Russel Metals Inc

TSX:RUS

Earnings Call Transcript 2022-Q1

[Operator]

Good morning, ladies and gentlemen, and welcome to our First Quarter 2022 Earnings Conference Call for Russel Metals. Today's call will be hosted by Marty Juravsky, Executive Vice President and Chief Financial Officer; and John Reid, President and Chief Executive Officer of Russel Metals Inc. [Operator Instructions]

I will now turn the conference over to Marty Juravsky and John Reid. Please go ahead, gentlemen.

[Martin Juravsky, executive]

Great. Thanks, Novi. Good morning, everyone. I plan on providing an overview of the Q1, 2022 results, and if you want to follow along, I'll be using the PowerPoint slides that are on our website, just go to the Investor Relations section.

If you go to Page 3, you can read our cautionary statement on forward-looking information. Before I go into the detail on the quarter, let me put a little bit of a context around it for a second. We are really pleased with very strong start to the year. We've seen very good market conditions in terms of customer demand, our price realizations and our margins. We generated record quarterly revenues with strong contributions by each of our 3 business segments and the outlook remains favorable.

Let me go to Page 5 now and give a little bit of a context around the market conditions. As you can see from the Chart that is on the top left, steel prices are strong and remain above historical frames of reference. And even though sheet moderated down in late 2021 and early 2022, as we talked about during our last conference call, it has since rebounded. Overall, prices have remained at an attractive level for an extended period of time.

If you look at the Charts on the right side of the page for service center inventories with Canada on the top and the U.S. being at the bottom and you look at both in terms of absolute level of inventory and months of inventory and supply chain, both came down over the last couple of months. And this is likely due to some cautious buying activity in the industry, as steel prices were settling out. From a Russel perspective, we are always prudent on inventory management and our service center tonnage came down by about 10% from year-end.

The key thing from our standpoint though, really focuses on demand, as it remains strong across our regions and across most of our end markets. As we look at our geographies, coast-to-coast in Canada, as well as Midwest in the U.S. and the U.S. South, we cover a cross-section of industries, non-residential construction, general manufacturing, infrastructure, and we are seeing very good demand across most of our business units.

From a Russel standpoint, the other key thing that's important takeaway for us is when we look at the portfolio changes that have taken place over the last couple of years, they've really positioned us well to generate higher average returns over the cycle. So regardless of whether the cycle is good, bad or otherwise, we think we've positioned ourselves much better on a going-forward basis than historically.

If we go to historical results on Page 6, we start at the top of the page on the income statement for a second. As I said earlier, record quarterly revenues, about $1.3 billion in Q1. It's nice to have the top line, but most importantly, we generated on the bottom line. So even though margins in percentage terms moderated, the revenues translated into total margin dollars, EBITDA, EBIT and earnings that were similar in Q1 to what they were in Q4.

There were a few notable items in Q1 within the results. The income from a full quarter of Boyd was a very nice contribution. As a reminder, we completed that acquisition at the end of November. So we had 1 month contribution in Q4, but a full 3 months of contribution in Q1. We are very pleased with how the acquisition has performed, both financially and operationally. And to put a little bit of context around it, it add about 10% to our service business for the quarter from both a top line and a bottom line perspective.

We picked up $6 million from the TriMark joint venture in quarter 1, which was up from $3 million in Q4. This arrangement has worked out extremely well for us. When we closed that transaction in July of 2021, it allow us to repatriate over $100 million worth of capital and keep some skin in the game. As circumstances evolve, the businesses -- as they come together, have performed well, and the picking up of our earnings from that joint venture has worked out well, in that we have the earnings pickup, but we've insulated ourselves from the balance sheet issues associated with that part of the business. Stock-based comp had a mark-to-market expense of nil for Q1, as our stock price was flat from the end of December through the end of March, give or take, versus a $3 million expense in Q4.

If we move down the page to cash flow, we used about $15 million for a net increase in working capital, and this was a function of a build in AR because of the higher revenues and business activity, which was offset by a pull down of inventories. As we look across our 3 business segments, service centers was up, steel distributors was down and energy was mostly flat.

