Good morning and welcome to the Olympic Steel 2021 Fourth Quarter Financial Results Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded.

I would now like to hand the conference over to Rich Manson, Chief Financial Officer at Olympic Steel. Please go ahead, sir..

Thank you, operator. Welcome to Olympic Steel's earnings call for the fourth quarter and full year 2021. Our call this morning will be hosted by our Chief Executive Officer, Rick Marabito, and we will also be joined by our President and Chief Operating Officer, Andrew Greiff. Before we begin, I have a few reminders.

Some statements made on today's call will be predictive and are intended to be made as forward looking within the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and may not reflect actual results.

The company does not undertake to update such statements, changes in assumptions, or changes and other factors affecting such forward-looking statements.

Important assumptions, risks, uncertainties, and other factors that could cause actual results to differ materially are set forth in the company's reports on Form 10-K and 10-Q and the press releases filed with the Securities and Exchange Commission.

During today's discussion, we may refer to adjusted net income per diluted share, EBITDA, and adjusted EBITDA which are all non-GAAP financial measures. A reconciliation of these non-GAAP measures to the most directly comparable GAAP financial measures is provided in the press release that was issued last night and can be found on our website.

Today's live broadcast will be archived and available for replay on Olympic Steel’s website. At this time, I'll turn the call over to Rick..

Thank you, Rich, and good morning, everyone, and thank you for joining us to discuss Olympic Steel’s record-setting results for the fourth quarter and the full year 2021.

I'll begin with some comments about our performance for 2021 as well as the significant progress we've made with our diversification strategy and how we are better positioned to succeed through all market cycles.

Then, Andrew will review the performance of our three business segments and share some perspectives on our end markets, and then after that, Rich will provide a more detailed look at our fourth quarter financial results. And then, of course, as always, we'll take your questions. So, 2021 was a phenomenal year for Olympic Steel.

It was a year of records, and our strong fourth quarter was really a fitting capstone to the most profitable year in our company's history.

Highlights included sales reaching record highs of $625 million for the fourth quarter and $2.3 billion for the year, total assets exceeding $1 billion for the first time in the company's history, and all three of our business segments delivering record sales and earnings for the year.

And to put our performance into perspective, our carbon flat segment’s EBITDA of $121 million in 2021 by itself surpassed the entire company's previous earnings high.

Our performance in 2021 reflected not only the strong demand for our products, but also the continuing benefits of our diversification and acquisition strategy, combined with our focus on controlling expenses and aggressively managing working capital to achieve record inventory turnover.

And, of course, this success would not have been possible without the resilience and outstanding effort of our employees across the organization. So I want to thank and recognize our entire team for a job well done. In addition, we continue to strengthen our business through our capital deployment strategy.

Our actions in 2021 helped us further diversify the business and reduce our exposure to cyclical risks. We started the year with newly acquired Action Stainless immediately contributing.

We then sold our Detroit flat-rolled operations and assets in September at the height of market pricing, and we redeployed a portion of those proceeds into higher return growth opportunities like the acquisition of Shaw Stainless & Alloy.

We also invested in automation, expanded in the growing Southeast and Southwest US markets, and we grew our market share in pipe and tube aluminum and stainless steel product lines. All of these actions, along with our ESG efforts, combined to successfully build a more diverse and aware culture at Olympic Steel, strengthening who we are as a company.

We have an exceptional team at Olympic and I am proud of the progress we have made. We will continue to strategically deploy capital into the right investments while maintaining our disciplines around expenses, working capital, and high-velocity inventory turnover.

We remain confident in our ongoing strategy to diversify the business and earn more consistent returns in all market cycles. In terms of access to capital, we have built maximum flexibility through the various programs we've initiated.

As witnessed during the declining price cycles, we expect to see a significant increase in our free cash flow as the year progresses. In 2021, we also extended our credit facility for five years and that provides $475 million of borrowing capacity with the ability to further up size.

We also filed a stock ATM program under our shelf registration statement in 2021 to a company of board-authorized share repurchase program.

