companies. So it's hard to say what's a peak, what's a trough because we actually look -- our frame of reference is trying to look through the cycle on average because sometimes we get impacted by market conditions that we have no influence over and the test is how we navigate through them. And we navigated through 2024 and 2025 exceptionally well and to have generated 15% returns in each of those years. That's a pretty high level compared to some of our public competitors.

Yes. I appreciate the color there. And can you just give us an update on how you're thinking about volumes? I mean PMIs came in really strong in January. There was some indication that might have been potentially front running of some tariffs. But can you just kind of give us an update on what your customers are saying? And if that PMI reading is kind of consistent with some of the conversations that you're having with your customers early in the year so far?

Yes. Thanks, James. The PMI rating is very consistent with what we're hearing in both Canada and the U.S. from our customers. So we're seeing an uptick. I think another reference point you can use is mill capacity utilization rates are now creeping towards 80%, which anything above 80% really gives pricing control. And so you can see the mill pricing is moving up, mill lead times are moving out, which would indicate demand is also moving strong, which would correlate with the index that you're referring to for the purchasing managers. So we're pretty bullish on what we're seeing in Q1 that's out there right now with a lot of optimism around basically all of our end markets with the exception primarily of ag is still languishing.

But everything else is running extremely well. Equipment manufacturing is good. Obviously, you've seen robust things for data centers that are out there, solar, wind. We're participating in all of those. You're seeing some [indiscernible] from the government that are coming in where projects are -- there's a lot been announced. You're seeing some projects move forward. So that's adding to the robustness that's out there. Energy has a lot of positive things going on with it. So overall, we're pretty optimistic going into Q1.

The next question comes from Michael Tupholme at TD Cowen.

Maybe just to pick up on the last line of questioning there. Is it possible to elaborate a little further in terms of any differences from a demand perspective in Canada versus the U.S.? It certainly sounds strong in general, but just geographically, wondering if you're seeing any differences.

It's definitely a little stronger in the U.S. right now. And so we've seen the U.S. kind of lead that and is moving forward quicker. As we see the tariff dynamics continue to unfold, it's obviously impacted some of the end use in Canada. But overall, we're seeing upticks on both sides. On a percentage basis, the U.S. is probably up a little bit more. But again, we're growing in both markets. So again, we feel good in both areas right now.

That's helpful. And then just in terms of some of the comments you made, Marty, earlier in the call about expectations for sequential improvement in service centers margins as we move into the first quarter on the back of the higher pricing you've seen. Can you provide any further detail around sort of order of magnitude, like, I guess, margins -- gross margins in service centers were relatively consistent Q3, Q4. You talked about some of the sort of the dynamics as you move through the various quarters there. But I guess, just any help in terms of sort of to what extent we should expect to see an improvement in Q1?

So it's a good question, Mike, and let me break it down into 2 pieces, one on same-store and one overall. So if you look on a same-store basis, where we saw a little bit of an uptick was in December versus the Q4 average. And it really was a continuation of margins were basically flatlined through probably the previous -- before December, probably the previous 3, 4, 5 months. And so December was a little bit of a pickup.

So that's why December was a little bit higher than the Q4 average. It wasn't a step function change. I'd measure it by probably 25 or 50 basis points higher in December than it would have been in the previous couple of months. And so that kind of looks on a same-store basis. The qualifier in all that, though, is when we look at our overall results, though because on December 31 is where we picked up the Kloeckner branches. And so the Kloeckner branches will be included in our Q1 results, whereas they weren't included in our Q4 and the Kloeckner branches, as we've talked about before, different product mix, different earnings profile.

The economics of that transaction look pretty good, but the margin profile is below the margin profile of the rest of our business. So what we'll probably do in Q1, Mike, is have some sort of disclosure that distinguishes between same-store data and overall data because there will be some margin dilution because of the meaningful contribution from those Kloeckner operations. And that is separate apart from my earlier comments about on an apples-to-apples basis, there was a margin pickup at the end of Q4.

Okay. That's helpful. We'll look forward to that disclosure. So overall, when you layer in Kloeckner, we should actually expect down in Q1 on an overall blended basis.

If you look at service centers, on a margin basis, percentages, it will be flattish. Same-store will be up overall, should be flattish on a percentage basis or dollar per ton basis. But when you look at bottom line contribution in dollars, it is accretive right away.

Perfect. No, for sure. And I mean, obviously, the visibility is not quite sort of as good. But if we look out to Q2, is that a similar sort of dynamic? Or can things change -- begin to change kind of quickly with Kloeckner? Or is it going to take some time such that sort of what you've described in -- as being the dynamic in Q1, is that sort of the right way to also think about sort of the next few quarters as we look out a little further?

Sorry, are you talking specifically about Kloeckner or the broader market, Mike?

No. Well, service center margins overall for the company, inclusive of Kloeckner as we kind of move past Q1. Like I understand it depends what happens with steel prices. But so far, everything looks pretty solid on the steel pricing front, and there is the lag effect. So beginning to maybe get some visibility into Q2. Just wondering if this sort of Kloeckner dynamic, does that act as a bit of a drag for a little while such that as we look to Q2, we should be kind of thinking sort of flattish as well?

Yes. So talking about the Kloeckner piece of it first, that's not a 30-day turnaround situation. There are going to be initiatives that will unfold over years, not months. And when I talked about CapEx, for example, there are some opportunities that are coming to the table related to CapEx, some of which is catch-up, some of which is incremental new opportunities, but those don't happen quickly. Those are being scoped out.

Those will take some time. They will come to the table over the course of 2026 and probably even in 2027. So some of the improvement in margin profile that we're expecting to come out of the former Kloeckner branches, that will unfold over a couple of year period. So it wouldn't -- I wouldn't suspect that you're going to see any meaningful noticeable difference for the initiatives that we're putting in place in Q2 versus Q1.

That's going to take a little bit longer time to unfold. In terms of broader market conditions, though, Mike, almost by definition, our visibility is somewhat limited just because that is how we structure our operations being highly flexible, highly adaptable. We don't have the contract business. So we can adapt to whatever the market conditions are.

So John's comments, we're quite optimistic, but we don't have a backlog or a formalized pipeline that lets us see what Q2 and Q3 and Q4 are going to be because so much of what we do is just adapting to market conditions, whether they're good, bad or otherwise. Right now, we're quite optimistic of what the rest of the year is going to look like, but we'll play it out as it plays out. And if it's good, that we will be very well positioned to do that. If there's some twists and turns like we saw in the last couple of years, we'll adapt to that as well.

That's helpful. And then maybe just one final one, picking up on some of the comments that you made about CapEx. Can you help us understand this $100 million or so that you'd expect to deploy in the next -- each of the next couple of years. Presumably, maintenance CapEx has gone up a little bit as a result of some of the acquisitions. So is it possible to kind of talk about how much of that $100 million is maintenance and then of the balance, I mean, I think I have a pretty good idea, but can you talk a little bit about where you plan on devoting or directing that capital in terms of specific opportunities?

Yes. If I look at what the maintenance piece is, your premise is right on, which is the maintenance piece of it does go up, in particular, where using the Kloeckner transaction example, there is some catch-up associated with those operations for sure. And so the bar keeps going up. But the most meaningful part of the $100 million is discretionary that will have some degree of a return attached to it.

Okay. And it's facility modernization, value add is continue to be the focus and I guess, any further detail there?

Some of the individual projects are still being scoped out. So it will be more of the same of the types of things you've seen in the past, different kinds of modernizations across different facilities, where we'll be debottlenecking, expanding the footprint, enhancing the product flow that will exist in some of those operations. In a couple of cases, we're looking at rationalizing 2 locations into one, enhancing the flow a little bit better, putting everything under one roof. So it fits into the same category, the type of modernizations that we've done in the past. And then the type of equipment projects, more of the same, Mike.

The next question comes from Ian Gillies of Stifel.

Russel has obviously been quite busy doing bolt-on M&A over the last 5 years, if not longer. Some of your peers have been executing what I would call larger transactions in the last 6 months. And as you look across the competitive landscape, I'm curious if you feel a desire or need to start moving your acquisitions into a larger snack bracket just in an effort to keep up from a size perspective or whether the market is still so fragmented that you're not very worried at this point in time?

My apologies for gravitating on a couple of your words, but it sort of does set the frame of reference for us. We don't find a need to do anything. It's purely where the opportunities are. And when we have looked at some transactions that other competitors have done, whether big, small or otherwise, it's not like we didn't know about them or see them or have opportunities on them. We've come to our own conclusions.

And our own conclusions were not to pursue things that we don't think makes sense. So other people will have their own strategies and their own initiatives, and that's all fine and good. our strategy, I think, has been successful. And it's not a case of we look at stuff that is of a certain size or scope.

That's just what has made sense over the course of the past period of time. And we think some of the chunkier things that have been out there have inherent challenges associated with them. And we're quite comfortable with the approach that we've taken. And in some ways, when you talk about the chunkier or the scalable things, Ian, if we look at the aggregation of what we've done over time, there's a bunch of singles and doubles. And when you put them all together, we've deployed about $1 billion of capital through acquisitions and through internal investments.

And that's a meaningful amount. It just happened to come through a series of transactions over the course of time. And that's what the next number of years looks like. that will be more of the same. If there's something chunkier that comes available that meets our criteria, that's fine, too. If it doesn't meet our criteria, we don't need to do it.

And Ian, just to add on to that, I think our balance sheet flexibility puts us in a position to take advantage of any opportunity that we see that fits within our metrics and it's disciplined. It also puts us in a position not to have to do anything. And sometimes our nose are just as good as our guesses. And so we'll remain very disciplined. Again, we think there will be a lot of opportunities out there. We'll see what fits. But again, it puts us in a very nice position to have a lot of flexibility going forward to continue to push the company, as Marty said, the singles and doubles approach for a lot of loans.

No, that's very helpful context. John, there was a lot of last week, if I could call it that, around Fast Markets rolling out a Canadian HRC price. I know it's not necessarily really core to what you do, but it is an input into the value-added products that you sell in some instances. And so are you willing to comment at all on the price point they laid out? Because it feels a little high relative to what's been talked about in market for where the Canadian steel price is.

Yes. I think they came out. They pulled the market. Obviously, they're taking more of a median or an average. So I think it's within the realm of reasonableness and maybe a little bit on the high side. I think the challenge for them has been the historical pricing, and we've talked about this before on calls, historically, U.S.-based currency adjusted within a few percentage points.

When that disconnected, it became a little bit of a free fall. That gap has now narrowed and continues to narrow. So I think there's just a little bit of ambiguity, and I actually feel for them as they try to put that together because things are starting to tighten back up between that spread of Canada and the U.S. So I think it is moving directionally correct. I think they may just came out just a little bit over market day 1, but I think the market is moving in that direction.

Yes. No, that's very helpful. Marty, I've tried this before, and I'll try again, but there's obviously -- you've been opportunistic in and around the buyback. In the event you choose not to be opportunistic on the buyback given the move in the share price, are there other ways you may want to use those funds, i.e., like perhaps higher dividend increases, maybe you put a bit more towards M&A than you have historically? I'm just trying to kind of risk and think about how you allocate capital here this year.

Well, you've tried again so. I'll try my answer again. How is that?

I like that.

I'll go back to what John said in terms of our capital structure, which is it's set up in a way for a reason. to give us a lot of flexibility. And that flexibility is about making decisions that are not based upon February 12, 2026, and what it might do on February 13, 2026. We're trying to make as many long-term impact decisions as possible. And so we don't really feel that there's a need -- there's not a best before date on our balance sheet. It really gives us a lot of flexibility and optionality to do what we want, when we want.

And we don't feel that we need to be forced into a time-constrained box. And I think, again, if we look over a multiyear period, I have a much higher degree of conviction of what we will do on aggregate over a period of time, just like we have done for the last couple of years. But on a very short-term narrow basis, it's really ebbing and flowing a fair amount, and we're not making decisions purely on a short-term basis. Higher degree of conviction of what our long term will be.

And if you look at the last 5 years, it's probably a good reflection of what the next 5 years is going to be, whether it's NCIB, whether it's dividends, whether it's acquisitions or CapEx. Did I not answer your question again?

I'll just go to the [ drawing board. ]

The next question comes from Sean Jack at Raymond James.

