Earnings Call: Q1 2021

May 5, 2021

Morning, ladies and gentlemen, and welcome to the First Quarter 2021 Results Conference Call for Russell Metals. Today's call will be hosted by Martin Jurasky, 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. And I would like to turn the meeting over to Mr. Martin Jurowski. Please go ahead, sir. Great. Thank you, operator. Good morning, everyone. I plan on providing a brief overview of the Q1 results. 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 of the website. If you go to Page 3, you can read our cautionary statement on forward looking information. Let's start on Page 5. To give you an overview, The past 4 quarters has illustrated a full economic cycle and it's important to note that our financial performance has been robust in both the challenging times And now in a stronger market. That strong market performance is both absolute as well as when we benchmark ourselves against our service center peers. In the challenging quarters, we generated a lot of cash flow from working capital by managing inventories In a very prudent manner, Q1 results reflect how well and quickly our business can adapt to benefit from strong market conditions. Also, as we look back on 2020, it was a really busy year as we advanced a series of initiatives like value added CapEx, portfolio changes, Headcounts, capital structure, etcetera, and the impact of those initiatives is translating into our 2021 results. In terms of market conditions, we saw gains in demand that resulted in higher volumes, prices and margins In Q1 versus Q4, those market conditions are continuing into the early part of Q2, demand is good And the supply chain is inventory constrained. If we look at the industry data that is compiled by MSCI, It shows service center inventories are at their lowest levels in many, many years. At the same time, demand is improving. The result is that the number of months of supply across the industry is 30% to 40% below normal levels. The bottom line is that the fundamentals for supply and demand are continuing to be strong. Therefore, we are very optimistic on the business outlook. In terms of the OCTG line pipe changes, we set a target to reduce inventories by $100,000,000 by the end of 2021. We accomplished our goal early and there is more on to come. In Canada, we recently announced the transaction With Marabutni Patoshi to combine our Canadian OCTG line pipe business with theirs. The transaction will create a larger And better positioned platform, but we also structured the deal in a way that allows Russell to repatriate a sizable amount of our invested capital. To To be more specific, we currently have invested capital of around $170,000,000 in that business, and the transaction will result in around 80% of it being realized in cash in the near term. In addition, we'll have a carried interest in the form of $32,000,000 of preferred shares that will have an attractive 7% Dividend yield, we expect that transaction to close Q2 or early Q3. On the U. S. Side, OCPG, we've made good progress with our orderly liquidation of the inventory in this business. There's around $40,000,000 remaining, And this should be substantially sold by the end of the year. If you take all these initiatives and aggregate them together in terms of what we've been doing on the OCT Gee, in line pipe front, when we are done, we'll repatriate around $250,000,000 of capital that has been tied up in that business segment. Exiting that segment will reduce our business volatility, enhance our margins and most importantly improve our returns on capital at every stage of the cycle. Liquidity and capital structure improvements. With $96,000,000 of cash from operating activities in Q1 and liquidity of $440,000,000 We're in really good shape from a capital structure perspective. If you go to Page 6, I'll give you some highlights of our financial results. Starting at the top of the page from an income statement perspective, the change in results between Q4 2020 and Q1 2021 Involved improvement across all of our segments. Revenues of $885,000,000 was the highest level since before the pandemic. Gross margins, EBITDA, bottom line results all improved dramatically. Some of our Q1 income statement results were higher than what we generated in all of 2020. As a positive to EBITDA, wage subsidies were $3,000,000 in the quarter, but that was down from $8,000,000 in Q4. As we've said in the past, this program worked well, provided nice cushion and a transition as business conditions recovered and a supported employment base during that Transitionary period, we don't expect to realize any material benefits going forward. As a negative to EBITDA, stock based compensation had a mark to market impact of around $2,000,000 in Q1 due to the increase in our share price. Financing expense was down noticeably from last quarter. This is primarily a result of last year's refinancing initiatives that were done late in Q3 early in Q4 last year. From a cash flow perspective, we used about $17,000,000 due to an increase in working capital. The key was that