Greetings, and welcome to the Reliance, Inc. Second Quarter 2025 Earnings Call. As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to your host, Kim Orlando with ADDO Investor Relations. Kim, please go ahead.

Thank you, operator. Good morning, and thanks to all of you for joining our conference call to discuss Reliance's Second Quarter 2025 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 yesterday, 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 second quarter 2025 performance. Our solid financial results once again demonstrated the resilience of our proven business model in a volatile environment. Our operating teams continue to excel in providing value to our customers and increasing our market share while effectively managing their businesses through ongoing market uncertainty. Our record second quarter tons sold compared to last year once again significantly outperformed the industry average volume by 7 percentage points, which we attribute to our unparalleled scale, access to domestic metal, and breadth of processing capabilities. Importantly, we maintained a gross profit margin within our sustainable range of 29% to 31%, in line with our smart profitable growth initiative. Our strong performance generated sequential increases in non-GAAP pretax income in excess of 15% and non-GAAP earnings per share of $4.43, an increase of more than 17% compared to the prior quarter. Our capital allocation framework remains unchanged, and our long-term focus continues to guide both our growth and stockholder return strategies. Reliance generated $229 million of cash flow from operations in the second quarter. Our strong cash flow continues to support investments in advanced value-added processing equipment, organic growth, and accretive acquisitions that position Reliance for growth in all market environments. Our 2025 capital expenditure budget remains at $325 million, with over 50% dedicated to growth projects. Our expected total cash outlay for 2025 is expected to be in the $360 million to $380 million range, reflecting carryover projects from prior years that will be completed this year. Our second quarter results include benefits from our 2024 acquisitions, and we remain in a position of financial strength to execute on M&A opportunities that align with our disciplined criteria. We continue to see new acquisition opportunities despite continuing macroeconomic uncertainty, and we will maintain our focus on pursuing opportunities that expand our geographic footprint and the value-added metal processing solutions we offer our customers align with our emphasis on smart profitable growth and complement our strong gross profit margin profile. We also remain committed to returning capital to our stockholders. We returned $143 million to our stockholders in the second quarter in dividends and share repurchases, and we have repurchased over 1.2 million shares year-to-date at favorable prices. In summary, I'm pleased with our strong operational execution in the second quarter, particularly given the rapidly changing trade environment. Our resilience reflects both the strength of our business model and the unwavering dedication of our team whose commitment to safely delivering industry-leading solutions continues to expand and deepen our customer relationships. While we anticipate some weakness in the third quarter, we remain confident in our ability to grow amid ongoing market uncertainty and take advantage of improved demand and pricing environments as we emerge from these highly uncertain times, and encouraging trends in our key end markets, including signs of reshoring activity, are creating additional tailwinds as we look ahead. Moreover, our longstanding practice of primarily sourcing our metal from domestic mills and operating in the United States provides a strong competitive advantage in the current trade environment. Our focus remains firmly on long-term success with a disciplined approach to value creation for all Reliance stakeholders.

