Good morning, ladies and gentlemen, and welcome to the third quarter 2021 results conference call for Russel Metals. Today's call will be hosted by Martin Juravsky, Executive Vice President and Chief Financial Officer, and John Reid, President and Chief Executive Officer of Russel Metals Inc. Today's presentation will be followed by a question-and-answer period. At that time, if you have a question, please press star one on your telephone keypad. I will now turn the meeting over to Marty Jarovsky. Please go ahead.
Great. Thanks, operator. Good morning, everyone. I plan on providing an overview of the Q3 results, in addition to providing some additional details on yesterday's acquisition announcement related to Boyd Metals. If you wanna follow along, I'll be using the PowerPoint slides that are on our website, and just go to the Investor Relations Conference Call section. If you go to page three, you can read our cautionary statement on forward-looking information. If we begin, let's go to page five. Just to give a context and a bit of an overview, the results for the quarter were exceptionally strong and built on the back of a really strong Q2. Our initiatives over the last 12 to 15 months have positioned us to benefit from the prevailing market, as well as create new opportunities going forward.
In particular, when we reflect on what we outlined as our game plan around 12 to 15 months ago, we're pretty proud to have delivered a series of actions that align with that game plan. To put a little context around market conditions, the market has been and continues to be very good. Even though there is more inventory in the supply chain than there was three to six months ago, we are continuing to see a good supply and demand balance. In addition, our price realizations continued to increase through the quarter and overall, company-wide, our margins were comparable in Q3 versus Q2 at a very high level. Favorable market conditions are continuing into Q4, demand is good, and the number of months inventory in the supply chain remains below the historical average. Therefore, we continue to remain optimistic on the overall business conditions.
In terms of our portfolio transformation, as a bit of a reminder, the objectives behind the portfolio changes were to both enhance returns and reduce risk. We've accomplished a sizable transformation in a little over a year. The initiatives focused on reducing capital in the energy part of our business, but at the same time, scoping out opportunities to redeploy that capital in higher and better uses. In this past quarter, we saw those initiatives come together quite nicely. A few key items to highlight. Point one, the OCTG line pipe monetization is effectively done with about CAD 300 million of capital permanently removed. As a reminder, that part of our business had low margins, low returns, tied up a lot of capital, and was volatile.
In hindsight, our timing was quite fortunate as we were able to profitably exit the business as the window opened with the improving market conditions. In July, we closed the sale of our Canadian OCTG line pipe business. The transaction repatriated a little over CAD 100 million of cash in the quarter, and we still have some upside participation in the ongoing business, but it's structured to be off balance sheet to Russel. Our orderly liquidation of the U.S. OCTG line pipe inventories is also mostly complete. Item two, capital reinvestment in value-added projects is a multi-year process for us. We're seeing very good results from the recent initiatives, and we'll be adding a series of new projects in the quarters and years ahead.
In terms of M&A, we have been very active in looking at a lot of acquisition opportunities, but we remain extremely disciplined as we review those opportunities. That being said, we couldn't be more pleased with how the Boyd Metals acquisition has come together. It's a business that fits exceptionally well. I'll talk about that in more detail a little later on. Free cash flow and capital structure. With CAD 188 million of cash from operating activities in Q3 and liquidity of over CAD 600 million, we are in very good shape to continue evaluating capital redeployment opportunities. If we go to our financial results on page six. From an income statement perspective, the continuing strong results were across our business segments.
Revenues of over CAD 1.1 billion was the highest level in over two years, and EBITDA and EPS were all-time records again. Gross margins maintained at a very high level and were comparable to Q2, around 30%. There were a few items of note in the quarter that I just wanna highlight. As we closed the sale of the Canadian OCTG line pipe business, we are no longer consolidating the results, but we did pick up our 50% share of their net income, which is around CAD 3 million for the quarter. In addition, stock-based comp had a mark-to-market P&L benefit of CAD 3 million in Q3 due to the decrease of our share price in Q3. From a cash flow perspective, we used CAD 63 million due to an increase in working capital.
