Everyone, welcome. I'm Timna Tanners, Metals and Mining Building Materials analyst here at Wells Fargo. It is my great pleasure to welcome today, we have from Reliance, both Karla and Stephen, CEO and COO, to talk to us today. 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. I like to kick it off there, and ask you about how should we think about Reliance going forward? How could it grow maybe outside of steel, or what's the opportunity broadly? Thanks, Timna, for having us to the conference, and thanks to all of you for joining us. For many years, we were Reliance Steel & 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. 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. Would you please lose the steel and aluminum? We think of you more as an industrial distribution company. We'd like to comp you. We think you deserve a multiple closer to them." We did, a couple of years ago, drop the steel and aluminum and became Reliance, Inc. now. 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 metal prices are volatile. The end markets we sell into are cyclical. With that diversification, we think that helps mitigate some of that risk that's inherent in our markets. 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. Really doing more value-added processing services for our customers is where I think we've diversified and seen more opportunity over the last 8- 10 years. Customers are asking us to do more for them that they were doing in-house. The equipment that we use has better capabilities. I think more in the value add we can provide to our customers. 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. Got you. How do you think about how far you want to go downstream before you run into some of the mills that are your suppliers? They've kind of incurred a bit on what you've traditionally done, but there's so many opportunities for more metal bending, for painting, for coating. Right now you do a lot of slitting and more processing and the toll processing. Where do you think about the opportunity set within all the different next steps with manufacturing? Or how far can you take the metal, I guess? We could go further downstream, but one of the things that we try to be very careful of is competing with our customers because we sell to a lot of subcontractor machine shop type companies, we don't want to disrupt our relationships and the business we already have there. 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. I want to use Reliance to do this for me." We do worry about customer disruption, and we've bought a couple of fabrication companies where we might take it to make some small components for OEMs. Typically, that's been in out of the way geographic areas where we're not competing with our customers. We've also seen, 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. Again, trying not to disrupt our customers. I think more to, 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. Certainly, we do do some big volumes in our toll processing operations, but we try to focus on the hard-to-do stuff. Some of the areas some of the mills have gotten into, coating, painting, we knew they were going there. 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 small company with 30-year-old equipment and try to compete with them. I think they're finding their space, we're finding our space, and we still work with the mills, have good relationships, and want to look at ways we can grow together. Okay, great. Reliance has really, over the years, focused on the smaller customers and really thrived in that group. On the one hand, I suppose you're probably pretty nicely advantaged as being a large buyer from being able to secure metal, right? 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. On aluminum, we could see a shortage, I think, is a real risk. Another service center mentioned that to me. How are you doing in your ability to procure metals and supply, and how do you see that as a differentiator? When you get into 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 customers get themselves in trouble. The supply chain gets a little bit out of whack. 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. I think that there's good equilibrium where the market's transacting well. You mentioned beams. Beams have never been this high of a price and have never been lead 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, or asking mills to help us out. How tight is the market? We see the lead time information for flat roll, but we don't have it on every smaller product. 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. Some days it feels like there's a mad scramble. Yeah. Yeah, demand is absolutely getting better, the mill tightness is real. Prices are at a great level. Everybody can make a fair profit, there's opportunity. When there's opportunity, sometimes people get a little bit excited. You just have to make sure you manage and you have to make sure that you don't double order and get yourself into inventory trouble, lead times will always normalize over time. Prices will always regulate over time. While you have these opportunities, you do have to capitalize on it. 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 the metal so they can continue to run their businesses. 