Greetings, and welcome to the Reliance Steel & Aluminum Company First Quarter 2022 Earnings Call. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Kim Orlando with ADDO Investor Relations. Thank you, Kim. You may begin.

Thank you, operator. Good morning, and thanks to all of you for joining our conference call to discuss Reliance's first quarter 2022 financial results. I am joined by Jim Hoffman, CEO; Karla Lewis, President; and Arthur Ajemyan, Senior Vice President and CFO. 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 geopolitics and the COVID-19 pandemic and related economic conditions on our future operations, which may not be under the company's control and may cause the 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. These factors include, but are not limited to, those factors disclosed in the company's annual report on Form 10-K for the year ended December 31, 2021, under the caption Risk Factors, disclosure in our press release this morning or other documents Reliance files or furnishes with the Securities and Exchange Commission. The press release and the information on this call speak only as of today's date, and the company disclaims any duty to update the information provided therein and herein. I will now turn the call over to Jim Hoffman, CEO of Reliance.

Good morning, everyone, and thank you for joining us today to discuss our first quarter 2022 financial results. I will begin with an overview of our performance and capital allocation activities. Karla will then speak to our operating results and demand trends by end market, and Arthur will conclude with a review of our financial results. Outstanding operational execution throughout our Family of Companies produced first quarter results, representing a continuation of the record performance we achieved in 2021 and once again demonstrating the durability and effectiveness of our business model. Notwithstanding ongoing macroeconomic challenges, our performance was supported by positive underlying trends, including continued strong demand with improving shipment levels in each month of the quarter along with ongoing strength in metals pricing. Our results also benefited from our strategic diversification of products, end markets, and geographies as well as strong ongoing support from our domestic suppliers and valued relationships with our loyal customers. Additionally, our wide geographic footprint with our 315 locations, close proximity to our customers, and proprietary fleet of trucks allows us to provide a quick order turnaround. Approximately 40% of the orders are delivered within 24 hours of our customers placing that order. These factors collectively help generate another record for quarterly net sales totaling $4.49 billion. The strength of our top line coupled with a resilient gross profit margin of 30.9% led to record quarterly gross profits of $1.39 billion. In an environment characterized by improving, volatile metals pricing trends and limited product availability, our managers worked hard to preserve our margins by implementing price increases at the time of mill announcement and appropriately pricing the value we provide our customers. Our customers continue to look to us to provide increased value through industry-leading processing capabilities. We've invested more than $1 billion over the last 5 years to meet increased processing demand. Though we experienced some gross profit margin compression compared to the fourth quarter of 2021 due to inventory costs approaching replacement costs for certain of our products, key elements of our model such as small order size, quick turnaround, a broad range of value-added capabilities and careful expense management enabled us to improve bottom line profitability and led to a record quarterly earnings per share of $8.33 for the first quarter of 2022 as well as record first quarter cash flow from operations of $404 million. Our significant cash generation continues to fuel our capital allocation strategy, which remains focused on both growth and stockholder returns, and we continue to see new and exciting growth opportunities for Reliance. We recently increased our 2022 capital expenditure budget to $455 million from $350 million, with the majority of this increase directed towards a brand-new state-of-the-art facility in Texas to expand our existing capacity and support announced new semiconductor fabrication facilities being built in the U.S. We are well positioned to support elevated levels of growth in the semiconductor and other end markets as additional reshoring opportunities present themselves. With that said, considering extended lead times throughout the supply chain, we believe our cash outlays for capital expenditures in 2022 will be in the $260 million to $290 million range. In regard to M&A, the integration of the 4 acquisitions we completed in the fourth quarter of 2021 is progressing as planned, and brought the total number of acquisitions since our 1994 IPO to 71. The M&A pipeline remains robust, and we continue to see a high volume of potential opportunities. In addition to growth, stockholder returns remain a top priority. We have paid regular quarterly cash dividends for 63 consecutive years without reduction or suspension and have increased the quarterly dividend 29 times since our 1994 IPO. In summary, Reliance continues to benefit from our ongoing focus on operational execution and continuous improvement throughout our business as evidenced by our record first quarter financial performance. The core tenets of our unique and sustainable model, including our diversification, scale, customer service focus, long-term supplier relationships and our buy domestic philosophy continue to empower profitable operations throughout industry cycles. Importantly, we've been able to consistently secure the metal we need to support our customers' requests despite broader macroeconomic challenges, including the COVID-19 pandemic and subsequent supply chain disruptions and more recently, supply chain disruptions attributed to the war in Ukraine. No matter the environment, Reliance remains well positioned to help America rebuild. Thank you for your time and attention today. I will now turn the call over to Karla, who will review our operating results and demand trends.

