Greetings. Welcome to the Reliance Steel & Aluminum Company Fourth Quarter Full Year 2020 Earnings Conference Call. Please note this conference is being recorded. I will now turn the conference over to your host, Kim Orlando with ADDO Investor Relations. You may begin.

Thank you, operator. Good morning, and thanks to all of you for joining our conference call to discuss Reliance's fourth quarter and full year 2020 financial results. I am joined by Jim Hoffman, CEO; Karla Lewis, President; and Arthur Ajemyan, Vice President and CFO. Bill Sales, Executive Vice President, Operations, will also be available during the question-and-answer portion of this call. A recording of this call will be posted on the Investors section of our website at investor.rsac.com. The press release and the information on this call may contain certain forward-looking statements, which are based on a number of assumptions that are subject to change and involve known and unknown risks, uncertainties or other factors, including the impacts of the COVID-19 pandemic and related economic conditions on our future operations, which may not be under the company's control, which may cause actual results, performance or achievement of the company to be materially different from the results, performance or other expectations implied by these forward-looking statements.

Good morning, everyone, and thank you for joining us today to discuss our fourth quarter and full year 2020 financial results. Despite the extraordinary challenges 2020 presented on a global scale, we are extremely pleased with the strong execution of our team that our team has shown, not only in the field, but by all of the employees within the family of companies, who demonstrated the true resiliency of the Reliance business model. I applaud each and every one of you for your tremendous efforts to quickly and nimbly adapt to the changing environments, ensure our customers were always taken care of, and most importantly, maintain your unwavering commitment to health and safety, our most important core value. Since 2017, our SMART Safety program has been focused on embedding our culture of safety across our entire family of companies. Working together as one company, we focused on this initiative in 2020 like never before in response to the new and unique challenges presented by the COVID-19 pandemic. In addition to developing new policies and procedures to prevent the spread of the virus, we improved our safety performance in 2020 with an approximately 23% reduction in our incident rate compared to 2019. While this is a significant milestone, as I've stated in the past, we will not be satisfied until this rate reaches 0. I'd like to thank everyone at Reliance for their commitment to making it personal in 2020 in order to keep our employees, their families, our customers, suppliers and communities safe. I'd like to take a moment to congratulate both Karla Lewis and Arthur Ajemyan for the recently announced well-deserved promotions. Consistent with our Board's strategic executive leadership succession plan, Karla was promoted from CFO to President and was simultaneously appointed to our Board of Directors effective January 15. Karla has demonstrated excellent judgment and leadership in each role she has held since joining Reliance in 1992, and her unique abilities and talents have earned the respect of our employees and shareholders.

Thanks, Jim, and good morning, everyone. I would like to join Jim in thanking everyone in our Reliance family of companies for their truly amazing performance throughout 2020. As an essential business, we were able to continue operating throughout the pandemic, with our 2020 tons sold decreasing only 10.8% compared to 2019.

