Greetings, and welcome to Reliance Inc. First Quarter 2024 Earnings Conference Call. As a reminder, this conference is being recorded.

Thank you, operator. Good morning, and thanks to all of you for joining our conference call to discuss Reliance's first quarter 2024 financial results. I am joined by Karla Lewis, President and Chief Executive Officer; Steve Koch, Executive Vice President and Chief Operating Officer; and Arthur Ajemyan, Senior Vice President and Chief Financial Officer. A recording of this call will be posted on the Investors section of our website at investor.reliance.com. Please read the forward-looking statement disclosures included in our earnings release issued this morning, and note that it applies to all statements made during this teleconference. The reconciliations of the adjusted numbers are included in the non-GAAP reconciliation part of our earnings release. I will now turn the call over to Karla Lewis, President and CEO of Reliance.

Good morning, everyone, and thank you all for joining us today to discuss our first quarter 2024 results. Our resilient business model, most notably the diversity of our products, end markets, and geography, once again delivered strong performance in the first quarter. Despite a challenging pricing environment, we continue to drive smart profitable growth, surpassing broader industry shipment levels and maintaining pricing discipline and a strong gross profit margin, all of which collectively contributed to our first quarter non-GAAP earnings per diluted share of $5.30. Our significant investments in value-added processing capabilities continue to bolster our gross profit margin throughout market cycles. Our profitable operations and consistent ability to generate cash enable us to continue allocating capital across our core priorities. We have completed three acquisitions to date in 2024, expanding our product offerings, processing capabilities, and geographic reach, collectively adding nearly $500 million in annualized sales based on 2023 results. We also invested $108.7 million back into our business through capital expenditures, predominantly targeted towards growth opportunities that increase capacity and value-added processing capabilities. Our CapEx budget for the calendar year 2024 is $440 million, with an expected total cash outlay of approximately $500 million, which includes certain carryover projects from prior years. As previously noted, we expect approximately two-thirds of our CapEx spend will be used for growth projects. We also returned $65.3 million to our valued stockholders in dividends. On the M&A side, in addition to acquiring Cooksey Steel on February 1, we completed two acquisitions earlier this month, American Alloy and Mid-West Materials. American Alloy brings specialty carbon steel plate to our product portfolio, as well as new fabrication capabilities through the addition of six service center locations in the U.S. Mid-West Materials increases our flat-rolled presence in and around Ohio, primarily servicing North American OEMs. All of these transactions fit our acquisition strategy of acquiring immediately accretive, well-run companies with strong management teams. We have now completed 75 acquisitions since our 1994 IPO, and the M&A pipeline remains strong as we continue to evaluate a wide array of potential future opportunities. Please note that our first quarter results include contributions from Cooksey, acquired on February 1, but do not include American Alloy or Mid-West Materials, both of which closed on April 1. Before I close, I'd like to thank the entire Reliance team for a strong start to the year through their commitment to exceptional customer service, marked profitable growth, and most importantly, their commitment to safety. In the medium to long term, we believe the investments we have made and continue to make in our business position Reliance to benefit from growth opportunities under the Infrastructure Bill, the CHIPS Act, and the Inflation Reduction Act, along with the robust reshoring and nearshoring activity currently underway in several of the end markets we service. Thank you all for your time today. I'll now turn the call over to Steve, who will review our first quarter demand and pricing trends.

