Ryerson Holding Corp Q3 FY2025 Earnings Call

Good day, and welcome to the Ryerson Holding Corporation's Third Quarter 2025 Conference Call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Justine Carlson. Please go ahead.

Good morning. Thank you for joining Ryerson Holding Corporation's Third Quarter 2025 Earnings Call. On our call, we have Eddie Lehner, Ryerson's President and Chief Executive Officer; Jim Claussen, our Chief Financial Officer; and Molly Kannan, our Chief Accounting Officer and Corporate Controller. A recording of this call will be posted on our Investor Relations website at ir.ryerson.com. Please read the forward-looking statement disclosures included in our earnings release issued yesterday and note that it applies to all statements made during this call. In addition, our remarks today refer to several non-GAAP measures. Reconciliations of these adjusted numbers are also included in our earnings release. I'll now turn the call over to Eddie.

Thank you, Justine. Good morning, and thank you all for joining us to discuss our third quarter 2025 performance and our announced merger agreement with Olympic Steel. I would like to start our call today with an abbreviated version of our prepared financial comments before asking Rick Marabito, Chief Executive Officer of Olympic Steel, to join us to discuss the announced merger agreement, its strategy and the benefits we believe it will yield for our stakeholders. So turning to our performance first. The third quarter market backdrop continued to be difficult as we now find ourselves rounding out a third year of contractionary conditions. The quarter can be summed up as a continuation of industry recessionary conditions characterized by falling industry shipments year-over-year and sequentially with notable carbon steel margin compression with manufacturing activity well below mid-cycle levels. Supply side tariffs and trade policy have placed to some extent floors under bellwether industrial metal commodity prices. However, demand in the aggregate remains stubbornly depressed. We have often said the supply side sets the price. However, our customers set the discount. And through the third quarter, customers continued quoting less and buying less. Within our OEM book of business, especially the contract business, we have actually seen activity come in well below our OEM customer forecast and historical mid-cycle trends. As we are in the late stages of this counter cycle that is in its 13th quarter and has been of longer duration than is typical of historical counter cycles of between 4 and 6 quarters, the OEM side of the commercial portfolio should eventually inflect positively. The offset to that is the very encouraging trend of Ryerson growing its transactional business as recent investments continue to operationalize, stabilize and scale throughout our network. This shows up in our service center fundamentals metrics of shorter lead times, higher service levels and improved on-time delivery. As long as we keep on keeping on with improving the customer experience while optimizing our service center network productively and safely, our performance will continue to improve. As the market navigates the many dynamic factors currently in play around trade policy, investment, interest rates and geopolitical commerce volatility, we continue to drive what we can control, building earnings quality and earnings leverage by being excellent operators of our business with sunrise consistency. We understand that decades of offshoring take time to unwind just as deleveraging, asset modernization and optimization have required long-term vision and commitment. We will persevere through this market environment working safely and passionately throughout and come out stronger on the other side. I can't wait for Rick to join me on the call. But before we get there, I'll turn the call over to Jim Claussen to provide more details on our financial results and our outlook.

Thanks, Eddie, and good morning, everyone. During the third quarter, we achieved adjusted EBITDA, excluding LIFO, at the low end of our guidance range with revenue and shipments in line with expectations. Looking ahead to the fourth quarter of '25, we expect volumes to soften during the quarter by 5% to 7%. This aligns with typical seasonality patterns as our customers slow production around the holidays, and it also reflects our anticipation that the current demand challenges will persist at least through the close of the year. From a pricing perspective, we anticipate that the current tariff structure will continue to be nominally supportive, leading to what we expect to be flat to 2% higher average selling prices, resulting in revenues in the range of $1.07 billion to $1.11 billion. We expect that gross margins will continue to be under pressure in the fourth quarter, given elevated input prices and the recessed demand environment. In all, we forecast fourth quarter adjusted EBITDA, excluding LIFO, in the range of $33 million to $37 million and net loss per share in the range of $0.28 to $0.22 per diluted share, given projected LIFO expenses and depreciation higher than normalized go-forward CapEx of $50 million to $55 million. We expect LIFO expense to be between $10 million and $14 million in the quarter and net CapEx to finish the year within our target range of $50 million. Turning to the balance sheet and cash flow highlights. We ended the third quarter with $500 million in total debt and $470 million in net debt, which represents a decrease of $10 million and $9 million, respectively, compared to the prior quarter. As a result of incremental improvements in both our net debt and trailing 12-month adjusted EBITDA, excluding LIFO, our third quarter leverage ratio came in at 3.7x, moving us closer to our target range of 0.5 to 2.0x. As we progress through the fourth quarter, we expect cash flow generation to continue moving our leverage ratio back towards our target range. From a global liquidity perspective, the company's profile remained healthy during the third quarter, and we ended the period with $521 million of liquidity compared to $485 million at the end of the second quarter. Third quarter operating cash use of $8.3 million was primarily driven by the net loss generated. We ended the quarter with a cash conversion cycle of 68 days, which compares to 66 for the prior quarter as our higher-value inventory added 2 days of supply, while our payables and receivable cycles remain consistent. I'll now turn the call over to Molly Kannan to discuss our financial performance highlights for the third quarter.