Thanks, Jim, and good morning, everyone. I'd like to begin by congratulating and thanking all of my colleagues in the Reliance family for their contributions that produced another record-setting quarter amid a challenging environment. Your perseverance and dedication to operational excellence and safety, which is our highest value at Reliance, continue to drive our best-in-class performance. I'll now turn to our first quarter operational performance. Our first quarter tons sold were up 10.7% from the fourth quarter, surpassing our guidance range of up 5% to 7%. Reliance, our suppliers, and our customers experienced labor and supply chain disruptions from the Omicron surge in January and, to a lesser extent, February. In addition, uncertainty around metal prices impacted the buying patterns of certain of our customers in the first few months of the year. As these headwinds subsided, our shipment levels improved and spiked in March. We believe our improving shipment levels better reflect the strength we've been seeing in underlying demand across the vast majority of the products we sell and in the key end markets we serve. Strength in demand, along with increased metal costs for many of our products resulted in a 1.5% increase in our average selling price per ton sold over the previous quarter compared to our guidance of down 2% to 4%. Prices for certain carbon steel products declined sharply in the first 2 months of 2022, then reversed rapidly in early March at the onset of the Ukraine crisis with significant price increases for aluminum and stainless steel products. As a reminder, given the diversity of our product mix, we have limited exposure to hot-rolled sheet and coil products, which represent only 10% of our total sales dollars. Looking ahead, general market conditions, including longer lead times for many of the products we sell, remain supportive of elevated pricing, continuing into the second quarter of 2022. As Jim noted, our first quarter gross profit margin compressed somewhat relative to the prior quarter on both a LIFO and FIFO basis as inventory costs began to catch up with our average selling price for certain products. On a FIFO basis, which is how we measure our day-to-day operating performance, we achieved a non-GAAP FIFO gross profit margin of 31.9%, down 320 basis points from the prior quarter. However, the trend of declining gross profit margins reversed in March due mainly to increases in aluminum and stainless steel prices. I'll now turn to a high-level overview of our key end market trends. Demand for nonresidential construction, which includes infrastructure and is the largest end market we serve, improved over the fourth quarter with notable strength in March. Demand for the toll processing services Reliance provides to the automotive market remained at healthy levels during the first quarter despite ongoing supply chain challenges, including the continued impact of the global microchip shortage on production levels. Underlying demand in heavy industry for both agricultural and construction equipment continues to improve from strong levels with a significant increase in our shipment levels compared to the prior quarter. Similarly, demand across the broader manufacturing sectors we serve, including industrial machinery and consumer products continues to improve. Semiconductor demand remained robust during the first quarter and continues to be one of our strongest end markets. This is an area we're continuing to invest in to service the significant semiconductor manufacturing expansion underway in the United States. Commercial aerospace demand continued to improve with our first quarter increased year-over-year shipments since the onset of the pandemic. As a reminder, roughly half of our exposure to aerospace is commercial. Demand in the military, defense, and space portions of our aerospace business remains solid with strong backlogs. Finally, demand in the energy sector, which we define as mainly oil and natural gas, continued to improve with our first quarter shipments higher than both the prior and year-over-year quarters. We remain cautiously optimistic that demand trends will continue to improve in most of the end markets we serve throughout the remainder of the year. Further, we anticipate metals pricing will remain elevated in the near term with prices on nearly every product we sell at historical highs. These are favorable environments for Reliance, especially given our model that focuses on providing the best service to our customers, supporting our key domestic suppliers, and the well-being of all of our Reliance family members. I'll now turn the call over to Arthur to review our financial results.