Thank you, Karla, and good morning, everyone. I'll start with our sales discussion. Fourth quarter 2020 sales were down 12.8% from the prior year period as our markets continued to recover following the reopening of the economy. Approximately half of the decline in our sales can be attributed to our businesses supporting the commercial aerospace and energy end markets, as evidenced by the disproportionately higher declines in our sales of aluminum and alloy products. For the full year of 2020, sales were down 19.7% from 2019. Approximately half of the decline in sales was due to lower shipping volumes across all major end markets we sell to, and the remaining half was due to lower average selling prices. However, both recovering demand and pricing from the reopening of the economy in the third and fourth quarters of 2020 helped to mitigate the annual decline in our sales. As Jim and Karla highlighted, we generated a record quarterly gross profit margin of 33% in the fourth quarter of 2020, up 60 basis points from both Q3 2020 and Q4 2019 and a record gross profit margin of 31.5% for the full year of 2020, up 120 basis points from our previous annual record of 30.3% in 2019. Our non-GAAP FIFO gross profit margin in the fourth quarter of 2020 was up 450 basis points from Q4 2019, and for the full year of 2020 was up 280 basis points from 2019. Please refer to our earnings release, where we provide a reconciliation of LIFO to non-GAAP FIFO gross profit margin for each reported period. We incurred LIFO expense of $15.5 million in the fourth quarter of 2020 due to rapidly increasing mill costs for most of our products. However, for the full year of 2020, we still recognized LIFO income of $22 million as our cost of inventory on hand at the end of the year was still below the levels at the beginning of the year. This compares to LIFO income in the fourth quarter and full year of 2019 of $81 million and $156 million, respectively. We ended 2020 with a LIFO reserve of $115.6 million on our balance sheet. Based on current market conditions, we expect to incur an annual LIFO expense of $340 million in 2021. Consistent with our accounting policy, we allocate our annual estimate on a pro-rata basis in each quarter. As such, our current projected Q1 2021 LIFO expense is $85 million. As in prior years, we will update our expectations each quarter based upon our inventory cost and metal pricing trends. Turning to expenses. Our fourth quarter non-GAAP SG&A expenses decreased $51 million or 9.9% compared to the fourth quarter of 2019 on a 7.9% reduction in shipments. For the full year, same-store SG&A expenses declined $241 million or 11.5% on a 10.8% reduction in shipments. The decline in SG&A expenses was due to reduced spend across every major expense category. As you've heard us say before, approximately 60% to 65% of our SG&A expenses are people related. When looking at the 11.5% year-over-year decline in same-store SG&A expenses, approximately half of the decrease was people-related as our headcount declined 14% compared to the prior year. In addition, lower incentive pay due to lower gross profit and pre-tax income levels also contributed to the decline in our compensation costs. Although we are entering the first quarter of 2021 with a more efficient expense structure because of strong volume and pricing trends, we expect our expenses will increase in the first quarter of 2021 from the fourth quarter of 2020, consistent with seasonal trends. I will address our Q1 2021 outlook for demand and pricing shortly. For the full year of 2020, our effective income tax rate declined to 22.1% from 24% in 2019 mainly due to our lower pre-tax income level in 2020. We currently anticipate our full year 2021 effective income tax rate will be 24%. Our strong gross profit margin and effective expense management resulted in $2.01 of earnings per diluted share in the fourth quarter of 2020, well above our outlook of $1.30 to $1.40 per diluted share but down 17.6% from $2.44 in the fourth quarter of 2019 mainly due to reduced demand levels related to the pandemic, with commercial aerospace and energy end market sales being significant contributors to the decline in our sales. In comparison to the third quarter of 2020, fourth quarter non-GAAP earnings per diluted share of $2.01 was up 7.5% from $1.87 due to improved pricing, strong gross profit margin and recovering demand in most end markets. Turning to our balance sheet and cash flow. We generated strong cash flow from operations of $230.2 million during the fourth quarter due to our profitable operations and effective working capital management, including our focus on rightsizing our inventory levels. At the end of the year, our total debt outstanding was $1.66 billion, resulting in a net debt-to-EBITDA multiple of 1.1 times. Also at the end of the year, no borrowings were outstanding on our $1.5 billion revolving credit facility. As mentioned last quarter, we significantly strengthened our liquidity position through the successful completion of both our $900 million senior notes offering and amended/restated $1.5 billion five-year unsecured revolving credit facility. The facility amendment, combined with the proceeds from the notes offering, provides us with ample liquidity and an improved debt maturity profile. I'll now turn to our outlook. While macroeconomic uncertainty stemming from the COVID-19 pandemic continues, favorable market conditions have persisted so far into the first quarter of 2021, with improving demand and additional mill price increases on many carbon and stainless steel products. This environment allows us to maintain higher gross profit margin levels as we increase our selling price prior to receiving the higher-cost metal in our inventory. We expect these favorable conditions to continue for the remainder of the first quarter. As a result of these favorable conditions and the normal seasonal improvement, we estimate our tons sold will be up 10% to 12% in the first quarter of 2021 compared to the fourth quarter of 2020. We also expect our average selling price in the first quarter of 2021 will be up 12% to 14% compared to the fourth quarter of 2020. Based on these expectations, we currently anticipate non-GAAP earnings per diluted share in the range of $3.40 to $3.50 for the first quarter of 2021. In closing, we are very pleased with our fourth quarter 2020 financial and operational results. Outstanding execution by all of our employees greatly contributed to our success in 2020. Their efforts, coupled with our resilient business model and disciplined execution of our strategy, resulted in yet another quarter of solid profitability and cash flow, enabling us to continue supporting our growth and stockholder return priorities. That concludes our prepared remarks. Thank you for your attention. And at this time, we would like to open the call to questions.