Thanks, Karla, and good morning, everyone. I'd also like to express my gratitude to our strong team at Reliance for a great start to the year and the continued commitment to safety. Further, I'd like to extend a warm welcome to the Reliance family of companies, the teams at Cooksey, American Alloy, and Mid-West Materials. I'll now turn to our first quarter demand and pricing trends. Our tons sold increased 10.3% compared to the fourth quarter of 2023, in line with both our expectations of up 9% to 11% and typical seasonal trends. Compared to the prior year quarter, our tons sold were down 1.7%, but still well below the service center industry decrease of 4.2% as reported by the MSCI. We believe our continued outperformance of our MSCI peers is supported by both organic growth and strategic acquisitions. First quarter 2024 volumes were also impacted by one less shipping day in the first quarter of 2023. Our first quarter average selling price per ton sold at $2,442 declined by 1% compared to the fourth quarter of 2023, below our expectations of up 1% to 3%. We experienced lower-than-anticipated pricing across carbon and stainless steel products as the quarter progressed. Pressure on carbon steel product pricing contributed to a temporary decline in shipping activity during March as some customers delayed orders in anticipation of lower prices. While carbon steel prices increased 1% compared to the fourth quarter, they nonetheless trended down in the second quarter. Stainless steel prices were down 6.2% compared to the fourth quarter but stabilized heading into the second quarter. Next, I will turn to an overview of trends we saw within our products in key end markets. Carbon steel tubing, plate, and structurals represented about one-third of our first quarter sales. All these products experienced solid volume growth and outperformed industry shipment levels compared to the first quarter of 2023. During the first quarter of 2024, strong nonresidential construction activity supported healthy demand for carbon steel structural and tubing products, with plate demand softening due to declining prices. Aluminum and stainless products represented just over 30% of our first quarter sales. While stainless shows more favorable volume trends than aluminum, we outperformed industry shipment levels across both product groups year-over-year. Aerospace products comprise about 9% of our total sales, and aerospace demand remained stable year-over-year. We primarily service the automotive market through our toll processing operations, which are not reflected in our tons sold. Our tolling business processed 4.8% more tons in the first quarter of 2024 than in the prior year, fueled by continuing strong demand from the automotive market and our significant investments to increase capacity. Our general manufacturing market business, which is roughly one-third of our total sales, is highly diversified across products and includes industrial machinery, consumer products, heavy equipment, and military. Shipments declined year-over-year, driven by weakness in agricultural equipment and consumer products, partially offset by stronger industrial machinery shipments supported by military manufacturing demand. Demand in the semiconductor industry has stabilized but remained down year-over-year. Our long-term outlook for the semiconductor market remains positive, reinforced by the CHIPS Act and significant semiconductor fabrication expansion underway in the United States, and we continue to invest in semiconductor capacity. Overall, we see demand across the end markets we serve remaining stable to strong in the second quarter of 2024. Please refer to our earnings release for additional commentary on our end markets and product diversification. I will now turn the call over to Arthur to review our financial results and outlook.

Thanks, Steve, and good morning, everyone. Our first quarter 2024 non-GAAP diluted earnings per share of $5.30 were at the low end of our guided range as our tons sold seasonally improved, but pricing softened more than we anticipated. We successfully outperformed industry shipment levels across nearly all products, which bolstered our quarterly earnings despite the challenging pricing environment. Our 31% gross profit margin for the first quarter was attributable in part to a higher-than-anticipated LIFO benefit, better alignment of costs on hand and replacement costs, and gross profit margin stability from our value-added processing capabilities. We recorded LIFO income of $50 million in the first quarter compared to our guidance of $20 million. As prices declined more than we anticipated, we have increased our 2024 annual LIFO income estimate from $80 million to $200 million. Accordingly, we currently expect to record approximately $50 million of LIFO income in the second quarter of 2024. On a FIFO basis, which is how we monitor our day-to-day operating performance and which excludes the effect of our LIFO inventory valuation method, our gross profit margin improved by roughly 80 basis points compared to the prior quarter to 29.6% as we saw improved alignment of inventory cost on hand with replacement costs. This trend began to reverse in March and has continued in the second quarter. While most carbon product prices began to stabilize in April, we'll continue to see short-term gross profit margin pressures throughout the second quarter as we get better alignment of costs on hand with replacement costs. As of the end of the first quarter, the LIFO reserve on our balance sheet was $529 million, which will generate LIFO income and benefit future period operating results to mitigate the impact of potential further declines in metal prices. Moving along to expenses. On a year-over-year basis, same-store non-GAAP SG&A expenses increased $7.1 million or 1.1%, primarily due to the increased headcount to accommodate organic growth, which was partially offset by lower incentive-based compensation resulting from lower profitability. As a reminder, our model normalizes expenses by rightsizing incentives as profits trend down. I'll now move on to discuss balance sheet and cash flow. For the first quarter, we generated $126.3 million in operating cash flow, which helps fund $108.7 million in capital expenditures, $53.7 million for an acquisition, and the return of $65.3 million to our stockholders through dividends. While we did not have any share repurchases in the first quarter of 2024, we have $1.44 billion remaining under our share repurchase authorization and ample liquidity for opportunistic repurchases. Turning now to our second quarter outlook. Overall, we expect a better-than-normal seasonal recovery in demand in the second quarter of 2024 despite prevailing macroeconomic uncertainty and geopolitical matters. We also expect shipping volumes to increase 2.5% to 4.5% sequentially in the second quarter, with approximately 2% of the sequential growth coming from recently completed acquisitions. On the pricing side, we expect our average selling price per ton sold for the second quarter to be down 1% to 3% compared to the first quarter, which will generate some short-term pressure on our gross profit margin as we work through higher cost inventory on hand. Based on these expectations, we anticipate non-GAAP earnings per diluted share in the range of $4.70 to $4.90 for the second quarter of 2024. This concludes our prepared remarks. Thank you for your participation. And at this time, we'll now open the call up to questions.

