Good morning, ladies and gentlemen. My name is Daryl, and I am your conference facilitator today. I would like to welcome everyone to Cleveland Cliffs' second quarter 2026 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. The company reminds you that certain comments made on today's call will include predictive statements that are intended to be made as forward-looking within the safe harbor protections of the Private Securities Litigation Reform Act of 1995. Although the company believes that its forward-looking statements are based on reasonable assumptions, such statements are subject to risks and uncertainties that can cause actual results to differ materially. Important factors that can cause results to differ materially are set forth in reports on Forms 10-K, HANDS, 10-Q, and news releases filed with the SEC, which are available on the company's website. Today's conference call is also available and being broadcast at clevelandcliffs.com. At the conclusion of the call, it will be archived on the website and available for replay. The company will also discuss results excluding certain special items. Reconciliation for Regulation G purposes can be found in the earnings release, which was published this morning. At this time, I would like to introduce Lorenzo Gonçalves, Chairman and Chief Executive Officer.

Thank you, Gary. And good morning to everyone. After several quarters of talking about the future earnings power of this company, we can finally point to tangible evidence that the progression we have been forecast is now reality. During the second quarter, we returned to positive free cash flow and tripled our adjusted EBITDA from the first quarter. While the second quarter represents meaningful progress, it still understates where this company is headed over the coming quarters. Q2 maintenance outages and our lagged contracts still did not allow us to demonstrate the full capability of our asset base. That will be more visible in Q3, in which we are expecting to more than double our Q2 EBITDA. Due to our health backlog and improved pricing, the second half of 2026 will look substantially better than the first half of the year. With our third quarter Adjust the EBITDA guidance of $575 million, we have a situation where higher higher prices, lower costs, and higher shipping volumes will all be converging at once. Weather-related impacts are behind us, finishing lines are full, and pricing remains strong. Better yet, at the current curve for steel, we expect the fourth quarter to further outperform the third quarter and adjust the EBITDA, with even more improvements to come in 2027. When profits were below our standard at this time last year, I laid out three key areas of improvement that would bring us back to a respectable level. automotive volume recovered footprint optimization and the expiration of the uneconomic slab supply contract we had in place with arcelor middle culverts these three factors have all now materialized and with stronger pricing the improvements we see are even better than previously forecasted. Automotive demand deserves special mention. Cliffs continues to be the supplier of choice for the automotive sector in the United States, illustrated by the fact that we have received the top supplier award from both Toyota and General Motors so far this year. During the quarter, our shipments of steel to our automotive clients were the highest in the last two years. Our finishing lines, which we run at suboptimal utilization levels for the last couple years, are now back to running at a healthy level of utilization, with a favorable impact on our costs. Thanks to our multi-year contracting strategy, the ongoing reshoring of automotive production into the United States and major supply chain disruption suffered by competitors, our automotive coating volumes are back to the strong levels we saw back in 2023. This improving situation in both steel and automotive demand can be attributed to the long-overdue trade policies we now have in place in the United States. Section 232 has been the single most effective industrial policy implemented in our country in a generation. We applaud President Trump, Secretary Howard Lutnick, and USTR Ambassador Jemison Greer for their conviction in these policies. The results are visible. Manufacturing investment is accelerating. Domestic steel utilization is improving. and capital is being allocated to U.S.