Everyone, welcome. I'm Timna Tanners, metals mining building materials analyst here at Wells Fargo. It is my great pleasure to welcome today we have from Reliance both Carla and Stephen, CEO and COO, to talk to us today. And if you're not familiar with Reliance, they're a steel distributor and other metal distributor. We actually took the name to Reliance and took the steel out of your name. So I like to kick it off there and ask you about, you know, how how should we think about Reliance going forward? How could it grow maybe outside of steel or what's the opportunity broadly?

Yeah, and thanks, Timna, for having us to the conference and thanks to all of you for joining us. So we did for many years, we were Reliance Steel and Aluminum Co, which was kind of long. And most people just called us steel, and we'd have to remind them we sell aluminum also. And then over the years, meeting quite honestly with a lot of our investors, they said, you guys perform better than a lot of the other metals companies, but you trade consistently with them. So would you please lose the steel and aluminum? You know, we think of you more as, you know, like an industrial distribution company. We'd like to comp you. we think you're you deserve a multiple closer to them so we did a couple of years ago drop the steel and aluminum and became you know Reliance Inc now you know what will we do beyond the metal space I think we are the most diversified metals processor and distributor currently and that's part of our strategy because you know metal prices are volatile the end markets we sell into or cyclical. So with that diversification, we think that helps mitigate some of that risk that's inherent in our markets. And so we try to be broad there. I think where we've been growing more, not as much in products because we already carry most of the products, but we did buy a small nuclear-focused company in Canada a few years ago and introduced some new, more exotic products there, but it's at a smaller scale compared to the total, but really doing more value-added processing services for our customers is where I think we've kind of diversified and seen more opportunity over the last eight to ten years. You know, customers are asking us to do more for them that they were doing in-house. The equipment that we use has better capabilities, so I think more in the value add we can provide to our customers, probably a little more than in, we think there's plenty to do in our core area of metal processing and distribution that we don't think we really need to branch out in a big way.

Gotcha. So how do you think about how far you want to go downstream before you run into some of the mills that are your suppliers? So they've kind of incurred a bit on what you've traditionally done. But, you know, there's so many opportunities for more metal bending, for painting, for coating, for right now you do a lot of slitting and more processing and the toll processing. So where do you think about the opportunity set within all the different, you know, next steps with manufacturing or how far can you take the metal, I guess?

Yeah, so we could go further downstream, but one of the things that we try to be very careful of is, you know, competing with our customers because, you know, we sell to a lot of subcontractor machine shop type companies, and so we don't want to disrupt our relationships and the business we already have there. but that's where i said a lot of customers are asking us can you get some of this equipment take care of my overflow or i want to go more to assembly start doing you know i want to use reliance to do this for me so we do worry about customer disruption and we bought a couple of fabrication companies where we might take it to make some small components for oems but typically that's been in like out of the way geographic areas where we're not competing with our customers and we've also seen you know if we acquire a fabrication company we issue a press release and we tell everybody we did it whereas if we just add a laser or a piece of equipment to an existing service center it's a quieter way to enter that space but again trying not to disrupt our customers but i think more to you know you were focused on what the mills are doing in value add i still think there's a pretty good differentiation in the types of services that we do because it's not just the processing we do generally but it's also the order sizes the logistics around being able to service the customer base that we service and certainly you know we do do some big volumes in our tool processing operations but we kind of try to focus on the hard to do stuff and so some of the areas some of the mills have gotten into coding painting we knew they were going there and even if we've seen acquisition opportunities there we've kind of stayed away because they have new state-of-the-art equipment and we don't want to go buy a company with you know small company with 30 year old equipment and try to compete with them so i think they're finding their space we're finding our space and and we still work with the mills have good relationships and want to look at ways we can grow together okay great let's explore and reliance is really over the years focused on the smaller customers and really thrived in that group.

So on the one hand, I suppose probably pretty nicely advantaged as being a large buyer from being able to secure metal, right? So, you know, steel has been pretty tight. I hear it's sold out. You said maybe not quite, but close to sold out on beams and plate seems like it's really strong. Those are two important areas for you. But on aluminum, we could see a shortage, I think, is a real risk. Another service center mentioned that to me. So how are How are you doing in your ability to procure metals and supply, and how do you see that as a differentiator?