Thanks, Karla. Good morning, everyone, and thank you for joining us. As Karla highlighted, ongoing strength in demand led to incremental improvements in our daily shipment levels throughout the first quarter. Solid demand trends, coupled with higher selling prices, strong gross profit margins, and operating expense leverage helped drive the highest quarterly non-GAAP earnings per share in Reliance's history of $8.42, surpassing our guidance of $7.05 to $7.15 per share. Our record performance was a direct result of our model, specifically the key elements of product, end market, and geographic diversification, industry-leading value-added processing capabilities, pricing discipline, and the shorter supply chain due to our buy domestic philosophy, all of which collectively supported higher shipment levels and elevated selling prices during the first quarter. As a result, we generated record quarterly sales of $4.49 billion. Our non-GAAP gross profit margin of 31.1% for the first quarter remained strong and near the high end of our sustainable range despite LIFO expense of $37.5 million. As you may recall, our guidance for Q1 included LIFO income of $25 million based on our $100 million annual income estimate for 2022. However, as a result of higher-than-anticipated costs for certain nonferrous and carbon product in the first quarter of 2022, we revised our 2022 annual estimate from $100 million of LIFO income to $150 million of LIFO expense. Consistent with our accounting policy, we allocate our annual estimate on a pro rata basis each quarter. Accordingly, our current projection for LIFO expense in the second quarter of 2022 is $37.5 million. Now, had we recorded our original LIFO income estimate, our first quarter 2022 earnings per diluted share would have been higher by $0.75. As in prior years, we will revise our expectations each quarter based on our inventory costs and metal pricing trends. As of March 31, 2022, the LIFO reserve on our balance sheet was $857.9 million, which will be available to benefit future period operating results and mitigate the impact of potential declines in metal prices on our gross profit and pretax income. Moving on to expenses. Our first quarter same-store SG&A expenses decreased $11.4 million or 1.9% compared to the fourth quarter of 2021 despite higher sales levels. Lower incentive pay, including holiday bonuses, more than offset the impact of higher variable costs associated with incremental volumes in the first quarter. On a year-over-year basis, our same-store SG&A expenses increased to $70.1 million or 13.5%. The majority of that increase was attributable to inflationary increases for wages, fuel, freight, and packaging costs as well as higher incentive-based compensation due to substantially higher levels of gross profit and pretax income. As a reminder, the majority of our expense structure is variable with approximately 65% of our total SG&A costs being people related. To recap, the combination of a healthy demand environment, our ability to sustain an elevated gross profit margin despite record high selling price levels, and leverage on SG&A expenses despite inflationary headwinds contributed to record earnings for the quarter. We also converted our record earnings to cash by generating quarterly cash flow from operations of $404 million, which is the highest first quarter amount in our history. We achieved this despite a more than $200 million increase in working capital, which is typical of the first quarter, given seasonally higher sales volumes. We invested $66.7 million into the company through capital expenditures and returned $73.8 million to our stockholders through the payment of $56.7 million in dividends and $17.1 million in share repurchases at an average cost of $150.97 per share. Approximately $696 million remain available under our $1 billion share repurchase authorization, reflecting our confidence in our long-term strategy and outlook. I'll now turn to our second quarter outlook. We continue to remain optimistic about business conditions in the current environment with solid underlying demand trends expected to continue in the vast majority of the markets we serve. As such, we estimate our tons sold will be flat to up 2% in the second quarter of 2022 compared to the first quarter of 2022. Further, we estimate our average selling price per ton sold in the second quarter of 2022 will also be flat to up 2% compared to the first quarter fueled by our diverse product mix and continued strength in the pricing for the majority of our products and the end market into which we sell. Based on these expectations, we currently anticipate non-GAAP earnings per diluted share in the range of $9 to $9.10 for the second quarter of 2022. In closing, we would like to once again thank all of our Reliance colleagues for their contributions to these exceptional results. That concludes our prepared remarks. Thank you for your attention. And at this time, we'd like to open the call up to questions.

Our first question is from Seth Rosenfeld with BNP Paribas.

If I can kick off, first, the question on CapEx, obviously come back for a question on inventory management and margins. On CapEx, can you just give us a bit more detail on the new Texas semiconductor-related facility you mentioned in the prepared remarks? It sounds like that's driving the bulk majority of the CapEx hike. Can you tell us a bit more about the capacity or location of that and the timeline for ramp up? That would be great.