We have the desire and ability to continue to seek accretive acquisitions and additional organic growth while simultaneously rewarding our shareholders, as evidenced by a recently announced increased dividend of $0.09 per share per quarter. That's $0.07 per share higher than our previous quarterly dividend. And Rich will discuss that later.

We're also optimistic and really excited about 2022. So, now I'll turn the call over to Andrew..

Thank you, Rick, and good morning. A remarkable fourth quarter and full year of 2021 are to the talent and resiliency of our entire team.

It took a collective effort to control operating expenses in light of rising wages and freight costs, and manage the rapid rise and fall of carbon prices, while turning our inventory at record levels to deliver the most profitable year in Olympic Steel's history.

Each of our operating segments delivered strong results in the fourth quarter in record EBITDA for the full year. In specialty metals which is led by Andy Markowitz, we closed the year with fourth quarter EBITDA of $25 million, nearly eclipsing the record set last quarter.

We outpaced the industry in shipments as our stainless volumes were up 34% year-over-year, compared with 17% for the industry, and aluminum sales were up 29% for the year, compared with 20% for the industry. All of our specialty divisions performed well, including our newest acquisitions Action Stainless & Alloy and Shaw Stainless & Alloy.

2022 will be another strong year for our specialty metals segment as we expect continued tightness in both the supply of stainless and aluminum to stretch past the first half of this year. We see strength in most of our key market segments, including food equipment, appliance, truck trailer, automotive and tank manufacturers.

In pipe and tube, market conditions record inventory turnover and a focus on controllable expenses combined to deliver fourth quarter adjusted EBITDA of $6.7 million, a great close to a record year for this segment.

The Chicago Tube & Iron team, led by Bill Zielinski, rose to the challenge throughout 2021 to navigate the supply chain and transportation challenges. With the majority of the business focused on spot sales and value-added processes, 2022 will be another strong year for our Pipe and Tube segment, and we are off to an exceptional start.

In spite of a rapid decrease in fourth quarter index pricing, our carbon business had a strong quarter. The segment delivered $24 million of EBITDA in the fourth quarter as the strategies that we put in place have created a sustainable model for consistent earnings.

In January, David Geo, our Regional Vice President, was promoted to President of the Carbon Flat Rolled segment. David had been with Olympic Steel for 20 years in a variety of commercial positions, most recently overseeing our Winder and Buford, Georgia facilities and our Huntsville, Alabama locations.

He’s commercial experience, along with his strong leadership skills, will ensure success in his new role. We recorded record inventory turns in 2021 and remain focused on tightly managing inventory levels for all our products and turning our inventory quickly in these turbulent pricing markets.

underlying demand for our carbon products remains strong, industrial OEMs, construction and transportation, end users have solid backlogs, and demand for goods in the manufacturing sector overall is solid. However, our customers are facing near-term challenges from supply chain disruptions and labor shortages.

We experienced normal seasonal slowdowns in sales volumes beginning with the Thanksgiving holiday. Despite optimistic demand forecast, sales volumes were impacted in December and January by the Omicron variant as many of our customers struggled with labor and supply chain issues. We have seen sales volumes return to more normalized levels in February.

During the first half of 2022, futures on the CME showed continued carbon prices softening that will likely pressure margins in this segment. However, the specialty metals in pipe and tube segments which represent approximately 50% of our sales will help us navigate through the predicted carbon headwinds and deliver strong first quarter results.

We'll continue to focus on what we can control, diversifying our business, and staying vigilant on safety expenses, and working capital. We will also continue to deploy capital to help us deliver profitability in all markets.

We have a robust 2022 capital expenditure budget with significant investments dedicated to automation projects that will help offset the tightness of the labor market as well as improve productivity.

We're proud of the team and we believe that all of the strategic changes we have made to strengthen our company will be sustainable for the long term and help propel our success. Now I'll turn the call over to Rich..

Thank you, Andrew, and good morning, everyone. As we look back at 2021, we will remember it not only because it was the most profitable year in Olympic Steel's history, but also because of all that we accomplished to further strengthen your company for the future.