Thanks, Karla, and good morning, everyone. I'd like to start by thanking our dedicated team for driving operational success across the board while upholding the highest safety standards. I'll now turn to our demand and pricing trends. Our second quarter tons sold decreased 0.9% compared to the first quarter of 2025 in line with our outlook of down 1% to up 1%, even when considering the effect of demand pull forward into Q1 due to tariff activity. Compared to the second quarter of 2024, our tons sold increased 4%, significantly outperforming the service center industry's year-over-year decline of 3.1% as reported by the MSCI. Our increased shipments are attributable to market share gains as a result of our smart profitable growth strategy and continued investments in organic growth. Our second quarter average selling price per ton sold increased 6.1% compared to the first quarter of 2025, doubling the high end of our expected range of up 1% to 3%, reflecting the strong tariff-driven momentum for both demand and pricing near the end of the first quarter. Pricing for many carbon and aluminum products peaked in April, but then declined for the remainder of the second quarter. Stainless pricing declined modestly in the quarter as these products were less sensitive to trade policy in the short term. As Arthur will expand upon shortly in reviewing our outlook for Q3, pricing for most products has remained steady entering the third quarter. Next, I will review notable trends within our key end markets and products, beginning with nonresidential construction. Carbon steel tubing, plate and structural products, which we predominantly sell into the nonresidential construction market, represented roughly one-third of our Q2 2025 sales. Compared to last year, shipments for all three products were up in the second quarter. Improved demand for Reliance's products was driven by Reliance's scale and geographic diversity that allow the company to benefit from heightened data center construction and related infrastructure as well as publicly funded infrastructure projects such as schools, hospitals, and airports. Our general manufacturing business, which also represented roughly one-third of our total sales in Q2 2025 is highly diversified across geographies, products, and industries. Shipments increased year-over-year, with shipments related to rail and ship-related transportation projects and heavy construction equipment being particularly strong in the second quarter, demonstrating Reliance's ability to capture share even in challenged manufacturing markets. While shipments to consumer products and industrial machinery markets also improved year-over-year, demand in those markets remains comparably softer than other manufacturing sectors. Our continued ability to outperform the industry across key product groups shipping to general manufacturing applications highlights the versatility and competitive advantage of our diversified business model in a fluid macroeconomic and policy environment and our ability to grow with new and existing customers. Aerospace products comprised approximately 10% of our Q2 2025 sales. Demand for commercial aerospace was stable compared to the first quarter of 2025 and the second quarter of 2024. Demand for defense-related aerospace and space programs remained consistent at strong levels. We primarily service the automotive market through our toll processing operations, which are not included in our tons sold. Our tolling business, which represented approximately 4% of our Q2 2025 sales, saw processed tons stay relatively consistent with both the first quarter of 2025 and the second quarter of 2024, supported by our capacity expansions. The semiconductor industry remained under pressure in the second quarter due to ongoing excess inventory from the supply chain. In summary, I thank our team for executing effectively and safely through dynamic operating conditions. The breadth and depth of our value-added processing capabilities, high-quality products, and reliable customer service continue to win Reliance new customers and increase our market share. Reliance's long-term dedication to domestic metal sourcing along with our industry-leading scale and strong balance sheet makes us a highly attractive partner to our mill suppliers in all market conditions. I will now turn the call over to our CFO, Arthur Ajemyan, to review our financial results and outlook.

Thanks, Steve, and thanks, everyone, for joining us today. Our second quarter operating performance was strong, with shipment levels in line with our guidance despite some demand pull forward into Q1 and higher-than-anticipated average selling prices. Our second quarter non-GAAP earnings per diluted share of $4.43 demonstrated strong growth of 17.5% compared to the first quarter of 2025 in a mixed pricing environment that reflected the following dynamics. Pricing for many carbon steel products peaked in April and were treated through the balance of the quarter, resulting in the cost of our inventory on hand exceeding replacement costs. At the same time, shorter product lead times starting in March, continuing through May, accelerated our receipt of higher cost material. These factors contributed to non-GAAP FIFO gross profit margin realization that was slightly lower than expected, increasing moderately from 30.4% in Q1 of 2025 to 30.6% in Q2 of 2025. LIFO non-GAAP gross profit margin also rose by 20 basis points to 29.9% in Q2, with both quarters including $25 million of LIFO expense. For the full year 2025, we are maintaining our LIFO estimate of $100 million of expense. As of June 30, 2025, the LIFO reserve on our balance sheet was $485 million, which remains available to benefit future period operating results and mitigate the impact of potential declines in metal prices. Turning to expenses, our second quarter and six-month same-store non-GAAP SG&A expenses were up 6.2% and 3.1%, respectively, compared to the same periods in 2024, reflecting the impact of inflationary wage adjustments, increased variable warehousing and delivery expenses associated with increases in our tons sold, and higher incentive compensation related to increased FIFO profitability. On a per-ton basis, our same-store non-GAAP SG&A expenses increased only 2% compared to the second quarter of last year and actually declined 1.7% over the first half of 2025 versus the same period in 2024, demonstrating the operating leverage achieved through our organic growth strategy. I'll now address our balance sheet and cash flow. We generated $229 million in operating cash flow in Q2 despite over $100 million investment in working capital, mainly due to higher metal costs. We used that cash to fund $88 million in capital expenditures, $63 million in dividends, and repurchased $80 million in our shares at an average price of $265 per share. Year-to-date, our repurchases have reduced our total shares outstanding by 2%. We still have approximately $1 billion available under our $1.5 billion share repurchase plan that we refreshed in October 2024. As of June 30, our total debt was $1.43 billion, including a $48 million reduction in borrowings on our revolving credit facility during Q2. Our leverage position remains favorable with a net debt-to-EBITDA ratio of less than 1, providing significant liquidity to continue executing our capital allocation priority. Moving on to outlook for the third quarter. Looking ahead, we anticipate demand across our diversified end markets to remain stable in the third quarter, subject to normal seasonal patterns, which reduced our shipping volumes due to planned customer shutdowns and vacation schedules, as well as ongoing domestic, international trade, and economic policy uncertainty. Accordingly, we estimate our tons sold will be down 1% to 3% compared to the second quarter of 2025, but more importantly, up 3% to 5% compared to the third quarter of 2024. We do, however, anticipate pricing will stay relatively consistent with current levels throughout the third quarter, which will result in our average selling price per ton sold being down 1% to up 1% compared to the second quarter, largely driven by lower prices for carbon steel products, partially offset by higher prices for certain aluminum stainless products. As a result, we anticipate our FIFO gross profit margin will remain under some pressure in Q3. Based on these expectations, we anticipate non-GAAP earnings per diluted share in the range of $3.60 to $3.80 for Q3, inclusive of quarterly LIFO expense of $25 million or $0.36 per diluted share. This concludes our prepared remarks. Thank you again for your time and participation. We'll now open the call for your questions.