From a cash flow perspective, in the quarter, there was also around $83 million of tax payments in Q1, both related to 2021 balances due as well as 2022 installments. We also completed a sale of Western Fiberglass for $10 million, which is part of our Canadian Energy business. It was sold for book value, so there's no gain or loss associated with this transaction, and it's a relatively small transaction for us. But that business segment, its return profiles were not acceptable to us. It didn't meet our return thresholds.

So as we've illustrated in the past, we are very focused on our return on capital over the cycle and the divestiture illustrates our discipline in keeping with our financial metrics and our targets. CapEx at $8 million was a little bit higher than at this time last year, and it should pick up in the latter part of 2022 and into 2023, as we continue to advance our value-added equipment projects.

From a balance sheet perspective, at the bottom of the page, our net debt declined from $162 million at the end of the year to $149 million at the end of March, as we continue to generate good cash flow. Our liquidity of over $450 million and our credit metrics are extremely strong, and it gives us tremendous flexibility, as we had within our capital structure to continue to look at opportunistic M&A situations. Lastly, we've declared a quarterly dividend of $0.38 a share.

If we go to Page 7, we have our segmented P&L information, and starting with the service centers, they did very well again. Revenues were up to $929 million in Q1, as demand remained strong. Tons were up 19% or 13% on a same-store basis versus Q4. As I said earlier, the Boyd acquisition was a nice contribution to us both in terms of top line tonnage, as well as bottom line perspective. The improvement in tonnage was interesting in that it was in spite of losing some stripping days early in the quarter in January and February to weather-related issues and Omicron-related constraints.

Average price realizations for the quarter were comparable in Q1 versus Q4. They did, however, start to pick up towards the latter end of the quarter. When we look at March price realizations, they picked up, and that trend has continued into April.

As we talked about on our last conference call, we expected margins to moderate down, and they did, but they're moderating down to 22%, which is still above historical levels in percentage terms and well above historical terms in terms of dollars per ton. Bottom line results for service centers, another strong earnings quarter with EBIT of $95 million.

In Energy, we are continuing to see positive market sentiments. Our Energy revenues were up 9% versus Q4. Margins were down slightly from Q4, but at 25% remained very strong. As we discussed in the past, this margin is well above historical levels, as the divested OCTG/line pipe businesses were a drag on results. We expect to continue to generate margins north of 20% from this segment versus the mid-teens in the past. Distributors had another very good quarter with revenues up 17% versus Q4. The margins did moderate down, but the net result was earnings of $24 million, which was similar to that of Q4.

If we go to Page 8, this is a new chart, and we wanted to use it to illustrate a little bit more detail around how we think about inventory management and our discipline associated with it. The way this chart is set up, and I apologize for all the color coding on this, quarter-over-quarter, with each of the bars representing our segments, Energy in red, service centers being in green, steel distributors being in yellow, and then the black line that cuts across the page is represented the average for Russel, as a whole across all of our business units, and a few observations.

If you look at the Energy segment that is in the red part, the bars to the left, the historical frames of reference from 2019 and early 2020, '21, turns were in the 2, 2.5 turns per year range, as it was held back by the OCTG/line pipe businesses that tied up a lot of inventory and that inventory was also very lumpy and quite seasonal. Since the divestitures and liquidations in mid-2021, you can see how we are now turning that energy inventory around 4.5 turns per year. That level is very similar to the turns that our service center business, as you can see, in green, has historically been able to realize.

For steel distributors in yellow, the inventory turns picked up substantially in Q1, as a sizable [ amount ] of in-transit inventory moved through our system through to customers. So when we look at the black line on this page, which again, is total company inventory turns, we have improved the company-wide average turns from what was plus or minus 3 turns in 2019 to over 4.5 turns in this past quarter, which is frankly a record for us that we haven't seen for the last 20-plus years. And again, I think a lot of this is really driven off of the changes that we've made in terms of our portfolio. So keeping a high level of turns is a key focus for our strategy of avoiding speculative inventory positions and it really gets to maximizing returns on capital through the best inventory management in the industry.

If we go to Page 9, you can see the impact of that inventory turns on our absolute inventory dollars. Total inventory of $894 million on March 31 came down by about $92 million from year-end. This was driven by energy remaining in check, which was -- a reduction of tonnage at service centers, which I mentioned earlier, and the translation of backlog of business [ at our ] distributors as well, and you can see that inventory came down over the quarter as well.