So I know that you mentioned before that M&A has kind of followed an opportunistic trend. But if you had to highlight top strategic priorities with acquisitions, is it adding spokes to hubs? Is it filling white space? Is it new customers? Any color would be appreciated.

So the answer is yes. And it may sound repetitive, but it really is a multipronged approach. And it is all of the above. It's not one or the other. It's a series of things that in aggregate, we think is meaningful and additive. And as I was just mentioning to Ian, the last couple of years, there's been an accumulation of a series of initiatives, both internal and external, how we return capital to shareholders.

And it's going to be more of that. Some of it just doesn't even get on the radar screen, quite frankly. The stuff that some of our folks are doing in the field on a day-to-day basis and going after customers, going after market share, generating returns, generating margin, that doesn't necessarily get a lot of profile, but that's just blocking and tackling that they're dealing with every day, and then there's a few things that pop up here and there that are more meaningful that actually just do become more noticeable in the public context. But it really is an all-of-the-above approach.

The next question comes from Jonathan Goldman of Scotiabank.

I just want to know, is it possible to quantify or even directionally talk about how much your volumes are benefiting from data center work? I mean, John, you talked about kind of pretty decent end markets for a few quarters now. It looks like it's staying that way. The only drag would be ag. Volumes have kind of been flattish on a same-store basis. Is data center work kind of offsetting some of the weakness you're seeing in ag or some other verticals?

It's a good question. It's because we touch so many layers from structural steel fabricators and people making racking for data centers. It's a little hard to put an exact pin on that, but it is impacting us across multiple customer base. The thing that's interesting is you've seen, if you look at the Architectural Billing Index, it's hovering just below that 50%, which would mean expansion. It is a big portion of that, and it's with wind towers as well.

It's driving the energy side of it, whether it's solar, whether it's wind, whether it's nuclear small nuclear, medium or large. So it's driving that power demand as well. So it's hard to quantify exactly. But no, we think it's making a meaningful impact, and we think it will continue to for the next several years.

That's interesting color. I appreciate that. And then I guess another one on the industry kind of the consolidation we've seen lately, another 2 of your big peers have consolidated and it follows on another one that happened, I think, last October. When you guys think about what's happening there, how do you think about that from a competitive dynamic standpoint? And how does it potentially change your approach to M&A?

I got your question there backwards. I guess, it doesn't really change our approach. We look at every opportunity that's out there, what does it do? How does it stand on its own 2 feet? How does it compare to a myriad of things that are out there buying our own stock back? What does it do for our shareholders? What risk does it put our balance sheet at?

Understanding we are in a cyclical industry, and we've taken out some of that volatility by changes we've made in the past by exiting OCTG and line pipe, we don't want to recreate that again. We don't want to get out over our skis on the balance sheet. But we're not -- as Marty mentioned earlier, we spent over $1 billion now in the last 5 years. So we're growing. We're just doing it very systematically. And so we like our approach.

But I will say when looking at some of the other deals, I guess, the growth for the sake of growth is not something we're interested in. And so what is it doing for our shareholders and what is it doing for our company long term? And how does it impact our balance sheet, we are very cognizant of that.

Understood. And I'm sure investors will appreciate the discipline as well. I guess one more maybe for you, Marty. I mean, I guess this has been asked a bunch of different ways. But if we sit here today and you think about the M&A pipeline that you have and the visibility there, how do you think about the relative attractiveness of M&A versus buybacks today?

We'll constantly calibrate them and the opportunities on both of those buckets change every day because our share price changes every day and the M&A opportunities change every day. So it's a constant recalibration. But it is a fair observation, though, which is -- we're not doing M&A for the sake of M&A. And there are some businesses that might be interesting, but not at certain values.

And we have seen M&A opportunities over the last couple of years that come to market, leave the market, come back to market, leave the market. And sometimes they are good businesses that just have wrong valuation expectations. So not to be repetitive with John's comment about not growth for the sake of growth for us. And there are always opportunities that are out there, some of which are just not attractive either from an economic perspective or business perspective or the like.

And if we see opportunities that make sense both in terms of internal deployment external deployment, share buybacks, it's a constant recalibration, which is why if we look back over the last 5 years, in aggregate, we've done a bunch of all of the above. But on a quarterly basis, sometimes we do more of one versus the other. It's a constant shift of where the opportunities are.

We have no further questions. I will turn the call back over to Martin Juravsky for closing comments.

Great. Thank you, operator. I really appreciate everybody for joining our call today. Very good questions, and we're really excited about what unfolded in 2025 and the opportunities that are in front of us. So thank you for indulging with us through the discussion. If you have any questions, please feel free to reach out. Otherwise, we look forward to staying in touch during the balance of the quarter. Take care, 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.

Good morning, ladies and gentlemen, and welcome to the 2025 Third Quarter Results for Russel Metals.

Today's call will be hosted by Mr. Martin Juravsky, Executive Vice President and Chief Financial Officer; and Mr. John Reid, President and Chief Executive Officer of Russel Metals Inc. [Operator Instructions]

I will now turn the meeting over to Mr. Martin Juravsky. Please go ahead, Mr. Juravsky. Thank you.

Great. Thank you, operator. Good morning, everyone.

I'll be providing an overview of the Q3 2025 results. And if you want to follow along, I'll be using the slides that are on our website. Just go to the Investor Relations section, and it's located in the conference call submenu.

If you go to Page 3, you can read our cautionary statement on forward-looking information.

So let me start with a little perspective on the quarter that's outlined on Page 5. If we look at the first 9 months of this year or trailing 12-month periods, we have delivered an improvement in trend line results. I'll talk more about this on another slide. But in summary, for the first 9 months of 2025 as compared to the first 9 months of 2024, we generated a 10% increase in revenues, a 100 basis point pickup in gross margins and a 13% pickup in EBITDA. This is a reflection of the impacts from our recent capital deployment initiatives, including 2 acquisitions last year as well as our ongoing capital investment initiatives.

On the middle row of that diagram, Q3 CapEx was $15 million. This number is a bit below our expected multiyear run rate as some projects have been recently completed, and we are still scoping out some potential new opportunities. In particular, we expect to be moving forward on a series of interesting initiatives in Western Canada related to business improvement opportunities across the former Samuel and Russel operations as well as investment opportunities will emerge from the Kloeckner transaction that we recently announced.

Capital deployment remained a little over $1.7 billion. Our capital grew from $1.3 billion at the end of 2023 to $1.6 billion at the end of 2024 to just over $1.7 billion on September 30. When the Kloeckner deal closes, we will be around $1.9 billion on a pro forma basis. At the same time that we are deploying incremental capital for the Kloeckner acquisition, we are also repatriating some capital in Western Canada.

In September, we announced the closure of a branch in Delta, BC and the sale of the related real estate. This will release over $40 million of capital that was not generating an adequate return and was part of the broader initiatives in Western Canada that emerged as part of the Samuel's acquisition. When that real estate sale closes in the new year, we will have released over $100 million of capital in Western Canada and thereby substantially reduce the cost of the Samuel acquisition from the original $225 million purchase price to something closer to $100 million to $125 million.

Generate strong return on invested capital. Our annualized return on invested capital was 16% for 2025 year-to-date. This level is greater than our stated target of over 15% over the cycle, notwithstanding some challenging market conditions and was greater than our 3 U.S. peers who have already reported their Q3 results. The annualized 2025 year-to-date return on invested capital for the 3 U.S. peers averaged less than half of the 16% that we generated. We grew in strategic ways. Our U.S. platform is 44% of year-to-date revenues compared to 30% in 2019. Once we take into account the Kloeckner acquisition, our U.S. platform will be over 50% of total revenues. We also have 11% of our revenues as specialty metals such as stainless and aluminum.

On the last row a diagram, returning capital to shareholders. We have a balanced approach. In Q3, we returned $14 million via share buybacks and $24 million via dividend for a total of $38 million of capital return to shareholders. Maintaining a strong and flexible capital structure is critical as we operate in a cyclical industry. As a result, our liquidity is strong. We have flexible bank covenants, no financial covenants in our term debt and our maturities are 2029 for the bank debt and 2030 for our term debt. We are also pleased that S&P has recently upgraded our credit rating to BBB-. So we are now rated as investment grade by both S&P and DBRS, and this gives us financial flexibility as well as continued access to low-cost term debt if and when required.

Let's turn to market conditions on Page 6. We saw sheet and plate prices exhibit a strong upward swing in the early part of 2025 because of the tariff dynamic. Prices have since come down and have stabilized over the past couple of months. The ongoing price dynamic will be driven in part by the evolving tariff situation. As a reminder, we are primarily a cost pass-through business with a lot of operational adaptivity to how and where we procure materials. So the key thing from a Russel perspective is to have tariff clarity and consistency for our suppliers and the market. Our shipment levels have remained solid in spite of the volatile price environment. We've experienced a slight seasonal slowdown in Q3 as is normal due to holiday-related schedules in July and August. Going forward, we expect the typical seasonal volume decline will come into play for Q4.

On the bottom chart, we've shown aluminum and stainless prices as those are now a more meaningful part of our product mix. As shown on the chart, those products don't exhibit as much volatility as carbon as they have different supply and demand dynamics. On the right side chart, supply chain inventories in both Canada and the U.S. as measured by months on hand that you can see in the yellow line remains within the normal range.

On Page 7, there's a snapshot of our historical results. And if we look across the various charts, starting with the top left, revenues were consistent around $1.2 billion for each of the past 3 quarters. EBITDA in the middle chart of $75 million was down from Q2 2025, but higher than Q3 of 2024. EBITDA margins at 6.4% for the quarter and 7.6% year-to-date were up over the comparable periods in 2024. Earnings per share was $0.63 per share and $2.45 for year-to-date 2025, which again were both up versus the comparable periods in 2024. I mentioned return on invested capital earlier. Our Q3 return on invested capital was down from Q2, but year-to-date 2025 came in at 16%. And as mentioned earlier, the bottom right chart, capital structure, we're in pretty good shape with net debt to invested capital at only 5%.

On Page 8, going into our financial details a little bit more, top part of the chart from an income statement perspective, I covered several of the high-level items on the previous page, but a few other items to note. Revenues were down 3% from Q2, and I'll talk more about volumes later, but it was generally a pretty good shipping quarter in spite of the seasonal dynamic. Our Q3 results were, however, impacted by a few items. One, there was a $4 million onetime charge for the closure of our Delta, BC facility. On the plus side, we'll have a gain on that sale plus a gain on the sale of our Saskatoon property when they closed in 2026.

Second, there was a $2 million tariff cost that was applied to materials in transit when the Canadian government changed the tariffs, and it was applied to in-transit goods from an overseas supplier. The Canadian government's rules have since changed, and we have filed an appeal for a refund on that tariff. The mark-to-market on stock-based comp was a $2 million recovery in Q3 versus a $3 million expense in Q2. From a cash flow perspective, in Q3, we generated $5 million of cash from working capital. There was a $46 million reduction in inventory, so the cash generated from working capital would have been higher if not for the timing of AR and AP right around quarter end.

Share buybacks, as I mentioned earlier, $14 million for the quarter and the cumulative share buybacks since August 2022 are greater than 13% of our shares outstanding at the time for a little over $300 million or an average of $37.77 per share. Our quarterly dividend of $0.43 per share was paid in September, and we've just declared a $0.43 per share dividend that will be payable in December. Our CapEx of $15 million was down a bit from Q2, but we still have a pipeline of projects, and we should average that $90 million to $100 million per year for the next few years.

From a balance sheet perspective, we remain in a strong position with net debt coming down, and it was only $87 million at the end of September. And lastly, our book value per share remains above $29 per share, and it grew by $1.27 over the past year in spite of the share buybacks.

Page 9, we show our EBITDA variance analysis between Q2 and Q3. First, looking at the service centers on the left part of the page. The volumes were down a small amount compared to Q2, and this was the typical season factor that I already mentioned. The margin impact of $22 million was due to the market in general and the lag effect of steel price changes to inventories and cost of goods sold that I mentioned earlier. The $7 million variance in operating costs is driven by the $4 million delta charge that I spoke of and some other costs related to our Western Canada business as there are near-term operational impacts from removing and relocating a fairly significant amount of equipment across our network.