-based production rather than offshore production. The reshoring movement that's now occurring throughout American manufacturing simply would not be happening at its current scale without Section 232 and the enforced mechanisms that support it. We have long argued that America cannot maintain a strong manufacturing base without maintaining a strong steel industry. Today, that argument is no longer theoretical and has been validated by real-world investment decisions made by some of the largest companies in the world into automotive production, electrical infrastructure, and defense-related applications, among several other sectors. All of those investments require steel, and Cleveland Cliffs is uniquely positioned to meet that demand, giving the breadth of our product portfolio and our domestic footprint. Besides their great success in combating illegal trade of dumped steel and steel derivatives into the United States, the U.S. government has been instrumental in making our industry more energy-efficient via grants from the Department of Energy. Our Butler Works Induction Reheat Furnace Upgrade continues to progress well, and upon completion in 2028, will provide us with the ability to supply more tons of the high-end grain-oriented electrical steels our country needs. In addition, we have made major progress on the re-scoping of the Middletown project in compliance with the Trump administration's energy dominance goals. The Middletown blast furnace is due for our reliance by 2030, and these DOE grants will allow us to go further in optimizing the furnace and maximizing energy efficiency by capturing and using blast furnace gas to generate electricity on site. We expect to make a public announcement in the next month or so. Furthermore, as discussions surrounding USMCA continue, every outcome that has been publicly discussed would be a positive outcome for domestic steel producers. Whether the final result includes stronger melt-and-pour requirements, tighter enforcement of rules of origin, increased verification requirements, additional scrutiny of trans-chipped material, or stronger content requirements for automotive production, each one of those outcomes favors steel produced in North America by companies with meaningful domestic operations. We are uniquely positioned because we are here in the United States of America, and we are miners, pellet producers, iron makers, steel makers, and downstream manufacturers. Therefore, every policy that emphasizes domestic content, domestic production, and domestic manufacturing directly benefits Cleveland Clips. A similar trade dynamic applies to Canada. We were pleased to see the extension of the Canadian tariff rate quota system through June of 2027. Canada has struggled with many of the same challenges faced by the United States prior to President Trump. The world has way too much still-making capacity, and certain countries continue to export that excess capacity at prices disconnected from economic reality. Our STELCO results have improved, and their contribution to Cleveland Cliffs is part of our second-half improved guidance. While we have seen improvements on the hot road side, which is the vast majority of what we do in Canada, on the finishing side, STELCO is still lagging. Without further measures to protect fair trade in Canada, the future competitiveness of our galvanizing lines in Hamilton is at risk. We continue to defend our point of view with the Canadian government officials asking them to do what is right to protect the steel industry in Canada, just as our American government has done here in the United States. Extending the TRQ system through June of 2027 is an important step toward protecting Canadian jobs and creating a healthier North American steel market, but it's not sufficient. If Canada really wants to have a domestic steel industry, more needs to be done. One other matter to highlight in today's call is our Cleveland Cliffs safety record, including Stelco. I don't talk publicly about safety very often, but we have worked very diligently since the two acquisitions of AK Steel and ArcelorMiddle back in 2020 to implement in our steel plants the same level of Cleveland-Cliff safety standards we put in place in our minds since we took office in 2014. In fact, our total recordable injury rate for the last three years has been best in class. Safety is also good business practice. Because of our sustained safety performance over multiple years, we are now seeing meaningful reduction in workers' compensation expense and other related costs. One important item to mention today, we have officially kicked off negotiations with the United Steel Workers Union to renew our collective bargaining agreement. And I'm pleased to say that the process is off to a constructive and productive start. We are approaching these negotiations like we always do, with a shared commitment to maintaining a competitive and sustainable business, while continuing to create opportunities for our employees. Based on the dialogue to date, we are confident that we can reach an agreement that strengths our partnership and delivers meaningful benefits for both CLIFS and the USW. Before turning it over, I would like to recognize Celso's appointment to our Board of Directors as President and CFO that was announced this morning. This appointment formally reflects the role that he has already been playing in driving our strategy and delivering important financial accomplishments over the past decades. CELSO has been an indispensable partner to me and a trusted leader across our organization, and this promotion better reflects his role. It also marks the early stages of a transition in leadership. I'm not going anywhere anytime soon, and I plan to lead this company for several more years, with Celso as my right hand. With that introduction, I will turn it over to him.