Q - Seth Rosenfeld: Good afternoon. Thank you for taking my questions today. Karla and Arthur, congratulations on the new roles. I had two different questions, please. First, on the impact on product mix and price realizations, and secondly, on M&A, please. On product mix, I remember last quarter I think you spoke at some length about the impact of weak aerospace while energy volumes weighed on your mix and on ASPs. You're sounding a bit more optimistic now than a few months back. How confident are you in that inflection? And to what extent could we see ASPs, not just in Q1 but going forward, begin to outpace the strength in standard grades? And if I may, a separate question on M&A, please. I think in your prepared remarks you commented on a broader scope of businesses under consideration for M&A. Can you please give us an update on what that implies in terms of the types of businesses you're looking at going forward? Thank you.

Yes. Hi, Seth, this is Jim. Good to hear from you. I'll talk about your second question first on the M&A front, then I'll flip it over to Karla and Bill, and they can talk about individual products. But from an M&A standpoint, the pipeline is full. We've looked at a lot. I believe we've looked at over 100 this year. Now when I say we looked at 100, we didn't do deep dives on 100. We just looked and said this is something we'd be interested in. The ones that we actually did get involved with and took a deeper dive, we just didn't find any that worked the way we would like to. However, there's a lot of interesting companies out there, some adjacent businesses that aren't your traditional service centers. We're expanding our view a little bit there. But we still have a strict criterion. We're very proud of what we've built at Reliance. We're very loyal to our shareholders. We focus on quality of earnings and not just driving our top line up for any reason. But we're... I'm encouraged. I think there'll be something that will pop this year that we'll be interested in. And but it's part of our DNA. Our acquisitions are alive and well, and we're going to pick the ones that are multiples. And we'll see how it all works out that fit our criteria. But I'm enthusiastic about what we're seeing. So we're going to keep that in our quiver, if you will. Now on products themselves, I'm going to ask Karla and Bill to kind of jump in. We're pleasantly surprised on some fronts. Some of them are exactly what we thought they were going to be. But I think – and Bill can talk to the aerospace. I believe we've bottomed out on that. Hopefully, we have, and we'll be able to have kind of a slow climb out of that. And energy is what it is although energy has shown a little bit of signs of relief at recent. So those are general statements, Seth. And why don't I go to – I think we'll go to Bill. He can talk about aerospace. Bill?

Yes. Seth, it's Bill. On the aerospace side, as Jim said, we think we bottomed out in Q4 last year. We still know we have a challenging environment on the aerospace side. We look to see a slow gradual recovery on the commercial aerospace side of the business. We've done a lot to right size our business, both in terms of headcount and inventory, and we'll continue to look at that and manage it accordingly. And then as we've said, the other side of the equation is the defense, military, and space side of the business continues to be very strong. So that part of it is very positive.