As we step back and look at the Q1 profitability with this level of inventory versus a lower level of profitability a few years ago and a similar level of inventories of over $1 billion, it has translated into much improved capital utilization and a much better return on assets deployed. And you can see that on Page 10 in terms of capital utilization and returns.

Our capital deployed is up to around $1.4 billion, $1.5 billion, which is similar to 2018, '19, early 2020. However, that capital is being used much more effectively today. As previously discussed, the improvement in turns, the divestiture of the OCTG/line pipe businesses, the reinvestment in acquisitions and the investments in value-added processing equipment has resulted in very strong returns, which as you can see from this chart, has averaged nearly 50% over the past 12 months. This level is attractive by historical comparisons as well versus our competitors.

I think this also provides a frame of reference for what John and I have been saying over the past 18 months. We think that our portfolio changes will continue to evolve and our margins and returns through the cycle should be higher and with lower volatility going forward than they have been in the past.

In closing, on behalf of John and the other members of the management team, I'd again like to just express our much greater appreciation and gratitude to everyone within the Russel family for all their hard work and tremendous efforts in generating these results. We had a really nice start to 2022, and we look forward to continuing our progress on our key initiatives.

Operator, that concludes my introductory remarks. If you'd like -- now like to open the line to questions, we're available.

[Operator]

[Operator Instructions] And your first question will be from Frederic Bastien at Raymond James.

[Frederic Bastien, analyst]

Great quarter. Question on your service center. The volumes have been modestly exceeding those of the industry in recent years, but this outperformance appears to have picked up recently. Is this observation right? And if so, can you tell us what's been driving that?

[John Reid, executive]

No, Fred, that's exactly right. And really it's a reflection of the value-added processing initiatives continuing to grow that are out there for us in our individual markets. And so we're seeing that just gradually continue to pick up share, as we move through kind of through this 5 year to 6-year journey on the value add.

[Frederic Bastien, analyst]

And you mentioned market is -- are the markets -- is the market -- the strength that you're seeing in the markets right now really does it really help the product segments that you're focusing on? It seems like energy obviously has picked up, but the plate business has been quite solid, prices have held up across the industry. So is that really benefiting your business right now?

[John Reid, executive]

Yes. So end-use demand is good across most of our end markets, if not all, especially, what you just mentioned there, plate is very strong right now. Plate is a challenging product to get. And so -- and thus, growing that market share, we've seen probably more growth in other products other than plate. We're getting all of our allocation plus a little bit more than we've gotten in the past. But again, plate is not as readily available to the marketplace right now, as the other products are.

[Martin Juravsky, executive]

And Fred, just to supplement the first part of your question as well about market share. That was a focus on the service center side of it. The other interesting thing for us is within our energy businesses, our field store businesses, they've continued to gain market share over the past period of time as well. And when we benchmark them against the publicly traded peers that are out there that focus on that market, they actually have done very well. Sometimes it gets lost in the context of the macro energy market environment, but that business has done well and has gained market share over the past period of time as well.

[Frederic Bastien, analyst]

Okay. Great. I know that the Board discusses the dividend every quarter, every meeting, [ where ] the discussions does go around a little longer, a little more intense? Or just curious where you're standing right now. Obviously, your balance sheet is quite strong. You had lots of optionality with respect to potentially doing M&A and all that stuff. So just wondering if you could give us your thoughts on where -- where you stand with respect to allocation right now?

[Martin Juravsky, executive]

Fred, that's a -- it's a great observation. The way you characterize it is in some ways, the way the discussions have evolved, which is -- our focus is really around deploying capital opportunistically. So more of the discussion is around both internal investment opportunities, as well as being opportunistic on the M&A landscape. So we like having our dry powder to focus on those attractive opportunities that are out there, both internally as well as externally. And that's where a disproportionate amount out of the discussion has taken place, not just in this last board meeting, over the last couple of Board meetings as well.

[Operator]

Next question will be from Michael Doumet at Scotiabank.

[Michael Doumet, analyst]

Hey, Mike, very nice quarter. You talked about how the market condition changed intra quarter. In addition to price, can you speak to how maybe the supply shock impacted demand and purchasing patterns across the space? And also with metal prices fading somewhat, I would say, following the late quarter surge, maybe at least in the futures curve, do you have a sense for how Q2 service center margins could shake out versus Q1?