Thank you, and good morning, everyone. First, I'm grateful for the opportunity and the responsibility that the Board has given to me. I'm excited about where we sit today, especially considering the amount of improvement we have seen over the last year, combined with our promising outlook. There's a lot more that we can improve upon, and I'm confident that we can make it happen, as the need for integrated steelmaking in North America is undeniable. Turning to our quarterly results, our adjusted EBITDA in the second quarter was $286 million, our best quarter in two years. Second quarter shipments were just over 4 million tons, down sequentially from the previous quarter due to the maintenance outages we underwent during the quarter, as well as improved automotive demand, which comes with longer lead times. We expect to see steel shipment volumes above 4.3 million tons in the third quarter, as the order book remains strong and backlogs are extended. Pricing also continued its steady climb upward. Our average selling price increased by $76 per ton as pricing lags started to materialize and we sold a richer product mix thanks to our automotive heavy order book. This climb will continue into Q3 as we have visibility on pricing on nearly every ton we will ship in the next quarter. Based on this, we expect our average price to increase another $55 per ton in Q3. HRC spot pricing has, of course, played the largest role in our improvements, but the trajectory of the cold-rolled coil price, which many of our contracts are linked to, has even further outpaced hot-rolled coil prices over the past several months. This is another factor illustrating the importance of trade policy, as it has driven our pricing realizations to higher than originally expected levels. As for unit costs, as previously guided, the inventory lag effect from last quarter and our maintenance outages pushed costs up quarter over quarter. But with that behind us, we should see a $10 per ton reduction in costs into Q3. After two years of negative free cash flow, we finally flip back to positive in the second quarter. We expect this trend to continue going forward. On top of that, we are now under contract on all of our major property sales with earnest money in our control in all cases. The bulk of the $400 million proceeds from our property sales are expected to come in the second half of this year. With volume, price, and cost all moving in the right direction into next quarter, we felt it prudent to provide an adjusted EBITDA guide with our results this time because of the magnitude of the change quarter over quarter. We expect adjusted EBITDA of approximately $575 million in the third quarter, which would be our strongest quarter in three years. With where the curve for HRC stands today, we would expect even further improvement on that figure in the fourth quarter, even with the typical seasonal slowdown we usually see around the holidays. beyond this if you ran out the futures curve over the next year we would expect to hit our leverage target of sub 2.5 times by this time next year as the cash flows generated from both ongoing profit and asset sales will be used to delever over that time frame these are not based on any extraordinary assumptions as we see achievable opportunities going into 2027 beyond just commodity pricing. We'll have an opportunity in the coming months to reset a large portion of our fixed-price contracts substantially higher, which we estimate will represent a $500 million EBITDA improvement year over year. We also see a major improvement coming from Stelco based on where its order book is today, as well as further cost reduction opportunities from AI-based initiatives currently being implemented with our partner, Palantir. On the strategic front, one thing that has become increasingly apparent through the multiple processes that we've run is that prospective counterparties approach discussions with the assumption that Cleveland Cliffs was under pressure to transact. This includes our processes for HBI and FPT, as well as our ongoing dialogue with POSCO. We went into these processes with the backdrop of foreign companies paying enticing multiples for U.S. industrial assets. These were opportunistic ventures aimed at unlocking value at higher multiples than where we trade at. We understand the replacement costs associated with these operations, and we are well aware what these assets contribute to Cleveland Cliffs. So far, the offers that we have received related to these processes have fallen short of our value threshold. On top of that, our HBI has become substantially more valuable for us with the strong order book that we have in place. HBI used in blast furnaces juices our iron-making capabilities where we are constrained, and we have been able to push more volume through our mills as a result. This will be evident in our third quarter shipping volumes. Regarding POSCO specifically, discussions still remain friendly and ongoing, but we don't have a deadline on our side. We continue to have constructive dialogue and believe that there are strategic benefits that could be realized, but valuation and structure are important, and we're not desperate to do anything unless these two factors are met by POSCO and acceptable to us. The United States is the best market in the world, and it's not cheap to play in our sandbox. The story today is very simple. Cleveland Cliffs is entering the strongest earnings environment that we have seen in years, and we are doing so with a better operating footprint and a domestic steel market that remains supported by trade enforcement and manufacturing investment. There are still low-hanging fruit opportunities, such as fixed price contract resets, that can amplify our position even further, and we are anxious to pursue this in the coming months. The factors that have delayed our earnings recovery are largely behind us while the factors that support future earnings remain firmly in place. With that, let's open up the line for questions.

Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation donor will indicate your line is in the question queue. You may press star 2 to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for your questions. Our first questions come from the line of Carlos de Abba with Morgan Stanley. Please proceed with your questions.

Yeah, good morning, Lorenzo and Felcio. Thanks for the opportunity. I wonder if you can maybe give us a little bit more color on the resetting of the non-auto fixed price contract. any specific products to which these apply and should that come on January 1st or it will be throughout the year? And if you could maybe also share any light on the auto contracts for next year, any expected reset higher or flat, that'll be quite useful. Thank you.

Good morning, Carlos. Yes. Regarding the resetting of the non-automotive contracts, it's a process that starts in earnest in the second half of this year, and it usually goes through November, early December, will be done for the year. you know the numbers you know the the the current scenario on on pricing and uh uh the futures curve and everything so uh we negotiated last year contracts in the backdrop of a a much lower price environment so without giving any numbers on that uh the expectation that this contracts to reset for much higher prices are just a foregone conclusion. So no surprise on that. Regarding automotive, remember that we are in an environment right now that it's clear after a couple years of changes in the marketplace and the dynamics of the marketplace, including ownership of more direct competitors, that we are the real deal in supplying automotive clients. And the clients know that, recognize that, and at this time around, there's no more escape valves, thanks to the beautiful enforcement of trade policies by the Trump administration. There's no more escape valves in Mexico for transship distil. There's no more Canada playing at convenience as part of the United States when it's good for Canada, but never when it's good for the United States. So all these things changed. Now, or you are here in the United States or you are out. And if you're here in the United States, you want to produce cars in the United States, they need to buy from Cleveland Cliffs. there's no more conversation about mini mules producing automotive steel or going into producing all kinds of automotive steel this is behind us there's no more conversations that the other integrated uh player is at our level they are not we are getting uh market share from them at will and uh if we want to take all their business we take all their business so we are in good shape and we are going to play for higher prices. We're going to be more selective, and we are going to reset these numbers higher. That's the bottom line.

Perfect. Thanks. Just on cost, so we saw the guidance for the third quarter. Any early comments on the fourth quarter expectations for cost? Should we maybe bake in another quarter-on-quarter reduction in the fourth quarter or is it going to be more flourish and any comments will be great?

Yeah, we expect further improvements. Our momentum is good and we believe that with higher levels of production and more stable and more, I would say, more optimized schedules at the Mews, Thanks to our work with Palantir, we are going to continue to bring this cost down.

Great. Thank you.

Thank you. Our next question has come from the line of Samuel McKinney with KeyBank Capital Markets. Please proceed with your questions.

Hey, good morning.

Morning, Samuel.

You were very clear last quarter, and you reiterated today that automotive OEMs booking more from cliffs, and those production schedules are tight. Of the 300,000-ton shipment uplift you're looking for in the third quarter, how much of that is from the improved automotive market?

I would say half, because that's pretty much what we do every quarter, half automotive, half non-automotive, as far as light flat rolls, carbon steel.

And the positive, maybe for Celso, the positive free cash flow this quarter was more than accounted for by the increase in payables at the end of the second quarter versus the end of the first quarter. Can you provide us some more detail around what drove that spike in payables?

Yeah. Hey, Sam. Sam, you know, payables were largely driven by, you know, things like raw materials going up, additional maintenance work, and things like that. Okay.

Thank you. Our next question has come from the line of Nick Cash with Goldman Sachs. Please proceed with your questions.