Most notably, we continue to pursue our diversification strategy by divesting our former Detroit division and acquiring Shaw Stainless & Alloy, which was our fifth acquisition since 2018. Those accomplishments, combined with the efforts of our entire team to combat the challenges of the marketplace, made 2021 a truly remarkable year.

For the fourth quarter, net income totaled $24.9 million or $2.16 per diluted share, compared with net income of $1.8 million or $0.16 per diluted share in the fourth quarter of 2020. Adjusted EBITDA was $51.1 million compared with $9.9 million for the fourth quarter of the prior year.

These results include $9.9 million of LIFO pretax expense in the fourth quarter of 2021, compared with $400,000 of LIFO pretax income in the same period of 2020. Sales for the quarter totaled $625 million compared with $332 million for the prior year.

We continued to turn inventories at historically high levels with flat-rolled inventory turns at 5.4 times year-to-date and pipe and tube inventory turns at 3.8 times year-to-date. Our total debt increased by $167 million since year-end 2020 to $328 million at the end of 2021.

This increase was a result of funding higher working capital levels associated with higher metal prices, partially offset by the initial proceeds from the sale of the Detroit operations. At the end of the fourth quarter, our credit line availability was approximately $143 million.

Currently, our loanable collateral exceeds our credit line by approximately $170 million, which provides an untapped source of additional capital availability.

As working capital requirements are expected to decrease, we anticipate generating significant free cash flow primarily beginning in the second quarter of 2022 and continuing throughout the balance of the year. We expect to see a corresponding decrease in debt and increase in our credit line availability.

Consolidated operating expenses for the fourth quarter were $90.5 million, an increase of $24.7 million compared to the fourth quarter of 2020.

Included in the increase were $7 million of operating expenses associated with the addition of Action Stainless and Shaw Stainless, and a $16 million increase in performance-based incentives that were not present in the fourth quarter of 2020.

Capital expenditures and acquisitions totaled $23 million in 2021 compared with depreciation expense of $17.9 million. Our 2022 capital expenditure budget is approximately $33 million compared to estimated depreciation expense of $18 million.

Our effective income tax rate for the fourth quarter was 27.4% compared with 52.7% for the fourth quarter of 2020. We expect our 2022 effective tax rate to remain within the 27% to 28% range.

We also announced on February 18 that the Board of Directors approved a regular quarterly cash dividend of $0.09 per share, which is payable on March 15, 2022, to shareholders of record on March 1, 2022. This is a $0.07 per share higher dividend than the previous quarterly dividend.

Subject to board approval, the dividend is expected to be maintained at the higher level. In conclusion, we look forward to another successful year in 2022. Demand remained strong for all products.

Most importantly, our diversification strategy to expand into higher value-added product categories has put the company in a strong position to withstand market challenges and continue to deliver more consistent profitability. Now, operator, let's open the call for questions..

Thank you. At this time, we'll be conducting a question-and-answer session. [Operator Instructions] Our first question comes from Marco Rodriguez with Stonegate Capital Markets. Please proceed with your question..

Thank you for taking my questions. I got on the call a little late, so I apologize if you've covered some of these questions here, but just kind of wondering looking at your administrative and general expenses in Q4, lower than $30 million looks a little elevated when compared to the prior three quarters.

Were there any sort of onetime items in there or is that sort of a good run rate for us to be using going forward in fiscal 2022?.

Yeah. Thanks for the question, Marco. Appreciate it, and Rich did comment a little bit on the increase in operating expenses year-over-year, which primarily you have to remember we've got some new operations in there so we had some ships there. And then we do have a variable incentive program.

So Rich why won’t you maybe cover some of the details on that..

Yeah. Thanks, Rick, Marco. So, we're up $24.7 million fourth quarter of 2021 versus fourth quarter 2020. And I think as I outlined in my comments, $7 million of that is attributable to Action Stainless and Shaw stainless that we did not have in the fourth quarter of 2020. Additionally, our incentives are very profitable – profitability based.

And so with the large amount of EBITDA in the fourth quarter 2021, $51 million versus $9 million of EBITDA. In the fourth quarter of 2020, we had about a $16 million increase in incentive expense year-over-year. So, if you take those items together, that's about $23 million of the $24.7 million increase in operating expenses..