[John Reid, executive]

Thanks, Michael. Yes, and you talked about the supply shock and then, going through again. As you saw January, February, you're looking at pricing was declining. If you look at the service center trends, I think the -- some of the graphs that Marty had there for both the industry in Canada and the U.S., you saw people were pulling back on inventory, anticipating lower prices in both the service center industry and probably in the customer base as well.

When we had the Russian invasion of Ukraine take place, obviously, limited pig iron, which is -- a large supply on the world market comes from the Ukraine. So it drove the pig iron price up, drove scrap pricing up, which immediately went into steel price in late February, early March. We saw the prices jump and the industry is caught on the very low side of inventory from the service center side, which means the supply chain is getting very thin. So it allowed pricing to move quickly through that.

It seems like we're coming into a peak now. If you're reading any of the industry rags out there right that it looks anticipation of scrap will come off now, maybe up to $100 a ton in May. However, I think with the recent pullback on pricing, a fair amount of that's already baked into the price. So I don't think we'll see any supply shocks that are out there for the second quarter. We would anticipate our service center margins to look probably a little better, but similar to Q1.

[Michael Doumet, analyst]

And then on the steel distributors, inventories there were still somewhat high. Do you expect to deliver that largely in Q2? And I guess, given the recent supply shock, does that, in your view, extend the runway for more imports and kind of like a larger profit opportunity for the remainder of 2020 for that segment?

[John Reid, executive]

Yes. So yes, the turns were -- again, they were up at a very high turn rate. I would anticipate that normalizing somewhat, maybe pulling back to a more historical level. But again, lots of opportunity. As we're coming through right now, we had things clearing the dock, went immediately into sale. And so we're in a very good position on inventory. But again, we're not seeing any dramatic shifts other than we're coming out of the St. Lawrence Seaway being frozen, so we get transportation back through again. So that's a natural thing that happens every year. But again, I wouldn't -- I wouldn't say we're seeing any big disruptions to the import market that would cause us for unusual opportunities right now.

[Martin Juravsky, executive]

Michael, one frame of reference to on the inventories when you look at steel distributors as example is about $150 million, in dollars, at the end of March, which was lower than it was at the end of December, but higher than it had been historically. But we're talking about inventory that's at a price point that's very different than it had been a few years ago. So in tonnage terms, it's not all that different at the end of the quarter for what it might have been 2020, 2019 type time frame.

[Michael Doumet, analyst]

So maybe turns here is more important [ than ] dollar amount. And then maybe just one last one. On capital allocation, maybe a little different from Fred's question, but it looks like the setup for this year is for another strong free cash flow year, presumably, you'll get another one next year. So with the shares and the book value of the share is going up quite a bit, what's your view on kind of supplementing M&A with the buyback at this point?

[Martin Juravsky, executive]

Yes. It's a fair question and all options are on the table for us, and it's really about being opportunistic. So I mentioned, as you referenced Fred's question before, that was around internal investments, as well as M&A and share buybacks are something that we'll contemplate, as well as we look forward over the course of time. So whether it is internal investments, whether it is M&A, whether it's deploying capital, returning to shareholders in different forms, those options are all on the table, and we'll consider them.

And to your point, I think it's spot on, which is we're looking at a generally favorable outlook this year, and frankly, who knows what next year is going to look like because there's always going to be volatility. But this has been an extended play already. And the circumstances related to the market are continuing. So we're in a very good free cash flow position. And we look forward to continuing to have that flexibility to deploy whether internally, externally, return to shareholders, deploy it in a variety of forms, those options are all on the table.

[Operator]

Next question will be from Michael Tupholme at TD Securities.

[Michael Tupholme, analyst]

First question is regarding service centers and the demand outlook. It sounds like you're quite constructive on demand. And as you pointed out, you did see a nice improvement in the same-store tons shipped on a quarter-over-quarter basis. I guess I'm wondering if you can just talk about how you see same-store ton shipped demand evolving in service centers, as the year progresses? And although, you're up on a sequential basis, if we look year-over-year, down a little bit. At what point do you think we could see the year-over-year tons shipped turn positive?