Some of the equipment relocations are continuing, but it sets the stage really well once these moving pieces settle down in early 2026. Energy field stores down $2 million from Q2. Steel distributors had a solid quarter, and it was only down $1 million from Q2 in spite of the market dynamics and the $2 million tariff charge that I mentioned earlier. In the other bucket, there was a positive impact from the mark-to-market on stock-based comp that was offset by a decline at our Thunder Bay terminal operation from what was a pretty strong Q2 for the Thunder Bay terminal.

On Page 10, this is a new chart. And I want to show the trend of our results from a slightly different angle. So let me start with a little bit of a description of what this chart is showing. One, it is a continuity that takes out the quarter-to-quarter noise as it's sometimes hard to see trends when looking at an individual quarter in isolation. So all the data on this chart shows trailing 12-month periods at the various points in time. Two, I want to show 2 time periods being pre-COVID and post-COVID. Pre-COVID is obviously the period of 3 years between 2017 and 2019, then excluded the COVID period of 2020 to 2022. And those years were quite unusual, as we all know, a really down year in 2020 and phenomenally strong 2021 and 2022. So those COVID years not that meaningful when looking at medium-term trends.

The right chart reflects the most recent almost 3-year period of 2023 to 2025. So the takeaway, the pre-COVID period shows an average EBITDA of $270 million versus the post-COVID chart where the average EBITDA was $361 million, which is a 35% increase. Also, the chart on the right doesn't fully reflect the impact of the acquisitions that were completed in 2024 or the Kloeckner deal that has not yet closed. The point being that our average cycle EBITDA is now substantially higher than in the past.

Also, if we look at the circled areas on this chart, it shows that the peak to trough range in the last cycle had a variance of $167 million in the 2017 to 2019 period versus a much lower variance of $127 million on the right chart for the most recent 3-year periods. The point being that we have raised the cycle average EBITDA and also reduced the cycle volatility. Lastly, if we look at the chart on the right, it shows a sequentially improving trend in trailing 12-month results.

On Page 11, we have our segmented P&L information for Service centers. I'll go through this in more detail on the next page, but it was a down quarter versus Q2 due to the seasonal impacts of volume and the margin compression that I mentioned earlier. Energy field stores, we are continuing to see solid performance after a slow start to the year with EBITDA down slightly from Q2. Distributors revenue and EBITDA were comparable in Q3 versus Q2.

So on Page 12, this is a deeper dive on the metrics for the service center business. The top right graph is tons shipped. Q3 was down a little bit from Q2 due to seasonality, but up over Q3 2024 on not just an absolute basis, but also on a same-store basis. I expect Q4 to exhibit similar seasonal patterns to typical Q4s with volumes being down in the quarter versus Q3. On the bottom left graph, we have revenue and cost of goods sold per ton. Realizations on price per ton were flat, while we had an increase in cost of goods sold per ton, which led to a decline in gross margins to $430 per ton in Q3 versus $487 per ton in Q2. Looking into Q4 a little bit, we saw that in August and September, the margins have stabilized, but were below the Q3 average. And I expect that we'll see margins in and around that August, September level for Q4.

Page 13. We've illustrated our inventory turns. This chart shows the inventory turns by quarter for each segment, energy in red, service centers in green, steel distributors in yellow, and the black line is the average for the entire company. Overall, our inventory turns improved slightly to 3.8. And again, our guys do a really fantastic job in managing inventory through the cycle.

Page 14, we have the impact of inventory turns on dollars. Total inventory was down about $40 million compared to June due to both lower tonnage and lower prices per ton.

On Page 15, a quick update on our capital structure. Our liquidity is strong, which gives us significant flexibility. And as I said earlier, we recently obtained a credit rating upgrade from S&P. So we are now investment-grade by both S&P and DBRS. Since last quarter, our net debt was reduced from $104 million to $87 million, and our liquidity increased from $566 million to $600 million. The far right column of the table shows the impact of the Kloeckner acquisition, and we'll continue to have significant liquidity on a pro forma basis. Lastly, our equity base per share continues to grow in spite of the share buybacks and dividends, and we've grown our book value per share, and it's up $1.27 from this time last year.

Page 16, just a summary of our capital allocation priorities. And again, very similar priorities of how we've talked about it in the past, and I'm going to go into a little bit more detail in a second. But overall, when we look at the capital allocation priorities on the left-hand side of the page, it is really focusing on all those initiatives and the most recent example being the acquisition of Kloeckner that has not yet closed, but we expect to close either the end of this year or the early part of next year and then the returning capital to shareholders, again, fairly balanced approach. Over the last couple of years, the average NCIB activity was $106 million, and the current run rate on our dividend is $96 million per year.

Page 17, a little bit of context for our reinvestment program. Over the past 12 months, we've invested $81 million in CapEx. Q1 and Q2, we were down a little bit as some projects were completed, and we're still scoping out some potential new projects across the platform.

Page 18, a bit of a deeper dive on the returning capital to shareholders. Left chart, longer-term growth profile on dividends with the most recent dividend of $0.43 per share per quarter, and we'll continue to regularly revisit the appropriate dividend level to take into account our capital structure and earnings profile as was done when we listed the dividend in May of 2023, May of 2024 and most recently in May of 2025.

On the bottom left chart, we show our quarterly NCIB activity since it was put in place in August of 2022. I've said it before, I'll say it again, we don't have a fixed approach to the program as we view it as an opportunistic way to buy back shares, and we have been more aggressive at certain price points than others. In addition, you'll see that our activity in Q3 of this year was lower than the past few quarters as we were in a longer-than-normal blackout period when we were getting to the finish line on the Kloeckner agreement. On the bottom right chart, the impact of the NCIB has been a gradual reduction of our share count and resulted in a greater than 13% reduction in our shares outstanding. On the top right chart, the aggregation of dividends versus NCIB over the past 2 years shows a fairly balanced approach between the 2 tools.

In closing, on behalf of John and other members of the management team, I'd just like to express our thanks to everyone on the Russel team for their contributions. In particular, I'd like to especially acknowledge those within Russel who are actively involved in the due diligence, structuring and transition planning for the Kloeckner acquisition. It's an exciting new project, but it was and continues to be a lot of work, and our team's efforts are very much appreciated.

Operator, that concludes my intro remarks. Could you now open the line for questions.

[Operator Instructions] Your first question comes from Davis Baynton of BMO.

This is Davis on for Devin Dodge. Yes. Just wondering if you can give any incremental commentary to the operating costs and service centers. Russel has a strong track record of that flexible cost structure, but ticked up a bit higher in the quarter. I know some of that's due to the restructuring provisions, but just wondering on how we should think about that going forward heading into Q4.

Yes. That's a fair observation. And my apologies for my droopy throat here. It was up a bit, and the primary reason why it was up a bit was because of the onetime charge that we took related to the Delta closure. But there was also some higher operating costs that are incurred primarily in Western Canada related to all the moving pieces. So it is a -- I characterize it as there's a one-off, and there's a little bit more of a one-off that will likely filter into Q4, but not as significant. So think about it as the higher levels included the $4 million. It included a few other things as we're moving a fairly significant amount of equipment, and that can be disruptive to operations in the near term. But that means that Q3 had higher operating costs. Q4 will probably come down a little bit, but not as down as they were in Q2. And then Q1 will probably be more back to normal.

Okay. That's good color. And then just shifting gears here. So the recognition from S&P as the investment credit rating, obviously, that's good. We're just wondering how far you can take up leverage while maintaining that rating as you still have some solid balance sheet capacity here?

Yes. It's a really good question. And there's a couple of quantitative answers, but it's also a little bit more qualitative. The qualitative part is being committed to an investment-grade approach because that is -- it's a good capital structure strategy because it gives us the flexibility, gives us a low-cost approach. So I can point to an individual metric, but those individual metrics are more of guideposts. It really is a broader philosophy around doing a collective variety of things that maintain that investment-grade rating. Directionally, though, if you look at some of the commentary out of S&P or others, they'll talk about net debt to EBITDA being below 2x. We're well below 1x today. So we've got a lot of headroom to continue to deploy capital, but also maintain that investment-grade status that we've achieved.

[Operator Instructions] Your next question comes from Maxim Sytchev of National Bank.

Marty, I was wondering if you don't mind guiding a little bit when it comes to cost of goods sold in relation to the recent HRC pickup and how we should be thinking about it for Q4?

Yes. My comment earlier was related to gross margins and what we saw in gross margins in August and September. And so in August and September, they were down, the gross margins were down from the Q3 average. But that was a case where effectively, at that point, we saw some leveling out of net realizable prices and also cost of goods sold. So the gross margins were sort of flattish in August and September. We're going to expect that to continue. So if we look at the Q3 average versus the exit level from the quarter, it was probably about a $25 difference between those 2 levels. So if you look at the Q3 average of $430 per ton of gross margin, a little bit below that was the exit level.

And so when you're asking your question about cost of goods sold, effectively cost of goods sold and price realizations kind of held flat for the last couple of months to get to that level that I was just referring to. Does that answer your question, Max?

Yes, it does, yes. And then because obviously, you just announced the Kloeckner acquisition. I was wondering if you don't mind providing a bit of, I guess, the milestones that you're going to be looking to achieve from whether it's cost synergy or revenue perspective, how we should be tracking those things?

John, do you want to tackle it or you want me to?

Yes. Thanks, Max. I think -- and Martin, I'll probably just both tag team this. Obviously, the first milestone is getting to closure. And then we will move in quickly with our health and safety initiatives that we put in place day 1. And Kloeckner is a public company, has a good safety record, good safety program. We just want to make sure hires are in place and our training. There's some operational efficiencies. There's also some CapEx efficiencies we identifying through due diligence where we have the opportunity to improve the existing facilities in the first 180 days and then move into the value-added equipment opportunities that are out there. Ultimately, we'll move off their finance system by the end of the first year. And by the end of the second year, have to be off their ERP system and a shared services agreement we have with Kloeckner. So those will be milestones that need to be met as well.

Okay. And then maybe just the last question because, obviously, John, you're based in down south. In terms of what are you hearing when it comes to the client sentiment overall? Like on the one hand, we see a lot of data center sort of benefits and kind of positive commentary. On the other hand, when it comes to the government shutdown, obviously, I mean that's trickling down, hitting potential permits, et cetera. So what are you sort of seeing on the ground right now as you speak to your client base?

So on the U.S. side, we've actually got a fairly bullish feel starting to bubble up for Q1 on the demand side. As you mentioned, data centers are really going wide open and driving the nonresidential construction industry. But that has a trickle-down effect, Max, into solar and solar work that's going on. So that's starting to grow as well due to the energy requirements for data centers that cannot be met by the traditional energy sources that are out there through oil and gas.

Obviously, there's some nuclear opportunities, either restarting old idle facilities or building new ones. Those are a little bit longer-range projects. So there'll be new ones are 10-plus years. The restarts could be 2 to 5 years. But again, all those are positive trends in the construction industry that's out there. OEMs are pretty solid with the exception of ag. Ag is a laggard right now, and it continues to struggle due to crop prices. There is an interesting dynamic unfolding there that we're watching that we think there will be a whipsaw effect sometime potentially in 2026. Inventories are exceptionally low at dealers in the U.S. and with the new tax incentive to be able to write off the depreciation very quickly being put in place, we think there could be a whipsaw effect on that industry.

Okay. That's interesting. And I guess maybe while I have you, any comments on the newly released Canadian budget because, again, like the accelerated depreciation is part of that thought process as well and some nation building projects. How do you, I guess, see the environment potentially improving, especially in Western Canada?

Yes. The biggest challenge right now is getting moving. We still have to do something and make decisions in Canada on what we're going to do on imports as it relates to steel and steel pricing, how that's going to relate to the Canadian mill segment. That would obviously help our industry if the pricing stabilizes there. We think there's some projects that are in this new budget. The time lines are a little murky as these things come out. But anything related to energy or anything related to infrastructure, obviously, really any of the natural resources of Canada so rich, any of those development projects are going to be a big benefit for steel. It's just when they take place and how long we have to wait on that. The economy in Canada is definitely a little more stagnant than we're seeing in the U.S. right now. But overall, we're pretty pleased with our demand and what we've seen.

Your next question comes from Michael Tupholme of TD Cowen.

