Earnings Call: Q4 2020

Feb 11, 2021

Ladies and gentlemen, and welcome to the 2020 Year End and Fourth Quarter Results Conference Call for Russell Metals. Today's call will be hosted by Mr. Martin Jarafsky, 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. I would now like to turn the meeting over to Mr. Martin Jarafsky and John Reed. Please go ahead. Great. Thank you, operator. Good morning to everyone. I plan on providing a brief overview of the Q1 excuse me, Q4 highlights and results, and then we'll open it up for some questions. If you want to follow along, I'll be using the PowerPoint slides that are on our website. Just go to the Investor Relations section, the conference call part of that website. If you go to Page 3, you can read our cautionary statement on forward looking information. Before I go through some of the financial results, I want to just step back and discuss The past several quarters to put the prevailing environment a little bit into context. For starters, we couldn't be more proud of how the Russell team has navigated Through some pretty unique business conditions over the past year, and in some way, the challenges of 2020 create an opportunity to make a range of changes that will enhance our platform for years to come. There is a long list of recent team accomplishments and has involved many, many people, but a quick summary includes there were some Business Unit Leadership Changes in some key roles, capital structure improvements, portfolio streamlining, including rationalization of selected non core assets and growing of our business. We look at a lot of acquisitions as well as capital investment opportunities, Involves a fair amount of work to filter through the ones that are potential opportunities to find those that meet our return on capital criteria and our business fit criteria. We were able to bring a few of those things over the finish line in 2020 and believe there are many more opportunities on the coming years ahead. So with that being said, why don't we go to Page 5 and let me begin by giving a little bit of an overview. If I reflect back on where things were At the end of Q3, there were some positive signals and we had expectations about what was on the come. In Q4, we started to realize the rewards within our financial results, and we just highlight the word started to realize the rewards. In terms of market conditions, steel prices have surged over the last 4 or 5 months amidst limited inventory in the supply chain, good and market demand from a broad based customers. These factors when combined with inflated scrap prices has supported the prevailing price environment. On our Q3 conference call, I discussed the lag effect of steel prices to other parts of the supply chain. That lag effect has now flowed into our part of the supply chain towards the latter part of Q4 and this favorable environment has continued into early 2021. In terms of controllable business initiatives, we are continuing to implement our multi year roadmap to enhance the value added part of our business. In late December, we announced and closed on the $13,000,000 Sanborn acquisition. Sanborn is a value added processor with an operation in Pewaukee, Wisconsin. We are really happy to have the Sanborn team join the Russell family. It's a relatively small acquisition, but it's truly a hand in glove fit with our other Wisconsin based operations. Sanborn is located only 20 miles from our Milwaukee and we have a long standing working relationship with them as both a customer as well as a supplier. We've only owned the business for probably around 6 But the teams are working very well, the opportunities to cross sell product are being realized and the order backlog is very strong. The Trenton project was completed a few months ago and the backlog of that business is also very strong. The bottom line results are being realized. This expansion of our value added business is a multiyear journey and we'll continue to make progress into 2021 as we have a couple more projects on the go And that we expect to be operational by the middle part of this year. On the OCTG line pipe front, We made the decision around the middle part of 2020 to reduce that footprint and permanently pull back capital from that segment. The target reduction was about $100,000,000 and we are hoping to get there by the end of 2021. As we will talk about later in the financial results, The OCTG line pipe portion of the business has been an economic drain to our overall results, and we've been focused on addressing that issue. We reduced inventories by greater than $30,000,000 in each of Q3 and Q4, and we are confident of achieving our $100,000,000 target by the end of 2021. In Canada, we merged our 2 operations into 1, and in the U. S, we are permanently selling down the inventories. We'd like to thank the staff within these groups that there are some tough decisions that have to be made in terms of streamlining the business, reducing costs And reducing the capital deployed. In terms of liquidity and capital structure improvements, with 100 $106,000,000 of cash from operating activities in Q4 and liquidity of over $400,000,000 we were in really good shape. The cash generation during 2020 provided us with an opportunity to reshape our debt