Sure, Seth. Yes, that's an exciting opportunity for us. We've been in that business for a long period of time. And obviously, there's a lot of reshoring going on that you've probably read about and heard about. It just seems like there's a lot of that type of business coming back to the U.S., which is great. I think people got a little tired of that long supply chain. So we're finally doing something about it. So that operation, we decided to put it in Texas. It just makes more sense so we can reach all of those different states, as I mentioned. Our business that we do with those folks really hasn't changed. Remember, we're not making chips okay? We're making the plumbing that goes into the clean rooms and also the vacuum chambers and what have you. So it's just a great opportunity for us because of our relationships with those producers. They've asked us to kind of step up our game along with them, and we're more than happy to do that because it's a good business for us and it has legs for a long period of time. Karla may have more...

Yes. Seth, so a little more about the business, the operations there. One of our subsidiary companies that we've owned since prior to going public, Valex Corp. They do a lot of the electric polished stainless steel tubing and fittings that go into the construction and ongoing repair and maintenance of the semiconductor chip manufacturing plant. So as Jim said, with the specific reshoring that's happening here, we see some great opportunity. We've had our location in California, which was the initial Valex location. Since that time, they've expanded globally. They have another operation in South Korea, one in China. That's where we've seen a lot of the growth over the last decade or 2. But it's really exciting for us to see that coming back to the U.S. now with a lot of growth here. And we think that our company is very well positioned. So that is the biggest chunk of our increased spend there. So we're looking forward to building a new facility to serve that expanding market and are really excited about putting it in Texas, even closer to some of our customers there.

And just to clarify, I think, Karla, you said that the cash outlay would be considerably below that $260 million, $290 million. Did I hear that right?

Yes. So as has happened in the last 2 years since the pandemic, we're seeing a lot of opportunity to continue to grow. Our customers keep asking us to do more. We think some of the issues that people have been dealing with, whether it's labor shortages, higher cost of capital, trying to streamline their operations, we're seeing more and more continued opportunity for us to do more for our customers. But with the supply chain disruptions and the labor shortages, we've seen extended lead times to be able to bring in a lot of the equipment that we're including in our CapEx budget. So our cash outlays used to more closely match our annual budgets. But with these extended lead times, there's a little more of a disconnect now. So that's why we put in the additional comments that the cash spend we anticipate will be lighter than what our budget is with some of this trailing into 2023.

Great. And one separate question, please, with regards to inventory management and margins. You earlier commented on some recent gross profit margin compression, especially earlier in the quarter. It sounds like as inventory costs began to near the replacement cost, can you give a bit more color on how that will develop into Q2? I think you commented earlier, the strength in stainless and aluminum began to aid margins late in the quarter, and now with the strength in more carbon steel products, will also aid margins sequentially? How should we think about the development, please?

During the quarter, we experienced downward pressure on prices for certain carbon steel products in January and February. However, following the crisis in Ukraine, we saw a swift reversal for those products in early March. This situation affected our inventory costs. Meanwhile, we continued to see significant increases in aluminum and stainless prices throughout the quarter. There is some slight pressure on aluminum prices now, but they remain at high levels. The pricing may fluctuate based on current market conditions, but we expect that as we continue to see increases during the quarter, we will benefit again from the uptick in some carbon products. Arthur, do you have anything to add?

Yes, certainly. Seth, I want to highlight that our FIFO margins are still close to the upper end of the sustainable range. This situation is primarily due to costs aligning with replacement costs while maintaining that sustainable margin range. Looking forward, there is definite momentum in nonferrous products, and our guidance suggests that gross profit margins for the second quarter will remain stable or increase slightly.

Our next question comes from Emily Chieng with Goldman Sachs.

My first question just continues on the trend of cost inflation that you're seeing. It sounds like there's been a couple of headwinds, particularly relating to maybe diesel, power, labor or some others, including packaging. My question would be how concerned are you here? Or do you have a pretty good ability to pass on these pressures at a pretty quick clip through higher pricing to your customers?