The first question comes from the line of Phil Gibbs with KeyBanc Capital Markets.

You mentioned the short-term gross margin pressures in the second quarter due to higher cost inventory that you'll need to let go. Are you expecting that, assuming prices generally stabilize for your products, FIFO gross margins will start to improve in the third quarter?

Yes. As has been consistent in our service center business for decades, we have to navigate various pricing fluctuations, which is part of our operations. Prices fell more than we expected in the first quarter, although there were some price increases for certain products early in the quarter. The normal lag we experience occurs as we work through higher-priced materials. If selling prices keep declining, it will take some time for a correction, but we anticipate this will be temporary. As prices stabilize, we expect to see some margin growth. Our gross profit margins are certainly affected by base metal prices. However, as we continue to enhance the amount of value-added processing for our customers, we have a bit more flexibility to keep our margins stable, making it not solely dependent on base price fluctuations. We can maintain a consistent margin on the value-added processing segment.

Okay. And then when I look at operating expenses, they were a little bit higher than what we were anticipating. Do you have contractual resets or labor renegotiations that you do every January 1? Or is there insurance picking up or something along those lines? Or is it more of the same relative to the fourth quarter, where you talked about the fact that you do have some infrastructure in the form of new plants, which are not contributing to revenue quite yet. I'm just trying to understand that.

Yes. So we have different timing on kind of wage increases throughout the year. But GM1 is probably about half of our companies increased wages at that time. It's a little more broad-based. Our volumes were up, so more expense comes along with increased volume, just packaging supplies, various warehouse expenses, trucking, and delivering more. So it was a little broad-based. I don't think there was anything in particular, but your point is right too, Phil, that we commented before. We do have some greenfields and some expansions in process where it does take a little time to ramp up. So the expense load could be a little heavy. So there is a little bit of that. We also, I think, commented last quarter that safety is our number one priority, and that takes a lot of training, especially in today's world with the workforce, and so it probably takes us longer to onboard employees, and you have to carry a little more to be able to get them properly trained.

And Phil, this is Arthur. I'll just add that, year-over-year on a same-store basis, we're only up 1%. So, and we talk about our incentive pay structure that kind of moderates expenses. So headcount is up a little bit, but then incentive comp is down. So net-net, year-over-year, on a same-store basis, we're only up 1%.

And then when you exclude the same-store details that ease that out, what, I guess, is the incremental operating expense that may not be completely, I guess, overcome through revenue at this point from some of these greenfields you're talking about? I mean, is it upwards of $15 million to $20 million at this point that might be under absorbed?

No. It wouldn't be that much though.

Okay. Lastly, as you review CapEx, you mentioned the $440 million and some carryover bringing it to $500 million in cash. Is the two-thirds growth CapEx based on the $440 million number what you anticipated for the maintenance level?

Yes. And that's been pretty consistent. The last, at least, I'd say probably four or five years, the majority of our CapEx spend is growth-related.

Next question comes from the line of Martin Englert with Seaport Search Partners.

What were the same-store volumes in 2Q and 3Q of last year? I think you reported them again this quarter. I think it might have gone a couple of quarters where it wasn't reported or perhaps they didn't differ from the reported tons sold.

Martin had one relatively small acquisition last year, along with another that did not significantly impact the same-store numbers. I don’t have that figure available, but you can find it in our public filings.

Yes. I mean, we always reported in the SEC filings, but we don't necessarily talk about it if there's not a meaningful difference, as Arthur indicated.

Okay. So it's pretty close to the reported volumes. When you look at the midpoint of the volume guide, it suggests around 4% growth year-on-year at the group level, including acquisitions, compared to the negative contraction of 2% for the first quarter. Is that correct?

Yes. I think you're in the right ballpark. That's correct.