the increase in accounts receivable from improved business conditions was mostly offset by corresponding increase in accounts payable. Inventory only went up by a small amount And this is a result of an increase in the service center and steel distributors inventory being mostly offset by our initiatives to reduce The energy inventories. CapEx at $6,000,000 continues to be modest and below our DD and A level, and we see this $6,000,000 ish type level continuing over the balance of 2021. From a balance sheet perspective, our net debt declined From $267,000,000 at the end of Q4 to $202,000,000 at the end of Q1 or $65,000,000 reduction, Our liquidity is well north of $400,000,000 and our credit metrics are very strong. Lastly, we've declared a quarterly dividend $0.38 per share for the quarter. If you go to Page 7, I've included some segmented P and L information. The service centers did exceptionally well As the market improved, revenues were up 40% versus Q4 and this is a function of both higher volume and higher pricing. Our volumes are now above pre pandemic levels. As we have discussed in the past, our business model is transactional in nature As we don't tie ourselves into contracts with our customers, this gives us a lot of operational flexibility to quickly adapt to market conditions. That flexibility allows us to pass steel price increases into the markets. The margin dollars per improved in Q1 and is maintaining into Q2 as we continue to pass those steel price increases into our markets. One of the keys is that from an end market perspective, improvements are really broad based across regions, across end customers. And Energy, revenues, margins, operating profit improved versus Q4. Both field stores and OCTG Line Pipe Generated positive EBITDA contributions. We are seeing some improved tone to the energy market and notwithstanding the seasonal issues that typically Occurred in Q2 for spring breakup, we expect continued improvement in the back half of twenty twenty one. Distributors. Distributors had a really good Q1 as it also piggybacked on the steel market strength. This was mostly driven by our U. S. Business, which is more transactional in nature, Our Canadian business is more of a back to back business. Looking forward, the backlog for that back to back business remains good through Q2. On Page 8, we have our segmented inventory information to provide a frame of reference for capital reallocation changes Over the past number of quarters, if you look at the metal service center part of it to start with, inventories and dollars have ticked up, But our tonnage remains low. This goes to my earlier comments about the MSCI data that showed limited inventory in the supply chain. Our inventory turns are always pretty strong and have improved as sales picked up and our strict inventory discipline remains a key ongoing focus. We don't speculate on inventory. In distributors, it's a parallel situation with service centers and that inventory is low. The lead time for procurement is extended beyond normal, especially as logistic issues with the supply chain remain in place. Our procurement commitments that are back to back with customer orders have picked up in the last few months, and we expect this to translate into business activity in Q2 In Q3, in Energy, this is a key area. We are well on our way to transforming this part of our business. In the past few quarters, we benefited from improved market conditions and our tight procurement controls. As a result, we reduced inventories from around 4 This $153,000,000 reduction in inventories includes the $99,000,000 permanent reduction in OCTG line pipe that I mentioned earlier. We've also illustrated in this chart the impact of removing the additional inventory in OCTG line pipe from the Marubeni Itochu transaction that we announced a few weeks ago. Not only have we reduced our energy exposure as a percentage of the portfolio From over 50% to around a third, but the remaining capital in the Energy business will be concentrated in our field store segment, which is very attractive long term fundamentals. If you go to Page 9, we've modified a chart That we have used in the past to show our return on capital over a cycle. We have industry leading returns and we're constantly looking at opportunities to enhance our return profile. As a reminder, this metric is the driver to our variable compensation model, So everybody across the organization is very focused on it. The green bar show our historical returns year over year and pretty strong Q1 results. If you look on the right hand side of the page, over the past 5 plus years, we generated an average RONA of around 15%. However, that average has been dragged down by the OCTG Line Pipe segments, which historically had an average run rate in the low to mid single digits and therefore brought down the weighted average return on our portfolio. The downsizing of the OCPG land pipe business that is well underway would have As we've said in the past, our initiative to downsize OCPG Live Pipe will reduce revenues, but it will be accretive to