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. The plate market was soft for a couple of years, it started to rebound with energy moving, coming back, shipbuilding and tanks and different defense spending. It's moved into where it should be. It should be trading above hot-rolled coil, lead time should be extended, there's been a lot of investments from the domestic mills in plate, they deserve to get a fair return. Plate is one of the nicer stories of 2026, it was lagging for the last couple of years. Yeah. There were some plate price hikes, I think, over the last couple of days, maybe that's just playing catch up to flat roll because they don't do the $10 a week. No, they've gotten a little stronger. Yeah, they've gotten a bit stronger, you're right. They've gotten all the increases so far. They've gotten all the increases. Yeah. Interesting. You don't do rebar, it's just flat roll. Galvanized margins are improving a little bit, it seems like. Flat roll seems tight, but again, you're getting the product that you need okay? Yes and yes. Okay. What about aluminum? That's one where another service center, a large one here, had mentioned to me that they were starting to see some holes, and even if it isn't here now, with the global dynamics in aluminum, I'm sure you're well aware of with the smelters direct hit from missiles from Iran. How secure is your aluminum supply? How is that structured? Got it. We feel like it's pretty secure. We're expecting some shortages maybe towards the end of the summer, that's where you have to have ongoing conversations and understand what your mill's position is, and you don't want to have a few weeks go by and be surprised. You want to communicate with your customers and your mills to make sure that there's not a break in the supply chain. Of your customers, are there some that maybe might have to not get aluminum, or 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 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. Yeah. We'll move material from company to company, or we'll go around all of 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 think we are advantaged because of size, but also we've been a very loyal company to most of our key suppliers, whether it's steel, aluminum, stainless steel. 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 we don't do a lot of returns. We don't do a lot of claims. We try to work well with all of our key suppliers, and in prior cycles, this could be a little different, but we've benefited from that long-term approach of working with 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, to your point, 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's partly why the market's a bit leaner now. What do you think flipped to that better demand story? Was it one thing or just a number of different categories of better demand than expected? I'll start, and then you- Yeah. can chime in if you want. I think there were a number of things, and at Reliance, 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. Non-resi held up for us and was a good market for us during that period. We saw blips in a couple of other markets, but last year, our carbon end markets, and as you mentioned, we're bigger in plate, in beams, in tubing, a little more than the flat roll, even though we're a big player in all of those areas. Demand for those products was there, which helped support pricing. It wasn't growing at a significant rate, but it was healthy and holding in. Aluminum and stainless, they were a little softer on the demand side, so when the tariffs were introduced, you didn't have as much strength behind the higher prices. Going into the fourth quarter, we started to hear customers being a little more and 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. Towards the end of last year, we started hearing more optimism from our customers. Q4, we actually had record shipments at Reliance, we were seeing some of that optimism. Prices were starting to increase at the mill level. You always get nervous. Are they pulling forward? What will Q1 be? Q1, we had a new record shipments. We think 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. Generally, our customers are optimistic. There's big government spending out there. There's all the data centers, so a lot of positives on the demand side. Got it. Did you want to supplement that, or? Yeah, I think that service centers are kind of a nervous group to begin with, we're always waiting for the sky to fall, and we want to manage our inventory. When some of the prices of aluminum, other products got so elevated, 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. Once we got more confident, our customers said, "Actually, the price is going to keep moving up. It's a good time to lock in some orders." I think that this is real, the tariffs are real. Either get on board or get into a different business. A lot of our competitors or our peer groups, they either didn't have the confidence to restock their shelves at certain prices or just the price to finance with the higher interest rates and higher metal prices. It's hard to have a full array of products. I think that gives us a little bit of a competitive advantage. We never exited certain products, but we were just really conservative. Now we have more of a normal level at a higher price. Yeah. That's a good point. You have the balance sheet to, of course, load up on inventory or maintain inventory even at higher prices. Something you would take for granted sometimes. Yeah. Something we definitely heard some of the smaller service centers bemoan the interest rate environment or higher costs of storage and freight and all those things that are probably more manageable for a larger player. Construction's your biggest end market. Interest rates are going the wrong direction. Is it going to hold up? Does it matter? It seems like so much is data centers, and that's holding up, and you've got the border fence, of course. That's literally locked in. Do you feel pretty comfortable with volumes even in a rising interest rate environment? Yeah. Interest rates, they may stay where they are. To me They may rise a little bit. I've read a couple articles recently, saying that some projects may get paused, but that happens all the time, and prices are higher, and then if you have the interest cost on it. Again, I think for our businesses and the types of projects we participate in, we feel pretty comfortable. That's what we do, right? There's always different factors, positive, negative, affecting all of our different businesses, and we just tell our people to focus on their customers, service them well, and be valued to them so that they're going to keep coming back to us. 