A couple of questions. So regarding capital investment opportunities, there's some language in your release just about the opportunity for additional facility modernization and value-added processing projects. At the same time, it sounds like a lot of the facility modernization opportunities that you were looking at have now been completed and you're sort of exploring future opportunities. So wondering if you can talk a little bit about both of those and what the upcoming year or a couple of years may look like as far as additional opportunities on those 2 fronts.

Sure, Mike. So why don't I just give a little bit of context to history projects, and John could talk a little bit about going forward. So for all intents and purposes, we talked about both value-added projects and facility modernizations, and we had 5 very specific ones in both Canada and the U.S. that we had been focused on. Those projects are done other than some fine tweaking. So those effectively are done. So we're at the stage right now where we're always continuing to scope out new opportunities, but we're just sort of in that middle zone between just coincidentally, those 5 projects that were put on the plate about 18 months ago or so, they're effectively finished.

And none of them were huge in of themselves. Those projects range from $7 million to $8 million to $12 million individually. And so they are all good projects, but they've now come to fruition. They're up and running in various forms. It does take a while to scope out new projects and some projects come in, some projects get evaluated, they get put on the back burner, some new projects come in, and the Kloeckner acquisition is a good example of it. So I think it's -- without being too specific, it's fair to say there will be more of those type of projects coming up. They're just -- we haven't green lit them yet.

So John, do you want to put some color on that?

Sure. Yes. No, thanks, Mike, for the question. And again, a really astute observation there. It's a timing issue. And then when you layer on Kloeckner, where the geography is with our existing service centers in the states where the majority of these projects would be coming from, that has some continuity to it to say do we need to make some changes. So it's just caused us to go back and evaluate some priorities and maybe created just a little bit of a lag effect here, but there's plenty of projects that are still out there that we plan to move forward with. We just want to make sure we have the right priorities in order.

Okay. That makes sense. Shifting over to the energy field stores segment. Obviously, since you made changes to that segment several years ago, it's been a much better performing segment, much more predictable and steady performance. In your outlook commentary, it sounds like you expect that segment to continue to perform well and consistently. I guess the question is just if we look at the Q3 revenues, they were down a fair bit sequentially as well as year-over-year. So just not sure if there's anything unusual going on there and how we should think about that sort of over coming quarters is sort of what's the right way to think about the run rate revenues for that business?

Yes. What's interesting, Mike, you're right, revenues are down, but margins are up. And part of that was because there's one part of our business that tends to do a little bit more of some lumpier stuff and sometimes that lumpier business comes at lower margins. So top line could be oftentimes misleading. And so when you look quarter-over-quarter, the bottom line was within spitting distance of each other, notwithstanding the change in the top line because, yes, top line was down, but the margins were healthier in Q3 than they were in Q2 because some of that lumpier -- and again, not hugely lumpy, but at the margin, a little bit lumpier business that was there in Q2 didn't come with as great margins.

Okay. That makes sense. And then lastly, I'm not sure if this was covered earlier or not, but I apologize if it was. But any impacts you're seeing as it relates to the U.S. government shutdown in terms of how your customers are conducting their affairs, whether that's any actual challenges that they're facing in terms of getting projects moving forward and how that might affect demand for your products or alternatively, just from a sentiment perspective, any impact that's having on them? Just kind of trying to think about the fourth quarter and whether or not we need to be mindful of this for the fourth quarter results.

Thanks, Mike. And again, speaking selfishly from my own perspective, the biggest impact is airlines are a disaster. I can't get any connections on time right now. So that's been my biggest personal impact. From a customer base side, we're not seeing a lot of impact as of yet. There will be some government work that could be affected. But right now, everything is on track. I think there's an anticipation it will get settled in the near future, but time will tell. But as of right now, keeping in mind, we have that small average order size and it's out there at $3,400 per average order in our service centers is not affecting our energy spill store segment. So we're not seeing a lot from that at all right now. If it lingers on, I would anticipate there would be some effect.

And the only thing I'd add is just reiterating again, Q4, notwithstanding anything else going on, there is an operating day decline in Q4 versus Q3, Canadian Thanksgiving, U.S. Thanksgiving that's coming up, the Christmas holiday. So we just -- we have down volumes in Q3 -- excuse me, in Q4 all the time just because of those normal seasonal factors.

Your next question comes from Sean Jack of Raymond James.

Just a quick one for me. Thinking about how Samuel and Tampa Bay acquisitions have been in the business for a bit of time now, do you mind giving just a quick recap on what value-add improvements have been put in place for each and also just addressing what's left to do in the short to medium term here?

Sorry, Sean, can you see that -- I didn't quite catch the first part of what you said.

So just in relation to the Samuel and Tampa Bay acquisitions, do you mind just providing a recap of what value-add improvements have been done thus far?

So at Tampa Bay, when we bought them, Sean, they were heavy into value-add. So they were already 25-plus percent of their business was value add. They've grown that since then. So we haven't had to add a whole lot of equipment there on a value-add or do any expansions. They've got full facility operating at close to capacity. So not much has changed there. It was really a plug and play. It's a very well-run business. And when we look at Samuel's, it's been more of -- again, we ended up with duplicate real estate in the lower mainline of BC. So we're actually exiting some of the real estate that we have consolidating there. So it's a repatriation of capital in BC. We are moving a line where we had duplicate stretcher leveler lines in Winnipeg.

We're moving one of those lines into the states. And so there hasn't been a huge add due to those acquisitions as far as CapEx. In the Samuel case, it was more realignment thing, making sure the equipment was in the right places and making sure we had the right roof lines for the markets that we were in. As Marty mentioned earlier, we pulled the capital from the $225 million acquisition price down to about $125 million or potentially $100 million at the close of this in April. And so with the working capital coming down as well as part of that. So we think that the alignment there is to make sure the appropriate equipment, the appropriate assets are deployed in each region. So again, some of that's being moved around, but there's not been a lot of CapEx value-add spent there, specifically related to those. There has been other spend in Western Canada, and those are different Russel projects.

Your next question comes from Jonathan Goldman of Scotiabank.

I just wanted to get your thoughts on what appears to be accelerating consolidation in the service center space and how that might influence industry dynamics for you guys?

And again, it's really a tale of, I guess, 2 countries on that. Canada is relatively stable on the consolidation with us doing the same as transaction. There's been a small transaction out West that we didn't participate in, but anything of scale there. But again, Canada is a much more stable environment when it comes to that, less players in the industry overall, more regional.

When you look in the U.S., still a highly, highly fragmented market and probably lots of room to run the M&A. It is very active and has been for the last 2 years. So there are opportunities out there. But when you look at the percentage out there, the largest player in the market is probably 15%, 16% of the whole market. And if you combine all the publics, probably maybe 25% of the market. So there's still a large amount of service centers in that $500 million range and down that are private. And it appears that there could be transactions happening. So it could be a very active M&A market over the next 2 or 3 years. It just remains to be seen.

And Jonathan, the one thing I would add is, obviously, it's public about the transaction that was announced between 2 of our U.S.-based competitors in doing a merger announcement a week or so ago. And in some ways, it was interesting because it highlights that service centers as an industry, there's a lot of different ways to operate within the service center industry. And if you look at the operating results of those 2 companies over the last number of years versus our results over the last couple of years, there is a big difference.

Our performance has been very, very strong, not just on an absolute basis, but also on a relative basis. And some of that goes to just because people are in the service center business, doesn't mean they have the same operating model. And I think it really goes back to reinforcing our operating model works pretty well in good markets and bad. And the bottom line results have shown that. And that is a highly transactional, highly flexible, highly adaptable business model where we're not tied to certain industries like automotive, for example. Other companies who are more contractual and are more tied to very tough customer counterparties, they have different dynamics and different results. So even though we see some of those transactions that have occurred in that most recent example, it highlights there really are 2 very, very different operating models within the service center business. And those 2 companies have one model, and we have a different business model.

Interesting. That's good color. And my second question is capital allocation. How are you guys viewing the relative attractiveness versus M&A or buybacks currently? And have you seen any change in seller expectations when it comes to the M&A landscape?

It's a great question, Jonathan, because we -- there isn't a large swath of transactions that occur where we can say, universally, values are up, values are down, multiples are this, multiples are that. It truly is a series of one-off situations. And even in the M&A deals that we have done, the way we've looked at them is very different. A Kloeckner deal is very different than a Tampa Bay deal, which is very different than a Samuel's deal. So even across those 3 most recent examples, there's different metrics in terms of how we've looked at them. In a couple of them, we looked at them, frankly, as asset-based valuations. And one of them is Tampa Bay as an example, and John was talking about this earlier, is more of a going concern value where they have done awful lot of value add in their business. So we kind of looked at it through a different lens.

When we look at the market right now, though, there still are a lot of opportunities. That being said, the very, very near-term focus is really getting Kloeckner over the finish line, getting it integrated, getting it focused, getting business up and running there. So there continues to be consolidation opportunities, but we have been and will continue to be highly selective in what meets our criteria.

And then your comment about the NCIB, we don't have to pick one over the other, given our balance sheet right now. We can be selective on M&A, and we can be selective on how we use our NCIB program. And if both make sense like they have for the last little bit, we've used both of them effectively. And that's why when we look back over the last couple of years, there's been a fairly active amount of capital allocated to M&A, and there's been a fairly active amount of capital allocated to NCIB and other things as well.

That's a fair comment on the balance sheet, it's a really good work there.

There are no further questions at this time. I would hand over the call to Martin Juravsky for closing remarks. Please go ahead.

Great. Thanks, operator. And thank you very much for joining our call. If you have any questions, please feel free to reach out. Otherwise, we look forward to staying in touch during the balance of the quarter. Thanks, everyone.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation, and you may now disconnect.

Good morning, ladies and gentlemen, and welcome to the investor call regarding the Russel Metals acquisition of 7 service centers in the U.S. from Kloeckner Metals.

Today's call will be hosted by Mr. Martin Juravsky, Executive Vice President and Chief Financial Officer; and Mr. John Reid, President and Chief Executive Officer of Russel Metals. [Operator Instructions]

I will now turn the meeting over to Mr. Martin Juravsky. Please go ahead, Mr. Juravsky.

Great. Thank you, operator, and good morning to everyone. Thank you for joining this discussion on short notice, but we just finalized the purchase agreement with Kloeckner over the weekend. For this call, I am joined by John Reid, our CEO. After I go through some introductory comments, John and I will open the floor to questions.

If you want to follow along to my introductory comments, I'll have the information package. It's posted to our website. It's in the Investor Relations section in the conference calls submenu. If you go to Page 2, you can read our cautionary statement on forward-looking information.

And so let me start with an overview of the acquisition. First, we're really excited about this transaction, this announcement. We do look at a lot of potential acquisitions over the course of the year, and I've talked extensively about how we remain committed to our criteria when it comes to potential acquisitions.

We look at opportunities that align from a geographic perspective, a product perspective and they must be economically attractive relative to our 15% return on capital threshold over the cycle. This announced transaction lines up very well with these criteria. It's a great fit and it will be immediately accretive to earnings.

The other thing to point out is that transactions do take a long time to pull together, and there is a lot of detailed plumbing associated with every transaction. This deal is highly structured and took around 6 months of working with Kloeckner to get to this point. So it highlights that bringing deals over the finish line are not quick or easy if they are to be structured the right way. In this case, I think we've arrived at an arrangement that works from both Russel and Kloeckner perspective.

Somewhat related, we've had the opportunity to work closely with the team from Kloeckner over an extended period in structuring this transaction, and we very much appreciate their professionalism as we work towards this outcome.

In terms of deal highlights on Page 4, we'll be acquiring 7 of their locations in the U.S., 2 are in Florida, 2 are in Texas, 1 is in Georgia, 1 is in North Carolina and 1 is in Iowa. This transaction has some similarities to our Samuel acquisition and that we are carving out assets related to specific target locations from another company, but it differs in this case because we will be acquiring all the fixed assets being land in buildings in addition to the working capital for the 7 locations.

The purchase price formula is set at USD 51.5 million for the PP&E plus the value of the working capital at closing and the working capital was $67 million on June 30. This equates to an estimated total purchase price of approximately USD 119 million.

As said earlier, the value is underpinned by the value of the hard assets being both the working capital and the PP&E. In total, these 7 locations have over 1 million square feet under roof and some are located in expensive real estate markets. In total, this 1 million square feet of buildings will add around 15% to the square footage of our metal service center footprint.