earnings and accretive to our returns. In closing, on behalf of John and the other members of the management team, I'd really like to express our appreciation to everyone within the Russell family For their tremendous hard work. It's really nice to see the fruits of that hard work starting to pay off. Operator, that concludes my introductory remarks. We can now open the line for any questions. Certainly, sir. And your first question will be from Frederic Bastien at Raymond James. Please go ahead. Hi, good morning. I hope all is well with you guys. Okay. First question is we keep hearing that product Availability is tight. So the question I have for you is, are you also feeling that pain or are you managing? Fred, it is definitely restricted. And if you look at product availability, mill lead times are into the 3rd quarter now, some products are well into the 4th quarter. But we're managing that fairly well as we've done in the past. The mills are allowing us to have Our share that we've requested that we bought in the past and also reported us the opportunity to grow market shares and so with a 4% growth. So we're getting what we need into, part of that's due to our scale, part of that's due to the obviously we pay the mills on time. And so They've worked very, very closely with us and our purchasing teams have done a phenomenal job in projecting out further than typical mill lead times. And so We're comfortable with what we're getting right now. We're managing our inventory turns as well as we ever have. And so, I think that's something that is a real credit to our people And if we see these conditions continue, I suspect you'll gain Even more market share against the small mom and pops out there. Is that fair to say? There's a real opportunity to do so. Again, I think Some of the smaller to medium service centers are probably struggling to get their alignment of steel. And I think it affords us the opportunity to continue to grow that share, Not only just raw steel products, but we're also seeing strong growth in our value added processing as well. Okay. Second question, I guess we're well into the Q2. So I was wondering when these higher input costs will start getting into your Service center margins, are you starting to feel it now? Or is it something you won't feel until the summer months, potentially into the Q3? Yes, the higher input cost to get with our turns, obviously, just rationally and logically, it will start come in sometime during Q2, although we've seen increases this week in every product that we carry. So the increases are still continuing to come in. So early in the quarter, we've been able to maintain those margins in service centers and then still distributors. And so again, There will obviously be some normalization there as the quarter length is on and in the Q3, but I think we're pretty bullish on Q2 remaining fairly strong there. Okay. Thanks for that, John. And then I wasn't surprised to see steel distributors capture Some healthy spreads during the quarter, but I thought we might see slightly higher volumes. And I think, I mean, just reading through The slides you presented, the inventory is higher already. So is Q2 shaping up to be a stronger quarter in terms of volume and revenue? Yes, there's a couple of dynamics there. 1, again, very professional groups, been in the industry 30 plus years. And so they elected early on in Quarter to just pass because they can get a higher price later. And so that limited some of the volumes. But again, you can see this, their margins skyrocketed. Gross margin skyrocketed. They were able to take advantage of that situation. Also we've got some important materials coming in, into Canada specifically that sold back to back in Q2 Q3 as Marty alluded to earlier. And so we anticipate those volumes to come in and get back out during the month. Again, those are sold primarily back to back. And again, as demand in the U. S, it's more transactional market, they'll take advantage of the opportunities as they're presented to them. That's great. Okay. Thanks for that color. Good quarter. Thanks, Richard. Thank you. Next question will be from Michael Doumet at Scotiabank. Please go ahead. Hey, good morning guys. Hey, Michael. Good morning. Hey. I wanted to get Maybe your MSC margins in a different way or maybe a little bit more specific. Just to get a better sense for the potential margin performance in Q2, Can you talk about the delta between the average cost of the inventory versus the selling price and whether that's increased or decreased Through Q1, just trying to get the derivative there. Well, in terms of I'm not sure if this is answering your question, but at the end of the day, costs We're moving up. The steel prices were moving up, but our price realizations were moving up as well. So effectively margins were moving up in the early part of the quarter and are holding on to that level As we're into Q2, just because price realizations to our customers are continuing to move up. I mean, at the end of the day, the thing to remember is we're a cost Plus business. So as we