Thank you very much, and good morning, guys, and congratulations, Celso. I just wanted to touch on Stelco in Canada for a second. You mentioned the $500 million potential uplift opportunity here from pricing, improvement, cost, and volumes. And you mentioned, I think on last call, that Canadian selling price was at a 40% discount to U.S. price. Based on numbers I've seen recently, it looks like that gap is closed and Canadian prices have moved up actually quite a bit. Is there any chance you'd be able to, you know, provide some color on what you're seeing in Canadian spot pricing and I guess, you know, how much of the $500 million potential uplift is based on today's pricing?

Or I guess, you know, the split between pricing and volumes to get to that $500 million. volume wise Nick we're fine and we're not in a much better spot volume wise we're maxed out at Stelco we're producing what we have to produce what happened over there is that the pricing gap has closed the Canadian government made some moves insufficient moves but moves in the right direction So things are getting better pricing-wise over there, particularly for hot rolled steel. We haven't seen yet the same type of impact with the galvanized steel over there. That said, we are very comfortable producing hot bands. And we believe that making more hot bands to supply the Canadian market is the way to go. If the Canadian market does not understand that galvanized continues to be under pressure and dumped galvanized is still destroying the market, I have used all the arguments I could have used to explain that to them. And look, we are going to do what's good for cliffs and for the cliff shareholders. So if I need to make any changes in the Canadian footprint, it will be all affecting galvanized and producing more hot roads. and that will have consequence for employment in Canada but we will have a positive financial impact on Stelco and on Cleveland Cliffs but that's not something that we have decided yet I'm still watching to see what's going to happen our guidance is based on what we are booking out in September that's great thanks Lorenzo thank you our next questions come from the line of loss and winder with Bank of America Securities.

Please proceed with your questions.

Thank you, Operator. Good morning, Lorenzo and Celso. Nice to hear from you both. And then, Celso, congratulations on the promotion. If I could ask on the guidance, just looking further out, if I'm understanding or inferring from some comments you made, Celso, the Q326 and 2027 guidance, is it basically assuming the U.S. HRC forward curve for pricing? And then would that include for the fixed price contract reset? And then just to follow up on that, what assumptions are baked in to unit costs for improvements in Q4 and 2027?

Yeah. Hey, Lawson. Thanks for the comments. Yeah. You know, we felt it prudent to give a more detailed guide this time, just given the magnitude of the improvements that we see, but there's nothing crazy being baked in there. You know, pricing-wise, it's largely just the curve, and then we're assuming the positive benefits that we see from the fixed-price contract renewals and things like that. So it's all very realistic, and we have visibility into it. You know, we know the cost trajectory. We know where pricing is expected to be, and then we have other assumptions like coal, energy and other costs effectively, you know, consistent. We have no reason to think otherwise at this point. So we feel pretty good about the guide. Okay.

Yeah, that's very helpful. If I could ask them a follow-up on the Q2 results. With free cash flow, there was a real positive working capital benefit, particularly on accounts payable. Could you provide a little color on what that benefit was about and whether that could be maintained going forward, or would you expect any reversals going forward?

Yeah, so as it relates to working capital, you know, Q2 was a release of around $55 million, and that was driven by, you know, reduction in inventory and a slight build in AP offset by a little bit of AR. I think we talked a little bit about, as we mentioned, on the reasons that YAP went up. And then going forward, you know, working capital for Q3 is likely going to be a slight build as pricing continues to increase. It's a little too early to tell how significant of a build it could be, but, you know, that's what we see going forward into Q3.

Okay, that's very helpful. Thank you very much.

Thank you.

Thank you. Our next questions come from the line of Bill Peterson with J.P. Morgan. Please proceed with your questions.