From a financial perspective, over the last 2.5 years, these locations in total generated average annual revenues of around USD 500 million and adjusted EBITDA of greater than USD 20 million. If we were to look at the financial results for these 7 locations over a more extended historical period beyond those 2.5 years, the results were even higher.

As such, this transaction should add about 15% to our average annual revenues and a bit less than that on a mid-cycle EBITDA basis. Therefore, we think the value makes a lot of sense in relation to both the underlying hard assets and on an EBITDA multiple basis that should equate to about 5x average cycle EBITDA.

The transaction rationale is pretty straightforward. The geography of these 7 branches are perfect fits into our existing network. In addition, when we conducted due diligence on the operations, we identified a series of improvement opportunities related to new investments, efficiency gains on procurement, inventory management and logistics that should be achieved by blending these locations into our existing system.

Lastly, as a result of this transaction, our U.S. platform will represent greater than 50% of our revenues, which is a continuation of that U.S. revenue growth profile. Our U.S. revenues have migrated from 30% of the total revenues in 2019 to 39% in 2024 to 44% through the first 6 months of 2025 and will now be greater than 50% on a pro forma basis.

In terms of deal logistics, there are no regulatory approvals required, so the transaction should close in late 2025 or early 2026. I'll talk our balance sheet in a minute, but the transaction will be financed from our existing liquidity, which stood at $566 million at June 30, 2025.

If we go to Page 5, I've included some more detail on the locations. The pictures on the left part of the page are the branches in Suwanee, Georgia, Dubuque, Iowa and Charlotte, North Carolina. If we look at the map, you can see the compelling geographic fit. The 7 branches that are part of this transaction are communities where we have targeted to grow in the U.S.

If we look at the map and start with the Southeast region in the bottom right, in Florida, we acquired Tampa Bay late last year with a view of extending that footprint into both the north and southern parts of the state. We will now have a location in Pompano Beach to the South and Jacksonville to the North with the value-added processing capabilities from our Tampa Bay operation being able to serve a customer base beyond their traditional shipping zones.

Going north into Georgia and North Carolina, we have a new location just outside of Atlanta in Suwanee as well as a branch in Charlotte, North Carolina. Both of these locations will fit well and extend our existing platforms into those 2 states.

In the South region in Texas, in particular, the new locations are just outside of Austin and in Houston, and they will extend our reach into the mid and southern part of the state and will complement our existing branches that are in, Fort Worth near Dallas as well as Texarkana that is on the Texas, Arkansas border.

In the Midwest region, the Kloeckner branch in Dubuque, Iowa will extend our customer reach from our existing branches in Wisconsin.

On Page 6, we have our balance sheet. As discussed, we had net debt of only $104 million and $566 million of liquidity on June 30, 2025. Therefore, we'll continue to have a strong capital structure to not only complete this transaction, but also pursue other capital deployment alternatives that could make sense.

On Page 7, I want to shift gears a little bit and provide an update on the previous acquisition that we did for Samuels. At that time, we originally announced the Samuel asset acquisition in December 2023, the headline purchase price was $225 million, but we had a very specific plan to reduce capital. When the acquisition closed in August of 2024, the working capital was already reduced by almost $60 million.

With the pro forma impact of the announcement to close and sell some of the real estate for our Delta BC facility that we announced about 1.5 weeks ago, we'll have pulled over $100 million out of the $225 million original purchase price and substantially reduced the acquisition multiple.

I bring this up as we knew it was going to take some time to implement all of our initiatives related to that transaction, but we have surpassed our original capital reduction goal, and we now have more efficiency opportunities on the come in Western Canada. There will be some operational noise over the coming few quarters as we close the [ 1 ] facility and move around a lot of equipment across our network. These initiatives can be disruptive to those impacted operations in the very near term.

Somewhat related, we announced a onetime charge of $4 million in Q3 that is specifically related to the Delta closure, but there will be some other operational impacts that linger into Q4 and early Q1 before we expect the substantial benefits from this rationalization to be crystallized as we turn the calendar into 2026.

Lastly, on Page 8, I want to use this chart as a reminder to how we have migrated our platform through a series of growth initiatives. This provides a context of not only where we've come from, but perhaps where we're going. Upon completing the Kloeckner acquisition, we have deployed around $600 million on a series of acquisitions over a 4-year period.

Said another way, we will have deployed on average of around $150 million per year, but there were some years where we didn't complete any acquisitions as the available opportunities didn't make sense, while there were other years where we deployed more than the average. The point is we remain opportunistic yet active in looking at acquisitions.

Therefore, I suspect we'll continue to uncover interesting growth prospects in the years ahead that are similar in nature and scope to what we've done in the recent past.

In closing, on behalf of John and myself, I'd like to extend our thanks to the team at Russel, who have worked very hard on the due diligence and structuring this transaction as well as our colleagues at Kloeckner in both Germany and the U.S. with whom we have worked very closely. In addition, we look forward to welcoming the approximately 350 team members from Kloeckner into Russel.

Operator, that concludes my introductory remarks. Please open the line for questions.

[Operator Instructions] Our first question comes from James McGarragle from RBC Capital Markets.

I just wanted to ask on the strategic alignment for this deal. I know your team is making a big push towards value add. But in the seller's press release, they mentioned that they're selling these assets to focus more on the highly -- the high value-add and service center business. And I know you guys are also focusing on that as well. So can you just comment on how you're thinking about this deal, given that commentary from the seller?

Thanks, Tim. This is John. So when we look at this, this really aligned well with both parties' strategic objectives. And again, keep in mind, we are highly transactional in nature. And again, our counterparty here, again, they are not transactional. They want to be more contractual in those.

And so as we look at those are really 2 different channels when we look at value-add for growth and how we approach the customer base there. So we think it aligns really, really well in addition to the geographic growth we get and we can continue to work through our hub-and-spoke concept.

So we'll continue to grow our value add. They'll have their opportunities in value add. But again, they're in 2 very different channels to transactional nature versus the contractual nature.

Appreciate the color. And just one more for me. Can you guys just talk about the -- your management team's capacity? I know you're still working through the Samuel deal. This deal looks like it's going to require some work from an operational perspective. So just how you're viewing the management team's capacity to kind of focus on integrating both Samuel and what's remaining there and then this new deal that you announced this morning?

Thanks, James. Our succession planning has been going on for several years. And in the recent year, we've announced that we have divided Canada in the East and West with RJ Weisner taking over the West. Scott Harris will be taking over the East January 1. Brandon Ezell runs the United States for us. So we still have John Maclean in the operating role as the Chief Operating Officer.

All of these are veterans with us that have had 15, 20, 25 years' experience. RJ is dealing with the Samuel's integration. It's going extremely well. As Marty mentioned, we'll be wrapping that up sometime in early 2026 with all the milestones should be accomplished at that point. And then this will really follow with Brandon Ezell that has been with us well over 25 years now, very experienced. And so very familiar with this area, very familiar with the Kloeckner group.

So we've got a good bandwidth where we've built depth in operations on that side. Financially, we've got the controllers that are their partners that also are partnered with each one in each region. So from a managerial bandwidth, we have spent a lot of time getting poised to have these opportunities in front of us.

Our next question comes from Michael Tupholme from TD Cowen.

Congratulations on the acquisition. First question is around margins. Just based on the financial metrics provided in the news release, the margins at the acquired locations are lower than Russell's overall service center margins. So 2-part question. I guess, first off, just to understand, is there much difference across the various locations you're acquiring? Or would they all be around a similar level?

And then secondly, I think John sort of touched on this earlier, but just trying to understand, it doesn't sound like there's much, but to what extent is there any value-added processing going on at these locations right now?

Yes. Mike, so a couple of things. One, your observation is correct, which is their margin profile on average is lower than our margin profile. And we think that, that is where the upside opportunity is for this business. I think the way they've approached these particular branches over the past will be different than how we will approach the operations and management of these businesses going forward.

So I think what you'll be able to do is see a bridge between what they've historically generated and something closer to what our margin profile has been over the past period of time for a like-for-like branch.

In addition to that, and this is kind of where -- what John was alluding to before, they do a little bit of processing at these 7 branches, but not to the same degree that we do in some of our operations. There are situations where we can uncover and have uncovered opportunities for incremental investments either within the branches themselves or in adjacent branches where we're currently operating.

And I use the Florida example as a prime example where we already have value-added processing capabilities within Tampa that can reach now both the north and south part of the state where we will have these incremental branches.

And while this situation isn't exactly the same as the Boyd acquisition that we made in 2021, I use that as an example where Boyd did not do a lot of value-added processing in the period of time before we acquired them. But since we've acquired them, we've invested a fair amount in opportunities sometimes within Boyd, sometimes within the neighboring branches in the region.

And so those are the incremental opportunities that we can see coming to the table in the years ahead. But there is a bridge from what they've historically achieved from a margin profile perspective and what we think they can do under our platform.

Okay. That's helpful. Maybe just to build a little bit further on that. If we think about the opportunity to improve margins, and I mean, I guess there's sort of 2 buckets, but maybe I can break it even into 3. So the first is maybe through different approach to operations and blocking and tackling. The second is really the opportunity for enhanced value-added processing. But within that, as you point out, there's the ability to, one, leverage existing processing at adjacent facilities and then secondly, to add more equipment at these locations, which would take some more time.

So can you just give us a sense just based on sort of the blocking and tackling piece, like what sort of margin upside potential is there before we even get into sort of the value-added processing contribution just from maybe overlaying your operational approach and making some adjustments on that sense?

Yes. I hate to be too specific on what exactly we think we can achieve, but let me give a historical frame of reference. So when you see the information in the press release, it implies the last couple and a half years, they generated an EBITDA margin of around 4%. Our like-for-like equivalent on similar operations would have probably been a couple of hundred basis points higher than that.

And so I think when we look back, there's probably some low-hanging fruit that can be achieved, some of which relates to just operational priorities and how you deal with customers and how you deal with suppliers and how you deal with inventory, the basic blocking and tackling of the business. And then there's a whole separate bucket that you alluded to correctly, Mike, which is what happens when there's incremental capital deployed.

So I think that's where you kind of -- back to my comment about the bridge between their historical results and what we think we can achieve. There's probably some low-hanging fruits that it's in the 0- to 12-month category. Again, just better alignment in terms of procurement decisions, inventory management decisions, customer decisions. And then the incremental benefit will come over time related to targeted capital investments.

Okay. Perfect. Just one last one. I mean, earlier on, you alluded to in some respects, the similarity between this and Samuel, but I think that was specific in terms of the fact that, that was a carve-out as this is. In the case of Samuel, there was an opportunity to reduce the invested capital in those locations. Is there any such opportunity with this transaction?

Mike, Samuel was unique in that respect, and that was the playbook. The $225 million, we knew going in that, that was too high, and that's where some of the -- using your words, the low-hanging fruit was going to be in the near term, and we've achieved that. This is less of that.

And in the Samuel case, again, you highlight that one of the things was about facility rationalization. And the announcement we made 1.5 weeks ago related to our Delta closure facility rationalization, we do not see facility rationalization coming out of this transaction. This is extension of our existing platform. So it's going to be less on the capital reduction side and more on the P&L side with efficiency gains that we can achieve.

So the capital that we have going in, yes, there's probably things at the margin that might be available, but it won't be the same playbook as we used at Samuel because at Samuel, it was heavily geared around capital reduction, including the rationalization of locations. And we don't -- again, I'm repeating myself, but we do not see facility rationalization coming out of this situation.

Our next question comes from Frederic Bastien from Raymond James.

Maybe I just wanted to build on Michael's questions around capital deployment and perhaps extracting capital out of the business. Is all the real estate owned currently by Kloeckner? And would there be potential plans to sell those assets and do a leaseback on those?

So the short answer is yes to the first point, all the facilities are owned, and we will be owning them as part of the transaction. So unlike the Samuels deal where everything was under lease, long-term leases, in this situation, we'll be having physical title to all the real estate.

We're not contemplating any sale-leaseback type arrangements right now. That's a form of financing, and we've got lots of flexibility within our current financial arrangements. I never say no to anything that might be interesting from a capital efficiency standpoint, but it's not being contemplated right now.