have tight inventory turns, we're turning the inventory pretty quickly. And given the nature of demand right now, It's basically flowing into our end markets. Got you. Okay. And then, I mean, just going back to maybe some of John's earlier comments, I guess Q1 margins were a standout. I mean, historically, 800 basis points higher, I think, than the previous peak. I'm just trying to Got a little bit of a sense for the pace of normalization into Q2, into Q3. I mean, just any comments that could help us out? Yes. No, you're exactly right. And there's I mean, there's obvious holding gains that come into play in that, but I think those are hitting probably too much of the headline. And Michael, when we look at it, I mean, you've got a group that industry professionals that act on that In this transaction model that Marty mentioned earlier, they were able to expand that ability in that margin. And based on what's available in the marketplace Out there right now where some of the smaller service centers are struggling to get material, we have the material. And then our breadth of inventory that's out there, We have the ability to continue to maintain that margin very similar to it. So it may come off slightly in Q2, but I don't see it coming off dramatically. Yes, that's helpful. Thank you. And then as it relates to potential M and A going forward, how should we think about Russell's appetite for, call it, tuck ins versus platform deals. And specifically on tuck ins, I mean, do you anticipate a pickup in activity as The short answer is yes. Yes and yes. We're looking at all the above. But as we've always approached it, we're pretty what we do, but we have a lot of flexibility to look at stuff small, medium and large. The issues are, Does it meet our criteria from both the financial as well as qualitative operational perspective? So I think there's going to be more and more opportunities. We're seeing more and more opportunities that are out there, but the real test is Small, medium and large doesn't meet our criteria, but we look very, very actively. In terms of The dynamics in the U. S. Right now, again, it wouldn't be surprising with some of the changes that are unfolding and It's all speculated right now and who knows what comes into law, but with capital gains modifications that has often in the past Become a catalyst for people to rethinking about what they want to do with their private businesses. So we're all ears. If it meets our criteria, terrific. But the way we're looking at it right now is we have a lot of flexibility. And if you see the right opportunities, not to be a broken record, but small, medium or large, We have the opportunity to look at both. Yes. That's great color, Mari. Thanks for that. And I guess just A comment on Slide 9, that exhibit, it's great. I wonder, Marty, if the OCTG business largely restructured, Now Russell resembling metal service and O'Pure Play, which the market is showing that it is willing to pay higher multiple for, do you anticipate using potentially more equity versus historically when contemplating funding M and A? Well, in some ways, I kind of look at our capital structure right now, which is we've got a boatload of flexibility. And so we don't have to contemplate The use of equity at this point, you never say never to anything, but as we're currently structured With both the current flexibility that we have layered on with incremental flexibility, you talked about Page 9, the other piece that's not in the March Financials is the capital that will be coming in once we close the Marubeni Itochu transaction. So we got a lot of Financial flexibility right now, and we think we have the ability to look at growth opportunities without incremental equity financing. But We're always open to it depending upon the circumstances, but right now, we think we've got a lot of internal bandwidth. Great stuff. Well done, guys. Thanks for answering the questions. Thanks, Michael. Thank you. Next question will be from Michael Tupholme at TD Securities. Please go ahead. Thanks. Good morning. You've touched a little bit on steel availability. I'm wondering if you can Talk just in a little bit more detail about what you're seeing right now relative to the way things looked in Q1 in terms of Your ability to source product. Yes. So there's not been a tremendous change as Q1 moved on. January was a little bit more available. It started really tight in February March, and so we're not seeing a whole lot of issues with availability. Again, You have to be able to move with the mill manufacturing cycles and schedules. Our ERP system is set up to do so and our purchasing team is doing that on a daily basis. So we're booking out into the future. So our bookings are a little bit further out than they historically have been against these people moving into Q3 and Q4 with certain products. But again, it's just a function of our ERP system and what our historical purchasing trends have been. And John, just to supplement that a little bit. If we look at our inventory in tonnage, as I said in my comments, our inventory Tonnage