Thanks, Jim, and good morning, everyone. In the third quarter of 2025, Ryerson reported net sales of $1.16 billion, a decrease of $7.8 million or less than 1% compared to the second quarter with average selling prices up 2.6% and tons shipped down 3.2%. Due to the rising price environment, we recorded LIFO expense of $13.2 million, which was consistent with the prior quarter. Gross margin and gross margin, excluding LIFO, both contracted during the third quarter by 70 basis points to 17.2% and 18.3%, respectively, as we experienced price pressure amidst the soft demand environment. Warehousing, delivery, selling, general and administrative expenses totaled $201 million for the third quarter, a decrease of $3 million compared to the second quarter. Despite decreased expenses and top-line metrics within our guidance ranges, gross margin compression contributed to our third quarter net loss of $14.8 million or $0.46 per diluted share. This compares to net income of $1.9 million and diluted earnings per share of $0.06 for the prior quarter. And finally, our adjusted EBITDA, excluding LIFO generation for the third quarter was $40.3 million, which, as Jim mentioned, was within our guidance range and compares to $45 million generated in the prior quarter. And with this, I'll turn the call back to Eddie.

Thank you, Molly. I would like to conclude our prepared comments by thanking the Ryerson team for their tremendous teamwork and passion for getting better every day. This quarter was another street fight. However, we continue executing our self-help principles and focusing on what we can control while continuing to bring our investment cycle to return and improving our financial performance through the cycle. And with that, I am delighted to invite Rick Marabito to join me as we share an overview of the announced merger of our companies.

Thank you so much, Eddie. Really appreciate being invited to be part of this call. And maybe before we begin, I just had just an opening comment to make. And just want to say how excited I am, how excited the Olympic team is for this combination of two great companies and really for the opportunity to work together with Eddie and his team at Ryerson. We're looking forward to closing so we can get to work and deliver on the benefits of the merger and really unlock the value that this combination brings to shareholders, our customers, our employees and the communities where we all live and work. And I know I speak for you, Eddie. We're engaged. We're energized and committed to deliver the compelling value proposition in front of us with shared values and a shared vision for success. And so with that, maybe we'll get right into the slide presentation, and let's start with the big picture. I think the combination, as you see, solidifies and enhances the new company's presence as the second largest metal service center in North America. Together, we'll have over $6.5 billion of revenue, and we'll serve our customers from an expansive North American network of over 160 facilities, providing new breadth, new depth of products and processing services as well as a greater ability to offer our customers customized metal solutions and improve speed and efficiency. Together, we expect to realize $120 million of synergies, and that will be phased in over 2 years, which is obviously a compelling contributor to the future margin enhancement and value creation. Eddie is going to provide some more details on the synergies in a moment. So combined, our new company will have a stronger financial profile as the merger is an all-stock transaction. Greater free cash flow and a stronger, more flexible balance sheet only provide more opportunities for future growth than I think we'd be able to accomplish separately.