Yeah, hi. Good morning, Lorenzo Celso, and also congrats Celso. Appreciate all the color thus far on the call. I had a question on the U.S. auto market, and realizing you're potentially gaining share and so forth, but considering the announcements from some of your customers to reshore, how should we think about your market opportunity in terms of unit volumes in 2027, 2028, and what that means for maybe uplift in terms of your output to capture those increased market size.

Yeah, we have the capacity, we have the technology, and we have the respect of every single client we have. Keep in mind, we got this year, once again, the Supplier of the Year Award from General Motors, the only steel producer getting this award this year here in the United States. And we also got the international company Toyota giving us the same award. I forgot the exact name of the award, but it's the top award for that steel company in a given country can get. So that's the recognition we have from these folks. So at this point, there's no more conversation on who is who. We are number one, period, full stop. We know how to supply automotive. We don't need help from anyone to help us get better. We are good enough by ourselves. We have the best team to handle the automotive business in the United States under the leadership of Dan Gordon. between Dan Gordo Mike Hirosek and myself everybody knows who is who in the automotive business here in the United States that said we still have one blast furnace in spare at Dearborn, Michigan and I don't need to explain Dearborn, Michigan inside the Ford Rouge complex we are really able to produce automotive steels over there so we have more capacity to supply automotive. The Trump administration knows that. I shared our potential with the Secretary of Commerce, Howard Lutnick. We support the Trump administration moves toward reshoring manufacturing. They are doing the business of the American people. And they're right behind to make sure that as every single move that they make will be backed by Cleveland Cliffs and will be there for them. That's how we work. And that's how we will continue to make money for the shareholders.

I appreciate that comment, Lorenzo. So maybe following up on the second part of Lawson's question, just to get a sense of the variables for costs in 2027. Potentially, I'm thinking like increased utilization potentially. It sounds like raw materials are not expecting any headwinds. Are there any other inflationary costs to consider? And maybe on the Palantir side, you talked about some improvement this year. Do you have line of sight for any cost improvements from your work with them considering maybe the next six to 18 months out? Any additional color would be helpful.

Yeah, well, the very first thing is some changes in maintenance practices and moves toward higher utilization of our equipment, better and more efficient production planning. All these things that are going on inside the company right now, they are starting to bear fruit, and we will continue to see these things positively impacting our costs. We do have a reline at one of our blast furnaces in Burns Harbor coming next year, and we're going to get some efficient gains over there as well. In a much smaller scale, but not less important, We are going to be producing more grain-oriented electrical steels. It's a 25% increase on that plant specifically with the completion of our induction furnaces in the hot strip mill of Butler. So these are a few of the things that we are doing in order to continue to grow our throughput.

I really appreciate the caller. Congrats against Celso. I look forward to following the progress.

Thanks, Bill. Appreciate it.

Thank you. Our next questions come from the line of Nick Giles with B-Riley Securities. Please proceed with your questions.

Thank you, Operator. Good morning, LG and Celso. My question was about capacity restarts. And LG, you just mentioned Dearborn. So, what else do you need to see, whether I assume primarily at Dearborn but elsewhere to expand capacity and then can you just remind us of the volume uplift that could come from any restarts and how you're thinking about capital intensity? Thanks.

Yeah look, that plant is a producer of automotive grade steel. So the more automotive to move production to the United States, the more we are going to get closer to bring back the airborne. The more they replace aluminum with steel, which they are doing in a very consistent way since the competition set themselves on fire and did it again and then again in the last several months, the more they continue to do that the closer we get there and uh the more they believe that the trump administration is not going to go back on anything that they are doing so far and uh there's absolutely no indication that would happen i would go one step further uh no matter who the next president of the united states will be uh any republican or even a democrat i don't see these things being undone. There's nobody that will come and say, oh, you know what? It's a good thing to import steel from China. Let's go ahead and let China go back to their control over the market. President Trump pushed them back. And that wasn't the first mandate. President Biden came and did not change anything. And then President Trump came back and made it a lot better with Section 232. So who is going to come back and say, let's import stilt into this country? So car manufacturers need to believe that these changes are for real, as much as they believed that the electric vehicle lie was truth. So if they had applied half of their conviction in electric vehicles to bring, to reshore production to the United States, their body would be back. And because the airborne is not back, backlogs are tight for them. And I'll keep them tight. But once they move in all earnest out of aluminum into steel and backing our proposal of bringing manufacturing back to the United States, that's basically the proposal of the government of the United States. We're going to have the airborne back. Until they do that, nope.