And I know you've touched on the opportunity in Florida with merging, I guess, combining the assets of Tampa Bay Steel and those you're acquiring. But could you expand on sort of the opportunity really could tap into with this?

Thanks, Fred. This is John. Starting with just Florida, for example, and you're familiar with our hub-and-spoke concept and especially as we grow value add, we typically work off of the hub where the spokes can use the process and value add and then they can grow their own business and then expand by adding their own equipment. Tampa has all the equipment that's necessary that will allow both Jacksonville and Pompano Beach to develop that very quickly where they can start to add their own equipment.

If you move to Texas, you see exactly the same thing where we have it either in Texas, Canada or we have it in Fort Worth. Both the Austin and the Houston operations can build off that as well with that hub-and-spoke approach as well as sharing inventories between these locations. And the same thing in North Carolina. Dubuque brings a really added dimension there. They're really, really strong in long products there. We're good in long products there as well, but we're also very good in plate.

So we will share some shared services initially back and forth where they have some value-added services on beans that we don't have. We have the plate processing that they don't have. So it will become a natural extension of each other and work very quickly together. So all of these just become, again, part of those individual regions that's highlighted there in our slide deck and being able to share the value-added processing to grow your own and being able to share inventory just gives everybody a much larger inventory pool to pull from while you maintain your inventory turns to manage working capital better.

Our next question comes from Ian Gillies from Stifel.

Maybe trying to come at this a bit of a different angle. CapEx for '26, how much higher do you think it is now with the inclusion of these assets and with any potential plans you may have for value-added processing at this time?

Yes. I think, Ian, the reality is the lead time associated with CapEx is probably 12 months typically and sometimes longer, sometimes a little bit shorter. So the best laid plans that we might have are probably going to spill into 2027 when it comes to incremental investments other than some things that are at the margin.

So I don't think our 2026 CapEx profile is going to change a whole heck of a lot because of this transaction because anything that we may want to do will best spill into the back end part of the year, but more likely into 2027.

Okay. As it pertains to product mix, I know some of the recent acquisitions have had a larger focus on nonferrous. It doesn't sound like that's the case in this instance, but maybe could you chat a little bit about that?

That's a good observation, Ian. These locations are not big in the nonferrous. It wouldn't get the same percentage level that we are. So this will put us heavier in the U.S. market in carbon. There is the opportunity, however, to expand them into the nonferrous. And we see that, again, back to that hub-and-spoke approach I mentioned earlier, they can start to pull sell nonferrous into these markets and grow that as well. So it won't be like Samuel where we brought in nonferrous as part of the platform and help us grow immediately. This one will be more of a slow growth in the nonferrous feeding off our existing service centers.

Okay. That's helpful. And then similarly, on the end market side, is there any new end markets that come from this? I mean, in particular, in my head, I'm thinking about auto just because I know that has been an area that Russel hasn't typically participated in. I suspect it isn't in this instance, but I was hoping to confirm.

Yes. This is not in auto, and you're exactly right. It puts us in a better position to do more work with some of the data sites that are going on out there right now. So it just puts us in a better geographic position to serve some of those accounts we struggled to get to just to the logistics. So this is really going to open some of that up for us.

No, Ian, I was just going to add one thing to add to John's comment about automotive, and it kind of ties into a question that was asked at the front end of this about book value add and their definition of value add and our definition of value add is somewhat different, and part of it is targeted customers. And as John said earlier, transactional versus contract based. They do, do automotive, just not within the businesses that we're talking about here, the branches that we're talking about here.

So that is a big distinction and continues to be part of our focus of -- it's not just the type of business we're doing, it's type of industries that we don't have on our radar screen as a focus item, and we do not focus on automotive and this transaction doesn't change that.

[Operator Instructions] Our next question comes from Alan Weber from Robotti & Company.

So just kind of a follow-up from the previous question. Does this add any new industry that you're currently not in?

It may, Alan, in those specific regions geographically, but it's more industry that we can currently cover that we just can't get to physically because of the limitations on the trucking hours. So it expands our geographic reach, but there may be some new industries. Again, one of the big things that we see is that, again, we're covering data centers, but this allows us to reach more of the data centers that are going on now as well as solar.

Okay. Great. And what was peak EBITDA if you go beyond the 2.5 years, I think that you were averaging?

Yes. Alan, we're not disclosing that, but you can rest assured it was substantially, substantially higher than the 2.5-year average.

Okay. And not asking for a projection, but just curious, when you look out over the next 2 or 3 years, what was your general thought in terms of EBITDA? Were you thinking the current level stays at average? I'm not suggesting it goes back to peak. But just curious what -- how you think about that.

Yes. Well, I don't know how the cycle is anymore given some of the just nature of the beast of the events that have happened from a macroeconomic perspective over the last little while. But let me kind of say it a slightly different way.

When we look at their historical results, they were significantly hamstrung. If you look at a multiyear basis, 2024 wasn't very good for them. It really wasn't very good at all. And so if you look at a multiyear average, 2024 substantially, substantially brought their average down. When we went through our due diligence, a big part of our exercise was trying to understand what happened in 2024 and has the corner been turned.

And obviously, in 2025 through the first 8 months of this year, there was a lot of benefit, especially in the March, April, May type time frame from a more favorable market. And the results that they're tracking on that those branches are tracking on for 2025 are materially better than they were in 2024 and frankly, higher than that 2.5-year average that we articulated. So there's my answer without answering your question, Alan.

Okay. And then just the last question is how much goodwill is there with the acquisition?

Yes. We don't expect there to be anything of substance.

We have no further questions. I'd like to turn the call back over to Martin Juravsky for closing remarks.

Great. Thanks, operator, and thank you, everybody, for joining the call on such short notice. If you have any questions, please feel free to reach out. Otherwise, we look forward to staying in touch. Thanks, everyone.

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

Good morning, ladies and gentlemen, and welcome to our 2025 second quarter results for Russel Metals. Today's call will be hosted by Mr. Martin Juravsky, Executive Vice President and Chief Financial Officer; and Mr. John Reid, President and Chief Executive Officer of Russel Metals. 

[Operator Instructions]

I would now like to turn the meeting over to Mr. Martin Juravsky. Please go ahead.

Great. Thank you, Operator, and good morning to everyone. I'll be providing an overview of the Q2 2025 results. And if you want to follow along, I'll be using the slides that are on our website. They can be found in the Investor Relations section, and it's located in the conference call submenu. 

If you go to Page 3, you can read our cautionary statement on forward-looking information. 

So let me start with Page 5 to provide a little bit of a perspective on the quarter. In Q2, we generated a sequential improvement in most key metrics. And when we look at the past 2 quarters, Q1 and Q2, both individually and together, we had a very solid improvement. We had an improvement between Q4 into Q1 and an even more impactful improvement between Q1 and Q2 as we took advantage of some interesting market opportunities. It was nice to see the sequential pickup between Q1 and Q2 in absolute terms, but it also reflected a relative outperformance versus our publicly traded U.S. comparables. 

Specifically, we generated near-record shipments. Revenue was up 3% versus Q1. EBITDA was up 26% versus Q1. Earnings per share was up 43% versus Q1, and cash from operating activities was up 29% versus Q1. 

If you look at the middle row on that diagram on that page, discretionary CapEx, the left box, we are active on the investing front in early 2025. Our Q2 level of $60 million was down from the $29 million level in Q1, but we continue to explore and advance new projects. In particular, we're moving forward on a series of interesting initiatives in Western Canada related to business improvement opportunities across the Formal, Samuel, and Russel operations that should result in some capital realignment. 

Capital deployed remained over $1.7 billion, and our capital grew from what was $1.3 billion at the end of 2023 to $1.6 billion at the end of 2024 to just over $1.7 billion on June 30. And given the potential M&A landscape, I suspect we'll be able to further deploy additional capital at attractive returns. 

Generate strong return on invested capital. Our return on capital has averaged over 20% per year for the past several years. And in Q2, we generated an annualized level of 20%, which is an improvement from the Q1 level and continues to be above the performance of our publicly traded U.S. comparables. 

Growth in strategic ways. Our U.S. platform is 44% of year-to-date revenues compared to 30% in 2019. And if we roll the clock forward, I expect that our U.S. platform will be over 50% of total revenues over the near term. We also have 11% of our revenues as specialty metals, such as stainless and aluminum, as that's a key focus item for us going forward. 

On the last row of the diagram, returning capital to shareholders. We have a balanced approach, and I'll talk more about this later on. In Q2, we returned $23 million via share buybacks and $24 million by dividends for a total of $47 million of capital returned to shareholders. Last item, bottom right-hand box, maintaining a strong capital structure is critical as we operate in this cyclical industry. At the beginning of the quarter, we extended our bank facility. And as a result, our liquidity is strong. We have flexible bank covenants. We have no financial covenants in our term debt, and our maturities are 2029 for the bank debt and 2030 for our term debt. So let's go to market conditions, which is on Page 6. 

We saw in the top graph, sheet and plate prices exhibit a strong upswing in the early part of the year because of the tariff dynamic. Prices have since stabilized, and the outlook will be driven in part by the evolving tariff dynamic. That being said, metal prices remain at favorable levels compared to historical price points that we have seen in the past. Our shipment levels have remained solid in spite of the volatile price environment, but we will experience a seasonal slowdown in Q3, as is normal, due to holiday-related schedules in July and August. 

To talk about tariffs for a moment. Our adaptable business strategy has proven to be successful as the industry navigates through this evolving tariff dynamic. And for us, we are a transactional business with a lot of flexibility to quickly change as the market changes. We focus on inventory management, so we don't speculate on things like tariffs or other market dynamics that are beyond our scope. As the past few years have demonstrated, we have generated strong cash flow in both the up and down markets as our operating people have done a really nice job of navigating through the market volatility. 

On the bottom chart, we've shown aluminum and stainless prices as though are now a more meaningful part of our product mix. And as you can see from the chart, those products don't exhibit as much volatility as carbon-based products, as they have different supply and demand dynamics. On the right charts, supply chain inventories in both Canada, in the top right, and U.S., in the bottom right, have moved up a little bit over the past few months, but they remain within a normal range. 

On Page 7, we have a snapshot of the trend of our historical results. And if we look across the various charts going from top left, revenues were up versus Q1 due to the favorable business conditions. Revenues of over $1.2 billion was the highest level in over 2 years on a quarterly basis. EBITDA of $108 million was the highest level achieved since early 2023. Margins increased about 180 basis points for gross margins and 160 basis points for EBITDA margins. This improvement in margins is a noticeable outperformance to some of our public competitors, who had relatively flat margins on a quarter-over-quarter basis. EPS was $1.07, which is the highest quarterly level since early 2023. And as I said earlier, our Q2 annualized return on invested capital came in at 20%, which is a nice pickup from Q1. 

Also, as discussed earlier, and I'll go in a little bit more detail later on in relation to our capital structure, we're in really good shape. Our net debt to invested capital is only 6%. So we have lots of dry powder to do things opportunistically. 

Going to more detail on financial results, Page 8. From an income statement perspective, I covered several of the high-level items on the previous page, but a few other items to note. Revenues up 3% from Q1, and I'll talk more about volumes later, but it was a strong shipping quarter in spite of some weather-related issues that impacted a lot of the regions across North America. Gross margins and EBITDA margins, I said already, were up on a quarter-over-quarter basis. And our Q2 results were pretty good in spite of 2 very specific items. 

The mark-to-market on our stock-based comp was $5 million of expense in Q2 versus a $3 million recovery in Q1. Also, as most people have experienced, the Canadian dollar strengthening did have a negative impact on our P&L from the translation of our U.S. operating income into Canadian dollars. The P&L impact was about $2 million negative of pretax income due to that strengthening Canadian dollar dynamic. 

From a cash flow perspective, in Q2, we used about $43 million from working capital due to the positive business activity. Share buybacks were $22 million before tax, and cumulative share buybacks since August of '22, a little over 12% of our shares outstanding for $288 million, or $37.61 per share, has been the average buy-in price. 

Quarterly dividend was $0.43 per share paid in June, and we just declared a 43% share dividend that will be payable in September. As I mentioned earlier, our CapEx of $16 million was down a bit from Q1, but we still have a nice pipeline of projects ahead of us, and we should average in the $90 million to $100 million per year zone for a few years, but it will ebb and flow on a quarterly basis. Balance sheet perspective, we remain in a strong position with only $104 million of net debt. And lastly, our book value per share remains near $29 per share in spite of the recent FX impact that impacted our OCI account and the shareholders' equity balance.