And a lot of those incentives hit admin..

They did. That is correct..

Got it, very helpful. So really, the $7 million increase for Action Stainless, that's the, I guess, the more permanent level that we should be thinking about when we're looking at modeling going forward..

Yeah. That's correct. Those were both to Action and Shaw as I recall, Action was a late fourth quarter 2020 acquisition and then we had Shaw added this year. So, that's the big difference, yeah..

I see..

So, Marco, going forward in the first quarter, you'll have some comparable data for Action. In other words, Action was in the first quarter of 2021. That was really the first quarter they were in. And then Shaw, if you recall, we acquired Shaw at the beginning of the fourth quarter of 2021.

So, we'll have, you know, three more quarters of comparatives with Shaw, not in the prior year number..

Got it, very helpful. And then in the press release that you guys released last night, you talked a bit about taking share in all your segments.

Can you maybe talk a little bit more about that in detail if you can kind of quantify what those numbers might mean? And if you could also perhaps numbers might mean? And if you could also perhaps spend a little bit of time on what you saw as the main drivers for that market share gain by segment?.

So, Marco, this is Andrew. I'll trying to quantify it as well as we can. So, in the carbon side, as you take a look from 2020 versus 2021. I mean, we had a number of processes that went into place. So as you know, in 2021, we had the full opportunity for our stamping pressed down in our Winder, Georgia facility, which is carbon based.

We also have the opportunity to have the full year of our Buford facility, which is a large fabrication portion of the business that we do down in Winder.

And in a couple other locations, we saw that some of our manufacturing was pretty strong and that we were able to capitalize where we could get the inventory during 2021 to be able to support that business. So that's really on the carbon side of the business.

On the specialty metals, our stainless business grew very well, but we also saw a large increase in our aluminum business to go along with that. We've done a terrific job in capitalizing on those markets. And even though allocation existed, we were able to get good share from our terrific suppliers to be able to support our customer base.

And I would tell you this, from Chicago Tube & Iron’s perspective, it's just a continuation of growing their business, not one particular segment, but really just overall..

That is very helpful. And then, sort of kind of following up on that, I do remember hearing some of your prepared remarks talking about just your positioning for fiscal 2022.

But if maybe you could talk a little bit more – about a little bit more color on that actual positioning of your segments and what sort of level of confidence you might have in gaining additional share in this fiscal year..

Well, what I would tell you is, again, on the specialty metals side, I think because of allocation both in stainless and aluminum, we're certainly going to – we'll see some growth but depending if that allocation extends beyond the first half we may be limited based on what we're able to get from the domestic mills.

There is some import that is coming in, but not at a huge degree. I would expect, though, on the carbon side of the business, we'll see that growth from more availability from the mills.

There's certainly been more in our -- not just in our hot-rolled product but in our Candem [ph] product, which is a good growth segment of our carbon business, and we'll have at some point in the – probably the second quarter, our second automotive stamping press will be up and running..

And then, Marco, just as a reminder, Rich and Andrew both talked about it in their earlier comments, but you also have to remember that Detroit, you know, when you're kind of looking at our business segment, Andrew's exactly right. We are planning on growing our markets in all three business segments from kind of a same-store perspective.

But just recall, in September, you know, we did sell our Detroit operation, which had a sizable market share up in Detroit in the carbon business..

Right. Understood. Got it. Then in terms of the working capital and capital allocation priorities for fiscal 2022, I did hear your expectations as far as working capital and I'm turning profitable and be a potentially not a usage of cash.

Can you maybe just talk a little bit about some of the dynamics you're seeing there? What is sort of driving those expectations? And then, if you could also maybe talk about the capital allocation priorities you have for fiscal 2022?.

Sure, Marco. It's Rich. I'll take the first part. And so, as you know, our working capital and our debt are pretty much tied one for one. And so, as we look at it, you have a seasonally slower fourth quarter. You'll have seasonally stronger first quarter, but you've got pricing, moderating a little bit on the hot rolled side.

So, overall, for the first quarter, we think that those two effects kind of offset and that our working capital levels in the first quarter will be comparable to what you saw in the fourth quarter of 2021.