So when you get into market, periods of market tightness, you want to make sure that you have good domestic relationships. You want to make sure that you get your fair share of material from your trusted suppliers. There will be points where customers will ask you for an outsized amount that they're not used to buying, and that's when, you know, customers get themselves in trouble. the supply chain gets kind of a little bit out of whack so we're really happy with the support we've received from our suppliers if we need a little bit more we need to break into a schedule they help us out but I think that there's kind of good equilibrium where the the markets transacting well you mentioned beans beans have never been this high of a price and that's never been three times this far extended but if something comes up where we need something we have the luxury of moving tons around shipping from one location to another we're asking mills to help us out.

So how tight is the market? I mean, we see the lead time information for flat roll, but we don't have it on every, you know, smaller product. Like, is there a mad scramble for tons out there? Or how would you describe it? And any granularity on the different products would be great.

I mean, some days it feels like there's a mad scramble. Yeah. Yeah, because demand is absolutely getting better. And the mill tightness is real. Prices are at a great level. Everybody can, you know, make a fair profit. So there's opportunity. When there's opportunity, Sometimes people, you know, get a little bit excited. So you just have to make sure you manage. You have to make sure that you don't double order and get yourself into inventory trouble because lead times will always normalize over time. Prices will always regulate over time. But while you have these opportunities, you do have to capitalize on it. But make sure you be a good customer to your mills and a good supplier to your customers. As prices go up, you have to explain to them why it's going up and explain to them that they will have metals so they can continue to run their businesses.

So beams are pretty full for the rest of the year, but you're getting what you need. How's the plate market? I know that's an important one for you on both steel and aluminum.

You know, the plate market was kind of soft for a couple of years, and then it started to rebound with energy moving, you know, coming back, and, you know, shipbuilding and, you know, tanks and different defense spending. So it's kind of moved into where it should be. it should be trading above hot rolled coil and lead time should be extended and there's been a lot of investments you know from the domestic mills in plate and they deserve to get a fair return so plate is um is one of the nicer stories of 2026 because it was lagging for the last couple years yeah there's some plate price hikes i think over the last couple days so maybe that's just playing catch up to flat roll because they don't do like the ten dollars a week no they've got a little bit they're getting a little stronger yeah they've gotten a bit stronger but you're right and they've gotten all the the increases so far they've gotten all the increases yeah um interesting and then um you don't do rebar so then it's just flat rolled galvanized margins are improving a little bit it seems like um flat roll seems kind of tight but again you're getting the product that

you need okay yes and yes what about aluminum that's one where another um service center a large one here mentioned to me that they were starting to see some holes and even if it isn't here now, like how with the global dynamics and aluminum, I'm sure you're well aware of with the smelters directed from missiles from Iran, like how secure is your aluminum supply? How is that structured?

So we feel like it's pretty secure. We're expecting some shortages maybe towards the end of the summer, but that's where you have to have ongoing conversations and understand what your mill's position is. And, you know, you don't want to have a few weeks go by and be surprised, so you want to communicate with your customers and your mills to make sure that there's not a break in the supply chain.

And of your customers, are there some that maybe might have to not get aluminum? Or how do you, when you talk about the dynamics of an expected shortage, how do you manage that? I don't know that I've seen this in my career where we just have a, you know, that tight of an aluminum market.

We think that our customers are going to get the aluminum that they need. They might think that they need extra, but we'll get them what they need so they can keep running.

Okay, very interesting.

Because we'll trade, you know, we'll move material from company to company, or we'll go back, you know, we'll go around all over the different mills. But we're in constant communication to make sure our customers have what they need.

Do you think your smaller competitors are going to be in the same boat, or do you think you're advantaged because of your larger size?

I mean, I think we are advantaged because of size, but also, you know, we've been a very loyal company to a lot of most of our key suppliers, whether it's steel, aluminum, stainless steel. You know, that's part of our strategy. And because it's not just about buying the most to get the best price, it's about being positioned to get the metal you need if and when you need it. And, you know, we, you know, we also, we don't do a lot of returns, we, you know, we don't do a lot of claims, we, we try to work well with all of our key suppliers. And in prior cycles, this could be a little different. But, you know, we've, we've benefited from that long term approach of working with the, the domestic suppliers.

Okay, makes sense. On the demand side, I just want to back up because I think it's fascinating. Really, the sentiment late last year was not very good. And it seemed like now, you know, to your point, like sentiment's pretty good. And I think the market wasn't prepared for it. And not you guys. Just broadly speaking, inventories started the year kind of low. And now that that's partly where the market's a bit leaner now. What do you think flipped to that better demand story? Was it, like, one thing or just a number of different categories of better demand than expected? So I'll start, and then you can chime in if you want.