Yes. Martin, when focusing on our shipment levels, the acquisitions will certainly contribute to that. We felt positive about our stock price this morning and believed we had a solid first quarter. However, it turned out to be a bit more challenging from a pricing perspective than we expected. From a shipment standpoint, we, along with others in the industry, were somewhat surprised in March. Typically, March is a strong month for shipments for us and the industry, but we experienced a decline in the tons shipped during the latter part of March that was unexpected. Good Friday occurred in March this year, which we anticipated when reviewing the calendar. However, factors like spring break, Easter, and buyers holding off on purchases in anticipation of lower prices, particularly in the carbon flat-rolled sector, led to a pullback in activity. We were caught off guard by the last couple of weeks in March. The positive takeaway is that this situation shifts into April and the second quarter, which is why we expect more than the usual seasonal improvement in tons shipped for the second quarter this year.

And typically, the second quarter is somewhat flat with the first quarter. So and our guidance implies on a same-store basis, some uptick in sequential tons shipped.

When you look at it on a same-store basis, the growth rate, it's still pivots positive, which, I think, a couple percent, which aligns with what you're seeing or expecting with a sequential uptick, and then the 2% growth from acquisition on the quarter, I think that implies something like 29,000 tons from the acquisition like a quarterly number? Is that reasonable for modeling purposes?

That's not unreasonable, yes.

For the repurchase, there were no repurchases in the quarter. Was this primarily due to acquisition opportunities, and can you provide any additional information on the acquisition pipeline?

Yes. I think there are two key points in that question, Martin. From a repurchase perspective, we are continuing to monitor the market and will opportunistically buy back our shares. The acquisitions we completed in the first quarter did not affect our repurchase activity. Our balance sheet is robust enough that, as we've mentioned over the past couple of years, we can manage all four of our capital allocation areas simultaneously. We did not engage in repurchases during Q1, but we will keep looking for opportunities to buy back our shares, regardless of our activities in acquisitions. We are pleased to welcome Cooksey, American Alloy, and Mid-West Materials to the Reliance family. So far in 2024, we’ve seen strong activity and continue to find good opportunities in the acquisition market. We expect to remain active in that area as well.

I wanted to follow up on the expectation regarding the delays at the end of the quarter and how that might have impacted demand in March. Are you anticipating some improvement instead of the typical flat quarter-on-quarter trend? Are you noticing any changes in your order entry and intake so far? Another way to ask this is how you’re seeing activity in April in terms of volumes.

Yes. And that's Martin, a good point because remember, 40% of our orders, the customer calls us today, we deliver tomorrow. So we don't have backlogs and things that other people talk about. Certain of our companies, depending on the end markets, they sell into, they may have a little more backlog visibility. So we have seen a little bump in April from March levels. I think general sentiment across a lot of our FOCs is pretty positive coming into the second quarter.

Okay. I appreciate that. And it was a nice job managing the FIFO gross margins on the quarter.

Thanks, Martin. Appreciate that.

Next question comes from the line of Timna Tanners with Wolfe Research.

I wanted to follow up with the second quarter outlook and kind of ask what drives the low end versus the high end of how you're looking at the guidance?

Timna, yes. I mean, in general, it's kind of with our business model, we think, and we do our best to generally anticipate both volumes and pricing dynamics. And we never know with our broad product mix, our next-day orders. So it's really just that combination of within that range of shipments, within that range of pricing. How much pressure is there on margins? Margin is a big driver getting down to the EPS line as well as pricing. So we just try to give a little room in there for those different variables.

Okay. In terms of trying to manage some of that variation, as you mentioned, do you ever consider either the futures market to kind of temper some of that volatility at least on the carbon flat-rolled side? And do you think about the stronger dollar changing your appetite for imports?

Timna, it's Steve. As you know, 95% at least of our material that we purchase is domestically sourced. So that's kind of our natural hedge. We feel like the lead times that we received, our inventory management by our leaders in the field, which we think they're doing a great job because there have been a lot of pricing challenges over the last year or so. So I think that in this type of a market, I think that we thrive on our people in the field.

Yes. In terms of pricing forecast, there are products where you can look at the futures market. However, as a domestic buyer, you have good visibility on those products and their pricing, especially for a quarter ahead. That said, there is always the potential for unexpected volatility. For instance, we anticipated a slight increase in pricing this quarter, but ended up experiencing a decrease. Nevertheless, we take all available information into account and make informed decisions based on lead times, demand, and the various products and geographies we work with. All of these factors are incorporated into our forecast.

And I would also just add to that, we're primarily buying and selling in the spot market. We don't have a lot of longer-term fixed sale price contracts, which, if that's your model, you probably do need to consider hedging more, but that's just not our model.

