All right, good afternoon and welcome to the second day of our JPMorgan Industrial Conference. My name is Bill Peterson, U.S. Metals and Mining Analyst, and we're really pleased to have Reliance Steel join us here for our afternoon fireside chat. We have Karla Lewis, CEO, and we have Steve Koch, COO. We're going to probably start off just with an intro to the company, and we'll go through a number of questions. If you have any questions in the audience, we'll also pause in a bit to let you ask those questions. Maybe just starting off, for those who are less familiar with the company, Karla, maybe you can speak to Reliance's differentiated business model. A few aspects that come to mind for us would include the diverse product offerings, focus on smaller customers and orders, emphasis on spot sales, as well as a pretty robust and strong M&A track record. Over to you. Great. Thanks, Bill. Thanks for having us today, and thanks to everyone for being here in the audience. A lot of people aren't that familiar with what metal service centers are or do. We buy from the steel and aluminum producers. They like to typically sell in larger quantities. We warehouse the inventory, and then we do first-stage processing to about half of the orders that we ship out to our customers. A lot of customers can't buy in the quantities that the producers like to sell in, so that's where we come in as kind of a warehousing distribution processing arm. Reliance has grown and changed a lot over the years. As Bill mentioned, we're the most diversified metal service center out there. About 50+% of our sales revenue is from carbon steel products, about 16% from aluminum, and that includes different types of aluminum. Stainless, about 15%. We do some kind of fabrication services. Toll processing services is about 4% of what we do. We even carry things like titanium. We have one small company that has zirconium. Please do not ask us any questions about that metal because our knowledge is pretty limited with Steve and me. Last year, we were $14 billion in total revenue. Our average order size is just under $3,000 an order. 40% of the orders the customer calls us today, we deliver it to them tomorrow. About 50% of our orders, we do some level of value-added processing. We think that is one of the key differentiators of Reliance. We do sell some metal direct to OEMs, but we do a lot more through their subcontractors. Our sweet spot are those small fabricators and machine shops who really value just-in-time delivery and small-order quantities. We have grown a lot through acquisition. Since our IPO in 1994, we have completed 76 acquisitions, mostly kind of small to medium-sized family-owned companies. We bring them in. We buy good, well-run companies and try to make them better and provide them resources to grow. We keep their brand name in place. There is value to that. We run a fairly decentralized operation, keeping that entrepreneurial spirit alive. Local touches to the customer are really important, and we try to put the decision-making as close to the customer as we can. I think that wraps it up. Yeah. No, I appreciate that. We've spoken on a few different calls, virtual calls, and talked post-earnings a few times, but it's been an evolving end market environment. I guess as we sit here today, could you walk us through the key end market exposure where you're seeing, I guess, the best sort of near-term demand? What areas are strong? What areas are comparably weak? I mean, I don't want to ask too much about tariffs, but have you seen any recent sort of pre-buying ahead of that, or is that just not that relevant for your business? Yeah. From an end market exposure standpoint, the two largest end markets we sell into would be non-residential construction, and we throw infrastructure in there. That's about 30%-35% of our sales. General manufacturing for us is very, very broad, but that's about another 30%-35%. During 2024, metal prices were declining throughout most of the year. We heard other companies who were seeing some weakness in different markets, but for us, demand stayed relatively steady throughout 2024, coming into 2025, in most of those markets. Our non-res business included. There was a lot of concern that maybe interest rates would slow that. At Reliance and for service centers, we're typically selling into the four or five-story buildings and below. We do fill in, but we're not going to be the big skyscrapers and the mega projects, although we do get pieces of that. We saw our business data centers, obviously, as everyone talks about, was very strong during the year. A lot of airport work, other public works, just different projects. We have seen that continuing into 2025. On the general manufacturing side, and again, I said that's very broad, the one area in 2024 that was the weakest was ag equipment, and that continues. We haven't seen a pickup there yet. Consumer products was weak during 2024. We saw a little pickup in Q4, but that seems to have fallen off a little bit recently. Industrial machinery picked up last year. Again, we're just selling into many different applications. Aerospace represents about 10% of our sales dollars. About half of that is commercial. We have locations in the U.S. to service Boeing, as well as locations in Europe servicing Airbus. Obviously, there were some disruptions in that supply chain last year. Our activity actually stayed fairly steady. I think that's because we do that just-in-time type of servicing. It has remained steady as build rates increase. We expect our activity levels there to increase as well and are very bullish long-term. Automotive, we sell into automotive a little differently. We have businesses that we refer to as toll processing companies. What that means in toll processing is we are not buying the metal and reselling it. The mills, the steel and aluminum producers, are negotiating with the auto OEMs, and they're negotiating a price. They come to Reliance, and our toll processing companies receive the material from the mill, and then we get