We're now conducting our question-and-answer session. Our first question is coming from Martin Englert from Seaport Research Partners.

Question on the guidance. Within the guide, you noted that FIFO gross margin is expected to remain pressured, is that meant to imply sequential weakness or rather a continuation of all those comparable to 2Q?

In Q3, there’s typically some demand weakness for Reliance and our industry due to seasonal patterns. During the summer months, many major customers shut down for scheduled maintenance, which affects our customer base. Additionally, smaller customers, who make up a significant portion of our business, often close their locations occasionally for vacation during the summer. We don’t see anything unusual about this. We might have guided for a stronger demand in Q3 compared to our usual seasonal slowdown, and year-over-year, our demand remains robust. So far this year, we’ve seen a consistent upward trend in demand. On the pricing side, we can elaborate further, but Q2 was somewhat atypical compared to our normal cycle. At the end of Q1, we mentioned potential demand pull forward, which led to price increases. Prices had strong momentum when we provided our Q2 guidance in April, but they peaked—particularly for many carbon products—in April, leading to a decline in prices. As a result, we experienced some gross profit margin compression in Q2, which is contrary to what we usually expect in a rising price environment. Consequently, we’re being more cautious with our Q3 guidance, although most products remain stable, with some potential for upside. Aluminum prices rose in Q2, supported by tariff-related impacts on input costs, and we anticipate this trend will continue into Q3, along with a base price increase for stainless steel near the end of Q2. However, we are still anticipating continued pressure on gross profit margins due to overall uncertainty in the market, particularly related to tariffs, which we believe has restrained buying among many customers. Once this tariff situation is resolved, we are optimistic about our industry's prospects for the remainder of the year.

Okay. So more generally, there is a more conservative tone and guidance overall based on how the second quarter went and the uncertainty in the market. Is that an accurate description?

That is fair. And we can only guide to what we see and what we believe is happening in our business. We unfortunately can't control what consensus or other expectations look like out there for us and whether or not they're in line with what we see happening in the market.

Okay. You did touch on this, but I want to see if there's any more that you'd like to highlight what customers have been saying about the tariff environment, the impact on their business. Anything else that you've been seeing or observing about them?