This was a build within the service centers and steel distributors segment and was somewhat offset by the continued downsizing of our energy working capital. The business condition improvements that led to an increase in AR and inventory was somewhat offset by an increase in accounts payable. In addition, part of the accounting for the Canadian OCTG line pipe sale is a line item that you see that's called sale of business, and we have that at CAD 77 million. That CAD 77 million plus the CAD 32 million of the accounts receivable that we retained and collected in the quarter is how we realized total cash proceeds of approximately CAD 109 million.
CapEx of CAD 8 million continues to be relatively modest, but I do believe it will nudge up in 2022 as we undertake additional discretionary CapEx projects. From a balance sheet perspective, the strong cash flow has led to a reduction in net debt by a further CAD 161 million in the quarter, and we ended the quarter in a net cash position. Our liquidity is north of CAD 600 million, and our credit metrics are incredibly strong. Lastly, we have declared a quarterly dividend of CAD 0.38 a share. If we go to page seven, I'll talk through our segmented P&L information. We'll start with the service centers. The service centers did exceptionally well again. Revenues were up CAD 33 million or 5% versus Q2.
Gross margins remained above 30%, and we delivered CAD 133 million of operating profit. These results are indicative of strong markets and really strong execution by our business groups. We did experience 12% lower volume in the quarter due to the seasonal dynamics in the summer months and during July in particular. However, the volume decline was more than offset by a 19% increase in our average sale prices in Q3, and that's on the back of a 19% increase in average sale prices between Q1 and Q2. This translated into continuing strong margins. Even though margin percentage was down slightly from Q2, our margin in dollars per ton was in fact up. I expect some margin moderation in Q4 because of the higher costs of inventory that roll into cost of goods sold.
As I mentioned earlier, demand is strong, but we typically do see some decline in operating days as we get into the holiday period towards the end of Q4. In energy, we are seeing positive market sentiment that is at the early stage of translating into financial results. Our revenues came down due to the sale of our OCTG line pipe business, but revenues within our Energy Field Stores segment was in fact up 12% on the quarter versus Q2. Also, our margins in the energy business were over 20% as the segment is now being driven by the higher margin same time as the business activity in service centers, which is the green bar, and steel distributors in the yellow bar picked up. The result is that energy today only represents around 17% of our September 30 inventory versus 55% in June 2020.
This realignment has resulted in more effective and efficient capital utilization as we put our capital into higher and better uses. If we go to page nine, you can see the overall impact on capital utilization and returns. When we benchmark ourselves against our competitors, we have generated top quartile returns over cycle, with our overall goal being a 15% EBIT return. As you can see in the red line, 2021 has been well above that target. Through the first three quarters of 2021, we generated return on capital of 40%, 57%, and in the most recent Q3, 64%. Those numbers are exceptionally strong on both an absolute as well as relative basis compared to our competitors.
A big part of this performance is a result of our portfolio transformation, as the average capital invested, a few years ago was around CAD 1.4 billion, and it's now closer to CAD 1.1 billion. In summary, we had record earnings with less capital being deployed. Going forward, we are focused on opportunities to redeploy that capital, but we will remain disciplined with respect to opportunities that meet our financial and our operational criteria. In fact, we have looked at a tremendous number of opportunities of potential acquisitions over the past six to nine months, and in many ways, the benefit of seeing so much deal flow is that we can remain very selective as we compare and contrast a wide range of opportunities. This brings us to the Boyd Metals acquisition.
If you go to page 11, I'll give a little bit of a context around the transaction. The starting point, Boyd Metals is an opportunity that's been on our radar screen for some time, and it is truly a hand-in-glove fit for us. In terms of a few transaction highlights, the purchase price is $110 million, subject to adjustment for changes in the final working capital amount. The $110 million value includes all of the business, which includes everything from working capital, land buildings, et cetera. As we reviewed the Boyd business, we were really impressed with their financial track record, their culture, and their people. With last 12 months revenues and EBITDA of $244 million and $39 million respectively, their results are comparable to our own margins in the region.