Yes, that's part of doing business. If it were easy, anyone could do it. We've been navigating this for a long time. When challenges arise, our model, along with our diversification in geography, products, and customers, allows us to operate effectively. It requires a bit more effort, and we expect this to continue. Most of our customers are not seeking the lowest price; they choose Reliance for our service and value-added capabilities. They want us as partners in their long-term business. We've structured our operations accordingly, and the right customers understand price increases. We deliver exactly what they require, pricing our products and services appropriately. We are confident in our pricing strategy and believe it’s acceptable to be profitable. We are not a nonprofit, nor are our business partners. Karla, do you have anything to add?

Yes. I think Jim had it just the model we've been successful so far based on the results and passing this through. And we have over the years and we have to adjust our pricing based on our input costs, our expense levels and what our customers will accept. But we feel pretty confident right now, continuing forward with the increasing costs.

And the only thing I would add, Emily, is the transactional nature of the business and the smaller order sizes help with this situation.

And just one other thing. I know you didn't ask, but it's difficult getting people and what have you. And our company has done really well in retaining really fine talent. So I'm really proud of the folks out in the field and the folks at corporate. I believe it's because they work for a really good company. We go out of our way to pay attention to things like safety and being competitive and things like that. So we're able to retain talent. Now attracting new talent, we have a whole lot of new methods to do that and they're paying off okay. But we've got a lot of work to do. We have to continue to do that. It is not just us; it's our suppliers and our customers. Our customers are having a hard time getting people. When they have a hard time getting people, that makes Reliance look even better because of our investment in capital expenditure, equipment or what have you. We can do a lot of work in our plants and they don't have to do it in their plants. That's something we're real proud of and something that we'll continue to focus on.

That's very insightful. My follow-up question concerns capital returns. Your free cash flow generation remains strong even during the quarter, but I've observed a decrease in the pace of buybacks compared to the rate we saw in the latter half of last year. How should we view the pace of repurchases throughout 2022? Additionally, has your announcement regarding increased growth spending affected the priority given to capital returns?

Good question, Emily. So yes. I mean, certainly, we have the capacity to be able to do it all. And when it comes to capital allocation, we don't necessarily look at it on a quarterly basis or even an annual basis or quarter over a year isn't necessarily going to tell the story. For us, it's more of a longer-term period for that. You've heard us say, when you look at a 5-year period for Reliance, the shareholder returns have made up a little over 50% of our net income. And then overall capital allocation is somewhat balanced. You've heard us say that before, with growth accounting for about half and returns for the other half. Just to kind of put some numbers to it over a 5-year period, we've returned close to $2 billion to our stockholders via dividends and stock repurchases. On the growth side, we've invested close to $1.8 billion in capital expenditures and acquisitions. So that's how we think about it. So we don't necessarily guide to buyback activity over the next quarter of the year. But our practice is more long-term, opportunistic, and it's about being patient and really capitalizing on the right opportunities.

Our next question is from Timna Tanners with Wolfe Research.

I wanted to start by asking for some guidance on how to approach modeling stainless and aluminum, as it's not as straightforward. On a per ton basis, stainless has seen a significant increase quarter-over-quarter, while aluminum has experienced a notable decline, despite higher aluminum LME prices. Moving forward, should we expect these prices to track with the commodity market, or will they remain relatively stable at recent levels due to your contracts? Any insights on how to assess revenue per ton would be appreciated.

Yes. And it's a little tough for us to help you with, Timna, because we don't really model that way internally. But I think one thing to remember on the aluminum side, a large portion of the aluminum we're selling is heat-treated aerospace plate which doesn't always necessarily follow the LME aluminum pricing. And there are some announced increases coming for those products. As you heard us comment on and I think you've heard from others, we have seen improved activity levels there. We expect a lot of those products to be tight throughout the year, which is supportive of pricing. So even though there's been some pressure on the LME prices recently, we think that aluminum prices will remain steady to up for a good portion of our aluminum exposure. The stainless side is always a little more volatile than other products historically, if you look back decades. But in the recent few months, it's been even more volatile than we've ever seen it. We think there's still some settling out to occur on the LME for nickel, but we're not trading on that. We don't follow that. Our stainless producers have done a good job of managing through this volatility during the quarter and trying to keep the cost at a reasonable level for us. But that product has been tight for a while, and we see that continuing with the strong demand that's out there. So although we're at currently very high prices, we do see that being sustainable in the near term given the strong underlying demand.