Yes. I would say a real positive for us, Martin, is that we continue to see new activity, especially in our non-residential construction business, including smaller projects. That area remains active for us. While we’re not claiming it’s growing, it is certainly not declining. Our management teams working in that space are very confident and optimistic about the conditions in those markets. The demand from data centers is particularly strong. At Reliance, we offer a wide range of products, and we’re not only involved in the foundational construction of the data center buildings. We also provide many products that are used internally within the data centers, particularly for electrification. So that's a bright spot for us. In addition, we continue to see a lot of activity in schools, hospitals, and airports.

Okay. In the commercial aero supply chain, I believe you mentioned an inventory surplus. Can you provide more details on that or the expected duration of the issue?

Yes. I mean, I wish we had a perfect answer to that, Martin. We have to watch what happens in the space, but we are seeing some products where it appears the supply chain has worked through and there's some buying activity from our customers buying from us, but at a fairly moderate level at this point. I do believe Boeing's build rates did increase recently. So once that starts to flow through the supply chain, we do anticipate seeing more activity levels, but our guide for Q3 was pretty flat with what we saw in Q2.

Our next question today is coming from Katja Jancic from BMO Capital Markets.

Maybe starting on the market share gains, can you talk a bit about what gives you the ability to really gain market share? And how are you thinking about over the next few quarters? Is this expected to continue?

If you look back over the previous quarters, particularly throughout last year, we've been growing our market share. A key point for us is that while we pursue smart and profitable growth, we are also maintaining our gross profit margin. We are not just trying to secure any business; we are targeting quality business opportunities, and we believe there is still potential to expand. The Reliance teams are successful in acquiring new business due to the excellent customer service provided, particularly in uncertain markets where clients prefer to purchase more frequently. Our next-day delivery model, the processing capabilities we offer, and the quality of our products all contribute to this high-touch customer service approach. Additionally, our decentralized structure enables our team to respond swiftly to market opportunities and emphasizes building strong customer relationships across our extensive network. These factors collectively support our efforts to gain market share.

And then there's a lot of uncertainty still right now in the market. Does this increase the potential acquisition opportunities? Is there more potential deals that are coming to the market? And how did the valuation look?

We have seen an increase in Q2 over Q1. We had talked, I think, starting last year, going into the presidential election that we had seen some pullback in acquisition activity, which we attributed to uncertainty around that, and then with all the trade uncertainty that had continued. But in Q2, we did see an uptick in the number of deals in the market. So we're pleased to see that. Oftentimes, if there's uncertainty, and owners of companies, they don't think they'll get the valuation they would like to, so they pull back. But I think for whatever reason, we're seeing more of them come to market at this time. Sometimes people will get tired of the uncertainty. And if they're near retirement age, they may choose to exit. So we're pleased to see that increased activity from a valuation standpoint. For the most part, we believe that seller expectations more closely aligned, at least with the way we at Reliance look at some of the opportunities, but there are still some deals out there where valuation expectations are still higher than our view going forward. But we're pleased to see more opportunities for us to look at. We continue to actively look at those opportunities and if and when we find good companies that are the right fit for Reliance at the right value, we're excited to execute on those opportunities.

Next question is coming from Mike Harris from Goldman Sachs.

Karla, just to follow up on the earlier question around the gross margin pressure in the third quarter. It sounded like, and I want to just make sure that I understood what you said, that you guys were being conservative kind of based on the second quarter results. And so I'm just curious, I mean, based on your current visibility, and I'm not asking for guidance beyond the third quarter. But if you had to guide, do you have the visibility that you would have confidence to speak to margin? I'm trying to get a sense of whether or not this pressure is limited to perhaps the third quarter or could it extend beyond that?