So, I mean, I think there were a number of things, and, you know, at Reliance, like, demand's been okay for us, and even a couple of years ago when interest rates started to increase and non-residential construction is the largest portion of our end market, we include infrastructure in there, there was, I think, speculation that we were going to see a big dip in non-residential construction activity, but we didn't. It held up. We were getting new projects. We're typically on the smaller projects, so I think that was healthier than some of the larger projects that were more interest rate sensitive. So non-resi held up for us and was a good market for us during that period you know we saw blips in a couple of other markets but you know last year our carbon and markets and as you mentioned you know we're we're bigger in plate and beams and tubing a little more than the flat rolled even there were a big player in all of those areas but demand for those products was there which helps support pricing it wasn't growing at a significant rate but it was healthy and and holding in and you know aluminum and demand and stainless they were a little softer on the demand side so when the tariffs were introduced you didn't have you know as much strength behind the higher prices but you know going into the fourth quarter we started to hear customers being a little more often customers were pretty optimistic the beginning of 2025 talking about reshoring, bringing supply chains closer, but then with all the trade activity, there was so much uncertainty, people pulled back. So towards the end of last year, we started hearing more optimism from our customers. Q4, we actually had record shipments at Reliance, and so we were seeing some of that optimism. Prices were starting to increase at the mill level so then you always get nervous are they pulling forward what will q1 be q1 we had a new record shipments and so you know we think that that our customers in general have settled into the fact that the tariffs are here they're not going away in a day or a week and they need to get on with their business so generally our our customers are optimistic there's you know there's big government spending out there there's all the data centers so a lot of positives on the demand side did you

want to supplement that or yeah I mean I think that service centers are kind of a nervous group to begin with and we're always waiting for the sky to fall we want to manage our inventory and when some of the prices of aluminum other products got so elevated you know you just buy a little bit less and less and then our customers always think that maybe tomorrow they can buy a little bit better so once we got more confident our customers said you know it's going to actually the price going to keep moving up it's good time to lock in some orders um i think that that has this is real the tariffs are real um so either get on board or get into a different business and a lot of our competitors our peer groups they're either didn't have the confidence to restock their shelves at certain prices or just a price to finance with the higher interest rates and higher metal prices it's hard to have a full array of products so i think that gives us a little bit of a competitive advantage we never exited certain products but we were just really conservative but now we're at more of a normal level at a higher price yeah that's a good point so you have the balance sheet to of course you know load up on inventory or maintain inventory even at higher prices and then something you would take for Yeah, we definitely heard some of the smaller service centers bemoan the industry environment at a higher cost of storage and freight and all those things that are probably more manageable for a larger player.

So construction is your biggest end market. Interest rates are going the wrong direction. Is it going to hold up? Does it matter? I mean, it seems like so much as data centers and that's holding up and you've got the border fence, of course, and that's literally, you know, it's locked in.

And so, like, do you feel pretty comfortable with volumes even in a rising interest rate environment yeah I mean as you know interest rates may where they may stay where they are they may they may rise a little bit I mean I read a couple articles recently saying that some projects may get paused but that that happens all the time and you know prices are higher and then if you have the interest cost on it but again I think for our businesses and the types of projects we participate in we feel pretty comfortable um and and that's what we do right there's always different factors positive negative affecting all of our different businesses and you know we just tell our people to focus on their customers service them well and you know be valued to them so that they're going to keep coming back to us and you know a lot of our customer base is also diverse because we're not selling direct to the OEM where if an OEM slows production of a certain you know piece of equipment if they just stop buying where we're selling to the machine shops and the subcontractors who if all of a sudden they lose a piece of business they go find a different piece of business and so they're still buying because they have to keep their small companies running and employ their people so we feel like

there's a kind of second level of diversification that we have through our customer base to go out and pick up new business I mean interest rates are still historically low so I mean you know money can't be free forever and I think that when there's a cost of money I think people make better decisions with projects or investments that they make those are fair points but people who are a little younger are still looking at them relative to the recent past. Unfortunately, we know.

Unfortunately, we've got more gray hair and we've seen the higher interest rates. How about some other end markets? We talked about construction. What do you see in an auto and energy maybe?