Rick, thanks so much. And really, you spoke so beautifully at the outset. And I too want to welcome all of our stakeholders. I want to welcome everybody from Olympic and Ryerson that are on the call this morning. And to really continue why we think this is such a compelling and attractive merger between our two companies with a combined 255 years of experience in the service center business, hard won experience in the service center business. When we look at the transaction and within the next page of our presentation, I want to go right to synergies. And I want to give you two examples of synergies because I think they're powerful examples. And we've renamed this room Synergy Central or prospective Synergy Central. So I want to share just a couple of things with you because I know synergies are really at the root and core of where we can derive multiples of value. So if you look at Ryerson and you look at what's happened since September of 2022, just looking at Ryerson for now, 25% of our mix is in stainless. Okay? So when we look at Q2 revenue, about 25% revenue in stainless, 25% revenue in aluminum and 50% revenue in carbon, and what's important to realize is we are underweighted in the market in carbon when we look at MSCI numbers. The industry is 67% carbon and it's 33% nonferrous roughly. So when you look at the industry, you look at Ryerson being underweighted in carbon, but overweighted in stainless and aluminum, just look at stainless. I mean, stainless was a wonderful gift horse in '21 and '22, and I don't want to punch a gift horse in the mouth. But in '23 and '24 and even in '25, think about what happened in the stainless market. MSCI shipments in stainless are off 22%. Nickel prices are down by more than 50%. So we endure that going through a very large investment cycle to modernize our company, improve our company, but we take brutal compression in shipment declines over that 3-year period. And the story in aluminum from a shipments perspective, even though price, there's been a lot of volatility in aluminum price. And even though its downward gradient has not been as extreme, shipments in the MSCI for aluminum are down more than 20% since September of 2022. But carbon prices have been about on average, even though there's been a lot of modulation in the price, in general, in September of '22, carbon prices were $850 a ton, and that's kind of where they are today in that neighborhood of $850 a ton. But what's even more provocative in this example, the synergy is that carbon shipments in the industry only fell by 5% in that period. So if you were overweighted in carbon, in general, you did better in the industry than if you were overweighted in nonferrous. So when you think about the combination of Olympic and Ryerson, Olympic has more carbon exposure, more carbon exposure in tube, more carbon exposure in plate. And so that's a natural synergy when we look at being very complementary when we look at our footprint and we look at what we do, certainly on the commodity mix side, that's a really, really strong synergy as we look forward in this transaction. Let me share another one with you. It's no secret that since the pandemic, we've all had to look at things that maybe were not as prolific before the pandemic. And one of the things that's happened is the demographics in our industry, it's no secret that they skew older. When you look at the voluntary rate of attrition in this industry, just folks that just leave on their own and people that retire, in this industry, it's between 5% and 15%. So I want that number to sink in for a second, 5% to 15%. Nothing the company does whatsoever. It's just people that retire or they decide they want to try something new. So if you take the natural rate of attrition in this industry, you can see where we can create a really powerful synergy and efficiency just given the natural rate of voluntary attrition in this industry, you can take the combined employee census, you can take the average comp that we published per the MD&A. And you can do that math and you can model it and you can see how we create a synergy right in line with what we're bringing to our stakeholders and what we're articulating to our stakeholders. So when we look at this, everything on this slide is true, presence, highly complementary match, opportunities for margin expansion, the synergies that I just spoke about, and there's many more, and we'll talk more about some of those other ones as we go through the presentation, accelerated growth, really the combination of talent pools. I mean I've known because we've competed against Olympic for the entire time that I've been here over the last 13 years. And Olympic has incredible talent in their organization. They've got a great brand, a great culture. And I'd like to say that I'm proud of what Ryerson is and what we've been and where we're going over our 183 years. And so when you look at the talent pools that we're combining in this merger, it is very unique, and it's highly accretive and valuable. And then we have an opportunity to deleverage. There's a lot of collateral in this deal, a lot of collateral in this deal that gives us the optionality to deleverage both on a combined basis, but also in terms of the asset quality that we have in working capital, property, plant and equipment. And then we have better access to the capital markets. And we also have better share flow. There's more liquidity in our combined equity than we have now. So with that, I'm going to kick it back over to Rick, and then I'll be back with you in just a minute.

