Russel Metals Inc.

Good morning, ladies and gentlemen, and welcome to the 2026 First Quarter Results for Russell Metals. Today's call will be hosted by Mr. Martin Dorofsky, Executive Vice President and Chief Financial Officer, and Mr. John Reed, President and Chief Executive Officer of Russell Metals. 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 Dorofsky. Please go ahead, Mr. Dorofsky.

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 three, you can read our cautionary statement. on forward looking information. To begin, I would characterize Q1 as a very positive inflection point for two 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. In 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 five, we've 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 three items. One, the Klockner 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 Klockner business generated about Canadian $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 pre-tax 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 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 deploys around $1.8 billion. Our capital grew from 1.3 at the end of 23 to 1.6 at the end of 2024, and there's additional opportunities on the come. we generated strong return on invested capital. Our annualized return on invested capital in Q1 was 22% versus 15% over the past two 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 non-Ferris business was 10% of revenues in Q1, which was down from 11% in 2025. as the former Klockner branches were carbon-based and added to our total sales, but not necessarily to our non-Ferris 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 $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 totals 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 six. Quick summary, market conditions are pretty good right now. We saw sheet and plate prices exhibit increases on a steady basis over the last six months. Hot roll 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. Two 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 LCM EBITDA And our Q1 2026 annualized EBITDA, if we were to exclude some of the non-recurring 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 are 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 eight, a 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 in 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 we exclude the gain on sale of 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 For Q1, annualized at 22%, and our three-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 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 clockner 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 Klockner branches contributed around $8 million Canadian of EBITDA in Q1. And as I've mentioned already, there were a couple of non-operational items in the quarter, including our results, $36 million pre-gain, which was $31 million after-tax gain on the sale, and a positive. The mark-to-market stock-based comp was an expense of $5 million in Q1. It was also an expense, but 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, Klockner acquisition closed and the final purchase price based upon refined working capital was US $94 million. As a result, we received an $8 million or about 11 million Canadian payment back from Klockner in April to adjust for what was otherwise paid on a preliminary basis in December. And to put that US $94 million purchase price into context, it equates to around $128 million Canadian. And the former Klockner branch has generated 183 million Canadian of revenues, $8 million Canadian 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 four times EBITDA. Share buybacks were $7 million in Q1. Cumulative share buybacks since August 2022, 14% over. 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 43 cents that was paid in March. And as I said earlier, we've just declared an increase to 44 cents that will be paid in June. Our capex 18 million was up a bit from Q4. Balance sheet perspective will remain 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 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 margins 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 clock part of the business contributed about $8 million Canadian of EBITDA. Energy field stores had a nice quarter. 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 a 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, even though were very comparable in Q1 versus Q4. Page 13, a deeper dive into the metrics within our service center segment, and there's some really nice and noticeable changes quarter over quarter, starting with the top right graph is ton ship. Q1 was a record by a lot. Shipments were up 32% over Q4 and up 18% over Q1 2025. The Klockner 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 the same store basis. As I mentioned earlier, the clocker 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 the same store basis. So again, contributions and improved market conditions is part of the outcome that we saw in Q1. Page 14, inventory turns, overall inventory turns improved 4.2 in Q1. Inventories are tight as business conditions are strong. Page 15, we have illustrated our inventory dollars. Total inventory at March 31st was comparable to what it was at December 31st, 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, 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 liquidity remains right around a half a billion dollars. Page 17, 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 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. approach. And over the last two years, we have returned an average amount on an annual basis of about $99 billion to shareholders via the NCIB, while the annual run rate for a dividend is now $97 million after taking into account both the reduced share count and the increased dividend to 44 cents per share. So pretty balanced and very comparable amounts between both the historical NCIB and the dividend level. Page 18, provide a context on our capital reinvestment program. In Q1, we invested $18 million in CapEx, which is a slight increase in the recent quarters. And expect a 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 and 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 increase in four 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, an average price of $47.42 per share. As I mentioned earlier, our cumulative NCIV since 2022 has been a 14% reduction in our share counts at an average cost of $38.13 per share. Top right chart, the aggregation of dividends in NCIB over the past two years shows 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. In closing, on behalf of John and other members of the management team, just really like to express our thanks to everyone on the RUSLE 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.

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 lift the handset before pressing any key. The first question comes from James McGregor from RBC Capital Markets. Please go ahead.