paid for storage, for inspection, for processing, lubricants. We deliver it direct to the auto OEMs, but we do not take on any metal price risk. For us, that has been a better way for us to service the automotive market. Very good business for us. Large company in the U.S. that does that. We also have a company in Mexico. From an auto standpoint, our volumes have held up pretty well. We were anticipating potentially a little slowing in that in Q1, but we are picking up some new opportunities, even with some of the moves that are happening because of the potential tariffs, because we are positioned in both markets. We are expecting pretty minimal impact, if any, from that. Semiconductor is another market we sell into. A pretty small percentage of the total, but we have also seen weakness. There's been build-up in the supply chain for the last year or two, coming off of record levels of activity in that market, but we've seen some slowing there. We think by the end of the year, we'll see that excess inventory work through. Oh, Steve, can you talk about the pre-buying? Sure. Thanks, Karla. Karla mentioned most of the end markets. What we would say is the common theme for the last 12 to 18 months is defense, anything defense-related, anything space-related, munitions, rebuilding our weapons, and our defense program is kind of whatever shops, whatever machine shops or fabricators service those businesses, their demand has been pretty good for the last, like I said, 12 to 18 months. As far as the pre-buys go, our turns are 4.7-4.6 from a distribution point of view. We manage our inventory based on what our customer demand is. We started getting calls from customers trying to buy maybe a little bit more than they historically do purchase. We contact our mills, and the mills are, in some cases, either on some sort of a controlled order allocation or their order books are waiting to see what's really happening out there. We've experienced it at the mill level from our customers, a little bit of a pull forward, but a lot of the customers that we're servicing, there might be a construction project that was set to start delivering material in two months. Maybe they want to pull it in a little bit. Or they have other projects where they were waiting for maybe because the last 12 to 14 months prices were sliding. They thought maybe there was an opportunity in the first quarter to maybe buy a little bit better. I think that what's been happening with the tariffs and the mills tightening up a little bit is pulling them off the sidelines. That's what we're seeing. Thanks for that. I do not want to speculate so much on tariffs, but what are the potential impacts here? We are sitting on the day when the Section 232 really wanted to affect it, even if there has been movement ahead of that. Maybe more importantly, what potential impacts do you see if we were to see more blanket tariffs in terms of Canada and Mexico? You kind of said maybe you are okay since you have footprints on both sides, but what does that look like? What could be the potential impacts to your business? Yeah. Not knowing exactly what it's going to end up looking like, it's kind of hard to answer. Previously, like in 2018, when Section 232 was enacted, that was good for the whole industry and Reliance. That lifted domestic pricing. The less imports coming in give the domestic producers a little more pricing power. At Reliance, we like higher metal prices. We buy on the spot, sell on the spot. We're able to pass through the higher prices to our customers. If we're getting 30% of metal that's $1,000 a ton, that's better for us than 30% of metal that's $700 a ton. Higher prices have been better for our earnings profile. We would anticipate that with less import, more tariffs, more domestic pricing power, it will be a positive impact on Reliance. We buy over 95% of our metal from domestic producers. That's been our model for many years. We believe we're well-positioned with the domestic producers to be able to continue to procure the metal, to be able to support our customers. If the tariffs were too high and they restricted business activity or trade flows, that could be a negative. We think that would probably be temporary, and we would work through that. Sitting here today, prices should be higher, should be positive for Reliance's earnings profile. Yeah. You touched on a number of the end markets, and just maybe kind of double-clicking on aerospace. The outlook, I mean, I think most people, we've had people at this conference say the outlook looks strong over a multi-year period, but depending on where you are on the value chain, somewhat of an air pocket. I guess the question is, are you past? Is that air pocket past, or is there any evidence that these stockings run its course, or when do you think it will run its course and then kind of return to growth? Yeah. As I mentioned a few minutes ago, our activity levels with aerospace have remained pretty steady. As Steve commented, especially on the aero and defense side and the space side, small part of our exposure today, but a fast-growing part of our exposure and a really nice space for us. On the commercial side, we actually indicated in the second quarter of last year that because of the lower actual build rates and the disruptions, we were anticipating build-up of inventory in the aerospace supply chain. Our orders, as I mentioned, have stayed pretty consistent. I think that's the profile of the small orders just-in-time that we're doing. We do believe there is still some excess inventory in the supply chain. I think we're thinking back half of this year that should be worked through, assuming, right, build rates continue to pick up at a steady pace. Yeah. Just kind of, again, maybe double-clicking on these markets. Certain industrial-levered markets have been kind of a drag more broadly. How should we think about the customer inventory levels for the various product categories? I guess how contingent do you see the direction of travel from here depending on either a lower