Thanks, Eddie. Let's move on to the next slide and review the details of the transaction. The merger is an all-stock deal, which Eddie mentioned as a way to strengthen the balance sheet and provide us the capability to grow. We are targeting the closing of the transaction for the first quarter of 2026. Olympic shareholders will receive 1.7105 Ryerson shares for each Olympic share, resulting in Ryerson shareholders owning 63% of the new combined company and Olympic Steel shareholders owning approximately 37%. For 2024, we anticipate combined revenue of $6.5 billion with pro forma adjusted EBITDA margins nearing 6%, incorporating the expected synergies. Eddie previously discussed the synergies estimated at $120 million, with about one-third expected to be realized by the end of the first year after closing and fully implemented by the end of year two. We are confident in our ability to achieve these synergies, given the numerous opportunities we identified, as Eddie shared some examples. We will actively pursue these synergies. In terms of leadership, the Board will expand to 11 members, with Michael Siegal being welcomed as Chairman. Michael is currently the Executive Chair of Olympic Steel. Olympic will also appoint three additional directors to the Board, resulting in four members from Olympic and seven from Ryerson. Regarding executive leadership, Eddie will remain as the Chief Executive Officer of the new company, and I am excited to take on the role of President and COO. The Olympic executive team is looking forward to collaborating in the new company. As the merger is entirely stock-based, the combined company will benefit from reduced leverage. We anticipate leverage to be around 3x post-close as synergies materialize. The credit profile of the combined entity should also improve due to scale, diversification, better margins, enhanced profitability, and increased cash flow. There are many positive aspects to this merger.

Thank you, Rick. When examining the combined companies, it's evident that a visual representation can convey a lot. The financial statements don't always reflect the true drivers behind them in our industry. Key factors such as selection, availability, lead time, and on-time delivery are crucial. We have strong brands, and when a customer requests a quote for something we have in stock, it sells. Quick lead times and a broader selection also enhance sales. Collaborating with one another helps facilitate this process, and utilizing each other's processing networks makes it even easier. The graphic illustrates how we can create a denser network and improve customer accessibility, leading to greater reliability and consistency in our interactions. Expanding our presence westward and into Mexico, where we already operate, presents significant opportunities. Olympic likely has customers eager to penetrate the Mexican market more effectively. The commercial synergies achievable through this transaction become clear when analyzing the footprint, reinforcing the value of this merger.

Yes. This next slide really excites me. Over the past three years, the two companies have invested a substantial amount back into the business, totaling $480 million. The title of this slide, "Primed," is spot on. We are indeed primed. Most of our current capital expenditures have already been allocated, which means we are now ready to benefit from these investments. The merger will enable us to accelerate our progress through a larger, combined platform. Additionally, as mentioned earlier, there's the potential for an added boost from favorable trends in the metal market. Demand has been low for several years, but if we return to a normalized demand scenario with that $480 million investment, it strongly indicates our potential together. I'll briefly discuss some investments made by Olympic before turning it over to Eddie for Ryerson's recent investments. I refer to our capital spending over the past one and a half to two years as the Big 5. This includes a new cut-to-length line in Minneapolis focused on carbon growth, a new cut-to-length line for white metals in Chicago, and a high-speed specialty stainless slitter at Berlin Metals, located near Gary, Indiana. The largest project is in Chambersburg, Pennsylvania, our plate processing hub, where we are undertaking a major automation project that includes new lasers, plasma processing equipment, and enhanced material handling automation, allowing for touchless operations. We're also expanding in Texas with Action Stainless's growth in Houston. All of these projects are set to generate returns for Olympic between 2026 and 2028, perfectly timed for the merger. Eddie, would you like to share Ryerson's investments?