Okay. That's helpful. And then I wanted to ask about your pretty nice containment of SG&A or warehouse delivery general and administrative. Quarter-over-quarter, it actually fell. In the past, it's gone up. And with all the cost inflation commentary, it's pretty impressive to see that sustain. I guess the question is how possible is it to keep a lid on those costs as we look towards the rest of the year?

Yes, that's a good question, Timna. We have noticed a sequential slowdown in the rate of inflation for fuel packaging and other areas. However, wages tell a different story. The annual cycle for most of our employees begins in the first quarter. It's important to note that in 2021, most of our incentives were linked to FIFO profits, but we report our results using LIFO. In terms of LIFO expenses for 2021, it totaled $700 million. Essentially, our incentives were based on $700 million more in pretax income and gross profit. As we move into 2022, this is a key consideration for SG&A, which contributes to the sequential decline, but the transition from Q4 to Q1 makes it difficult to see that clearly. That’s why I’m highlighting the entire year. Year-over-year inflation is definitely a factor; comparing Q1 of this year to last year, it's the inflation in delivery costs, packaging, plant supplies, and wages that are primarily driving the year-over-year increase.

Okay. Helpful. So it sounds like you have some cost inflation from labor, potentially. But other factors, it seems like you're working to contain or could we see some creep through from energy or other factors?

Yes, that's fair. I believe we will see the full impact of wage inflation in the second quarter. However, sequentially, we noticed a slight decline in the rate of inflation. While costs such as fuel, packaging, and others were still increasing, that rate of increase has slowed down sequentially.

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

The new investment in Texas on the semi side, is that basically $0.25 billion? I just wanted to confirm that.

We did not say that, no.

No.

No, it's significantly less than that, Phil, but we mentioned it was a majority of the significant portion of the incremental $100 million increase in the overall CapEx budget.

Okay. I thought I heard $260 million. I didn't know what that was related to.

The $260 million, Phil, was the cash outlay we estimated. Our approved CapEx budget for 2022 is now $455 million. Due to the extended lead times, we've tried to estimate what we think the cash spending will be in 2022. This includes expenditures for projects approved in last year's budget as well as in our 2022 budget. We estimate cash spending in 2022 for our CapEx will be between $260 million and $290 million. Additionally, some of this will carry over into 2023 due to the long delays in obtaining equipment and other necessary items.

Okay. And that facility in Texas, just to stay there for a minute, how does that compare to the size of the facilities that you have? And California and then overseas, is it similar size or is this a more meaningful investment in terms of footprint?

I wouldn't focus too much on the size of the building. To be honest, it's not that significant; we've constructed larger ones before. The technology we're implementing is quite advanced and costly, but it will benefit us in the future. This facility is very state-of-the-art and requires a lot of personnel to manage the extensive robotic operations it will host. We are very proud of this project, and it will be built to a high standard. While the building's size might not be the main factor, the equipment and systems we will integrate into it are what's essential. We've built larger, more intricate facilities across our Family of Companies, but this one is a solid addition.

It will have increased capacity compared to our current U.S. location and will be quite similar to what we have expanded in both South Korea and China over the past few years, making it comparable to those individual facilities. Especially during this ramp-up with the significant announced build, we will continue to operate in California and Texas for a period of time, as long as the demand remains strong enough to support that.

Okay. So it sounds like it's at least a 25% capacity add for you guys in this business?

Whatever number you hit throw on it.

We'll place that one in the box for now. The commercial aerospace ramp, I think you said there was a pretty big increase sequentially and year-over-year. Any way to frame that in terms of the size of the increase? Because I think it was something that stood out in your release?

Well, I think we didn't actually quantify that part of it, Phil. But if you remember on our fourth quarter activity, fourth quarter of '21, we had said that we saw some improved activity at that time. We've been seeing our customers come in like sporadically with holes in their inventory. Starting in Q4 and continuing into Q1, there's increased build rates happening. So that's affecting the whole chain. We're seeing our customers in that market buy more regularly now, both here in the U.S. and in our European and other global operations. So that's the trend we've seen. Backlogs are also increasing. So we think that we're not going to be back to pre-pandemic levels this year, but we're going to continue to see a progression with steady improvement.

Our next question is from John Tumazos with Very Independent Research.