So in auto, again, the dynamics with the economy, interest rates, inflation, the theory that you know auto demand would slow and it it may at a macro level but our businesses and we service the automotive industry primarily through our toll processing companies what that means is we do not take ownership of the metal ownership typically our customer is the mill the producer and they make the agreement with the auto company we purposely don't sell metal direct to the auto industry because the margin profile is usually pretty slim but when you're just providing services on over six million tons of metal a year that was 65 of that going into automotive of the next biggest chunk into appliance that is a profitable business for us and so we charge for the different services we provide for delivery for the logistics around it for storage of the metal and with that touching the automotive industry that way we have not seen a significant slowdown in the business are we continue to grow our capacity adding lines and and square footage for our tolling operations they continue to fill it you know those companies we have doing that in that space are really good at what they do one of the company in the US they're handling a lot of the aluminum for the surface exposed aluminum for the automotive industry that's very difficult to process without causing issues and they're really good at that and that's where we've seen a lot of growth over the years on the aluminum side still growing on the steel side if they you know if one of our customers reduces reduces volumes with us we typically there's demand for our company to fill that line you know with a different customer opportunity so we've been pretty steady with automotive on the tolling side. And we have some operations in Mexico. There were a few platforms pulled from Mexico up if the companies had open capacity in the U.S. We did see a little bit of a shift since the tariffs went in, but Mexico's still pretty busy as well, but maybe a little more hesitant currently to make new investments until some of the trade policies further resolved.

We'll see what happens there. I'm not even going to ask you. I don't think it's any point. Yeah, sorry. Anybody wanted to hear that, but yeah.

Hey, the sexier end markets, the border fence, the data centers, and aerospace and semis. so starting with the border fence it sounds like it's a little lower price point but stable or better margins is that right like what's how do you characterize that business so a very big chunk of business we were awarded a contract it's in two phases not guaranteed but we believe we have a high confidence level that they'll want us you know want to fill the the 2.2 billion dollar contract it's you know it's a it's good business it's a lower price point just because of the product mix so it's all it's carbon steel primarily tubing and so it's just based on the the product mix so that our average sell price will be at a consolidated level will be a little lower our gross profit margin the percent will be a little lower than the company-wide average but there's a significant volume that with a very low operating cost so we'll leverage that and so bottom line it's accretive at good levels to our bottom line profitability okay good thank you for clarifying you asked

how we would characterize that i mean we're pretty happy with with that order we're really happy that we found a few domestic suppliers and the best tube and hot road coil suppliers in the world to support us for a long period of time we had the facilities already in place we had the people in place the systems the government is having us ship it to 10 different subcontractors along the border, and for them to have the confidence in us and we're delivering already and our suppliers are delivering, we think it's good for our whole team.

And that extends well into 2027, timing-wise?

So phase one is through June 30, 2027. That's like $1.4 billion. And then phase two is like another $800 million. That goes, I think, through the end of 2028.

Got it.

Oh, okay. so yeah well into that 2028 time frame um so you're busy with the border fence um how exposed are you to data centers we we haven't been able to quantify it but um you know when uh like probably two years ago our companies that sell product for non-residential construction so putting up the building they started talking about data centers of being a hot you know piece of the market and they were seeing a lot of activity but then we started you know last year hearing almost every one of our companies talk about something they were doing for data centers so you know selling aluminum stainless copper you know into the interior racking enclosures cooling systems so we're touching in a lot of ways but we we don't have a percent or a dollar amount that we've been able to to identify but it's definitely it's positive for us and everyone's talking about it right it's been it's been a good pull for the whole industry and in it looks like you know with all the announced projects that are out there people are trying to lock in supply you know it's we know it's not gonna last forever but and then also the you know energy needed around it you

know that takes a lot of metal as well so selling into you know further build the grill the grid and energy capabilities we're participating in that quite a bit also okay fair and I like that you aren't making some number up I feel like we're not sure where some people's numbers come from so that's that's totally fair you know last year it late last year it looked like the mills were talking about a lot more volume but that was more market share gains and now and that's specific to mills but now it does seem like the demand is caught up so you're also getting some some volume but um you didn't import before so you're not like that much right so that doesn't really change for you all yeah i mean yeah so the you know i would say the

the u.s mills had more of a direct pickup in volume last year with the tariff says import reduced because, you know, whoever those U.S. customers were that used to buy import were buying from them. A lot of that looks like it went mill direct. We think we picked up a little bit from that, but, you know, it was much more impactful at the producer level than at our level.

Got it.