is relatively low, but it's been relatively low for the past 4, 5, 6 months. So there's not been a massive shift one way or the other in terms of our tonnage During Q1 and even frankly, the few months before that. Okay. And are there any particular products that you're having As far as difficulty, I would say no. Obviously, in this market, you can take more. And so the products that are tight right now, flat roll coil are tight, That are out there and a little bit of guidance in certain sections of plate. But again, we're getting our allocation of all of that. And so we're able to As Marty mentioned earlier in his comments, it allows us to grow our market share. That's helpful. Thank you. John, you've obviously lived through many Steel price ups and downs over your career. Can you talk about what's different about this cycle? And I mean, obviously, appreciate that we've just come through We're still going through the pandemic and then obviously that's different. But how do you see steel prices evolving over the balance of this year and into next? And what's So the big thing right now, I I mean, we're the extended lead times, which is typical of a big price relative we've seen historically. But again, the supply shortage going into this And it was spurred by the pandemic that was out there. And so as you look back from the end user to the distribution channel into the manufacturer, Everybody has thinned their inventory. And so the depth of that that went on has really Turning to supply side and demand is moving at a much faster pace. There's a lot of pent up availability of cash. People are not going out to the entertainment If you look across the board at all commodities right now, whether it be wood, steel, everything is moving up in pricing. But again, the backlogs are Tremendous. So we look at the architectural billing indexes, you look at the purchasing manager indexes, all those are out as far as we've seen them in a long, long time. So the demand cycle looks Extremely strong coming into a thin supply chain. And so we think that's just really expanded this out. In our opinion, it's going to remain higher for longer on the pricing than we've seen in the past. Okay. You've had several questions about the strength of the gross margins in service centers and talked about How things have evolved so far in the second quarter? Steel distributors, do you expect To see a similar dynamic going forward as you talked about in service centers, I mean, have the Steel distributors gross margins, should they Hold in through the Q2 the way you've seen on the service center side and or should we be thinking about that segment any differently? That one will probably normalize to some degree. And just in the fact that we've got a lot coming in, as Marty mentioned earlier, in the second and third quarter that sold back to back, It's a little tighter margin than what we saw in the Q1. Q1 was led by our U. S. Transaction. And I think they'll continue to do very well, but we'll see an increase in revenue And probably a slight decrease in their gross margins as we go into Q2. Earnings overall should be fine and the Thank you. Next question will be from Devin Dodge at BMO. Please go ahead. All right. Thanks. Good morning, guys. Hey, Devin. I wanted to say congratulations on a good quarter, but I think, call it a good quarter probably on ourselves, what you guys just delivered. So, but congrats anyway. Thank you. Can you walk us through maybe how demand is trending across your regions and end markets? Just wondering what markets Maybe further ahead in that recovery and where others may still be at an earlier stage. So Devin, we're really seeing general economies across the board. GDP is really strong in both Canada and the U. S. Construction economy remains robust right now, which we participate in very well. Equipment manufacturing Out there, general OEMs, they're out there all very busy right now. Energy is improving. It's still has some room to go obviously, but We're seeing good signs of energy for the back half. If you run at $60 to $75 WTI on the oil price, that's going to generate We've been just underlying in the other sectors that are out there. Automotive is under some pressure. We had 17,500,000 units, I think, last month. This chip continues to linger on and we're seeing more and more shutdowns. We don't participate in automotive, but that may create some Supply availability in an area that's been very constrained. So I don't think it affects pricing. I think it will just help with availability, maybe bring lead times back to A more palatable level from the mill manufacturers side. So overall, it's really firing on all cylinders right now. We're seeing across the board as we're seeing the general pickup. Okay. Good to hear. And maybe a question for Marty. Obviously, lots of moving parts in the Energy Products division. Just when we think about 2022, it's largely going to be an oilfield store business. Can you give us a sense as to what maybe what the gross margins of that oilfield business generated pre pandemic and where they are