Early in the quarter, the Midwest hot-rolled sheet features fell almost to $900 and then, of course, rebounded wonderfully after the sanctions. Your business didn't seem to suffer that price decline and just rolled along better than ever in the first quarter. Which prices should we watch to understand your steel realizations, CRU or something other than the Midwest features?

So John, I think that's a question we've been asked for quite some time. And really, the diversity of our product mix is part of our model that really helps us not be as impacted by a lot of that. And we did with those price declines that were going on in carbon, we certainly did see an impact. But hot-rolled coil, as we said, only about 10% of our shipment dollars, but we saw some of our other products. We actually had shipments in Q1 for like plate and carbon steel plate and structural tubing down. We think some of our customers were trying to wait out the price declines they saw. They thought that they might continue to fall. So when prices reversed, we saw really strong bookings in March. So that's just a little color around it for that part of our business. We did see an impact from that, the carbon pricing expectations. But I think because the rest of our business with our stainless and aluminum pricing, I mean, you've been following that with us for years. We prefer the people. We ask people not to model us based on the HRC price because we don't think that's reflective. I think probably looking at our average selling prices from quarter-to-quarter and using that as a base to bake in your assumptions is probably better than any individual index that you might follow out there.

Yes, John, the indexes you mentioned are essentially spot indexes that track the actual price. As Karla noted, we generally don't focus on these at all. Our primary concern is how we can serve our customers and what they are willing to pay for the value we provide. You know our business well; if someone is looking to purchase large quantities of plate or sheet, they likely won't come to us. Our value lies in delivering products on time and in the desired form. The price will depend on what customers are prepared to pay at that moment. As for those indexes, I'm not sure who finds them useful; perhaps contract buyers do, but we don't give them much attention.

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

That was quick. My question is about the new toll processing facilities you have in Kentucky and Texas. Are they starting to ramp up or make a contribution? Also, is there any impact you are factoring in regarding the financial guidance for the second quarter?

They're difficult to build mills, so are they on track? Yes, but they're a bit behind schedule. I believe the two individuals responsible for those mills are probably disappointed with the speed of progress. I'm uncertain if we're considering the second quarter in this regard. We're hopeful that things will continue to improve. It's a daily and weekly situation, but we have limited control over their actions. When we decided to partner with them, we were looking for a long-term relationship. So when they are prepared and up and running, we will also ramp up our operations. I know we're ahead of them, so as soon as they are ready, we will begin our part.

Yes. In Kentucky, that operation started earlier and has been contributing positively, though not at the levels we expect when the mill and our location are fully ramped up. It has been a positive addition so far, but these factors are not significant in our guidance for the second quarter. Given the size of the company and the numerous individual operations, while both are important and meaningful to us, they do not play a major role in our Q2 guidance.

Okay. And then just a follow-up on toll processing. You're obviously a major supplier to automotive, both aluminum and steel. Automotive has been very choppy and difficult to read, with a lot of mixed signals and volatility. What are you seeing, and what are your expectations for the automotive sector as the year progresses?

Yes. The main feedback we receive from our teams in those sectors is that they have been operating with less visibility than usual and are primarily responding to customer needs. Many times, the situation changes week-to-week due to challenges with chips and other supply chain issues. However, we believe our operations have managed those challenges effectively. They can shift their business across multiple locations to support any required platforms. Additionally, there have been opportunities to capture nonautomotive business with their product lines. Nonetheless, there has been some impact. We have listened to others in the industry, and it appears things are starting to improve, which we anticipate will continue. That said, there is still significant uncertainty in the market.

There are no further questions at this time. I'd like to turn the floor back over to Jim Hoffman for any closing remarks.

Yes. Thank you very much for your time and attention today. Before we close out the call, I'd like to extend my gratitude to all of my colleagues throughout the Reliance Family of Companies for your contribution to see yet another record quarter. I remain inspired by our commitments to our operational excellence, continuous improvement, and most importantly, our highest core value of safety. We will be participating in the Goldman Sachs Industrial & Materials Conference in New York in May. We will also be participating in the KeyBanc Basic Materials Conference in Boston in early June. We hope to see a lot of you there. Thank you all very much for your continued support and commitment to Reliance.

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