Yes. No, thanks, Rick. When I started with Nucor in 1992, Ken Iverson, legendary CEO of Nucor, stopped by my office and was just talking about the story of Crawfordsville. And he was saying that when they built Crawfordsville in '87, they were losing $1 million a week on the project and they were asking, Ken, how he slept, and he said, he slept just like a baby, he woke up at night and cried every hour. When you do CapEx and you do greenfields and you do big projects to modernize your company, they all don't go beautifully, and you have to grind through it, but it's worth it, and certainly, as we've gone through this downturn, which has lasted for 3 years, I think Rick said that we're due for some tailwinds, for the last 3 years what we've had is space burn. So when you look at the CapEx investments we've made, we made record CapEx investments to invest in our future. And as we see upside operating leverage and opportunities for the cycle to inflect and certainly, with the combined Olympic and Ryerson, when you look at University Park, 900,000 square feet of modern service center space for long products and tube primarily when you look at Shelbyville, which was a fantastic investment in our nonferrous franchise that's located so close to the bread basket of nonferrous supply in the United States. You look at the release of ryerson.com 3.0 as we go further and further into digital commerce. So that's a synergy between Ryerson and Olympic as we go forward to bring a lot of the digital investments we've made and to actually put those in at scale in a very thoughtful way as we go forward as a combined company, and we have the Atlanta tube laser center. We've made significant investments, and we've gone from nothing in 2016 to more than 10 work centers in Norcross, which has been a wonderful success story, and if you pair that up, for example, with Chicago Tube & Iron, which is in the Midwest, you could see a powerful synergy in that franchise of high value add between tube lasering and sheet lasering. And then, of course, we took a big swing on ERP integration. We've mentioned this before. In our South region and in Texas, we were on legacy systems for 40 years, and we finally had to bite the bullet, we finally had to convert and get on a uniform ERP system. I mean that is a 2- to 3-year trail of tears. But once you come through it, once you come through it, all of a sudden, everybody knows that language and they find possibilities and capabilities they didn't have before within that system to create a better customer experience. So we are on the other side of that. As you see restructuring and rework costs come down and we do the clean-ups from a 3-year investment cycle coming through this downturn with the investments we've made. As you look at a combined Olympic and Ryerson, I think you can really start to see the potential of how those investments, they don't just pay off as individual organizations, but when you bring them together, the payoffs are very, very attractive. And that takes us to, again, the compelling synergy opportunity. So I spoke to two very powerful synergies a couple of minutes ago, and I want to put a spotlight now on procurement and supply chain. So you go from 2 million tons to, say, 2.9 million to 3 million tons of combined purchasing spend and you pick up scale, and if you really break this down into math, metal on any given day is between 70% and 95% of our cost depending on the pound that you're quoting and the pound that you sell, 70% to 95%. So if you don't buy well, it's really hard to operate your way out of suboptimal buying, but when you look at the combined scale that we generate now going to that supply chain marketplace, to that procurement marketplace, we're talking about $14 a ton over 2.9 million tons is what we're talking about, and we are highly confident that we know how to get $14 a ton in supply chain synergies, not the least of which follow through to fuller truckloads that we receive from our suppliers. So we pick up savings, not just on the freight, but obviously, the main course is the metal, and now you've got greater optionality of how you purchase that, how you combine that spend and where you direct it through a more dense network to bring down your overall procurement costs.

Thanks, Eddie. Next, let's just talk about our profile in terms of pro forma mix on end markets and products here, and Eddie touched on it already, but really excited about, a, the growth markets and customers benefiting from our combined new mix. Obviously, we've got a lot of potential growth happening in the United States in terms of infrastructure reinvestment, reshoring, outsourcing of fabrication and then, of course, the massive data center demand build-out where we're seeing significant growth. I think as you bring the two companies together, you look at the product mix, it's enriched. Eddie talked about the balance of the specialty and the carbon, but you look at really the overall mix now, a great balance across flat and long, stainless and aluminum, carbon, especially coated carbon and then the increased value-add processing and fabricating capabilities I think fantastic, and then combine that with Olympic Steel's recent growing focus on end product manufacturing, wow, these are all margin enhancers. So I think in summary, the combined company is going to be more diverse. We're going to have more high-margin processing capabilities. We're going to have a richer mix of metal products, and that's going to really provide a powerful and expansive one-stop solution for our customers. And when I look at that altogether, I think all this, what it means is it contributes to an improved and less cyclical earnings stream for the combined company going forward.

Thanks, Rick. So when we look at moving up the value chain and what does this industry look like as you start to visualize margin accretion, on the pick, pack and ship side, it's a speed game, right? You quote fast, you quote short lead times, you have the inventory on the floor, you get it to the customer. You need to do that with running water like consistency. But as you move that up and you pick up margin points when you do that, but the key there is consistency and scale. But as you move up through processing and finished parts and kits and assemblies and value add, our value-add franchises combined, I mean, individually, they're significant, but combined, there is another force multiplier when you look at going up that adjacency curve and going to every next step of service capability and value-add capability. And then you get to end products where I'm highly complementary of the work that Olympic has done, forging a path into manufactured products and end products, and Rick is going to speak to that in just about a few seconds here. But you can start to see another very complementary fit as we go up that curve to getting more margin on that consistency for transactional spot build material business, the menu of offerings that you can take to a program account or an OEM and then all the way through to manufactured products.