interest rate environment or just broader uncertainty, especially with kind of almost maybe daily changes in policy, trade policy? Yeah. As we mentioned earlier, in 2024, prices were declining basically every month for most of the metal products in 2024. In our world, when prices are declining, our customers, other service centers are generally hesitant to put in a buy because the metal might be cheaper next week. They want to wait for that. When they think there is an inflection point and prices are going to start to increase, you see people enter the market again. Certainly, they have to buy for their needs, but as far as the size of their buy. Q4, we felt was kind of that inflection point from a pricing standpoint. Inventories at our customers and at the service center level were, we believe, pretty healthy at the end of the year, maybe even a little light coming into 2025 because of those pricing dynamics. We started to see people buy again in January. With all the tariffs that are potentially coming in, Steve talked about some of that potential pre-buying activity that happened. Inventory is probably getting a little heavier at customers now, but we think they're still pretty healthy, just maybe a little more than they were at the end of the year. Yeah. Thanks. You mentioned a smaller part of your business and have been challenged, but just on things like reshoring, like things like CHIPS Act, there's a lot of noise on what can happen with that. The Bipartisan Infrastructure Law, especially the infrastructure portion, that's been seemingly slow roll-out for a period of time. I guess what are your expectations on these programs? If they were to unlock, what does that mean for your business maybe this year? Yeah. Yeah. Obviously, all of those acts support projects that consume a lot of metal. On the CHIPS Act, we do sell into the construction of the chip-making facilities, some of our carbon and other products. We're not going to get the big volumes on that, but we're going to get some of that, and we have gotten some of that business. We also have kind of a specialty company that sells the electropolished steel tubing and fittings that are the ultra-high purity gas systems that go into the semiconductor chip fabs. That's a very nice business for us. We're excited for that. We haven't seen a lot of that actually kick in. That's a little later stage. That's positive for us on the CHIPS Act. Plus, once they start producing more chips, we've got the ongoing metal demand consumed there. On the Infrastructure Act, that's very good for Reliance. We, again, generally get some of the smaller projects, a lot of bridge work. There's a lot of electrification work going on. We have seen some activity there, although we're still expecting more. The mills typically see that a little before us. They get the big projects. We get some fill-in on those big projects. Overall, with the demand that the Infrastructure Act could consume, that generally helps lift prices as well. I mean, the only thing I would add to that is the infrastructure projects, for the most part, we feel like they've been fully funded for the next couple of years. We're not really expecting that money to be pulled out. If you go to a lot of the airports across the country, there's a lot of our material that's being used to build out extra terminals. If you go to a lot of the train stations, transit authorities, our products are going into those projects. It is being advertised that the money is being used from some of the government money that's been allocated, so. Yeah. Thanks for that. Maybe, I guess, outside of aerospace, where you have some long-term contracts, how does a company balance, I guess, managing limited visibility, at least in some of these markets, with underlying inventory levels, given many of the orders in your business are just in time? Yeah. Really, that's a key element of the jobs of all of our people running our businesses out there. I mentioned earlier, we have a decentralized model. We talk about having local intelligence. We rely on our management teams in each of these operations. They're in local markets. They typically service customers within about a 200 mi radius of that service center location. We expect them to know what's going on with their customers in their communities. They're making their own purchasing decisions of what metal they're going to buy, how much of it they're going to buy based upon what they see in their customer shipment levels going forward. We generally carry about $2.5 billion worth of inventory company-wide. We manage it focused on inventory turns. Again, that is turn meaning we are matching our purchases with our shipment levels and buy on the spot, sell on the spot, but overall, hold them accountable. That model, the decentralized model, which we think factors into good working capital management, our teams running those locations are incentivized on their pre-tax income returns on manageable assets, which is primarily accounts receivable and inventory. We feel that to hold them accountable, we have to give them the decision-making authority around those metrics. That has proven to be pretty successful for us. I mean, our different companies, based on their products, have different inventory turn targets. Steve and his team work through those and monitor that. That is what we found to be effective for us on managing our inventory levels. Maybe kind of similar, I guess, but you've used the term and the phrase smart profitable growth. Can you speak more to the strategy behind balancing your growth ambitions and higher throughput while striving to maintain and expand your margin profile with your focus on value-added processing? Maybe you can give some examples on how that plays out. Yeah. At Reliance, historically, we had about a 24%-26% gross profit margin, and we did value-added processing on about 40% of our orders. About 10 years ago, we saw that the processing equipment that we use had advanced quite a bit and could kind of do more that could provide more value