[John Reid, executive]

Yes. I think if you look quarter-over-quarter, I could say next quarter, I think, will be positive again. I think demand, if you look at the ABI Index, it's very strong, it's turned up. So we're seeing construction be out 8 months, 9 months for the fabricators. If you look at Purchasing Manager's Index, again, very positive again. So we're seeing good pull through from our OEM customers and then other equipment manufacturers that are out there. So really, we're hitting on all cylinders there. Energy side is positive for both the service centers and for the energy side. So I think you'll see a continued increase up to, say, positive from 0% to 2%, 3% in the quarter. But again, we're at a very good demand level right now. So we're pretty happy with it.

[Martin Juravsky, executive]

And I think the -- and Mike, I know this wasn't the nature of your question because you're probably focused more on same-store basis as well. But if we look sequentially, including the pro forma impact of the acquisitions, volume is up. So as we're looking both at the market dynamics being strong, as well as potential things that we are doing to add to our business, we are seeing volume pick up when you put that all together on a year-over-year basis.

[Michael Tupholme, analyst]

And I think, John, just to clarify that you were talking quarter-over-quarter, so the 0 to up -- maybe 2%, 3%, this is Q2 relative to Q1, right?

[John Reid, executive]

That's correct.

[Michael Tupholme, analyst]

And can you talk about the extent to which the market as a whole and/or Russel has started to see any demand pull from the infrastructure spending package in the U.S.? I know it's still fairly early and other companies are talking about that sort of ramping up, as the year progresses and really being more of an impact next year. But what have you seen there?

[John Reid, executive]

Very limited at this point. More the -- more the stages, but we're looking probably for Q4 if we see any of it this year, I would think.

[Michael Tupholme, analyst]

Next question is on margins. You addressed sort of the near-term outlook for service center margins, as we look ahead to Q2 and where they may land versus Q1. I guess a similar question on the energy products side. We did see the margins there come down a little bit, but still very strong, 24.5% gross margin in energy products. How should we think about those margins evolving, I guess, both over the near term and then -- and then with the changes in the business, what do you see as sort of a normalized margin for -- for energy products?

[Martin Juravsky, executive]

Yes. It's a great question, Mike, because in some ways, it gets to our path forward on the energy business looks an awful lot different than our historical frame of reference. And if you look to the service center margin profile historically, which was in a reasonably narrow band, not a lot of volatility in that 20% to 25% zone. That's actually a frame of reference for what our field store businesses has historically generated. It just got diluted down by the OCTG/line pipe.

So as we've seen that mid-20%, 20% type gross margins for the last couple of quarters, we should see Energy segment, [ now ] that it's really just the field stores looking very similar to service centers on a go-forward basis, not necessarily precise, but within the same -- within spitting distance of one another. So certainly north of 20% margins on a go-forward basis.

[Michael Tupholme, analyst]

And sorry, just as far as the Q2, like you mentioned in service centers, you think you could actually see maybe a little bit of an improvement quarter-over-quarter in the service center gross margins, would the same thing apply to energy products?

[John Reid, executive]

I think energy products probably would be flat to maybe slightly up. But I would -- I feel more comfortable saying flat on those margins for second quarter.

[Operator]

Next question will be from Troy Sun at Laurentian Bank Securities.

[Troy Sun, analyst]

Maybe just a quick follow-up on -- going back to the comment on the value-added products that you guys are investing in. I'm just trying to get a sense of how we should be thinking about the pricing sensitivity for those items from a client perspective? Just trying to gauge, are these typically the items that clients have to order like regardless of the pricing environment? Or this is something that they do have some leeway in terms of deferring the purchases. So just any color there, please.

[John Reid, executive]

Yes. They'll have leeway obviously, based on their volumes, and so it's not a take-or-pay situation. But again, where the -- when you're looking at it from the value-add and the pricing perspective, keep in mind, there's a labor component and there's a steel component and -- on a percentage of the total part. And so when we're looking at parts [ that are ] made and that can swing wildly. But that labor component is pretty fixed.

And so the steel price will move up and down. So that does normalize the margins on -- that's out there. But as far as them having to take things [ or to manage ], it's just their -- whatever order they've got in the queue at the time are in purchase order with us, they're responsible to take. So if they're out 2, 3, 4 months on those orders, they're responsible for that. But it's not a long-term contractual basis.