From a valuation standpoint, this implies a multiple of around 3x LTM EBITDA, and over a cycle, we see the businesses generating very good returns and being accretive to our earnings. As discussed earlier, we have lots of capital structure flexibility due to the monetization of our OCTG line pipe business. This transaction could finance with cash on hand or drawings under our existing bank lines. We expect the deal to close in the fourth quarter. If we go to page 12, we have an overview of the Boyd business. Starting with the map on the top left-hand part of the page, Boyd has five locations, with its main center being in Fort Smith, Arkansas, which is on the western edge of Arkansas.
In addition, it has four other service centers that are all located within a freight-logical distance of Fort Smith, and they thereby operate in a bit of a hub-and-spoke approach. This is a very similar approach to how Russel operates. Moving to the right, they have a range of value-added processing equipment across their system, which is also a big focus within our operations and a key part of our ongoing CapEx program. Moving down the page to the chart on the bottom right on product mix, they're about 75% carbon-based, but they also have about 25% of their product mix as nonferrous. We like this diversification, and it's a very good balance between both carbon and the nonferrous part of the business.
If we go to the bottom left chart, their customer base is very diversified across industry segments as they focus on small order sizes and non-contractual business. Again, a very similar business philosophy in terms of how Russel operates. If you go to page 13, you can see a map of our operations in the region as compared to Boyd's, with Boyd's locations in yellow and Russel's locations in green. The geographic footprint is very complementary and extends the boundaries of our existing service territories. As I said earlier, Boyd has a very similar culture to us, and we are really quite impressed by their management team and their staffing and their employee level.
Because of the alignments and similar operating philosophies between the two businesses, we expect there are gonna be some new opportunities across the two platforms relating to sharing inventories, value-added processing, procurements, and the like. We are really excited to get started. In closing, on behalf of John and other members of the management team, I'd like to express our appreciation to everyone within the Russel family, and we really look forward to welcoming the Boyd group to our extended family. After a very challenging 2020, we've been able to demonstrate significant momentum through the first nine months of 2021, and we really look forward to advancing the business through the balance of this year and beyond. Operator, that concludes my introductory remarks. If you would now like to open the line for questions, John and I are available.
Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. Should you have a question, please press star followed by one on your touchtone phone. You will hear a three-tone prompt acknowledging our request, and your questions will be pulled in the order they are received. Should you wish to decline from the polling process, please press star followed by two. If you are using a speakerphone, please lift the handset before pressing any keys. Your first question comes from Michael Doumet, Scotiabank. Michael, please go ahead.
Oh, hey, good morning, guys.
Hey, Michael.
Morning.
I mean, nice quarter, first off, and congratulations on the deal. I understand the deal hasn't been closed yet, but is it possible maybe that you can provide some disclosures, as to the earnings history of the company and maybe some of the synergy opportunities? Maybe correct me if I'm wrong, but I believe we do kind of target a pre-tax ROIC at 15%. Just how we should think about the numbers going forward.
Hey, Michael, it's Marty. You hit the nail on the head, which is we do target a pre-tax RONA of 15%, and we've disclosed the LTM numbers in both revenue and EBITDA. We obviously haven't gone back to the beginning of time in terms of public disclosure. But if you wanna use those metrics, what I can say is that over a cycle, their results, without even taking into account synergies, would allow us to meet our objectives over a cycle of that 15% RONA. In terms of synergies, we don't put numbers on the table. And frankly, we think, as I said earlier, there are opportunities, but we actually don't formally come up with a synergy number, and we don't view it that way.
We think there's gonna be opportunities for the Boyd business and our business to work together cooperatively and find opportunities, but we don't go to the point of actually trying to put a hardwired number to it.
That's great. No, that's helpful disclosure. Thanks, Marty. And then, you know, in the outlook, you talked about, I think you quoted a modest retreat in margins in Q4. And if I look at consensus as a group, we have the EBITDA down 50% sequentially. So I imagine, you know, we're gonna have to make our adjustments, and I know you don't comment specifically on consensus, but any way you could help us, with additional parameters there? I know there's still two months in the quarter, but, you know, do you expect margins to normalize a little bit more quickly in Q4, or maybe at the same pace as Q3 versus Q2? Just any comments like that would be helpful.
Why don't I make one comment, then I'll turn it over to John. The reference to consensus, please do me a favor and take all the consensus numbers with a grain of salt. We saw consensus shift massively just within the last quarter for Q3. As it relates to what consensus is for Q4 and what consensus is for next year, it's frankly all over the map. With that context around, John, do you want to put a little bit of context around market conditions?