Well, G, understood. I appreciate those comments. Maybe just as a follow-up, as we think about the Dearborn restart, should we think about it hinging on auto-improving further, or could you make a decision to restart that capacity just to increase hot road production, let's say?

I thought I was clear. So, we are comfortable with what we have right now for the situation we are seeing right now. Maybe the clients are not comfortable. They're tight. They are running on tighter schedules than they would like to see. But there's an easy solution. But they need to give me the conviction that I can bring a blast furnace back. We're talking more than two million tons. So I need the conviction that they will bring back and they will stay and they are not going to go back to Mexico or back to Canada or importing steel or producing cars in South Korea. I hate all these things. I want them to produce cars in the United States, employing Americans. And then I can employ Americans here in the United States as well. It's so simple. How can we have consumption without employment? We're not going to have that. They need people to buy the cars. These people need to have jobs. So that's what we're discussing here. It's a lot less on one side decisions by the company and much more on a macro level. And I believe that the U.S. government has shown very clear what's going to happen next. So we are ready to go, but we're not going to go until they are ready to go. And I don't feel like they are ready to go. They prefer small increments. That's fine with me. We are showing that we are good at that as well. If almost half of my business in flat rolled steel is automotive, there's another half that's really pretty damn good as well. And we are on plate for chip building. We are on electrical steels for the grid, the only producer of grain-oriented electrical steels. We are on stainless. We are on a lot of things that make a lot of money for us as well. So I can go either way. But our footprint is well designed for automotive. Automotive coming, automotive executing, we're right there for them.

That's very clear. I really appreciate those comments. My second question was just on debt pay down. Obviously, the outlook is improving. And so I was wondering if based on that outlook, kind of what your expectations are for that pay down in total over the next few quarters and how much non-operating cash flow, the asset sales or any other sources could contribute to that.

Yeah, I mean, I think we've been pretty clear that, you know, debt pay down is going to be our number one capital allocation priority. And we've sort of laid out how much free cash flow we expect to generate, Nick. So, you know, the debt reduction will be consistent with free cash flow generation. You know, the asset sales obviously juice that even further. But until we get to our target, our leverage target, we're not going to prioritize any other type of capital allocation. And then, as you know, we have a balance sheet that we've been very thoughtful about. We've been really proactive on pushing out maturities. We don't have anything maturing until 2029. So there's no immediate kind of refi needed at this point. We have a good ABL in place. so there's nothing urgent on the balance sheet. It's just a matter of delivering on the results, generating the cash, and paying down the debt and getting to our target.

Understood. Thanks so so well, guys. Plenty of good things to see, so continue.

Nick, just a quick addition to what Celso just said. I usually don't comment on that, but today I have to. The presentation that is loaded in our website following the Q3 I'm sorry, Q2 results every quarter we put a presentation there and have a comment the presentation is really good and gives a lot of further information on our path to bring back this leverage to a true handle in the next year so I would like to direct not only you my friend but everybody else in the call to take a look on that presentation. There's a lot of work there and a lot of information that we are making public through the presentation on our path to bring leverage down in an extremely important way, and that will happen in the next year or so. So please spend a little five minutes there just to take a look on that, because we're going to see that we know exactly how to get there and how to use our cash flow to bring back leverage to a two-point-something times in the next 12 months.

Thank you. Our next questions come from the line of Richard Garci-Turana with Barclays. Please proceed with your questions.