currently? Yes. It's interesting, Devin, because if I showed you 2 graphs historically, 1 of our Field store business and one of our service center business and I didn't tell you which is which, you probably couldn't tell the difference. They followed very similar Paths historically have followed very similar paths in terms of gross margins, relatively low volatility in gross margins as well. So if you're talking about stuff in that kind of 20%, 21%, 22% range in terms of gross margins. That's what we've typically seen out of our field store business. It does move up and down a little bit like all components, It has a very similar margin profile to our service center business historically. Okay. And is there much of a difference between the U. S. And the Canadian operations for the field force? Not really. No. Okay. I was about to say, Our steel store business is much more skewed to Canada. So we've got if you look across some of the numbers, 80% of our business activity is on the Canadian side of the border within field stores. And Devin, just to add on to Marty, when you think about that margin profile, a little less volatile In the field stores because the part is such a highly engineered part. There's just not a lot of material in it as a percentage of the finished components. Okay. That's good color. I appreciate it guys. I'll turn it over. Thanks, Doug. Thank you. Next question will be from Anoop Priyar at Stifel GMT. Please go ahead. Good morning, guys. Just a quick question, John. We've talked quite a bit on the call so far about inventory availability. Kind of looking at it from the other side of it, which is that we're hitting all time high levels for pricing on a bunch of different products. So I'm curious to know inventory is tight, but given what pricing is doing, like how eager are you to actually continue to add to that inventory? Yes. Look, we're really not speculating. This morning, Tucker. Tonnage is not moving up a lot. Just a few percentage points that you saw are a gain there in market share. So our turns going at the end of March were much better than we had for the quarter. So again, we're maintaining that turn level at a very high level. We're not taking an appetite to Historically, when you've looked at some of our challenges, when there's been a big downturn, it's typically been the write offs have been in line pipe and OCTG, which we're addressing. And then it's also you've seen some of that in the distribution business, particularly in the United States where we've taken some of those hits And in the inventory write downs, they've not grown their inventory. They're just maximizing their margin right now. So we're taking a very conservative Approach to this just based on what you've said that we are trending at all time highs. And so we'll continue to, especially We run our business on a day to day basis, but we're not taking a speculative or an aggressive stance on inventory. Okay. All right. That's helpful. Thank you. And Marty, just a quick question for you. For the balance of the year, can you give us a bit of color as to how we should be adjusting our outlook for the Energy business, Given that we are in the process of winding down a substantial piece of it? Yes. So I would say for purposes of Q2, there's always a seasonal dynamic So that's just going to run its normal course. If you basically model in a closing at the end of Q2, beginning of Q3, Effectively, all that stuff comes off the balance sheet and out of the income statement starting in Q3, if you use that timeline. The accounting for our equity interest in the joint venture will be a one line item that comes over on the income statement and a one line item that comes over on the balance sheet. So It's going to be fully deconsolidated, but what was the legacy Triumph business. Okay. Thank you. Great. Thank you. Thank you. And your next question will be a follow-up from Frederic Bastien at Raymond James. Please go ahead. I don't think I've seen a normal year for the steel sector in some time. I'm not sure about you, John, but You've been at this longer than I have, but assuming we get a steady mid cycle year in 2022, and that's a big if, What sort of earnings potential could Russell be looking at? Well, Fred, I think you're right. I think this is the second time I've been referenced Experience are old on this call, so I'll take that one as a positive. In 32 years, I've not I would consider a normal cycle for a year, so it's difficult to project that. What's the price of steel going to be? What's our gross margin going to be in that timeline? So Again, not to be evasive for you, but it's just so difficult to project what normal is. And as the swings have gotten more Compressed over the last few years. So the biggest thing I think we focus on is just managing the return at a Very level at both the downside and the upside of the cycle. Our transactional model allows us to do that. So we'll continue to focus on that. Again, I hate to be evasive and not be able to give you Specific or number, but it's again, it's really it would be a wild guess