Sure, Marty. The market conditions again for demand are very good right now. Again, very solid when you look out there across the end markets, the end users that we use. We also use the Purchasing Managers' Index. Both of them coincide nicely that lead to increasing demand. If you look at Architecture Billings Index, those are leading to increasing demand in construction. We're seeing that from our customer base as well. Oil and gas rig counts continue to improve. That end market's doing very well. Automotive is showing signs of bringing back on production, which will use more flat roll. Although we're not into automotive, that does help use up any available flat roll. We have seen the inventory positions improve in service centers. Still, though, they are above. The turns are above historical norms. We're not back to that.
Mill capacity continues to run in the 84%-85% range, which is basically at capacity. Seeing a little bit of softening in flat roll. Frankly, we probably overshot the mark just a little bit, and it's just rebalancing, and getting back in line. If you look at the inverted curve of plate for the last year, you can tell that, you know, plate had fallen behind flat roll. That's now come up almost to a neutral point. It'll probably push on past that. We feel pretty good about what we're seeing demand-wise going forward into Q4 and even into Q1 from what we're hearing from our end user customers.
In regards to pricing and margin with it, there could be a little bit of pressure along the way, but again, I don't see any reason to drive anything, either direction in a big change right now.
That's great, guys. Thank you.
Thanks, Michael.
Thank you. Your next question comes from Michael Tupholme, TD Securities. Michael, please go ahead.
Okay, thanks. Good morning.
Morning, Mike.
Morning.
Maybe just to start somewhat high level, you've now completed the exits of your OCTG business, apart from the fact that you still have an interest in the JV. I'm wondering, in terms of your strategic priorities over the next 24 months now that that transformation in the energy business is complete, how should we be thinking about the focus going forward?
Yes, the focus, again, we're sitting on a lot of liquidity. We'll continue to look at opportunities out there in M&A. As Marty mentioned, the pipeline's been pretty active. We'll continue to grow our value add process and through our service centers, continue to ramp up that initiative. It's had tremendous traction so far, and we just see that building now as we've gotten better and better as we start these up, so we really have an almost franchise now to roll it out. We continue to see that going on as well. Those will be the two big things that we're looking at going forward. Again, I think the M&A pipeline will continue to remain active over the next 12 to 24 months.
Okay, that's helpful. Thanks, John. I guess, just to follow on that, it certainly sounds like your capital allocation priorities haven't really changed, but at the same time, as you pointed out, you've got considerable flexibility around net cash position. Obviously you'll use some of that cash for the Boyd acquisition. Are there certain capital allocation priorities that maybe have historically been further down the list that you know, there simply wasn't the capacity or flexibility to address, but perhaps now you're in a position to also address those concurrent with the focus on M&A and value add?
I don't think so. You know, we've never really been capital constrained. We've always had a very solid balance sheet. We've just continued to improve it over the last 12 months, so that even offers us more flexibility now. I don't think we were ever really constrained in the past. We'll continue to be very disciplined on how we manage working capital and look at capital allocation, as that's a key to our business being, again, in distribution and in a cyclical industry. I don't think there'll be any fundamental changes there. It's just I think there's more opportunities coming forward.
On the acquisition side, I mean, I know it's difficult to comment. It sounds like you've certainly looked at a lot of opportunities, and I'm wondering, is the Boyd transaction somewhat representative of what we should expect with respect to potential future transactions? Or is that oversimplifying things?
Yeah. I think, in terms of size and scale, I mean, Boyd was a nice fit for us. Geographically, it was a great fit for us. Again, we don't have a specific model we're looking for. It's nice to be able to add on to your existing footprint or to bolt on something. We would look at standalones as well. The big thing about Boyd that was very attractive to us, one, the culture lined up very, very closely with our culture. Tremendous people. And it's a business that's a plug and play. They've got their management team, they stand alone, they manage their business very well. It'll integrate in nicely, but we see them continuing to run this business in our decentralized culture going forward.