And so, I don't expect a lot of free cash flow in the first quarter, but we do expect pricing to moderate on the hot rolled side kind of going forward.

And so, with that, you'll see working capital reduce here in the second quarter and into the third quarter, and then you'll see a corresponding decrease in the debt and then a pop up in the availability as well as our working capital level comes down. And so, I'll turn it over to Rick to talk about the other stuff on capital allocation..

Yeah. So, we're excited about our capital allocation opportunities in 2022. I think you heard the two gentlemen talk about really an array of things that we are very excited to embark on. One is we're going to continue with a pretty robust internal growth plan through a budget that you heard Rich talk about on CapEx of about $33 million.

Andrew talked about with some of that's going. We've got some new equipment coming in to the Southeast, both on the fabrication side as well as the stamping side. We've got some new equipment going in in terms of the pipe and tube division. So we've got a robust CapEx budget.

Part of that CapEx budget, we're certainly spending a lot more on automation, and we think that that's really going to be helpful in terms of really three areas. It's going to be helpful for safety. It's going to be helpful in terms of the labor issues that we're all facing as a country.

And certainly, it's going to be helpful in terms of productivity and efficiency. So organic growth, a pretty significant capital spend this year. We're excited about that. The second thing is, as we've said, we've made numerous acquisitions over the last three to four years. Those have been really good.

You've seen the ones we've done with Shaw and Action in terms of growing the very profitable specialty metals business for us. You saw us a few years back go into on the carbon side and by manufacturers of end product where we're vertically integrated .That's been very successful.

So in 2022, we certainly are continuing to assess and we'd be really disappointed if we don't continue to grow through acquisitions. So that's certainly one of the priorities and it's proved itself out very well. And then lastly, we're really pleased to be able to increase the dividend for shareholders.

And so, you saw we did a sizable increase here for the first quarter of 2022, going from $0.02 per share per quarter up to $0.09 per share per quarter. So those are kind of the big three areas is how we're looking at capital allocation and we're confident that we've got a very strong balance sheet and strong foundation.

And the availability and the capital to do it..

Right. Great color there.

And then just kind of a last follow-up here dovetailing on that last question there, just kind of the acquisition pipeline, can you maybe talk a little bit as far as what that pipeline looks like in terms of potential targets and then what do sort of the valuations look like?.

Yeah. So, we believe it's going to be a strong pipeline for M&A in 2022, just coming off some of the dynamics, as you know, an industry in manufacturing and US economy through COVID and some of the starts and stops through that.

So, we anticipate there's availability capital out there, and we think there's going to be no shortage of viable good candidates. So, we expect it to be a pretty strong year for candidate flow. And in terms of valuation, I think, as always, you know, in valuations in terms of EBITDA multiples tends to be the predominant valuation metric.

And, you know, we've always tended to look at in our business a multiple based on a steel cycle. And so, obviously, over the last couple of years, we've had – we’ve had some volatility in the business in terms of ups and downs, and many companies had record profitability in 2021.

Many companies had probably earnings that they didn't really want to sell off of in 2020. But we feel pretty good that, you know, you can do really the right answer looking at what's been done over the cycle. And I think that'll predominantly be the – one of the drivers for valuation in 2022..

Got it. Very helpful. Thank you, guys. I really appreciate your time..

Thank you..

Our next question is from Phil Gibbs with KeyBanc Capital Markets. Please proceed with your question..

Hey. God morning, gents..

Morning, Phil..

Question I have is on the CapEx budget this year of $33 million.

I know you talked a little bit about it, but what specific major projects do you have going on within that number?.

Sure, Phil. It's Rich. And so, you know, as you know, we typically have $5 million to $7 million of maintenance capital on. I think our maintenance capital spend will be a little bit higher this year, you know, maybe $9 million to $10 million of the $33 million.

You know, I think there's a large focus, as Rick mentioned, on automation to help us kind of alleviate some of the labor concerns. And that's probably at least $6 million of hard spend. And I would tell you probably $3 million to $4 million of leasing on top of that. That's not part of the $33 million that will go toward automation.