Yes. Mike, it's hard to answer. We hope we're being conservative, but with our model, we won't know until we get there. But again, we do think the environment was a bit unique in Q2 and with the trade uncertainty continues to potentially be a bit unique in Q3. The tariffs and the unknown around the tariffs gave our suppliers an opportunity to increase prices on some products. But on the other side, our customers also were facing that uncertainty and so we're holding back on buying. So our more normal pattern of being able to pass through those price increases at the time of announcement was not as successful as it has been in some prior periods. I think our customers, again, are still uncertain, and if they can hold back on buying, they were. So it was a little more difficult that even though the mills made some price announcements, to get the market to accept those. And that's why we think once there is more certainty and we get the tariff, the trade unknowns behind us, our people in the field feel very confident about their ability to get in the market, the strength of their customers. So we believe it's temporary, and we want to get back to our more normal pattern. But again, in Q2, we saw the pressure and prices started to come down in May and June, but also supplier lead times shortened, so we were getting the higher cost metal more quickly. So we're working through that in Q2 and Q3. And again, as I mentioned earlier, we are positive on the price increases on aluminum and stainless flowing through and holding. It just takes a little time to get those in, which we expect to happen through Q3.

That was very helpful. I have one more question. It seems that you have continued to gain a significant market share compared to your competitors. Could you share your thoughts on what the future pace looks like and discuss the sustainability of these gains moving forward?

Yes. I mean, we think that they are sustainable, Mike. Again, as I mentioned in the prior comments, Reliance has always prided ourselves on what our people out in the field are able to do every day in servicing our customers. We think that model allows them to win the new business that it will continue to allow them to grow that business. We referred to our smart profitable growth initiative. So we are from a corporate level over the last couple of years, we have been setting targets with our teams incentivizing them to grow their volume. There were a period of years where our volumes were actually declining at Reliance, and we are pushing our teams to grow their volumes. We've invested a lot in value-added processing equipment and facilities, and we want to get better utilization out of all of those investments. So it is a push from us, but it's a balanced push that they also have to maintain our sustainable gross profit margin range of 29% to 31% and hopefully grow that as we move into the future but also grow their tons, which is helping us from an operating leverage standpoint as we push more tons through our investments.

Our next question today is coming from Alex Hacking from Citi.

I just had one question, which was on the aluminum business. Domestic U.S. aluminum prices are up 30%, 40% this year, I think, with the Midwest premium at $0.70. Your shipments still seem pretty robust, but how are you seeing acceptance of these significantly higher prices with your customers?

Thanks, Alex. Steve, do you want to address that?

Yes. Alex, the aluminum prices have gone up fast and furious, and then leveled off a little bit in the second quarter. We are passing along the increases to our customers, and we're being aware of their businesses as they are accepting the increases. But the level, whether it's stainless or aluminum, they've been rather outsized from our mill suppliers. And we think that it's a matter of timing. And as the year goes on, they'll be pushed into the market more and more.

Yes. And Alex, I would just add, at Reliance, whether it's in different periods, there's been maybe more of a highlight on nickel surcharges or it's aluminum, the Midwest premium, we really look at our cost as an all-in cost, and that's how we go to market based on our average sell prices on the all-in cost. So we're treating the Midwest premium the same.

I guess just to follow up. I mean, are you seeing customers at all sitting back saying, I want to wait for a trade deal with Canada to see where the Section 232 ends up before I pay a $0.70 Midwest premium? Or the business requirements effectively just compel them to keep buying even at these prices?

Our customers purchasing aluminum for manufacturing are facing higher prices. They might reduce their purchases slightly but buy more frequently, which aligns well with our next-day delivery model and our expansive inventory across the country. While it can be surprising for them at times, the uncertainty around tariffs and rising prices is something that will ultimately benefit Reliance.

We've reached the end of our question-and-answer session. I'd like to turn the floor back over for any further closing comments.

All right. Thank you, operator. And thanks again to all of you for joining our call today and for your continued support of Reliance. We'd also like to thank the entire Reliance team for staying safe, operating safely every day and continuing to service our customers at the highest level. As we mentioned in our comments, we are confident in Reliance's continued ability to perform well in all markets. We'll get through this temporary uncertainty here and come out of that very strong. Before we end the call, I'd like to update everyone that in August, we will be participating in Seaport Research Partners Annual Summer Investor Conference. In early September, we'll be participating in the Jefferies Industrials Conference in New York City, and we hope to meet with many of you there. Thank you, and goodbye.

Thank you. That does conclude today's teleconference. You may disconnect your lines at this time, and have a wonderful day. We thank you for your participation today.