to our customers. As we made these investments in the equipment, we started to see our gross profit margin profile come up from the processing that we were doing. Now we're at a 29%-31% sustainable gross profit margin, and we're processing about 50% of our orders. During that ramp-up in the early years of adding that equipment, understanding how to price it to our customers from a corporate level, we really pushed our different decentralized locations to focus on pre-tax income margin, only go after the highest margin orders. At that time, pricing levels had been increasing, so we were able to ship fewer tons and make more pre-tax income dollars. We knew those higher prices would not last forever. Plus, we want to be the leader in our different markets. We started pushing, "Keep your high margin business," but there is also business out there that is profitable, and we can go after more tons. We think in 2024, in particular, we demonstrated what we refer to as smart profitable growth. Our tons sold were up 4%. Same store was up 1% when the industry was down 2%. We were taking share, generating more pre-tax income dollars to cover our higher costs that everyone's had. With the inflation, everyone has higher costs. We also maintained our gross profit margin within that 29%-31% range. Tying both of those together, volume growth, maintaining the gross profit margin, that's what we really call smart profitable growth. That's something we want to continue to push going forward. I'm going to speak to capital allocation, liquidity, and other things in a moment, but I wanted to pause and see if the audience here has some live questions before moving on. Okay. M&A, it's been kind of a core part of the strategy, more than 75 over the past few years. Can you speak to maybe some of the recent acquisitions you've made this year and how should we think about those synergies thus far? Yeah. As I mentioned in the opening, we do try to go after good, well-run companies. We think that's been key to our success and try to let them continue to operate. Over the past few years, we've seen a fairly steady flow of service center companies that kind of fit us. There's been a good flow to look at and to review. We went through a period in 2021, 2022, when we had the unprecedented metal prices where valuation expectations didn't agree with our views. We've been in the business a long time. We know prices go up, prices go down. We know some end markets are stronger than others. When we look at companies, to value them, we come up with what we think a normalized EBITDA number is over the long term going forward. We don't base it on trailing 12 months. We try to come up with something that we think reflects that we go through different cycles. That is the way we kind of look at those. We think the valuation expectations for the most part by the sellers have reset and are in line with where we are. We were able to get four transactions completed last year. Steve, if you maybe want to talk about those companies. Sure. A lot of companies come to us when they're ready to sell, whether the family's ready to exit, but maybe the children or some of their employees want to stay around and run the business. They know that we don't break up the companies. We work with them and help them continue to grow their business. We try to be strategic. We bought Cooksey Steel in Southeast Georgia last year. They buy a lot of and sell a lot of carbon tubing and merchant bar and beams. That was an area where we didn't have much of a presence, and we can be a better customer to the mill suppliers that supply those products. Midwest Materials right outside of Cleveland, Ohio. They have structural flat roll products. We weren't in that market, so that would be new growth for us. We would try to service that out of Chicago or somewhere in Pennsylvania. Right now, they're running one shift. We think we can get them up to two shifts. We had a strategy behind it where there's a market void. We wanted to fill it. A third acquisition, American Alloy out of Houston, Texas. They're a big plate seller, and they do a lot of processing. They make big heavy cylinders. A lot of it's towards the energy business, and also they get into a lot of military plate, also armor plate, HY-80, HY-100. We are pretty good in plate to begin with, so we thought that we can take our assets, their assets. We can do a lot of work together and grow together into different markets. The fourth acquisition is a little toll processor out of Mississippi. With all of the mills expanding and looking for outlets for companies to process their material, we can sell material out of there and also process for some of the mills. Every acquisition we make, there is a plan for it before we actually acquire them. Great. And Karla, you kind of alluded to it, but how do you see the M&A environment today and valuations relative to a year ago? What is the company's appetite for further deals? How does that look like for the next year? Is there any end market exposure you think you may want? Any metals type, maybe not zirconium, maybe zirconium, I do not know, geographies that you feel you could better address? Yeah. The answer is probably kind of yes to all of that. We're always looking for good companies to continue to grow. At Reliance, we're not like a Walmart where you carry the same things in every location. Most of our locations are specialized. Even though we might be in one geographic market and we might have a good position in carbon structurals, we may want to grow our stainless flat roll business there or our aluminum extrusions business. In most markets, there's still opportunity for us to grow. We look to our different operating companies to kind of tell us where they think there's an opportunity, and we look at what's available acquisition-wise, or are we better off doing a greenfield location? There is typically a fairly steady stream of deals that are coming to market that we look at. With those, as I mentioned, valuations, I think, are more in line. We have seen