structure. In Q4, we completed a series of changes With the net results being that we extended our maturities by several years, improved our credit profile, enhanced our flexibility and reduced Interest costs by about $8,000,000 a year. If we go to Page 6 in terms of our financial results, top part of the page, Let's start with the income statement perspective. The change in results from Q3 to Q4 2020 Involve top line improvement across our businesses, but also bottom line improvement when we strip out some of the noise. Revenues Improved between Q3 and Q4 by $56,000,000 and gross margins improved by $22,000,000 Adjusted EBITDA came down from 47 $41,000,000 but it was impacted by a few factors. One of the positive contributors to EBITDA Was in relation to wage subsidies, which were $8,000,000 in the quarter, but that was down from $20,000,000 in Q3. As we said before, this program worked well to provide a cushion until business conditions recovered and supported employment base during this transitionary period. It actually feels pretty good to say that this government support program will likely be very small in Q1 as business conditions are vastly improved. As negative impacts to EBITDA, our OCTG Line Pipe business was earnings drained in Q4. I mentioned this before and we'll talk a little bit more about it in a second. There was a loss in Q4 from that part of the business, which was a little worse than Q3 as it included some additional inventory provisions of about $3,000,000 and a few one time items. In addition, stock based compensation had a mark to market impact of about $4,000,000 In Q4, due to the increase in our share price. This was higher than the $2,000,000 expense in Q3. In Q3, we had a property Sale gain of $6,000,000 that positively impacted the Q3 results, but it was a nonrecurring item. The net result is if We do an apples to apples comparison between Q3 and Q4, our Q4 adjusted EBITDA improved. The below EBITDA items that impacted results include A non cash write off of $1,300,000 for deferred financing expense. This was related to the Q4 refinancing. This negatively impacted our Q4 interest expense, but the benefit from the refinancing will be visible starting in Q1 of 2021. Lastly, Q4 had a $30,000,000 non cash charge related to a write down of goodwill, intangible and some fixed assets of our U. S. Energy business. We are required to do impairment testing based upon defined accounting standards. From a disclosure standpoint, this impairment charge is the only difference between reported and adjusted results. If you want the details, we have a reconciliation of that amount on Page 3 of our MD and A. From a cash flow perspective, we generated $85,000,000 from a reduction in working capital in the quarter. It's more of the same in Q4 versus other recent quarters in terms of the tight controls over our working capital management. The biggest shift was from inventories that came down by $68,000,000 The $68,000,000 reduction was mostly from the focused effort to reduce capital within the Energy segment as we reduced that footprint within the OCTG line pipe CapEx at $6,000,000 continues to be modest below DD and A, and we see in and around this level continuing into 2021. From a balance sheet perspective, net debt continued to decline from $324,000,000 at the end of Q3 to $267,000,000 At the end of Q4, a reduction of about $57,000,000 For shareholders' equity, there's an accounting adjustment because of the Canadian dollar strengthening From end of Q3 versus end of Q4. Bottom line from a liquidity perspective is that we are north of $400,000,000 in terms of liquidity, Our capital structure is strong, our credit metrics are strong, and we're in very good shape. So overall, I'm very pleased to say that we've made good progress on a number of That have driven free cash flow and I believe that we have more on to come. Lastly, we've declared a quarterly dividend of $0.38 per share. If we go to Page 7, we have our segmented information. The service centers did really well as the market improved. Our Q4 revenues, gross margins and profitability within the service centers all improved versus Q3 And in particular improved during each month of Q4. From an end market perspective, the improvements are fairly broad based across regions and customers. Tonnes shipped were up in Q4 versus Q3 by a little bit, But substantially higher in December of 2020 versus December of 2019. December is normally a much Softer months from a volume perspective due to the holiday period, but this December was well above our normal for what we typically see in December periods. Price realizations were up around 5% in Q4 versus Q3 as the lag effect of the steel price Increases were starting to be realized through our parts of the supply chain. In Energy, revenues picked up, but margins and operating profit declined. This comes back to the challenges within the OCTG Line Pipe segment in particular that I've mentioned a couple of times already. When we look at Q4 and 2020 as a whole And the disconnect between our field stores results being in the plus and our OCTG results being in the negative, You can see the drag that OCG line pipe has created on our results and why we are strengthening the footprint for that business. That being said, we see the