at this point. Okay. Maybe I'll ask Differently, historically, if you look at over a 5, 6 year period, you've managed to keep sort of the dividend. I mean, you historically targeted a payout of about 80% on ETFs for your dividend, and that's kind of been Maintain over like the last 5, 6 years. Do you feel that on a go forward basis, You're going to grow into that dividend and we'll see the sort of this payout of EPS going down from $0.80 to $0.70 to $0.60 Or is the plan just curious what the plans are there? We'll continue to watch it over the cycle. I mean, we've always tried to get 80% over the cycle, sometimes we're over 100%, sometimes we're around 50s and But we'll continue to watch it on a quarterly basis with our Board, but I would say that theoretically, we will continue to look at that 80% over the cycle. I don't see any big changes, though. Okay. Thank you. Thanks, Fred. Thank you. Next is a follow-up from Michael Tupholme at TD Securities. Please go ahead. Thank you. Just a question about Thoughts and expectations for changes in non cash working capital over the remainder of the year. If we maybe set aside The Marubeni Itochu transaction, I think Marty, you said there's probably another $40,000,000 reduction Inventory to go in energy, if you can just clarify that and is that all coming sort of over the next quarter or so? And then how do we Think about changes in non cash working capital stemming from the rest of the business over the year. Yes. Your $40,000,000 assumption on the OCTG line pipe, that's correct. And that makes reference to our U. S. OCTG Line Pipe business and we'll substantially get through that in Q3 and Q4. So that we should get there by the end of the year. For the rest of the business, to be honest with you, it's going to be really a function of market conditions. If we look back over the last year and the changes that has happened in working capital inventories Within our Service Center business, we adapt really, really quickly. It goes back to the same old theme about inventory turns, disciplined approach to inventory management, It's a key metric for us and it's what all of our folks right down to the ground level focus on. So if we continue to have Robust pricing and pricing is continuing to go up. Our inventory tonnage might not go up. Our inventory dollars might go up proportionally with whatever steel input prices is going up by and steel input prices continue to go up. But again, as I said earlier, we're keeping our inventory volume relatively controlled. Our inventory turns is a big focus. So I don't see our inventory volumes changing the whole ton. It's really going to be a function of what flows through from steel pricing. Okay. And what was the if we if you're able to disaggregate, what was the impact in service centers In the Q1, in terms of the portion of the change in non cash working capital that's related to Service Center, because that was a negative That was an investment, right? Sorry, in terms of how much inventory changed in the service centers? Yes, sorry, on the inventory side in service centers, because I know when you look at the cash flow, I mean, there's a few things going on with the reduction Inventories and Energy, but if we focus on service centers, what happened with inventory in that area? Yes. It went up by about $50,000,000 or $60,000,000 Energy came down by both a similar amount. Okay. And then just one other question on a different matter. You asked earlier about M and A. I'm just wondering, in this environment, The steel price environment we're in right now, which is obviously unprecedented, is this an easier or harder environment To contemplate and consider M and A, if we put aside the tax Potential tax changes, that's a separate issue. But just in terms of when you're assessing businesses in this environment, is this an easier time or a harder time for you? I wouldn't characterize now as easier or harder because it's always hard. I mean the hit ratio on stuff that we see and we look at Versus stuff that we transact on, it's not a great batting average, but that's just nature of the beast. We don't chase stuff for the sake of chasing it. And just because stuff becomes available, doesn't mean we do it. And sometimes there's stuff that's available at a pretty cheap price and sometimes A cheap price is too expensive if it's a massive turnaround situation. So I think it's always hard. That being said, it's nicer to see more activity because there's more stuff to choose from. But we tend to have a Great. Thanks. Thank you. And at this time, gentlemen, we have no further questions. Please proceed. Great. Well, thanks, operator. Well, thank you very much for joining the call. We appreciate you focusing on the quarter. If you have any questions, please feel free to reach out anytime this afternoon or going forward during the quarter. And we look forward to staying in touch and reconnecting at the end of Q2. Thanks very much. Thank you, sir. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending. And at this time, we do ask that you please disconnect your lines.