Thank you, Eddie. Some of you may be familiar with Olympic's strategy over the past five to six years, which has focused on acquiring and integrating end product manufacturing into our operations. For instance, we produce industrial hoppers, stainless steel bollards, and metal canopies, among various other end products used in HVAC applications. As I mentioned earlier, these end products provide a higher margin and better return than our traditional service center business. Additionally, end products tend to perform better during downturns in distribution margins; for example, when metal prices fall, service center margins often suffer while end product margins typically increase. Moreover, thanks to our internal purchasing and fabrication capabilities, we can offer synergies to the end product manufacturers that our competitors lack. I believe the newly combined company will effectively leverage these synergies across our end product portfolio. Transitioning to the next slide, we also highlight a stronger capital structure, which enables us to invest more rapidly in areas that enhance our margins. The slide clearly indicates that on the left side, we see immediate margin accretion, with synergies boosting earnings, improving EBITDA returns to 6%. On the right side, our capital structure and balance sheet show greater strength and flexibility; synergies contribute to cash flow generation, leading to more cash flow, lower debt, and reduced leverage. This creates an advantageous situation for funding future growth in high-return, profitable areas. It’s exciting to note that we are entering this phase from a strong position without substantial capital expenditure needs, allowing us to concentrate on growth, whether through mergers and acquisitions or internal investments. This is a thrilling aspect of how the two companies are coming together at this stage in our history, combined with the structure of the deal being an all-stock transaction.

Thanks, Rick. I want to follow up on some of the points Rick made. When discussing CapEx avoidance, it's worth noting that after going through two investment cycles at Ryerson and Olympic in the last three years, and considering the quality and magnitude of the assets, we now have the chance to reassess how to manage and utilize these assets. In our earnings release, we noted that our depreciation expense for the quarter was about $19 million. If we consider what our normal CapEx run rate would be, depreciation should ideally be between $13 million and $14 million for the quarter, translating to about $0.16 to $0.18 EPS. We see potential for EPS growth because we won't need to spend as much CapEx as a combined organization. This isn't just a decrease from the CapEx we've experienced over the last three years, but also about determining the appropriate normalized CapEx rate going forward and understanding how much depreciation will be recorded over time against that CapEx as we enhance our balance sheet while optimizing our asset footprint. Regarding the benefits of scale and scope, I think Katja summarized it well—it's about scale and scope in a largely fragmented space. Reflecting on the last significant transaction reminds us we would need to go back to 2013 for the Reliance Metals USA deal. It's instructive to consider the three largest transactions before that as well. In the last 21 years, there have only been four significant transactions in this space. When you examine the combined company’s $6.5 billion in revenue, it highlights the advantages of densifying our network and enhancing the customer experience. At the core, improving the customer experience is crucial to success in this industry. Beyond the terminology and business jargon, customers seek a consistent high-quality experience that ranges from the simplest to the most complex interactions, ensuring they have a reliable, professional, and enjoyable partnership with their supplier. These are the advantages that come with our increased scale and scope, including greater availability and selection as a result of this proposed merger.

Thank you, Eddie. I will briefly discuss the next two slides, especially for those who may not be as familiar with Olympic Steel. Much of what I will cover has already been addressed in our previous conversation, so I won't go into too much detail. I want to highlight a few points. We mentioned at Olympic the importance of moving up the value stream for higher returns and reduced cyclicality. Currently, 8% of our revenue comes from manufactured products, and about 20% is from multi-process fabricating work. When combined, this means that 25% to 30% of our mix comes from the higher margin returns typical of service centers. Now, looking at our Specialty Metals segment, which includes aluminum and stainless steel, this has been a key growth area for us, with a 10% compound annual growth rate. We're particularly enthusiastic about the growth in aluminum, which has seen significant year-over-year increases for the last two years. We believe there will be great opportunities when the two companies combine in the aluminum segment. At the bottom of the slide, we show our public reporting structure, which is divided into three segments: carbon, our traditional Olympic steel, where we have made substantial investments in branded end products and high-margin fabricating equipment; specialty metals; and the pipe and tube business, which is heavily focused on tube with intricate value-add work, resulting in higher EBITDA compared to other segments as a percentage of revenue. The next page contains mostly information we’ve already discussed, so I won't reiterate it. Eddie, back to you.

Thanks, Rick. Appreciate it. So as we conclude our run through the presentation, I want to speak to this in summary because I think you've heard a lot of really good things, and really, I think you can really envision now the potential and possibilities of the merged company, and it really goes to the heart again of the spotlight on synergies. And look, we're going to get them all. And I'm going to share with you briefly, again, a couple more because I want to put down these bread crumbs. I want to put down these nuggets. When you look at investments we made over the last 4 years, for example, in nonferrous polishing and buffing and grinding and you look at Olympic's franchise in specialty metals, there really is another really excellent synergy between those two capacities. When you look at slitting, for example, Ryerson has a lot of cut-to-length lines. We don't really match that cut-to-length capacity with as much slitting capacity as we need. Olympic has wisely made those investments in slitting both on the carbon and nonferrous side. So that's another really good fit as we look at creating better customer solutions over that horizon, really long, long, long into the future between our combined companies. So with that, we'd like to go ahead and open it up to your questions and look forward to answering them all.