impacts of steel price increases starting to flow through this market, and we are encouraged about our path to reducing inventory in a prudent and economic manner. Distributors had pretty good Q4 and also benefited from the rebound in the steel sector. If we go to Page 8, we have our segmented inventory information to provide a frame of reference for Some of our recent capital reallocation changes. If we focus on the middle pie chart and the one to the right, you can see that our segmented inventories declined $862,000,000 at the end of June to $760,000,000 at the end of December. This equates to $146,000,000 reduction over the past 6 months. The majority relates to energy, which declined from $470,000,000 at the end of June to $373,000,000 at the end of December. Of that roughly $100,000,000 decline in energy inventories, Around 2 thirds of that came from the decline of our OCTG Line Pipe segment. As I said earlier, We are comfortable with our $100,000,000 target for reducing the capital in that business by the end of 2021, and we've made good progress over the last couple of quarters. At the same time, we expect to be cautiously redeploying capital in our Service Centers and Steel Distributors segment in response to favorable market conditions. But as I said, it is cautiously deploying working capital, but we are seeing an uptick in that business. So overall, we've made good progress in reallocating capital with more to come. I think when we show these charts at the end of 2021, it will further demonstrate this evolving shift. So two final takeaway thoughts in relation to the Market 1 and in relation to Russell 2 specifically. So the market, the improvement that happened during Q4 has maintained itself into Q1 2021, and we are still seeing good demand, Tied inventory in the supply chain and strong margins across most of our business units in the Service Centers and Steel Distributor segment. Energy is getting a bit better, but it is playing from behind. Within Russell specifically, we've started on our journey to reshape the portfolio. We are really pleased with the progress to date and encouraged by the ongoing opportunities ahead of us. In closing, on behalf of John and other members of the management team, I would like to express our appreciation to everyone within the Russell family, their tremendous hard work during 2020, and we are confident that the heavy lifting that was done in 2020 Will be rewarded in 2021 and the years ahead. That concludes my introductory remarks. Operator, if you'd like to open the floor for questions, We're available at this point. Thank you. Ladies and gentlemen, we will now begin the question and answer session. First Kenny Keyes. First question comes from Mona Nazir at Laurentian Bank. Please go ahead. Good morning. Congratulations on the results and thank you for taking my questions. My first one is just on the margin side. Of the over 400 basis point margin expansion year over year, I'm just wondering how much is driven by the elevated price environment versus value add company specific initiatives or any other items. Yes. Mohan, good to talk to you. Again, there's definitely a mix And we have the elevated price environment take hold. And so we it's the transactional nature of our business. We're able to pass that on very quickly. And so we will continue to see the growth in our value added. So again, as it moves up the ladder and steel prices become larger, we will see that impact. The value added impact on that as a percentage basis overall will not grow in lockstep, but will continue to add to it. Conversely, on the downside, as steel prices drop, it will prop that up. So there's an offsetting result that's there. So again, we are seeing impacts of both, but right now it's predominantly led by the increase in pricing. Okay, that's helpful. And then, I know that you stated in the prepared remarks that you have started to realize returns of macro tailwinds. So would it be fair to say that margins into Q1 are perhaps Expanding even further on a sequential basis, have conditions improved to the from year end to Yes. Thanks, Mona. They're continuing into Q1 At a better pace. And so said in a slightly different way, when we look at Q4 as a whole, The average of Q4 was up over Q3 and the exit speed or the exit margins within Q4 We're better than the average of Q4 and we see that continuing into Q1 so far. Okay. That's helpful. Thank you. And then in regard to the restructuring and the heavy contraction we've been seeing on the energy product side, As you continue to reduce the footprint on OCTG and line pipe exposure, I'm just wondering when can we expect that to Turn a corner from a revenue and profitability perspective. Is Q2 for revenue an okay estimate or could it be further out? Thanks. We're seeing a little bit of a disconnect there in line pipe in OCTG Again, as we're working through inventories that are in the industry as a whole, and there was some overstocking based on the speed of the downturn. And so line pipe is coming out. We're seeing pricing rise quickly. LCPG is following, but it's moving a little bit slower pace due to there being some oversupply. So we think that that will rebalance in Q1 lifting pricing as again the substrate being flat rolling plate in North America