On Page 9, we have a graph that shows EBITDA variance on a quarter-over-quarter basis. And going from left to right, if we start with the service centers, the volumes were down a small amount compared to Q1, but the pickup in margins had a large positive impact on our service center EBITDA. And in total, our service center EBITDA was up $19 million versus Q1. 

Energy field stores were up $4 million versus Q1 as the cement segment recovered from a relatively slow start to the year. Steel distributors had a nice solid quarter and was fairly comparable with Q1, as it benefited from the favorable environment that occurred in the early part of Q2. In the other bucket, there was a negative impact from the mark-to-market on our share-based compensation, which I mentioned earlier, and it was offset by the seasonal recovery of our Thunder Bay terminal operations. 

On Page 10, a little bit more detail on our segmented P&L information, service centers. Very positive results, as I said earlier, for Q2, and I'll go through some of the specifics in more detail on the next page. Energy field stores we're continuing to see solid performance after the slow start to the year, with revenues, margins, EBIT, all up versus Q1, and steel distributors' revenue and EBIT were comparable in Q2 versus Q1. 

Page 11, a bit of a deeper dive on the metrics related to the Metal Service Center segment. Top right graph is tons shipped. Q2 was a near record. We were really happy with our team's efforts to move volume in a volatile market, and it reflected a continuation of our market share gains at attractive margins. Going into Q3, as I said earlier, we expect to see our volumes come down from Q2 levels, as is typical seasonal activity. You can see that to some of the other Q3 versus Q2 trends on that same chart. 

On the bottom left graph, we have revenues and cost of goods sold per ton. Our price realizations per ton were up more than our increase in cost of goods sold per ton, which led to a very nice pickup in gross margins. Our gross margins were $487 per ton, which was up $57 per ton versus Q1, and EBITDA per ton came in at $200, which was a $52 per ton pickup versus Q1. These shifts are noticeable versus our competitors and a reflection of the benefits from our value-added initiatives and our team's ability to quickly adapt to market conditions. That said, some of the improvement in the quarter was related to lag effect benefit from lower cost inventory going into cost of goods sold, and this benefit is likely to reverse somewhat in Q3 as we expect Q3 average margins to be lower than the Q2 average. 

On Page 12, we have illustrated our inventory turns. It is a focus item that we always do talk about and is a huge focus item internally to be efficient in adjusting to market conditions. This chart shows the inventory turns by quarter for each segment, energy in red, service centers in green, steel distributors in yellow. The black line is the average for the entire company. And overall, our inventory turns remained relatively flat at 3.7 as the 3 business segments each had similar results in Q2 and Q1. Our team has done a phenomenal job in continuing to manage inventory through these volatile times. Hats off to them. 

On Page 13, we have the impact of the inventory turns on inventory dollars. Total inventory in dollars was up a small amount compared to March 31, and this was mostly related to higher prices that were somewhat offset by lower tonnage, as the operating team, as I said earlier, has done a really nice job of keeping tonnage in check. Page 14, we have the overall impact on capitalization and returns. I said earlier, our capital deployed is a little over $1.7 billion, which is up from where we were at the end of 2024 and earlier years. On a return basis, our 3-year average return on invested capital for the last couple of years was 24%. 

Page 15, update on our capital structure. As I said earlier, our liquidity is strong, which gives us a lot of flexibility. Maturities have been extended for our bank lines to 2029, and we've got 2030 maturities on our term debt. And our equity base per share continues to grow despite the share buybacks and dividends over the past quarter, as well as the FX impact on our OCI accounts. We've grown our book value per share, and it's $0.47 per share higher than this time last year. 

Page 16 is our standard chart on capital allocation priorities and continues to remain the focus item for us. It's a multipronged approach. On the left-hand part of the page, our investment opportunities, seeking returns over the cycle greater than 15%. This past quarter, the past few years has been a good indicator that we've achieved more than that on a steady-state basis, and we continue to see some interesting opportunities going forward. And the interesting opportunities are across the transom. It is on additional value-added equipment, additional facility modernizations. And in terms of acquisition, we're actively looking at M&A opportunities, and the types of acquisitions that are being considered are similar in nature and scope to what we've done over the past few years. 

For returning capital to shareholders, we've adopted a fairly flexible approach. And if we look back over the past 12 months, we have returned about $107 million to shareholders via the NCIB, and the current annual run rate for our dividends is around $96 million. 

On Page 17, a little bit more context to our reinvestment program. Over the last 12 months, we've invested $87 million in CapEx. And as I said earlier, it does ebb and flow a little bit by quarters as some projects come on and some projects come off. And in Q2, we are down a little bit as some projects were completed, and we're still scoping some potential new projects. across our platform. 

Page 18, a little bit of a deeper dive on returning capital to shareholders. Top left graph is the longer-term dividend profile. And with the dividend increase that we had last quarter, it's continuing to be $0.43 per share, which was a lift from where it was at this time last year. And we'll continue to regularly revisit the appropriate dividend level to consider our capital structure, earnings profile, and other capital alternative deployment opportunities as was done when we lifted the dividend in May 2023, May 2024, and most recently in May of 2025. 

Bottom left chart, we show our quarterly NCIB activity that was put in place originally in August of 2022. We don't have a fixed approach to the program, and we view it as an opportunistic way to buy back shares, and we've been more aggressive at certain price points than others. In the past quarter, we bought back about 0.5 million shares at an average price of a little over $42 a share. 

Bottom right chart is the impact of the NCIB has been a gradual reduction of our share count, and the net result is about a 12% reduction in our shares outstanding over the last couple of years. And the top right chart is the aggregation of dividends versus NCIB over the past 2 years. And again, it ebbs and flows by quarter, but it's been fairly balanced in totality as we look over the last year or 2. 

In closing, on behalf of John and other members of the management team, again, I'd like to really express our appreciation to everyone within the Russel family for their contributions. We're really pleased with the first half of 2025 and look forward to realizing on a series of interesting opportunities that are on the near-term horizon. 

So operator, that concludes my introductory remarks, and you can now open the line for any questions, please.

[Operator Instructions] Your first question comes from James McGarragle from RBC Capital Markets.

Congrats on the strong Q2 there. So just looking at some of the commentary, you flagged some margin pressure in Q3. And then some of your peers flagged some demand pressure into the third quarter. So within that backdrop, can you just give us an update on how you're thinking about volume trends in the next quarter, particularly in light of some of the weak PMI readings that we've seen come out of Canada and the U.S.

Yes. Thanks, James. I appreciate your comment as well. Let me deal with the margin topic, and then John can deal with some of the latter dynamic that you're talking about on the demand side. So I wouldn't surprise it so much as margin pressure, as it is sometimes it's just -- it's that lag effect that naturally happens. But for all intents and purposes, prices have gone sideways for the last little bit. So what we saw in Q2 was the benefit of the lag effect. And in Q3, it will just be the reversal of that. So I wouldn't necessarily characterize it margin pressure. It's just the natural evolution of the timing delay between what we get on the pricing side and the time flow of when prices affect inventory, and then ultimately flow to cost of goods sold and then margin. 

That being said, John?

James, on demand, again, we feel like we're going to be fairly stable on demand with just the normal seasonal dynamics that Marty mentioned. You've got obviously construction holidays in Quebec. And then again, the holidays of the kids return to school, we go through this time of year. But overall, on demand, nonresidential construction is still doing fairly well, even though you look at the Architectural Building Index is a little light. You've got a strong, strong backlog in data centers and infrastructure that's really carrying that for several quarters to come. 

Oil and gas is very steady. It's going to benefit from these data centers down the road, they're going to just have a massive need for power generation coming out of them or solar, but we won't have enough power to support all of that potentially in North America. Ag is struggling. It continues to struggle, but we've also been encouraged by heavy equipment. We've seen heavy equipment kind of coming out of their lull and starting to develop a pretty nice backlog. Capital is one that shows that as well. So I think that, again, bodes well for what's going on in construction. And so overall, we feel like demand is going to be pretty stable in the quarter.

I appreciate the color. And then just on Samuel, the systems integration is complete. Can you just give us an overall update on where you are at in the integration? And just on the back of that, that systems integration, can you just kind of give us some color on how we should be thinking about the impact to sequential earnings trends given the potential rationalization of the Western Canadian footprint? And after that, I can turn the line over.

Yes. Thanks, James. And you're exactly right. We went through May and June. We integrated into our computer systems, brought those over. Things went fairly well there. And so now we can see inventories. Now we can improve on the inventory turns, we can improve on the efficiencies. There's opportunities to maximize equipment utilization rates that are out there, look at facilities, and make sure we have the right inventory in the right facilities, also allows lower cost. So that's really step 2 or 3 that we've got going. We'll continue on that through the end of the year, and we'll move forward with the third step of fully integrating everything. 

Martin, do you want to say something?

Yes. And James, your question is a really good one as it relates to what the earnings profile should look like, what the margin profile should look like going forward. And I think one of the things that you'll notice in terms of the near-term impact is it's going to be more noticeable on the capital deployed side of it, the balance sheet side of it. And yes, there's going to be some improvement in terms of margin realization that we'll see over the next little bit. 

But just as a reminder, when we announced the Samuels acquisition, what seemed like a really long time ago, at the time, the headline number for capital deployed was about $225 million. And that was about 80% of that was working capital. By the time we got to closing, which was in August of 2024, that $225 million sticker number on announcement was closer to $170 million because with the passage of time, there was some of that capital reduction that naturally took place over that period, and that benefited us with that reduction in the purchase price by time we got to closing. With some of the initiatives that are now underway, that $170 million of capital deployed at closing is going to come down even further. And I wouldn't be a bit surprised if we're able to pull out another $30 million to $50 million in various forms over the next little bit. 

And when you put that all together, what start off is a $225 million sticker acquisition when the dust settles might be $100 million lower than that by the time we get to the finish line on these capital reallocation initiatives.

And your next question comes from Frederic Bastien from Raymond James.

I know you highlighted your expectations for volumes to be down modestly, given the seasonality. But just wondering if you could speak to what your expectations for steel prices will be not -- assuming they stay intact through September, can we expect Russel's average selling price for the quarter to be up or down from Q2?

Yes. So let's put it this way. It probably -- the price -- the steel prices -- the price realizations, excuse me, at the end of the quarter were down slightly from the beginning of the quarter, but they've kind of drifted sideways. So all things being equal, and this market has a tendency not to be equal and not to go sideways. But what we have seen is it really moving sideways over the last little while, and our net realizations have gone sideways over the last little while, but they were slightly lower at the end of the quarter than at the beginning of the quarter.

And speaking of things that are hard to predict and unstable. Can you discuss the latest moves by the Canadian government around the tariffs and quotas? Just wanted to get sort of an update of what -- how it stands as of today. Again, that may change, but just curious what your thoughts are on that.

Yes. Thanks, Fred. And yes, you're right, it will change. But frankly, I don't envy the position that Carnie and his team are in. This is -- there are so many moving pieces at lightspeed with, as you well know, with decades of policy to navigate very quickly in the first few months on the job. So this has been a lot to navigate. But what we're looking for and what our industry needs is really some certainty and some clarity, and we think it could really unleash some pent-up demand that's out there in Canada as well as the U.S. 

But the current stance to your question, is ambiguous, I would say, at best. And what I mean by that is it feels like an effort just to maintain status quo. They went back to you get -- if you're a free trade partner, which almost everyone is with Canada, you get 100% of last year, and then there's a quota. We're more than midway through the year. What does that mean? There's a lot of things that the rules that weren't filled in on this. When does it start? When does it end? And so I think that was my intention. Again, it's obviously a very fluid situation. And I think as they try to negotiate with Washington and get to a point of having something that is more concise and is more clearly defined. I don't think they don't want to disrupt anything that's out there right now. 

So really was a lot, again, very ambiguous that happened, and just not a lot of change on anything that's out there. And so I think it's best is just finding some time to see if they can negotiate.

My last question is around M&A activity and your pipeline. I know we often ask you that every other quarter, but do you -- how do you feel today about your ability to potentially close in something in the next 6 to 12 months versus how you felt 6 to 12 months ago?

