Russel Metals Inc.

Good morning, ladies and gentlemen, and welcome to our 2025 year-end and fourth quarter results for Russell Metals. Today's call will be hosted by Mr. Martin Jaresti, Executive Vice President and Chief Financial Officer, and Mr. John Meade, President and Chief Executive Officer of Russell Metal Bank. Today's presentation will be followed by a question and answer period. At that time, if you have a question, please press star 1 on your telephone keypad. I will now turn the meeting over to Mr. Martin Jaresti. Please go ahead, Mr. Jarafsky.

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 three, 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. If you go to page five, 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 three acquisitions over the past 16 months, being Samuel, Tampa Bay, and most recently, the Kwalkner 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 have a plan to reduce the footprint, gain efficiencies, and also repatriate redundant capital. When the sale of the Delta property in B.C. 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 four times average EBITDA. Going forward, we're 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 standalone business with strong value-added non-ferrous 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 Klockner where we picked up seven new branches in the U.S. total, including two in Florida, that complement the Tampa Bay presence in that market. And I'll talk more about Klockner acquisition in a minute, but the geography is exceptionally good for us. In the blue bar, it shows we returned about $900 million to shareholders via 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 de-risked our business, the result is that our credit profile has changed significantly, and we are now rated investment grade by both S&P and DPRS. On page six, 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 as 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, and 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 two periods of time being both pre-COVID and post-COVID. The pre-COVID period is the three 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 and looking for medium-term trends. And the right chart reflects the most recent three-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 three-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 of the trailing 12-month period over the last four quarters, including the most recent quarter. If we go to page seven, 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 are 2025 CapEx with $74 million. This number is below our expected multi-year 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 Klockner locations. Capital deployed is now $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 repeat trading capital where the returns are not adequate. As I mentioned earlier, in September, we announced the closure of a branch in Delta BC in 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 Samuels acquisition. When that real estate sale closes in the coming couple months, we'll have reduced over $100 million of capital in Western Canada and thereby reduce the cost of this annual 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 three 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 Kloffner acquisition, our U.S. platform will be over 50% of total revenues. Also, we'll have 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've 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. So go to market conditions on page eight. On top chart, we saw sheet and plate prices exhibit increases in many categories over the past couple 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 six 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 nine, snapshot of our historical results, starting on the top left on 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. We're up over the comparable periods of 2024. Earnings per share was 55 cents 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 three-year average was 18%. Both of these are industry-leading figures. And as mentioned earlier on 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 2025. There was a little bit of clutter and 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 was about $1 million of costs related to the Klockner 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 and transit that was expensed in Q3. And we recovered that back in Q4. And we actually had a small but $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 clockner acquisition closed, and the estimated purchase price is now U.S. $95 million, or $130 million Canadian, 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 Klockner branches under our watch will go up somewhat from the capital deployed at the December 31st closing date. That being said, to put the $95 million purchase price into context, you'll see from our financial statement disclosure that the Klockner branches generated around $550 million U.S. of revenues in 2025. and around $30 million U.S. 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 are 14% of our shares outstanding for $326 million, or a little under $38 per share. Our quarterly dividend, 43 cents 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 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 Q4 as well as full year 2025, which had a negative impact on the FX translation in our OCI accounts. On page 11, there's an EBITDA variance analysis between Q3 and Q4, starting on the left and looking at service centers. The service center as a whole was flat quarter over quarter. There are some positives and negatives there. Volumes had a negative impact, but that was, again, the seasonal factor. The margin impact was a slight positive with most of the pickup and 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 non-recurring 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 in the sale, but 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 a 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 a 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 Q4s versus Q3s. 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 – tons shipped – excuse me. 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 tonne. Our price realizations, cost 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 the same store basis. Page 14, inventory turns. Overall, our inventory turns declined from 3.8%. 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 Klockner inventory that came with the acquisition that closed on December 31st. 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 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 clock closing on December 31st, and our liquidity increased from $600 million to to $653 million. The far right column on the table shows the impact of the Klochner 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 multi-year 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 collector acquisition that only closed a few weeks ago. For returning capital, shareholders, as I said before, our approach is to be flexible. Over the last two 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 dividends 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 times already. If we look at 2025, it was a little bit of a down year from what our expectation was. We invested $74 million in CapEx, which was down from $90 million in 2024. I expect the 2026 CapEx to be closer to $100 million mark as our multi-year pipeline, as I said earlier, is about $200 million. And that includes a number of opportunities that we'll pursue in at the former Glockner 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 43 cents per share that will be payable in March. We'll continue to regularly revisit the appropriate dividend level, take into account capital structure, earnings profile, and the like, as was done when we lifted 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 to buy back shares, and we've been more aggressive at certain price points than others. In Q4, we acquired around 600,000 shares at an average price of around $40.58. 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 in 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 and thanks to everyone on the RUSLE 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 Klockner branches, but we see significant opportunities that will be pursued over time, and we really appreciate everybody's efforts and contribution to realizing those opportunities. So operator, that concludes my introductory remarks. Can you please open the line for any questions?

Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press the star followed by the one on your touchtone phone. You will hear a prompt that your hand has been raised. If you wish to decline from the polling process, please press star followed by the two. And if you are using a speakerphone, please flip the handset before pressing any keys. The first question comes from James McGargle at RBC Capital Markets. Please go ahead.