has gone up considerably, so we'll see that pricing lift. So as we see that move forward into Q1, further into Q2, we think we'll see that reversal for the TJ and Line Pipe, and then obviously the field stores are producing at a solid return right now for us considering where they are in the cycle for oil and gas. And then just to follow-up on that, when we look at the OCTG line pipe in Q4, It generated negative $8,000,000 of operating loss. That should get better. Exact time, exact magnitude, but we think $8,000,000 is a low watermark. Okay. That's great. Thank you. And the last one for me is, I'm just wondering, has the current macro environment tailwinds Change or shifted your strategy at all over the last couple of months, even on the M and A side? No, it hasn't. And it's one of those things where our M and A strategy stays the same throughout cycles. Only thing that really changes is in my mind is really the opportunities that are available and vendor expectations, but we try and be pretty consistent. We've looked at a lot of stuff over the last little bit, and I suspect we'll continue to look at a fair amount. It's What we can actually bring across the finish line in many respects, it's less about changes in our behavior, changes in market and what that does to vendor expectations, but We continue to look very actively. Thank you. That's it for me. Thanks, Mona. Appreciate it. The next question comes from Michael Doumet of Scotiabank. Please go ahead. Hey, good morning, guys. Good morning, Michael. Could you maybe start us off just by elaborating on the drivers that drove lower operating income in your field stores in Q4 versus Q3? Yes, well I think some of it was driven by In Q3, we had a really good period, in particular, on the Canadian side of the business that was a little bit lumpy. And so it wasn't so much of Q4 by itself and more a case of Q3 had some really good business that came to the table, in particular Some of the Trans Mountain work. What ended up happening in Q4 on the other side of it is, the U. S. Business has had some challenges. So while our Canadian businesses contributed nicely in Q4, there were some struggles south of the border. And when we talk about the impairment charge that we took in Q4, that was really driven south of the border in our LEAP business. There are some challenges that are going on. There is a little bit of a connect between the Canadian oil patch and the U. S. Oil patch right now. That is some of the phenomena that you saw in Q4. Some of the pullback was really a function of some of The macro challenges that are ongoing within the U. S. Sector. Got you. Thank you. And maybe more broadly speaking, like I'm trying to get a sense for The earnings power of this business and I can make a pretty educated guess on where the metal service centers Is going to land in 2021 based on what we saw in 2018, but it gets a little bit trickier with the energy product side. And it doesn't sound like The earnings there will peak at the same time as the metal service centers. Anyway, again, for the energy products business, anyway you can size up The earnings power of that business when it's been fully restructured? Yes. Let me take a shot at that, Michael. So Obviously, the last couple of years has been really challenging for that part of the business and has been an earnings drag. So we talked about negative $8,000,000 loss in Q4. It also lost money in Q3 and Back for the last couple of quarters. In some ways, for the last little bit, it's a little bit of addition by subtraction. Lower top line, but frankly eliminating some of that negative drain. But even if we look past the last couple of years on a longer term basis, at best that business was generating kind of mid single digit type returns. So when we look at redeploying that capital on a multiyear basis, it Has had mid single digit type returns if we look at it over a 5, 6, 7 year basis. Over the last couple of years, it's been a negative drain. So when you use those Macro factors to put it into your model, by taking that capital and redeploying it somewhere else, It should be a lower top line, not a higher bottom line as a result. Yes, Michael, just to add to that, the fuel stores that you're asking about specifically look and feel more like our service centers. There are different market drivers, obviously, that geared towards more For oil and gas production and the timing of that. But again, the operational, once we have, again, Right side of the OCTG in line pipe, the operations side of the field store should look and feel a lot more like our service centers for your mind. Got you. I mean, it's probably early to talk about it, but it feels that 'twenty two might be better than 'twenty one for the Energy Products business. Maybe if I can sneak one last thing. On the Distribution segment, again, that one did well in 2018. If I remember correctly, the ability to source International Steel was a big driver to that success. So steel lead times extending beyond 3 months, I mean, is it a possibility that you replicate that success again in 2021? Yes. There's different dynamics out there right now with international There's definitely opportunities for that success. Again, this one was driven the supply chain was just depleted Manufactured