Okay, that's helpful. Thank you. And then perhaps for Marty, so I know the transaction with Marubeni closed early in the quarter, so that's really not. We're not seeing any sort of contribution really in the Energy Field Stores segment in the quarter. It's in the equity pickup line. When we look at the Energy Field Stores business in the quarter, you were still selling down some of your OCTG inventory. Can you give me a sense for what that business would have looked like, sort of on more of a run rate basis in terms of how it's gonna look going forward? What this quarter would have been as far as the Energy Field Stores contribution?
Yeah. Well, I guess, Mike, if you look at it, the vast majority of it in the quarter was from field stores because you're right. The joint venture closed in the quarter and it closed at the front end of the quarter. We literally had a few days worth of offloading Triumph before it got sold into the joint venture. Then the wind down of the U.S. OCTG line pipe business was also occurring in the quarter, but it wasn't a huge number for the quarter. Bear with me for one second. If you look at yeah. On a top-line basis, it was about CAD 30 million of revenue related to line pipe OCTG for the quarter.
Okay, that's helpful. Got a couple more, but I'll get back in the queue and turn it over for now.
Okay. Thanks, Mike.
Thank you. Your next question comes from Frederic Bastien, Raymond James. Frederic, please go ahead.
Good morning, guys, and good quarter.
Thanks, Fred.
I have a few questions on Boyd, specifically. John, that business is right in your backyard, so to speak. Just curious how familiar you are with the business and, if you could share how long you guys have been kinda talking to each other.
Yeah. I've known the principals at Boyd, you know, most of my career. We actually, early on, when we were starting the two different companies, prior to becoming, as we got bigger, we actually shared, you know, concepts on how to run the business, you know, values and principles. Very familiar with them as they started their growth, as we grew through it. Again, very strong company. You know, Tom Kennon that ran the company came from AFCO Metals and got a lot of experience in the steel business, and was kind enough to share his experience when I was getting started. Again, very, very solid group. Very well-run in the marketplace, very well-respected in the marketplace. Again, there's tremendous amount of depth coming through.
Brian Newman has been there with him for a long time, and so those two will continue to run the business there on a daily basis. Very familiar with them, Frederic, very good operators in the business. Again, they couldn't align more closely with what we're doing at Russel culturally. I think it's just, as Marty said earlier, a hand-in-glove fit for us.
Okay. Just, I know you can't comment for them, but, I mean, do you know if the Biden administration's proposal to increase the capital gains tax may have created a bit of urgency for them to transact?
I don't know if it was urgency. We've been in discussions for probably over two years on and off, and it really got postponed with COVID. I think they were thinking about it. They have senior partners uninvolved in the business and has been since day one, but, you know, he's of retirement age and maybe a little beyond retirement age. Tom's getting close, probably work another year or two years. I think it was more of a timing of the principals that own the large majority of the company were looking for an exit strategy and looking for the proper, you know, partner to move forward with their business. Now, I'm sure it benefited to have the tax and to get it done by the end of the year.
I'm sure that was obviously a consideration for them, you know, that we tried to structure it that way, but I don't think that was the determining factor.
Okay. Just wondering, I mean, this business seems to be running well. I mean, obviously runs well on its own. Doesn't feel like you're gonna spend a lot of effort or management time on the integration of that business versus what you might have done in some other acquisitions that Russel's done. Would you then consider another deal of this size if it fell on your lap in the next few weeks, few months? 'Cause you certainly have the capacity to absorb it.
Yeah. In some ways, Fred, the short answer is yes. We like the Boyd business from all kinds of perspectives, including the fact that it's really well run and doesn't require an awful lot of oversight. To me, that is a perfect fit and allows us to not only let them do what they do really well, but also continue to look at other opportunities.
Great. I guess just one last question. You mentioned that the margins are similar to those of Russel Metals in the region, but how do they compare to those of the service center segment overall?
Yep. Very similar. There's some opportunity for them, Fred, to continue to push forward with their value add, and they've got a strong amount of value add in their business now, but they have an opportunity to push forward and maybe to leverage off of what we've done currently, so where they can either use the value-added processing in a tolling mechanism or they can put in their own equipment. Again, that'll be their call on how they wanna spend that capital, but those opportunities are there. Excluding some of the high end, where we've got extreme margins in value-added processing, it's almost an identical margin.