Good is the short answer. That being said, things aren't done until they're done, but there is a fair amount of activity and good activity. It does take a while to get things to the finish line, and there are sometimes left turns and right turns and impediments that do get in the way. But collectively, when we look at the landscape of things that are out there, we're optimistic.

So it's business as usual.

Your next question comes from Michael Tupholme from TD Cowen.

First question is just around the volumes in service centers. Tons shipped were up 22% year-over-year. Obviously, that was helped by the Samuel and Tampa Bay acquisitions. Just wondering if you can provide -- if I didn't miss it, but if you can provide a breakdown of that year-over-year tonnage growth, how much of that would have been from the acquisitions versus what the organic piece would have looked like?

Yes. It's kind of flat-ish on a same-store basis. And so the growth that you saw is probably from Samuels. The Tampa Bay acquisition, it brings a nice bottom line, but it's not a huge tonnage business. So most of the increase -- well, virtually all the increase year-over-year. So if we're comparing Q2 of 2025 to Q2 of 2024, most of the increase was related to acquisitions, and the vast majority of the increase related to acquisitions with Samuels if you're looking at tonnage. It's a bit of a different equation if you're looking at the bottom line. And as I said earlier, the Tampa Bay acquisition, it's not a big tonnage operation, but it is a nice bottom-line operation because of the amount of value add that they do.

And then -- so just to tie that together with what I think was suggested earlier, on the organic piece, likely sort of similar types of volume trends barring or until we get some certainty that on the trade front, which John sort of alluded to, could free up some pent-up demand. Is that sort of the way to maybe frame things up at this point?

Yes, more of the same.

And then just as far as -- you've already commented on the second--

And my apologies, Mike, notwithstanding the seasonal dynamic.

Yes. Sorry, I meant year-over-year, putting seasonality aside. And then you've already talked a little bit about the expectation for the sequential moderation in service center gross margins. And -- but I guess just to maybe get a little bit more specific, if possible, is the idea here that -- I mean, there was a bit of a benefit in Q2, whatever moderation you'd see in Q3 kind of gets you back to your sort of normal range, which I know you -- I think as you sort of suggested earlier in the call, like things don't tend to stay in one place for too long. But like is that the idea that maybe getting back into sort of a historically normal range in Q3 and then maybe that carries on, again, assuming no major swings here in steel prices?

I actually appreciate the way you asked the question, Mike, because I don't view normal as a single number given the volatility of any cyclical industry. It's kind of a range. And if you look at Q1 and Q2, as 2 data points, that's not a bad range given, okay, Q1, things were soft at the front end, and they picked up at the end. And in Q2, it picked up at the front end of Q2 and then softened at the back end because of that lag effect dynamic that I talked about. But those provide interesting data points in terms of a range over the -- and again, it's only 2 quarters, but that -- those are good frames of reference of not a bad range.

And then haven't talked about steel distributors here on the call. There was a suggestion in the MD&A that tariffs are having some impact on that segment's performance as a result of cautious business conditions, particularly in Canada. I guess I'm wondering if you can speak in a little bit more detail to what you're seeing there and how we should think about that segment's performance going forward over coming quarters? Is it sort of -- is the expectation again absent some sort of change that provides some certainty to the idea that the level of revenue you saw in the second quarter, we should expect something similar kind of going forward for that segment?

I think you're going to see more of the same until we do get some certainty there, especially on the Canadian side. On the U.S. side, there are starting to be trade deals, so there are avenues starting to open up. So we may see some changes there in that market. We'll watch. But I think you can again -- for the near term, being the next quarter, I think you would see more of the same.

Okay. So it's not getting any worse. It's just there's been some pressure because of the backdrop, and that now kind of takes you along at a similar level, barring some change.

Yes. With one qualifier, Mike, from a business activity, yes, but from a margin perspective, no. So again, just like our service centers benefited in Q2 from a margin pickup because of the timing, the time lag, to a certain degree, our steel distributors did the same. So in Q2, if you're trying to talk about volumes, business activity volume is more of the same. But the margin dynamic that impacted the service centers' Q2 versus what we expect in Q3, I'd apply that to the steel distributors as well.

And your next question comes from Ian Gillies from Stifel.

In the prepared remarks, you mentioned getting to a 50-50 revenue split between Canada and the U.S. You are getting close. But do you believe you can fund that sort of M&A to get to that metric through what's currently available to you, which I think was roughly $560 million at quarter end?

Yes. Like first off, it wouldn't take $500 million to get to 50%. So yes, short answer is yes. And the $500 million gives us lots of dry powder to continue to do the types of things that we've been doing. And if you take just, for example, a Samuels type acquisition, if that was just the U.S. business, that same size, that gets us through 50%. We would have still -- to get through 50%, we wouldn't be using anywhere close to all of our dry powder.

Yes. Understood. You mentioned another $30 million to $50 million related to Samuel. I know some of that was going to be real estate. I'm just curious, do you have anything up for sale yet in Western Canada from a real estate perspective that's redundant? Or is that still on the come? I'm just trying to figure out timing of when we could potentially see proceeds.

Yes. We're working through a few of the moving pieces on that front. So when I talked about the $30 million to $50 million, that's both a function of real estate that is redundant, as well as working capital management. So it was a function of both. But we're looking at a variety of scenarios. So it isn't just conceptual. We're actively looking at some scenarios.

Understood. Last one for me, and it's a bit of a tricky one. But when I think about the step-up in profitability and business performance in this tariff environment, it hasn't been quite as robust as what was seen in 2018 in the prior tariff environment. And so like, I'm just curious if you could maybe walk through some of the dynamics of what's been different this time. And obviously, there's been a lot, and what happened last time, and it's just out of curiosity.

Thanks, Ian. It kind of goes back to my opening comments, the certainty and the clarity. The first time we went through tariffs, here's the number, here's what happens, here's the clarity, certainty, everybody knows how to react in the industry, supply chains renavigate, and off we go. This time, it's tariffs in, tariffs out, tariff changes. I'm in a bad mood. So there's just no certainty and no clarity until we start to get some trade deals put in place. it's also wildly affecting what's going on with interest rates in both countries. And so it's been a much longer slog test to get stability that say this is what the rules are, now we can go play the game. And so it's been a much bigger challenge there to navigate that. And I think that's the biggest difference you're seeing.

[Operator Instructions] And your next question comes from Maxim Sytchev from National Bank Financial.

A quick question for you in relation to HVAC, because when we listen to some of the producers that are talking about sort of imbalance in Canada, the bigger discounts, et cetera. Do you mind maybe delving a little bit why this in your results? Yes, any color there would be helpful.

So your premise is right as a starting point, there is a made-in-Canada price versus a made-in-the-U.S. price. And that goes back to the tariff dynamic, and there's artificial constraints across borders right now. And so there is -- and I use the word carefully, there is product that is being dumped into Canada that has a domestic price in Canada that is different than a domestic price in the U.S. if you're a steel producer. 

That being said, we're not a steel producer. So we can navigate through that dynamic differently than a producer does because we have a very flexible approach to how we do things. And so it really is a different impact on how that pricing dynamic of a made in Canada price versus a made in the U.S. price, or frankly, made internationally priced works for a producer versus how it works for us. So we're pretty adaptable of where we're sourcing from and how we're sourcing material, and that gives us a lot of flexibility within our operations on both sides of the border. 

So Max, I don't know if that answers your question, but I think it really gets to why isn't an equivalent adjustment in all regions, in all parts of the supply chain. Does that answer your question?

Yes, yes. No, 100%. Yes, super helpful. Absolutely. And then your comment around "interesting opportunities," does that relate to organic and organic? And maybe if you don't mind separating those things kind of in your interest in nonferrous versus ferrous opportunities?

It's all the above, really. It's organic, it's through CapEx opportunities. It's through acquisitions, it's carbon, it's nonferrous. It's the full menu right now of situations that we're pursuing. And frankly, in some ways, it's sort of the same playbook as we had in 2024, which is when we look at all the initiatives that were done in 2024, it's organic market share gains, it's benefits from some of the spending that we did. It's the acquisitions. And with the acquisitions, we got some value add, and we got some nonferrous that came with it. And then nonferrous growth feeds on itself when it comes through acquisitions of what you can do organically as well. So that same playbook is that we used in 2024. It's still the same playbook in 2025. We're just only halfway through the year. So there's more things on the come. For sure.

And then in terms of M&A, again, like, I mean, obviously, there is uncertainty sort of everywhere. And Joe, a question for you because you're base there, is kind of the number of kind of inbound right now is actually driven by that uncertainty? Or how would you qualify that?

Yes. Thanks, Max. I don't know that it's driven necessarily by uncertainty that's out there right now, but we've seen a lot of M&A, just there's timing issues that are out there. I think people are going through the markets. You're seeing generational changes in some family businesses. You're seeing other businesses go refocus on what they want to do well. And there may be opportunities to separate some businesses. So -- but I wouldn't say it's really based on the uncertainty that's out there. Although to Marty's earlier point, we've now built a balance sheet that gives us ultimate flexibility. So we can take advantage of opportunities as they present themselves. So if there is some uncertainty or if there is somebody that's in a volatile situation, we're in a position to do something quickly.

And your last question comes from Michael Tupholme from TD Cowen.

Just maybe a bit of a follow-up on some of the last discussion around M&A. I guess you sounded earlier on the call like you're quite relatively sort of upbeat on the prospect of some potential M&A. I guess my question is really, are you seeing sort of an elevated level of deal flow and opportunities? Is that sort of what gives you the confidence to make these comments? Or is it more around line of sight on some more specific opportunities that you feel pretty good about, versus sort of the breadth of opportunities out there?

I'd say it's yes and yes. And there's also a third bucket, which is the quality and the fit that we're seeing just is more interesting. I mean there were times like in 2022 and 2023, where the volume of inbounds was off the charts. But as a reminder, we didn't do a single acquisition of consequence in 2022 or 2023 because they just weren't that interesting, or the value didn't make sense, or there were some red flags somewhere or another. So we looked at an enormous number of opportunities. 

So it was more -- so it was -- there's been times where we've seen deal flow more than there is today, but the quality just wasn't there. And by quality, I mean quality as it relates to our criteria and fit with us. So I think that's probably more of the latter category that we're thinking about today, is there's always been activity. There's always been deal flow. Sometimes it's even more robust in past years, and we didn't do anything. But there's just more intrigue of what we're looking for and how opportunities fit with what we're looking for.

And then I think you also suggested that in terms of thinking about the kind of opportunities, and you described it as having opportunities of having similar nature and scope to what we've seen in the past. So I guess just to be clear, would it be right to think about that as meaning opportunities would look more like a Tampa Bay type acquisition versus Samuel, which I think was somewhat unique in the sense that it was more of a turnaround situation.

No. Both were interesting frames of reference. And the deal flows that we are seeing look like variations of both of those. So I think 2024 and having closed both of those transactions in 2024 gives kind of a frame of reference of we look at the waterfront, sometimes there's some cleanup. Sometimes it's plug and play. Sometimes there's a lot of value add. And if I kind of go back in history, too, when we did the Boyd acquisition in late 2021, it was a really well-positioned business in the right geography, they didn't do a lot of value add. They did a lot of nonferrous, but they didn't do a lot of value-added. So I contrast that with Tampa Bay that both does a lot of nonferrous and value add and it's more plug-and-play. 

So the variations change around the criteria. But in the Boyd one, and I point that out as an example, some of the things that we have done since acquiring Boyd, and what intrigued us when we bought Boyd, is there were opportunities to deploy incremental capital within those operations. So I'm trying to remember back, but -- so at the time, there was 5 branches within Boyd, and we have reinvested pretty actively in 3 of the 5 branches. So back to your question, Mike, is it more like this or like that? If you look at Boyd, if you look at Tampa Bay, if you look at Samuels, those are the variations that make sense to us, and those are the type of situations, plus or minus, that we're continuing to look at.

There are no further questions at this time. I will now turn the call back over to Mr. Martin Juravsky. Please continue.

Great. Thanks, Operator. And again, really appreciate everybody very much for joining our call. If you have any questions, please feel free to reach out. Otherwise, look forward to staying in touch during the balance of the quarter. Take care, everyone.

Ladies and gentlemen, this does conclude your conference call for today. We thank you very much for your participation. You may now disconnect. Have a great day.