service centered end user going through COVID, everybody drew their inventories down. And as manufacturing ramped back up, original equipment Back up industrial, the supply chain was just really thin and there are opportunities for the pricing. In addition, scrap pricing went through the roof. And so that was a driver. And so as we move into Q1, you look at extended lead times out into May, as you mentioned. But again, the international market and the import market right now, there's not enough spread there that's really making it overly attractive For people to go out and then dive in with both ends because there's just not a again, there's just not enough spread if there is a pullback on this price. That's great. Thanks guys. Great. Thanks Michael. The next question comes from Michael Tupholme at TD Securities. Please go ahead. Thanks. Good morning. Hey, Mike. Hey. First question is just on Demand levels and activity levels in the Service Centers business. You talked about a strong pickup, particularly toward the end of the 4th quarter, And your outlook makes it sound like that has continued into the early part of this year. I'm just wondering if it's possible to get a little bit more granular. Is the rate of year over year change that you're seeing through the early part of this year, is that has that accelerated? Is it better than what you saw at the end of last year? I think it's better than the Q4 overall because you see some typical seasonality in Q4. Again, Q4 was Strong for us, especially going into the end of the quarter, into the December month, and we continue to see that. If you're looking for granularity, I mean, again, OEMs and industrial across the board have again picked up pretty dramatically across the board. Construction remains very steady and really remained steady throughout the Which was very impressive. The lag, it continues to be energy, although it's improving. It's just at a much slower pace. That's helpful. Thanks. I guess, yes, when I refer to granularity, I guess, what I was looking for and that's what you suggested is helpful. I guess I appreciate the seasonal weakness that you typically see in Q4. Just wondering from a year over year perspective, whatever you were seeing in terms of year over year improvement late in the year, is the rate of year over year improvement Higher than that through the 1st part of this year or is it sort of consistent with what you were seeing right at the end of the year there? I'd say slightly up right now over where we were in December, but it's definitely improving. But again, we're so early into the quarter, it's a little difficult to tell. Right now, we just got January to look at, but we are seeing improvement. Okay. And I think one of the other aspects and this is perhaps why it's hard to look purely at volume at this point is There's not a ton of inventory in the supply chain. So I think the reality is demand is outstripping available inventory. So volume could probably be higher than it is if there was available inventory for it and the net result of all that is the price environment we're in right There's just not a ton of inventory in the supply chain. Right, right. Thanks, Tom. You were asked about margins in this overall, I guess, but also a lot of the strength is in the service center Business in particular in the Q4. Just so I'm clear, I mean, you had a very strong margin, 25 Gross margin in ServiceNow in the 4th quarter, I think that was the highest since 1st part of 2018. Was that entirely driven by the strengthening price environment that occurred through the Q4 and particularly towards the end of the year? I mean, I know there's A value added asset, but just to be clear, in the Q4, there's nothing unusual. It was really primarily price driven? Yes. It was sorry, go ahead, John. And predominantly price driven. Again, there was some lift that we're seeing in the value added process and as it continues to grow, it was predominantly price driven and it continues on in Q1 Pretty strongly. Okay. So the way to think about this going forward is, is it fair to say that given the fact that prices continue to strengthen into the 1st part of Gerafsky. The gross margins we see early in the year here Should actually be improved even further from that level you saw in Q4. Is that am I thinking about this directionally the right way? Full on. Okay, perfect. Thanks. And then just in terms of the Energy Products business, you You affirmed your $1,000,000 capital reduction target. So it doesn't sound like you're that's evolved in any way or you're thinking about that any differently. But I'm just wondering if there has been any evolution you're thinking for that business, either, I guess, Getting more aggressive with the way you are some of the changes you might be planning or in turn perhaps less aggressive in view of the fact that Oil and gas prices have strengthened and there's actually, it looks like certainly things have bought in there and are getting better. So I'm just wondering if, It sounds like there hasn't been any change in your capital reduction target, but I mean in terms of site closures or any other aspects of how you view that business from a Strategic perspective or has anything changed? It's really the tail of 2 sides of the border And