Good morning, Lorenzo. Congratulations, Celso, and thanks for taking my question. So I wanted to touch on the commentary on the guidance and expectations for 4Q better than 3Q. What's driving that in terms of different buckets, expecting additional price gains, lower costs? And what are your expectations on the volumes? Because we typically see some seasonality in the fourth quarter. So just curious sort of what's driving the incremental improvement.

Yeah, Richard, welcome back to the business. How long have you been out of the steel business? Because I haven't seen you in a while. I assume we're doing something else.

I was covering the sector. I was actually on the buy side. Yes, I was on the buy side.

Oh, you were on the buy side. Okay, okay. Welcome back to the sell side. So anyway. Look, we have, because of the way we sell steel, we have a good visibility into volumes. And with a two-month, sometimes a two-month lag, we know what price we're going to be executing and we also know the volumes and how we're selling to our clients. So that's why we have conviction on Q4 as well as we have conviction on the number that we gave for Q3. Of course, chances are that we're going to get to a number that will be $5 million more and we don't consider that a bit. If we do $5 million less, we are not going to expect you guys to say that we missed our own guidance. So we are guiding to a number because we want to give you what we have in terms of what we see right now. But we have a lot of conviction what we're saying for Q3. As far as Q4, we already baked in the fact that around Thanksgiving week we're going to have less shipments. We also baked in the last week of the year, or the last 10 days of the year, when business shuts down. So all these things are taken into consideration. We expect that these things will happen. We also, we are seeing the appetite of the car manufacturers growing, like I said, growing slowly and probably with a lot more, not probably, with a lot more potential if they apply the conviction to bring business to the United States than they did before when they were convincing themselves that everybody in the United States would buy an electric vehicle. So if they apply half of the conviction that they had, we're going to be in a position that we can really bring Diabo back and get it done with a much higher volume and you can produce a lot more cars in the United States and sell more made-in-USA cars to the American consumer.

So, but Q4 is basically what we're seeing right now.

So, it's good. And we believe that we're going to get what we said we will.

Okay, that was great to hear. And then maybe just to touch on 2027, I know you talked about non-auto fixed contracts opportunity renewing uh in 27 how should we think about that in terms of where they were originally signed and then what's what's the um price embedded in your 500 million is that current pricing that we're seeing uh and also just in terms of how we should see that play out through next year is that going to be a stair step as the contracts uh get renewed or should we spread out through 2027. Thank you.

Well, very first thing, the pricing levels that were the prevailing prices, underlying prices during the time that Mike Cooney and Mike Herosik were renewing our contracts with our clients last year were in the $800 level, maybe less. Today they are in the 1150 level or maybe more so the starting point of negotiation has moved up a lot and the clients know at this point that there's no chance that they can go ahead and harass us with imported steel oh if you don't buy from me I'm going to import so okay be my guest go import go get the the vessel through the Strait of Ormus, for example, or bring it from Ukraine.

So it's not going to happen.

So we are not going to use that to make our clients less profitable. Actually, I have a full conviction, based on my 45 years of experience in this business, that higher prices benefit everybody, Not just the meals, but the service centers, the OEMs, everybody. We just can't keep a business alive by forcing that business to produce and sell the product below cost. That's a recipe for disaster. On the other hand, we are not greedy. We're just realistic. We need to make a return on investment that we make in order to supply these clients and keep them in good health, financial health. as well as our own financial health. So that's what we expect this negotiation to be more of a mature negotiation between business that understands the codependence and understands that there's no such way that they can take money out of my pocket and be happy, and we're going to be happy as well. We're going to be happy when we are happy because we're making money, and we'll also be happy because they are happy because they are making money. That's the beautiful backdrop that we're going to be negotiating with.

And glad to be back and look forward to working with you.

Welcome back, Richard.

Thank you so much, ladies and gentlemen. This does now conclude the question and answer session. And with that, I would like to bring the call to a close. We appreciate your participation. You may disconnect your lines at this time and enjoy the rest of your day.