We've got the completion of our second stamping line down south, which will probably use up about $4 million more cash. And then we've got, you know, some upgrades to some cut the link lines and some splitting lines that kind of round out the rest of that..

Thanks, I appreciate it. And I know you guys mentioned in your script that some of your customers, obviously, are dealing with labor issues and Omicron and supply chain, and that's all been very well-documented in terms of the narrative out there.

When do you have – when do you guys think you've got line of sight to some of those things, perhaps getting a little bit better than having confidence picking up, picking up on some deferred business? Certainly feels like the year has started out slower because of all those things. But as what you mentioned backlogs are still there.

So how do you see that unfolding?.

Yeah, Phil. Great question. This is Andrew. I’d tell you that we've actually seen February getting back to what I would call a little bit more normal levels because we're seeing some of the forecasts from our customers. We're seeing steadiness through the first into the second quarter.

And the anticipation from at least our large industrial customers is that will continue to be steady where they're at today and it really won't be until end of Q2, maybe even into the second half that they'll really start catching up as some of these supply chain issues, you know, really start to kind of unfold.

And whether it's the chip issue or some of the other subcomponents in the equipment that they believe certainly will be better as we start getting into the beginning of the second half..

Thank you. And I know on auto you guys are typically underweight at least relative to the market and on the sheet side. But what are you hearing or seeing there in terms of the pickup? It seems like we've got a little bit of inventory to work through on the steel side, but maybe that gets a little bit better later in the year..

Yeah. Well, I would - I think that's the expectation, you know? You've heard from some of the mill CEOs the last week where there's like a collective agreement that the auto demand remains a little bit weak and certainly the shortages because of the semiconductors. And that doesn't seem like that's going to resolve itself really any time soon.

And I think that the discussions that we've had. And Phil, you've seen that some of the larger auto companies are continuing to take models offline and kind of kick the can down the road a little bit for when they'll be back up full.

And so, I would tell you from our perspective, we don't see much of a change through the first half of the year and it's probably going to be – probably well into the second half before there's a real change..

Thank you. And Rich, the LIFO expense, I think was pretty material and most of that hits in your two business from what I remember.

Is that likely to reverse in the first quarter?.

Sure, Phil. Yes. So, you're correct that that only our pipe and tube inventory is on LIFO, which is approximately 18% to 20% of our total inventory. And yes, you're correct. It was a pretty big LIFO expense hit in the fourth quarter. I do expect to have LIFO income going forward.

I wouldn't tell you that the entire fourth quarter amounts are going to reverse itself in the first quarter, but it may reverse itself over the first half. As you recall, the way we do LIFO was we kind of take a look at where pricing is going to end for the year. We try to kind of book it accordingly throughout the year ratably.

And obviously, last year made it quite challenging with the rapid price increase to figure that out. So, we do expect LIFO income, but I would not expect it to be in the magnitude of the LIFO expense we saw in the fourth quarter..

Makes sense to me. Thanks, guys..

Our next question is from Chris Sakai with Singular Research. Please proceed with your question..

I had a question on supply chain and labor shortages.

How is that impacting you guys?.

Yeah. So, it’s affecting us like it’s affecting everybody. I tell you from the Olympic perspective, we're in pretty good shape as it relates to supply chain disruptions. I think, we face all the same labor challenges that everybody does in each of the local labor markets.

But I think, as Andrew commented, where we're seeing the bigger impact is with some of our customers and some of our customer’s ability to really produce to what their projected end demand is.

And that's continued, certainly, as well-documented, I think, December and January, we had the Omicron hit and that certainly disrupted some of our customer’s businesses and ability to produce.

And industry by industry as you look, there's still shortages as we spoke on automotive with chips and other parts, but it's really broad based and it is continuing.

And as Andrew commented earlier, we think it isn't going to be immediately fixed here, but we are optimistic that as we work through 2022 that the impacts of that to our customers are going to start to wane..

Okay. Great. And then, I wanted to ask about acquisitions in 2022. Do you – are they mainly going to be in specialty metals? And can you comment on this, there's going to be more than one..