And our first question will come from Samuel McKinney with KeyBanc Capital Markets.

Congratulations, guys. Just want to start with one Ryerson-specific question. Fourth quarter, typically a strong cash flow quarter for you guys. Given the earnings guidance and the normal year-end working capital release, fair for us to expect some more solid cash generation again to close the year?

Yes. I mean, Jim has been silent the entire call. So I'm going to go ahead and let him answer that question.

Yes, you're correct on the cash generation, and we typically see somewhere between $70 million and $80 million of working capital release in the fourth quarter relative to volumes and natural release. So I expect again in this fourth quarter to get a decent working capital release and cash flow there from operations.

Yes, Sam, I want to share another insight. For those working on revenue models, when you examine the revenue generation and the net working capital required to produce an additional dollar in revenue, consider the combined net working capital of both companies on a forward-looking basis after the close. You'll notice significant free cash flow opportunities, particularly in optimizing the working capital of the merged entities. Historically, we have maintained a ratio of around $6 to $7 of revenue for each dollar of net working capital over my 13 years here. I encourage you all to incorporate this into your models as it's a promising outlook.

Okay. And then moving to the merger presentation. You call out driving market share growth, whether it's the recent multiyear CapEx cycle at Ryerson or the high-margin in-product businesses at Olympic, where is it that you see the greatest opportunities to win incremental pro forma market share as a combined company?

I guess I'll just make some opening comments, and then I'm going to kick it over to Rick. But I really think when you look at cross-selling and upselling opportunities over a shorter distance to the customer, I think that's the key. I mean, if you look at Ryerson's customer count, which we do share with the stakeholder public, it's about 40,000 active accounts. Olympic is about 8,000 to 9,000 active accounts. When you look at the fragmentation of the industry and the ability to go to market from a cross-selling and upselling perspective, again, with greater selection, greater value add, but really getting closer to the customer, day-to-day as those quoting opportunities come in, it really is a function of I have it, I can do it in 1 day or 2 days. I can give you the value-add solution you want or on the contract side, we have a menu of value-added options for you to select from, not just supply chain design, but risk management, scrap management and a whole bunch of other things that we can bring to the table when we're trying to create a better customer solution, Rick?

Yes, I couldn't agree more. I think, Sam, if you look at that map, I get excited at Olympic. You can see our dots are pretty much in the eastern 2/3 of the country. So while you look out West and the footprint of Ryerson, certainly great opportunities for new geographies for Olympic. I think Eddie said it right, when you overlay all the products and capabilities of the combined companies, I think a much greater ability for one-stop shopping for customers, and it gets back to that cross-selling opportunity that Eddie just talked about. So yes, I think we're not even touching on Mexico where Olympic has a very small presence, and so I see a lot of growth opportunities, at least on the Olympic side of the equation of what we do and where we are. So really excited about it.

Okay. And then last one for me. Currently, Ryerson generally reports the whole company, while, Rick, you touched on earlier, you guys provide results for carbon, specialty and pipe and tube. Are you planning for this merger to be a complete roll-up with no segments? Or are you going to provide some segments to the business?

We don't know. So we're going to figure out though because we're not...

Okay.

Because those are all the things you have to do between signing and close. So that goes into that category. But I'm sure Rick and Rich can provide you with some good insights on that as well.

Yes. I mean, I think we'll sit down and map that out and obviously do what we think is best for shareholders and potential shareholders to best understand the company and where we're going.

Alan, what took you so long?

So can you talk first about are there cash costs to get the synergies? And I just want to make sure that the synergies that you're talking about are under current market conditions, not based upon improved business cycle, et cetera.

Yes. Alan, I'm going to pass it on to Rick shortly. However, we have been operating under the current conditions for the past three years, so we need to look back to remember better times. The synergies we expect are based on these current conditions and how we plan to achieve them. I find reassurance in the combined book value of both companies, which supports the potential for those synergies even if this difficult environment persists for an extended period. Any improvement we experience will allow us to demonstrate the operating leverage as a unified entity, but the synergies are fundamentally based on our current situation. Rick?