[Martin Juravsky, executive]

The one thing that's also interesting somewhat related is that one of the fasting dynamics of the linkage or lack of linkage between pricing and demand over the last year and a half, we've seen an elevated pricing environment for steel over an extended period, and steel prices went from 500 to 2,000, [ 1,000 ] back to 1,500. It really hasn't changed the model on demand during that period of time. So I think a lot of people are really having a revisiting of the elasticity or inelasticity of demand. Pricing hasn't really been a big factor.

[Troy Sun, analyst]

No, I definitely have seen some very similar commentary from some of the peers that reported early on in the -- in cycle. And maybe just a quick follow-up on, again, the value-added products here. Any difference in terms of the payment terms like any meaningful impact on just a collection schedule in general versus, I guess, more commoditized products?

[John Reid, executive]

No, very much the same.

[Troy Sun, analyst]

I guess maybe just the last one for me. More of a bigger picture question. Obviously, the pricing remains very elevated at the moment. Supply chain is still very tight. And any major capacity addition in North America that you are anticipating over, let's call it the next 6 months, 12 months?

[John Reid, executive]

Yes. There is more capacity coming on in both plate and flat roll throughout the year. So again, that will be a welcome capacity because, again, we are running at very tight supply right now. Imports are very limited. So I think it's something that can be absorbed in the North American market, what comes on over the next year.

[Operator]

Next question will be from Alexander Jackson at RBC Capital Markets.

[Alexander Jackson, analyst]

Most of my questions have been asked. But I'm just curious, are you still expecting to spend about [ $15 ] million CapEx this year? And then, could you remind us what the split is sort of between more sustaining versus more value-add equipment additions?

[Martin Juravsky, executive]

Yes. Alex, yes, that's still our target for this year. As I mentioned earlier, it's going to be back end of the year weighted. There's always a possibility that some things that were planned for Q4 slip into Q1 next year. But it goes to our broader theme, which is we are increasing the components of value-add. And that's not just a 2022 or frankly, we did a bunch over the last number of years as well. This is a multiyear path for us. So we're going to see continuing spending on those 3-year type payback projects over an extended period of time. But for planning purposes, [ $15 ] million is still a good frame of reference for 2022.

In terms of the component, there's probably a maintenance element within our CapEx spending that's probably, call it, $10 million, $15 million and the discretionary component is on top of that, that has the return component attached to it.

[Alexander Jackson, analyst]

And then maybe just one more quick one. Are there any more divestments coming like the Western Fiberglass business that you guys expect?

[Martin Juravsky, executive]

No. That was, frankly, it was a little bit unique. It was a little bit opportunistic. But no, we've cleaned stuff up a fair amount, primarily on the OCTG/line pipe side of it, as you're well aware. And so this was a one-off, and it was relatively small by comparison.

[Operator]

[Operator Instructions] And next will be Ian Gillies at Stifel.

[Ian Gillies, analyst]

With respect to the value-added processing and the upgrade capital, is there any gating factors to -- or reasons why you wouldn't accelerate that given the strength of the balance sheet and it's helping you capture market share?

[John Reid, executive]

It's -- again, we're moving at a pretty quick pace, but it's a hub-and-spoke process, so you develop the hub and you take it out to the spokes in our field. And so we're dealing with different supply chains as well. So we're educating both our customer base going through the engineering desk instead of the purchasing desk. There's a step process. It's almost the franchise process that we've developed now, if you will. So it just takes its time.

It's not quite as easy as going and grabbing a copier and plugging it in and starting to make copies. We have to go out and develop the market, develop the customer base slowly, and as we do, we add the additional equipment. So we're pretty much through phase 1 of initiating all of the hubs and now we're going back through and developing the spokes behind it to determine what machines are appropriate there and to make sure we have the right infrastructure. So it's just really a timing of how fast the market can absorb it.

[Ian Gillies, analyst]

With respect to the field stores and energy products, if we go back to a more normalized year in the energy patch, call it, 2019, is the unit pricing for the products to sell out of the stores, is it up in a commensurate amount, as the change in steel prices? Or are there other things impacting what you might be selling those products for at? I'm just trying to get a sense of what the lift may be or could be over that period of time.

[John Reid, executive]

So you won't see as much price volatility in the field stores because it's a highly engineered product. So a lot of -- again, you're going to have a lot more of it, again, just be highly engineered than is a raw component. It will have some swing, but not as much as you will see in steel pricing. So it will be a much more narrow bandwidth.