then a couple of other dynamics that come in. Again, we merged 2 of our operations, our OCTG and Lime Pipe into 1 and had an overhead reduction in Canada. We've initiated really an orderly liquidation of inventory in the United States. However, based on the pricing that we're seeing and what's working through the supply chain is it cleans itself up in Q1. Again, the entire chain was oversupplied. We're starting to see prices rise. And as we continue to pull that inventory down, there's obviously margin opportunities that are there to reverse that business. So it doesn't put us in a rush to get out of the business if there was an opportunity to do so that was advantageous for our shareholders and obviously an economic sense for us we would consider There's no reason for Rush, Rick Johnson building, man's building. And so again, right now, we're in a pretty good position in the States just to Take your time and fly it away unless an opportunity presents itself that again made economic sense for us. In Canada, we've continued to reduce our inventory, but It's running at a very nice clip right now in our Canadian operation. And frankly, with the new administration in the United States, their green energy push, We feel like that Canada will benefit from that in the latter half of twenty twenty one and on into 2022 With potential growth in the oil production and so it could benefit us there as well. Okay, thanks. And then just one last one. Marty, if I understood correctly, your comment about CapEx, what I took from what you said was that you expect sort of a similar run rate to What we saw in the last quarter and I guess in 2020, you were around $24,000,000 $25,000,000 for the year. Is that The kind of number we should be thinking about for 2021? Yes. Very similar orders of magnitude, correct. Okay. And that's down a Fair bid from where it was certainly in 2019 and I think even historically. So is that I don't know. I'm just trying to understand. It just seems a little bit low to me. But is that sort of a I guess maybe what changed, why is it coming down relative to where it's historically been? And Michael, as we shift more into this High end value added processing, a little bit of a honeymoon phase, if you will, there for CapEx as far as depreciation on repairs. So you got this new machinery coming in the 1st year or 2, you're just not having to do a lot of things there as far as the repair side of the business And that will eventually shift back out and then ramp back up on that side. But as we look at some of our older machinery, not as effective, it's Still running, we will shift that production over to more of the high end equipment and that will just that have an end of life where we will actually just scrap that equipment as it Further in the tooth there. And so you're just seeing a little bit of an oddity in that, like I said, that honeymoon phase of equipment when everything is running perfectly. Okay. That makes sense. All right. Thank you. Great. Thanks. The next question comes from Frederic Bastian at Raymond James. Please go ahead. Good morning, gentlemen. Hey, Fred. Good morning. It's encouraging to see how supportive the conditions And also your own momentum are entering 2021. But if I look at consensus expectations, the average analyst expects Russell to earn about $1.80 per share this year, which is more than double what you delivered last year. Does that number make you nervous? We don't spend a lot of time thinking about Consensus forecast to be perfectly honest. I mean, this is almost we focus on what we can control and what we Control is how we're running the business. And what we're seeing right now in terms of market conditions is pretty good and what we're seeing in terms of the things that are within our control, Operating cost, value added opportunities is looking really good. So we're quite optimistic, but we don't spend an awful lot of time Trying to figure out what Street expectations are for next year and whether they're too high or too low or just about right. We'll leave it to you guys to figure that one out. Yes. I've been following you guys for 10 years and I can tell you it's quite hard. But directionally, we're Very much so. And I think that's a fair point, Fred. The wind at the back, It was a pretty decent Q4 and the exit pace coming out of Q4 was better than the Q4 average. And some of the initiatives that We're put in place in 2021. We're seeing the fruits of our labor. And so we're quite pleased about that. Maybe a question for John. I'm sure you're sleeping better than you were 9 months ago or 10 months ago unless I know it caught COVID more recently, but is there anything keeping you up at night right now? As we work through the energy, I mean, obviously, that's difficult for Edison, the fact that we're dealing with our people and going So that's obviously difficult. But from the service center side and the distribution side, I mean, we're really looking at some silver linings happened in 2020. I mean the development of our people was tremendous. I mean they were thrust into some leadership roles and they all responded just tremendously. And so again, it just accelerated their leadership and their ability to grow this business going forward. So as we go into 2021, Some momentum in