Hey Seth, it's Karla. And I'll just add in a little probably a little more specifically, I think, to your question about the fact that we spent time in the third quarter talking a little more about our product mix and the impact it had on our average sell price because there was a much more significant impact at that time. In Q2, we saw a big downturn in a lot of our products. But aerospace kind of was winding down at a slower pace than some of our other end markets from Q2 to Q3. And then as we saw some other markets coming back more in Q3, it had a bigger impact on the mix. So that's why we spent a lot of time there talking about it. I think Arthur gave some color in his comments about Q4, where we did continue to see some pressure on energy and aerospace during the fourth quarter compared to the third quarter. But we think we hit bottom in both of those markets, and that did show up in our aluminum and alloy sales. You could see those down a little more than carbon and stainless in Q4 compared to Q3. We're seeing some activity in Q1 in both aerospace and energy a little more than in Q4, which has been a positive. But nothing really significant that we're anticipating any huge changes in our product mix or average sell price as we go into the quarter.

Very clear. Thank you so much.

And our next question is from Phil Gibbs with KeyBanc Capital Markets. Please proceed with your questions.

Hey, thanks. Good morning. Happy New Year.

Hi, Phil. How are you, buddy?

I'm doing well. CapEx for 2021, should we expect a couple of hundred million this year?

I believe we said in our comments it's about $245 million. And yes, it's like in the past, Phil. It's a pretty good division between growth and maintenance. As we've stated before in the past, we need about $90 million - $90 million to $100 million a year on what we call maintenance, but it's really not maintenance. I mean, some of it is, but some of it is replacing older equipment, but the equipment that we have that has replaced the older equipment is much better. It's much better technology and tighter tolerances and things that we can actually charge more for. So that's a portion of the CapEx. Then we've got some growth initiatives in there, some innovative programs that we're going to be rolling out, some IT enhancements and what have you. But yes, you can I believe we said $245 million.

Okay. I must have missed – go ahead, Karla, sorry.

Phil, yes, this is Arthur. And just from a cash spend perspective, we think cash spend will be north of that because there's a lot of delays in 2020 with approved projects due to COVID and what have you. So there's going to be some catch-up spend. So I think from a full year 2021 perspective, we could probably be north of $245 million, maybe even closer to $300 million.

Okay. Thank you for that. On the auto side, that business given your tolling, tends to be just in time in a lot of the businesses from what I remember. So with some of these shutdowns, which are just interim base intra-quarter, what are you seeing there? Are they telling you to stage less material while they take this downtime? Or are they still in catch-up mode from last year?

Yes, hey Phil, it's Bill. What we're hearing so far, the mills are continuing to produce. So some of the shutdowns we still think the impact from the chip shortage is going to be minimal to our business. But we are probably storing more material today than before. And we think that they're going to be a bit in catch-up mode going forward. But so far, auto remains strong. The outlook remains strong, and we're watching the situation with chips very closely.

Okay. And then my last one here, Bill, is a good segue because you mentioned chips. What's the pipeline look like for you all on the semiconductors side because you're obviously dealing with a lot of new capacity growth and your business tends to favor more of the new builds versus the consumables? But what are your customers telling you in terms of how long this cycle is going to last? It looks like just on the surface, it's got some legs. Thanks.

I agree, Phil. We believe our outlook is strong for the first half and potentially beyond that based on feedback from our customers. Some forecasts indicate double-digit growth over several years. The semiconductor market can change rapidly, so we monitor it closely. However, it appears to be stable and promising for the foreseeable future.

Thank you.

And we have reached the end of the question-and-answer session. And I will now turn the call over to Jim Hoffman for closing remarks.

Thank you again to all of you on the call today for your time and attention. While the COVID-19 pandemic continues to have an unprecedented impact on the global economy, I could not be more pleased with our strong financial results and operating performance in 2020. I'd like to thank each and every one of our Reliance employees for their courage, tenacity and resolve they continue to demonstrate through this pandemic and for their relentless focus on each and every day on the health, safety and well-being of themselves, their co-workers, their families and their communities. We'd also like to thank our investors for your continued support and commitment to Reliance. Please stay safe and healthy.

This concludes today’s conference. And you may disconnect your lines at this time. Thank you for your participation.