When we looked at our energy portfolio, when you pulled out OCTG and line pipe, again, you had the pulsating rate with the rig count. This business, again, is going to have a more narrow bandwidth of earning -- earnings because there is a maintenance component of maintaining the rigs long term, whether new rigs are being built or not, and they do get the increase in lift when new rigs and rig count is increasing. But as far as the cost of material, it's -- again, it's highly engineered, so it's not as volatile as steel.

[Ian Gillies, analyst]

And then, Marty, there's obviously a large tax catch-up in the first quarter. As we move through the remainder of the year and given the outlook, do you think there's going to be larger tax installments on the cash flow statement this year when we compare it to last year? Or how are you thinking about planning for that? Just trying to sort out how it may impact free cash flow?

[Martin Juravsky, executive]

Well, to be honest, it's directly related to earnings. So the payments that were made in Q1 was really a true-up of the 2021 balance that was outstanding plus the normal course installments that we would be doing based upon estimates for 2022. So the good news or the bad news, good news is, if earnings are up, taxes are up.

But as of right now, we've made an estimate of what they might be for run rate, and we'll adjust the year up or down, as earnings move around. But the lumpy pieces are typically in Q1 because that's the time of year, where there's both -- it's a bit of a double whammy catch-up for last year, if there's any true-up plus the first installments that start kicking in for the current tax year.

[Operator]

Next is a follow-up from Michael Tupholme at TD Securities.

[Michael Tupholme, analyst]

I haven't talked much about steel distributors. The revenues in that segment, $199 million, I think that's a record for that segment from what I can tell. How should we think about the revenue progression in that particular segment and revenue potential moving forward here over the next several quarters?

[John Reid, executive]

I think you'll see that normalize. Michael, [ you have ] 2 things going on. One, you've got -- steel prices are really running at a high, high level. So that's obviously helping even if they're selling the same amount of tonnage. So there is an increase there. But they also had some pent-up demand just due to issues coming in at the port. So once it came in, it was immediately out the door, so they had some backup there that was probably 2 months to 3 months long, and it all came flushed out. So we saw some pickup in the quarter on that. There'll be a little bit flush out in this quarter. But I would say that will come back down in the second quarter.

[Michael Tupholme, analyst]

Okay. And then, I guess, along the same lines, the margins in that segment, any help on how we should think about those moving forward? They seem to be quite elevated still in the first quarter.

[John Reid, executive]

I think they were in the 17% range in the first quarter, probably again, maintain in that range, maybe drift a little bit, but I think they're going to maintain in that range because keep in mind, we're usually selling well in advance there. So a lot of our stuff, especially in Canada is already presold for the quarter. So we've got a fixed margin.

[Michael Tupholme, analyst]

Okay. 2 more. The share of earnings from the TriMark joint venture, I think Marty mentioned earlier in the call, up $6 million this quarter, that was a nice step up. Is that the kind of level we should be thinking about going forward? Or any help on that front, would be great.

[Martin Juravsky, executive]

No. I mean that -- it was a really, really strong quarter and a whole bunch of things came together. The business combination between the 2 predecessor entities is working out well and the timing of the market has worked out very well. But that's a pretty elevated level.

[Michael Tupholme, analyst]

Okay. And then lastly, I mean, there was talk over the course of a few of the questions just about capital allocation and M&A was obviously mentioned, but I'm not sure we got a lot of details. So just wondering if you can comment on the pipeline, how do things look now as far as the opportunity set? And do you see an opportunity to potentially execute some transactions over the balance of the year?

[John Reid, executive]

Pipeline is still very active. Since -- some things that we're kicking some tires on, there are some other things we're obviously passing on. But it's -- I wouldn't say anything is imminent right now, but there is a lot of things that are attractive out there to look at. I would probably be remiss to talk about anything for the end of the year, just I don't want to [ share ] anything. But again, I would think that we will be taking a serious look at some things over the next 90 days.

[Operator]

And at this time, I would like to turn the call back over to our host for closing comments.

[Martin Juravsky, executive]

Great. Thanks, operator. Well, again, I really appreciate everybody for dialing-in and good questions. And look forward to staying in touch. If there are any follow-ups, please feel free to reach out at any time, and look forward to connecting again. Thanks, everyone.

[Operator]

Thank you, sir. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending. And at this time, we do ask that you please disconnect your lines.