Yeah. So good questions. We are focused on growing all three of our business segments, so we're looking to acquire in any of those and all of those segments.

Will we make more than one? I think M&A, as you know, is – I don't want to say it's episodic, but it takes two to tango, and we're certainly trying to look at more and more companies in the funnel. We'll stay disciplined in terms of the proper candidates for Olympic Steel. But it's certainly a high priority to us.

And the way I'd answer it is, you know, depending on the acquisitions, we have the ability to certainly do more than one. And I think that's been evidenced. If you look, we acquired Action Stainless in December, and then we followed that up with the Shaw acquisition about nine months later.

So, while maybe not exactly in the same calendar year, you know, in a 12-month span, we have done more than one, and we're capable of doing that..

[Operator Instructions] Our next question comes from the line of Alan Weber with Robotti Advisors. Please proceed with your questions..

Good morning.

I may have missed – did you talk about what the LIFO expense was for Chicago Tube for the year or quarter?.

Yes. We did, Alan. So, for the fourth quarter, it was $9.9 million of LIFO expense, so a pretty big impact. And it was just under $22 million impact for the year..

Okay. That's okay.

And then can you talk about excluding any acquisition as you look out two or three years kind of how you think about volumes?.

Yes. Without the acquisitions, we are certainly focused on growing all there of our business segments. And our position on that is we are going to push to gain market share, so we would be looking to on a same-store basis without acquisitions and without the impacts of new CapEx.

We'd be looking to grow our business in each of those segments greater than what the market is growing. And certainly, that's our plan in 2022 in terms of when we put our budget and business plan together. We may have some shifts in there in terms of as you've seen strategically.

So for example, when you're looking at the total carbon business 2022 to 2021, the business in terms of a volume isn't going to look like it grew, but that's because we sold the Detroit operation. But on a same – if you want to go on a same-store basis, we are absolutely intent on growing the business and that's part of our mission..

And is there market – I mean, I know it's market share gain.

I'm just curious what you think about the overall, if you want to call it, an industry volumes as you look at a few years?.

Yeah. I'm personally bullish. I'm bullish for a couple of reasons as we look at big picture. You know, one is coming out of all these supply chain disruptions and global supply chains and a lot of the outsourcing that was done by American manufacturing and a lot of our customers.

I am very confident and we've already seen it happening, but I'm very confident that there is going to be finally this, whatever words you want to use, reassuring.

But there is going to be the – there are going to be supply chains for our customer base that are closer to home and closer to their facilities, whether they're redundant with some foreign supply chains or completely moved.

You've already seen it in some of the most dire areas like wood chips, so right here in Ohio where we are, you know, there is a multibillion dollar expenditure in Columbus, Ohio, for a new chip plant. So that's one reason that I have a lot of optimism. Second is, we are excited about the infrastructure spend.

And I think from all signs that’s a 2023 commencement of that. But I think, you know, over a series of several years that's going to give a power boost to certainly the steel and metals industry.

And specifically for Olympic, we're really well-positioned because when you look at our customer base, you know, roughly half of our metal ends up in, you know, industrial America heavy equipment. And so we're excited for that.

And then as I look at the big - and then lastly, as I look at the three big consumers of metals here, automotive, construction and energy, I tend to be pretty bullish on all three of those going forward based on where we are and what the outlook is. So, yeah, so we're pretty bullish on it..

So just as a follow-up, same kind of question. If you look out two or three years at some point prices will stabilize. Everybody can pick their price, but it'll stabilize.

Assuming, assuming prices stabilize as you look out how do you think about EBITDA or your adjusted EBITDA margins and why – I guess what risk is there or do you think volumes will enable you to keep kind of EBITDA margins going forward, because you will have higher expenses also..

Yeah. Well, obviously, there's inflationary environment, so, yes, and that's why we've been very focused on our expenses. We commented on that. And one thing we didn't mention is just on the expense side, we're really proud of the work we've done around – our head count on a same-store basis is 10% lower than pre-COVID.