Okay. Thank you both.
Great. Thanks, Fred.
Thank you. Your next question comes from Alexander Jackson, RBC Capital Markets. Alexander, please go ahead.
Yeah. Hey, guys. Congrats on the quarter, and thanks for taking my question. You've got a question already, but in terms of capital allocation, you know, with the business changing, I'm curious, does dividend increase come into play kind of in the near- term?
You know, the way we look at it right now is we've always viewed the various capital allocation alternatives as being under consideration. In terms of, you know, Boyd as an example, we think that's just a really great opportunity to put capital to work. We continue to be, as John said earlier, actively looking at the M&A landscape. For us, actually having capital structure flexibility to look at adding value to the business, whether internally through additional investments, CapEx investments, or there external through acquisitions that meet our criteria, that's where our focus is for the near- term.
Got it. That's helpful. Thanks, [Marty].
Great. Thanks, Alex.
Thank you. Ladies and gentlemen, as a reminder, should you have a question, please press star one on your touchtone phone. Your next question comes from Anup Rehar, GMP. Anup, please go ahead.
Good morning, guys. John, just wanted to ask you sort of a big picture industry question in terms of your interpretation of the trade deal that was announced earlier on this week, with The EU. I mean, on the one hand, you want to have more product entering The U.S., but at the same time, it seems they set those quotas to be in line with what The EU has historically sent, into The U.S. I'm just curious to know what impact, if any, do you think that's gonna have on your business as you look forward to next year?
You know, thanks, Anup. It's really interesting. If you look historically, it was about 5 million tons that they allowed in coming in from The EU. Now with the trade suit, we're gonna go down to about 3.4 million tons. You look at North American production, that's a 110 million range. We're talking about 3% to 4% increase of product coming in. It's gonna be predominantly in coated flat roll material. Could cause a little backup in the hot roll, but it's predominantly gonna be galvanized cold roll prepaint. What's interesting when you read into the document, there's 54 different quotas included in that for carbon. I think there's another 16 for aluminum. Those quotas are managed individually as well as the importers being managed individually.
It really takes a sophisticated person to import that. Our steel distribution group has obviously been there 30+ years, very experienced. I think it's really gonna provide opportunities for experienced importers that have strong balance sheets to really be the importers of choice here versus maybe some of the smaller players that don't have the balance sheet and don't have the sophistication to manage those 54 different carbon variations with individualized quotas. Overall, I think the impact's gonna be, you know, fairly muted on both sides.
Great. Well, that's helpful. Thank you. I didn't realize it was gonna be such a complicated endeavor.
Yeah, no, well, it's, I mean, I don't count on the government to solve my problems, Anup. I count on them to create them, so there you go.
All right. Thanks a lot.
Thanks, Anup.
Thank you. Your next question comes from Michael Tupholme, TD Securities. Michael, please go ahead.
Okay. Thank you. Maybe just a follow on there. Apart from the agreement between The U.S. and The EU, can you speak more generally about what's happening with respect to imports? You did mention that the inventory and supply chain has increased, and I'm not sure that's directly related to or exclusively related to imports, but if you can comment on what you are seeing with respect to imports, that'd be helpful.
Yeah. There's been no material change on inbound imports. You may see some product specifics. I think the catch-up has just been mills have been playing catch-up because the supply chain was so, you know, just cleaned out during the COVID. Again, we dropped our inventory. The manufacturers, the mills didn't produce any inventory. The end users cleaned out their inventory and their work in progress. I think it's taken a long amount of time to rebuild the inventory, and we're starting to catch up some there. Demand took off faster than anticipated, so I think we were behind. I don't see a lot of import impact right now. Again, with the Section 232 still in place for other countries or quota systems, it still is very limited to what's coming into the country. I'm not seeing a big impact.
I think the mills approach has been very disciplined in North America. Kudos to them. I think they worked very hard to maybe get to this point. When there is something that comes in, I think they view that as a one-off in that area and don't react to it versus in the past where you had a lot more tonnage coming in available that they had to react to maintain share. I just don't see a whole lot of change in the imports coming in driving pricing direction from the domestic mills. I think the domestic mills actually have the driver's seat on that right now.