And the positive point of that is our, maybe the people in our space who would buy traditionally maybe 50% overseas, now that they have to shift more of that domestically they're paying full price for that they're not going to be heavily discounted so they're going to be able to they're going to have to charge a fair price where we pride ourselves on a higher margin they're going to get into that space so it puts us more on a level playing ground are you seeing much benefit from the derivative product tariffs i mean are we seeing much reassuring yet or early signs i mean we've seen some um reassuring and and had been, but we think it's increased.

Again, I think I said earlier with all the uncertainty around trade policy last year, even though our customers were talking about investing to be able to bring their supply chains closer, they were still a little hesitant to put the money in because can I do it in Mexico? Does it have to be in the U.S.? Is the tariff costs going away and then prices will come down for the equipment or the facilities that I need to purchase. But I think we are seeing that. The derivatives, it was a really good sign, we think, when they put that in place and started putting derivative tariffs in place.

But it's really confusing to be honest and so it's hard to tell you exactly what that direct benefit has been but it should be positive yeah for the industry we'll stay tuned maybe next year's conference we'll have some more color on that i want to talk about aerospace i was told one time by somebody at your firm that your aerospace margins are like just really really uh favorable and in this last couple years aerospace uh supply chains have been kind of de-stocking so what what are you seeing in terms of timing for a turnaround there yeah so maybe to put that in context to back certainly pre-COVID and maybe even earlier than that's probably when you

heard that because in our aerospace businesses it's higher like higher value per pound product and at the pre-tax income margin level our aerospace businesses did use to to generate higher returns than a lot of our like carbon steel general line businesses but with the dynamics that have happened in the market with you know carbon prices elevating also with our carbon companies doing more value-added processing that margin profile is more comparable because the carbons come up okay so we don't have that we used to talk about that arrow and energy but we don't have as much differentiation anymore because of the improvement in in the other parts of our business that being said you know in aerospace we do have you know a company or two that are selling like specialty products a lot of stainless alloy products into aerospace that are very high per unit values and when post-COVID when there was a lot of scarcity 80 week lead times pricing was very good margins were very good you know that's come down a bit and that's where we've talked about excess metal in the supply chain the last couple of years for those products and we are seeing that be being worked down and you know so we think overall the supply chain's getting healthier and we should start to see some improvement there that's a small part of the business our aerospace business we also sell a lot of aluminum heat treated plate and that's been pretty consistent you know pricing generally you know holds up it the pricing is a little different but we do anticipate with build rates at the airplane manufacturers increasing and they're working through their metal that will start to, potentially the back half of this year, will start to see a little more activity.

Anything you want to add? I mean, you said favorable margins. I mean, that's a big investment in some of these products, like Carla said, 80-week lead times. You need to charge a fair margin to carry everything. It's, you know, you're going to sit on material for a long time. So heat-treat aluminum was on allocation, so to manage your order book you need to charge a certain price to stop the panic buying in some cases.

Oh, sure. Fair enough. All right. I don't know how we only have two minutes, and I didn't even get to talk to you about capital allocation, the reliance opportunity there. That seems to me like obviously no one outside the firm is able to divine what M&A you might have going on, but it's been a little bit of a lull, and it seems like sometimes that means you're ripe to do one, but just what's the – in your words, obviously, what's the M&A set up here you know how attractive are the opportunities especially now that your multiple is pretty I don't think you're finding things at the same multiple that you're garnering so like how does that change the dynamic for attractive opportunities well I would say we're always ripe to do the right acquisition we just have to find it and then we have to be able to agree upon the value with the sellers and sometimes our expectations are different than theirs

I think a lot because we look at it for the long term and, you know, we're not paying off of trailing 12 months because we're in the industry. We understand the volatility that goes along with it. But we've been actively looking at opportunities out there. We've put in some offers on some, but they got some higher offers from other people. Some of those, though, the deals haven't closed yet, so we might see those come back around. But, you know, again, we don't want to do a deal just to do a deal. It has to be the right long-term fit for the company. You know, from our standpoint, just because our multiple is higher, that doesn't mean it increased the value of a target company. You know, we still are looking at them consistently and at how we value them. But, you know, we're looking at stuff now. We'll continue to look at stuff and hopefully we'll find some good opportunities.

Is private equity competing with you on some of those or other service centers or other industrial companies or all of the above?

All of the above, yeah.

Okay, cool. Well, stay tuned. I guess we run out of time. Thank you so much. It was really nice having you here.

Yes, thank you. Thanks, everyone.