Okay. Fair enough. And just one more if I could. I thought it would be interesting to touch on the labor market. I thought it was interesting to hear you talk about incentive comp and how you adjust for that. Given that the labor market is tighter, how do you manage in a softer market or in a period of lower profitability, less incentive comp, but also the challenges of retaining and hiring people?

Yes. I mean, Tim, certainly, it's been one more challenge all of our people out in the field have had to deal with over the last few years. We have seen the labor market improve a bit as far as seeing more candidates, more people interested in jobs, but we're not always the sexiest industry to some of the people out there when they're looking at opportunities. But we have been more successful bringing people in. We think we do a good job of retaining people. Once we have good people, we want to treat them fairly, provide them with good benefits, pay them fairly. Certainly, when things get a little tougher, they may be bringing less home, but we've also had some pretty good years the last couple of years too, where our people have done really well doing more value-added processing also provides a little more stability for our workforce and the profitability and their incentives that they may take home, growing the business, which we've been focused on. So there are ways to manage around that. But it's not easy these days, but I don't know that we've seen any significant reaction to those factors.

Next question comes from the line of Phil Gibbs with KeyBanc Capital Markets.

Yes. My follow-up was based largely on what you're seeing in both the aerospace and defense side. I know you've got kind of a balanced mix within your portfolio. I think we're trying to parse through all the headlines on the commercial aerospace volatility with Boeing, but also trying to recognize the strength in the defense market. So just curious in terms of what your forward expectations are, what you're seeing? I know you're serving some specific programs as well. So just curious.

On the aerospace front, our Q1 sales indicated that aerospace accounted for about 9% of our total. This was split evenly between commercial and defense and space, with the space segment being slightly smaller but still robust and expanding. The defense sector remains strong, and we're witnessing increased demand, particularly in our aerospace business within that 9%, where we're involved in several significant programs both in the U.S. and internationally. Order activity is on the rise, although it doesn't fully reflect the 9% figure, as many of our sales, such as those for missiles and ammunition, aren't captured in that statistic. Given the troubling global circumstances, we expect continued demand strength in that area. On the commercial side, our companies service both the U.S. and Europe, particularly airplane manufacturers. However, actual production rates are currently much lower than announced targets. We're starting to see some strain in the supply chain as it adjusts to these actual production levels, leading us to anticipate some short-term pressures in the commercial aerospace sector. Nonetheless, in the long run, there are numerous orders in the pipeline, and we are involved in nearly all relevant programs. We're optimistic about the long-term prospects for aerospace, even as we expect some challenges in the near term.

And then just one more for me, on this solid CapEx budget that you have for this year? I know you've said in the past that there are hundreds of projects in there, but maybe if you could call out some of the larger ones that you either started or are in the process of either this year or last year. And maybe where they are in the stages of maturation or commercial development.

Yes. I mean, a couple of the big ones we've talked about semiconductor down in Texas. We've got a big build there to add more capacity. That one probably maybe later this year, we've kind of pulled back and have had some slight delays on that, which is okay because as you're probably aware, the actual semiconductor plants themselves, they've had starts and stops. And so we've slowed a little bit there, but still long term, very bullish on that. We have, for one of our kind of specially long product companies in the Atlanta area. They're about ready to ramp-up service center business that they increase their capacity significantly moving into a newer building. On our tolling operations in the U.S., we've added a couple of lines that have started up recently. They're still ramping Mexico, and our tolling businesses. We've also added some equipment down there. We've got a greenfield that's still a little early in the stages for some of our heavier carbon products down in the Atlanta area.

I would just add that it's not a big highlight, Phil, but we are making several upgrades. It doesn't have to be a completely new project, but we are improving some of our crucial cut-to-length material in Decatur, Alabama, and Portage, Indiana. Those facilities were offline for a while in the first quarter, but we are now seeing a strong rebound in production at both locations.

Thank you. Ladies and gentlemen, we have reached the end of the question-and-answer session. I would now like to turn the floor over to Karla Lewis for closing comments.

Thank you, and thanks again to everyone for joining our call today. I would like to tell our Reliance family that we think you guys did a really good job managing through a tough environment in the first quarter, and we're very proud of what you did. I'd also like to remind everyone that next month, we'll be in Miami, presenting at the BofA Global Metals, Mining and Steel Conference, and in Boston presenting at the KeyBanc Basic Materials Conference, and we hope to see many of you there. Thanks again, everyone, for your continued support of Reliance.

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