the market at our back. Our people are just so poised to take advantage of the opportunities and they're doing a great job of maximizing those opportunities. So The biggest thing is the challenges with the people in the LCTG and line pipe. So Okay. All right. I appreciate the color. Thanks, guys. Great. Thanks for asking. Next question is from John Biggers, an investor. Please go ahead. Hi gentlemen, how are you doing? I keep looking at that dividend That you guys are paying out, I look at just my from what I see, about roughly $90,000,000 I I know you guys have always been concerned about cutting the dividend. But if you guys cut the dividend, I know you'd be concerned about the stock going down, but boy, that's a lot of cash flow going over the company. My next question is, so that's a question I'd really like you guys to look at. Have you guys got enough inventory also to be advantaged to take advantage of this next Quarter with the inventories really being tight out there with source of supply and margins exploding. And have you got enough inventory to really, really capitalize on those margins? Thanks, John. From a liquidity standpoint, when we look at the dividend again for the long term viability of the company and for Shareholder. When we look at it, we're going to sell the liquidity being the countercyclical cash flow. These downturns, we actually throw off so much cash The dividend is sustainable for a pretty long period of time without being a concern to the balance sheet. So we're pretty comfortable with that. In regards to inventory, we've always taken the approach that we're going to turn our inventory in both the U. S. And in Canada faster than our competitors It kind of minimizes the ups and downs going into an increasing market. We actually did bulk up a little bit, not materially on inventory, but we've got Such a good working relationship. Our projections forward on our buy side with our suppliers to put over guaranteed tons at the market price. We really focus on the key for us is focusing on the margin side of the business and the gross margin. The transactional nature lets us Push that in immediately and maximize on that because we're not bound by contractual nature. So we can maximize those margins quickly where the challenge becomes is, Again, you don't want to go out and start selling inventories to unusual places and you have to protect your customers in this type of environment where some of the mills are on allocation. So we've been able to do so. We've not had inventory concerns at this point. We do have some supplier our competitors, sorry, that are running out of inventory. Supply is tight. But right now, we're in a very sweet spot on that. We're maintaining those turns where we've got, again, 2 to 3 months' worth of inventory. So when there is a downturn, we should be able to race to the bottom faster than anyone else. So we think we're in a nice sweet spot that really helps us maintain that earnings. Again, at the bottom, we're going to be at a higher peak. And at the top, we may give away a few dollars on the top side. But again, it's nothing that's material To share price or shareholders. But just getting back to that dividend, that $94,000,000 going out the door, which Roughly even with your stock at $26.50 like 5% of your margin. I just don't understand why that could not be used for more inventory, More acquisitions, I just look at that dividend and go, wow, I mean, it's a lot of dough going out the door. Yes. So it's Marty here. We look at it every quarter with our Board and we look at holistically. And at the end of it, we're not being compromised with Being able to walk and chew gum at the same time. And we have invested as required. We made an acquisition in the quarter. We've got a great capital structure with very strong credit metrics and we paid a dividend. So I think we're in a little bit of a sweet spot here right now In the sense of, you can do a variety of things in terms of capital allocation, and I think that's kind of evidence of what we've done this quarter. With acquisition, continuing to manage working capital in the right way and paying out a dividend and continuing to look at other opportunities for value added investments within our business. We're checking a variety of boxes on that front. Okay. Just one more thing about the margins. I know the margins you guys said in the Q4 until the end were approaching 25%. So We're still going up in flat rolled and tubing and availability and tight, tight supply. Could the margins maybe get to Close to 40% in the Q1. No. We don't want to speculate on anything going forward on That closer, that dialed in a forward looking statement, but they definitely are improving. Okay. Thanks for your time, John. Okay. Thanks, John. There are no further questions at this time. You may proceed. Great. Well, thanks, operator. We Very much appreciate everybody for tuning in today. Thank you for taking the time. Thank you for following Russell. We appreciate it. If there's any follow-up items, Please feel free to reach out to John or myself either today or in the coming days. Otherwise, we will look forward to seeing you. Thanks, everyone. Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and we ask that you please disconnect your lines.