since right before the election last November and through now, there's been some uncertainty. Typically, and different reasons for uncertainty in different cycles, when that does exist, a lot of these family owners think that they're going to get a lower value for their business because of that uncertainty. Right now, we've seen a little pullback. There's still some activity, but it's a little slower over the last few months. I do think when things are a little more firm, we'll start to see more companies come out and look to sell. Some of the dynamics that are created in the current environment where some of these small to mid-sized service centers might have a more difficult time getting metal in a tight market, the uncertainty they've had to go through just of what is going to happen with the tariffs, with the administration. Sometimes a lot of these sellers decide, "I've had it, right? I'm ready to exit the business." I think we could see a little bit of a pop in activity this year. We're open to looking at everything, and we'd love to do big deals if it's a good company. We'll also keep doing small and mid-sized deals. Yeah. I guess no use of cash. You have pretty active repurchasing shares last year. Taken in the context of your comments of recent M&A activity and maybe potentially further, as well as elevated CapEx over the past few years, how are you thinking about shareholder returns competing for capital in the quarter and year ahead? Yeah. I think at Reliance for the last few years, and we think going forward the next few, our earnings have increased. Our cash flow has increased to higher levels and been pretty consistent. Our balance sheet is very strong right now. We typically look at four different capital allocation buckets. Because of the strength of our balance sheet, we haven't had to give up doing one activity because of another. We've had the balance sheet capacity to execute. We think the best use of our capital is long-term growth of the business. Acquisitions, as long as we're buying the right companies, organic growth, continuing to invest in that, which we've been investing at record levels over the last few years because we see the opportunity. At the same time, we can continue with our shareholder returns. We've paid a quarterly dividend for, I think, 65 years. We've never not paid that dividend, and we've never reduced the amount of the dividend. Our intent is to annually increase the dividend. We just increased it by 9% the beginning of this year. Actually, me being at the company for a really long time, our annual dividend rate now is $4.80 a share. I actually, from the IPO, have stock that was $3.22 a share. That's a kind of nice return on those shares. Also, share repurchases, again, with the stronger cash flows. We had a record share buyback last year of $1.1 billion. That's something we want to consistently continue to repurchase shares, but we don't set a specific target. We enter the market when we think it's the right time to do so. Great. Q uestion right here. Hi. This is Ann. Okay. Great. So I'm just curious about your comments on some pre-buying activities. I mean, if I'm running a metal shop, my job is to run the metal shop, not speculate on the price of metal. I mean, it goes up and down. Does that imply that your customers, i.e., those fab shops, are on the hook if prices go in the opposite direction? In other words, they don't have the ability to pass that on. I realize there's probably a lot of there's not one blanket statement. Maybe some can, some can't. I'm just curious kind of how things go from your customers to their customers from a price perspective. In some cases, our customers will see the headlines. They'll see tariffs 25%, 50%, back to 25%. They're not sure what that means to them. They want to make sure that they get their supply in a reasonable time so they have an idea what their costs are. Most important, they have a shop full of people and equipment, and they can't go without material. It has to be there when they need it. They're going to buy ahead a little bit just to make sure because they're a little bit nervous about what's going on out there. As far as they might have a project for Lockheed Martin or Boeing, and it's not going to be due for six months, but they have a certain price. They might try to buy it ahead of time. It's a fixed price. They might have a fixed price with their customer. They want to buy and make sure that they get it. They'll sit on it for six months just to make sure that they make money on the projects. Okay. Are there instances where they can pass, to the extent there's increases, that they can then pass them on to their customers? I mean, it depends how their contract is written up or their relationship, but I would think so in many cases they do. Okay. Thank you. I guess as we wrap up here and we look ahead for the balance of the year, what are the key things that investors should be watching out for, key milestones, any other factors for investors to evaluate the company? Yeah. I think there is certainly uncertainty in the market right now. There's volatility, but that's what we do. Reliance has been in business for 85 years. We've always sold into cyclical end markets. There's always been pricing volatility, more so in the last few years than there had been previously. We're excited about what's ahead of us. A higher price environment is good for Reliance. As I said earlier, we purposely have a very diversified product and end market base so that we can weather the ups and downs in those different markets. Reshoring is good for our business, our domestic profile, 96% in the U.S. We think that's all positive for what's going on in the markets right now. We look forward to managing successfully through whatever disruptions we have. Service centers actually play a more important role for their customers in disruptive markets. We're well-positioned to support our customers through this. Karla, Steve, thanks for sharing your insights. We look forward to following the progress. Thanks again.