Okay. That's helpful. Then I'm not sure if this is related to that or not, but your steel distributors segment obviously extremely strong performance this quarter. If we just look year-over-year, the revenues in that segment were up a lot more than the service centers revenues were up. I'm just wondering, is there a dynamic here where you had ordered some material from offshore and that was sort of on its way and coming in, but it was ordered some time ago at lower prices, or is that what's at play there? I guess, you know, maybe more importantly, how do we think about that business going forward?
Yeah. That's a good question. Again, we did have some holding gains opportunities that came as the Section 232 came into play, and we came out of COVID. Keeping in mind that there are certain products that just aren't made in Canada, so you know, heavy plates, beams, those items we'll naturally always import. Again, predominantly those margins came from our U.S. operations where we had inventory in stock at the time. As the price started to move up, they actually held inventory waiting in anticipation of further increases. Now as they continue forward, again, just due to the imports coming in, all the problems with logistics and shipping, they're in a very good inventory position compared to a lot of our distributor or trading competitors.
Service center industry, again, being very lean on inventory versus the mills being able to produce, gave us some early opportunities to kind of flex our muscle there, if you will. I think longer- term, you'll see their margins still normalize back to a more reasonable level. Again, in this environment right now, I think they'll still continue for the next two or three quarters to have strong margins by comparison.
Okay. No, that's great. Thanks, John. Beyond the margins though, I was just also wondering just about the top line, like, is that something we should expect to moderate again because of, was there sort of a timing impact there, or is this sort of run rate type level for the next little while?
Yes, two things. Part of it was timing, again, especially with Canada. Again, with the restrictions, people couldn't get things in, so we had the opportunity. Part of it is just the cost of steel has moved up, so the tonnage may not have moved up as much. It's just the cost of steel being three to four times what it was a year and a half ago. But there were some opportunities specifically in Canada where we were able to participate, selling either to Russel Metals or to our competition where their product was not available. We really were able to maximize that opportunity in our Canadian operations. Going forward, I don't see big changes there, as again, we're dealing with plate and beam primarily that are not produced in Canada.
I don't see big changes to the tonnage volume, but we'll see where the pricing goes for them.
Okay. In service centers, the volume's down 12% quarter-over-quarter. I think you said in the release that a driver to that was seasonality. I don't know, like, is that essentially the vast majority? Is it just a seasonal thing? Similarly, I think you indicated potentially some further decline into the fourth quarter. Is that also just seasonality?
The fourth quarter will be seasonality for sure. Really, in second quarter, we saw some seasonality, and we really saw the construction shut down in Quebec was in full effect. I think people were tired working through COVID, and that two-week shutdown, they really shut down for two weeks. Historically, we would get people kind of shut down, maybe linger on with some projects, but it really shut down. That's one of our largest service center operations. We saw the impact, and then we saw the bounce back somewhat later into Q3. But there's. As far as we're concerned, we're not seeing any demand issues that are out there that we're concerned about or market share issues that we're concerned about. Again, I think it was seasonality coupled with a strong construction shutdown in Quebec.
Okay, thanks. Just lastly, the equity pickup you saw this quarter from JV CAD 2.8 million, is that a number that would sort of be representative of what we should be thinking about in future quarters, Marty?
Well, it was an extremely strong quarter coming out of the gate. There is, you know, just piggybacking on the last conversation about seasonality, there's also a very high seasonality attached to that business. This is a high quarter season for that business. It's a pretty robust level. We're very pleased with it, but this isn't what I would expect as the average over an entire year type level. Especially, as when you get into spring breakup period, you get, you know, some a down quarter later on in the year. This is a robust level, let's put it that way.
Okay. All right, thanks for the time.
Thanks, Mike.
Thank you. There are no further questions at this time. Please proceed.
Great. Thanks, operator. Well, again, look, I appreciate everybody for joining our call. I much appreciate all the questions. If you have any additional questions, please feel free to reach out. Otherwise, we look forward to staying in touch over the course of the quarter. Have a good day, everyone.
Thank you. Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.