So, you know, we've really focused on that. But in terms of your question on EBITDA, yeah, we – that is really our whole strategic direction. We're laser focused on making sure that our investments over the last several years in going forward are going to return higher returns than the averages.

We've proven that out pretty well here with the M&A and investments we've done there, as well as the recent CapEx, and we do, do, you know, post-mortems on those and compare them to, you know, what we thought in terms of the justification. So, I tell you, Alan, that is our strategic focus is to move forward and continue to earn higher EBITDA margins.

And you're right, you've got to kind of pick a normalized market, and I'm not talking about the big pricing swings causing that. I'm talking about in terms of a stable marketplace. And I think we're well on our path to doing that.

I think we're in the midst of proving that and really look forward to the next year or two to show that we've certainly made that good progress, that we can earn higher and better returns in any market. And that's been a big focus in a lot of good work by our carbon people.

So, I mean, they've done a phenomenal job over the last several years on the carbon side of our business. As Andrew said in his comments that we're very confident that going forward we've got sustainability based on the things we've done in carbon. So that's how we look at it..

Okay. Great. Thank you very much..

Thank you..

Our next question is from Phil Gibbs with KeyBanc Capital Markets. Please proceed with your question..

Hi, there. So, your operating expenses per ton in the fourth quarter were very, very high and I know we've talked about it on this call a few times in terms of maybe some of the reasons why. But was there any true-up from the rest of the year? Meaning I under accrued for bonuses or incentive comp in Q2 and Q3.

And then, there was a – extraordinary amount in the fourth quarter..

Hi, Phil. It’s Rich. So, I would tell you that there's really no true-up. I mean there are certain times where thresholds are met, where things may fall in a little more. And I think that was certainly true of the fourth quarter to some extent, especially kind of in the pipe and tube side.

I think the other thing you have to kind of keep in mind is you're starting to look at things on a per ton basis, is that Detroit's out of the equation. So Detroit in the fourth quarter of 2020 was like 36,000 tons that weren't there in the fourth quarter of 2021.

In Shaw Stainless we acquired, we're not counting tons on that because that's not really the focus of the business. It's a little more on the fabrication side. And so, looking at things on a per ton basis may look a little bit distorted if you're trying to compare fourth quarter 2021 to the fourth quarter of 2020..

Okay. So the business changes that you all made and the fact that you’re not actually including the Shaw in your tonnage, but you’re putting it in your revenues is cheap -- is distorting. Thanks. Okay. So probably is that….

It is doing and yet, yeah, and….

Go ahead..

…to the same point, Phil, on McCullough, it's the same way, right? Those carbon tons that are going to McCullough aren't reported in the end tonnage any longer because McCullough makes a unit. They don't – we don't measure the business in terms of tons in terms of McCullough sales.

So you're right, we've got some shifting that's happening in the business in terms of the strategic things that we've done. And so, and then Richard's exactly right, you've taken a lot of tons out of the equation from Detroit. But what I'd add is this, we're focused on the EBITDA, right, and the profitability.

So I think, some of the tonnage is a little bit lower, but certainly the profitability is moving north..

So remind me what – because I know this is obviously a very, very new business for you all, close it near my birthday in October, but what's the difference in Shaw relative to your legacy business for stainless and aluminum?.

Yeah. It's why we love Shaw. Shaw's really got three pieces of the business. They've got a great distribution service center business on stainless, small niche type sales. So we love that piece of it. Second, they – they've got a great value-add fabrication capabilities.

Some of the things we’ve highlighted is they actually fabricate fluid separation tanks and some other products. And then they’ve got an end product where they make ballards, some of the protective ballards that you'd see out in front of hotels or office buildings.

And so, that was, you know, really attractive because they've got really the whole suite of distribution, fabrication and product, and we're really excited to grow it..

We have reached the end of the question-and-answer session. I'd now like to turn the call back over to Rick Marabito for closing comments..

Well, thank you, all, for joining us on our call today. We genuinely appreciate your continued interest in Olympic Steel. I hope, as you've heard, we're really excited about 2022 and look forward to speaking to you again when we report a strong first quarter. Thank you..

This concludes today's conference. You may disconnect your lines at this time, and we thank you for your participation..