Yes, I completely agree with Eddie regarding our perspective on the synergies related to the Olympics. In my view, synergies are not simply about an expected market improvement. Instead, the synergies we are considering are genuine, lasting benefits based on our current model and the future direction of the company. I fully support Eddie's viewpoint on this. You also inquired about the costs involved in achieving these synergies. Yes, there will indeed be some expenses, and I believe we mentioned that this could be as much as $40 million in one of our slides.

Okay, and then I guess the last question is, when and if the markets do improve, how do you think about incremental EBITDA margins starting from your pro forma EBITDA?

Well, I'll start on that. I mean, certainly, again, what we've got in the deck and what we've talked about our pro forma margins using sort of the environment we're in and then looking on a pro forma basis and modeling out what that would be. You know if you go back 2 or 3 years in terms of what the EBITDA margin profiles were for our sector, for Ryerson, for Olympic and for others, it was several points higher. I tend to think of if you can get in that 6% to 8% quartile consistently, on the distribution service center side of the business, that's pretty good. Obviously, given the depressed market we've been in the last couple of years, the current margin profiles for really all of us in terms of service centers is depressed from that. So we've got a 6% pro forma in here, but you get market tailwinds and more of a normalized market, and I can see that going to 6% to 8%.

Okay.

When we look at the historical data over the last 20 years, we can highlight specific years such as 2014, 2018, and 2021. Conversely, we can also identify years like 2015, 2009, and 2020, as well as the current years of 2024 and 2025. Analyzing this timeline reveals that we are currently in the bottom quartile, which corresponds to an EBITDA margin of about 2% to 5%. Moving into the second quartile suggests an EBITDA margin of 4% to 6%. As we transition into the third quartile, where mid-cycle trends emerge, margins increase to 6% to 8%. Reaching the top quartile indicates an EBITDA margin of 8% to 10%, driven by increased asset utilization, rising demand, and inventory holding gains. During economic upturns, more customers tend to outsource manufacturing, which adds further value as they seek external resources to meet heightened demand, leading to additional margin improvements. Over the years, our analysis supports these ranges of 2% to 5%, 5% to 7%, 6% to 8%, and 8% to 10%. I hope this information is helpful.

It does. And I guess my last question is, can you talk about assuming market conditions are flattish next year or similar to this year, kind of working capital for the combined company for next year, whether that will be a source of cash or...

Yes. Alan, I try to give a little bit of insight into that in terms of what we've seen over time where how much net working capital does it take for us to really finance an incremental dollar of revenue. And I think if you look at that in reverse, if conditions were to stay the same, depending on where price goes, but if conditions were to stay the same in a combined company scenario, there's certainly working capital there to be had and there's working capital release and free cash flow there. More to come as we get through this signing to close period and as we really start to really enumerate that. But again, I want to kick it over to Rick, and I know he's got some thoughts around that as well.

No, I agree. I think, Eddie, you said it well. I think in a normal market, if we just stayed in the same market conditions, so let's not talk about the price side of the equation. There's big opportunity on working capital turnover, specifically on inventory, inventory sharing, improving inventory turns, absolutely will have a positive cash flow and a working capital release just from being more efficient.

And I guess my last question is, have you gotten any customer comments, good or bad or concerns?

No. But I mean it's early, but no.

Same on our end, Alan.

And that does conclude the question-and-answer session. I'll now turn the conference back over to you.

Well, I really want to give the last word to Rick, and I'm going to do that. I just really want to thank everybody for tuning in with us today. We couldn't be more excited and more enthusiastic and optimistic about what lies ahead for our combined companies. And I really look forward to being with you on future calls as you start to see the realization of the vision we have for the combined companies. Everyone, have a great holiday season, and I know we're going to see you out there on the road. Rick?

Yes. Thank you, Eddie. Really appreciate the time and ability to talk to everybody about what I think is an incredible and exciting transformational opportunity for the two companies. And I'm not going to repeat what I said in the beginning. I'll just leave you with this. I truly believe the best is yet to come, and what I will tell you is you've got a combined committed and engaged new combined team that is going to work really hard to make it happen. So thank you all. I appreciate your participation.

Thank you.

Thank you. That does conclude today's conference. We do thank you for your participation, and have an excellent day.