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 piece of equipment, 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. They're still buying because they have to keep their small companies running and employ their people. 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. Interest rates are still historically low. 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, people who are a little younger are still looking at them relative to their recent past. Unfortunately, we know. Yeah. Yeah. 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 are you seeing in auto and energy, maybe? In auto, when again, the dynamics with the economy, interest rates, inflation, the theory that auto demand would slow, and it may at a macro level. 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. When you're just providing services on over 6 million tons of metal a year, that, with 65% of that going into automotive, the next biggest chunk into appliance, that is a profitable business for us. We charge for the different services we provide, for delivery, for the logistics around it, for storage of the metal. With that, touching the automotive industry that way, we have not seen a significant slowdown in the business. We continue to grow our capacity, adding lines and square footage for our tolling operations. They continue to fill it. Those companies we have doing that in that space are really good at what they do. One, the company in the U.S., they're handling a lot of 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 one of our customers reduces volumes with us, we typically, there's demand for our company to fill that line with a different customer opportunity. We've been pretty steady with automotive on the tolling side. We have some operations in Mexico. There were a few platforms pulled from Mexico, if the companies had open capacity in the U.S. We did see a little bit of a shift since the tariffs went in. Mexico's still pretty busy as well, but maybe a little more hesitant currently to make new investments until some of the trade policy's further resolved. We'll see what happens there. I'm not even going to ask you. I don't think it's any point. Thank you. Yeah, sorry. Anybody who wanted to hear that, but yeah. Hey, the sexier end markets, the border fence, the data centers, and aerospace and semis. Starting with the border fence, it sounds like it's a little lower price point, but stable or better margins, is that right? How do you characterize that business? 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 to fill the $2.2 billion contract. It's good business. It's a lower price point just because of the product mix. It's carbon steel, primarily tubing, it's just based on the product mix. Our average sale price, 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. There's a significant volume with a very low operating cost. We'll leverage that. Bottom line, it's accretive at good levels to our bottom-line profitability. Okay, good. Thank you for clarifying that. Timna, you asked how we would characterize that. Yeah. We're pretty happy with that order. We're really happy that we found a few domestic suppliers, some of the best tube and hot-rolled 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. 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. That extends well into 2027 timing-wise? Phase one is through June 30, 2027. That's like $1.4 billion. Phase two is another $800 million. That goes, I think, through the end of 2028. Got it. Oh, okay. Yeah, well into that 2028 timeframe. You're busy with the border fence. How exposed are you to data centers? We haven't been able to quantify it, but when, 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 piece of the market, and they were seeing a lot of activity. We started, last year, hearing almost every one of our companies talk about something they were doing for data centers. Selling aluminum, stainless, copper, into the interior racking, enclosures, cooling systems. We're touching in a lot of ways, but we don't have a percent or a dollar amount that we've been able to identify. It's positive for us, and everyone's talking about it, right? Yeah. It's been a good pull for the whole industry. It looks like, with all the announced projects that are out there, people are trying to lock in supply. We know it's not going to last forever. Also the energy needed around it, that takes a lot of metal as well. Selling into further build the grid and energy capabilities, we're participating in that quite a bit also. Okay, fair. I like that you aren't making some number up. I feel like we're not sure where some of people's numbers come from, so that's totally fair. Late last year, it looked like the mills were talking about a lot more volume, but that was more market share gains. That's specific to mills. Now it does seem like the demand is caught up, so you're also getting some volume. You didn't import before, so you're not that much, right? That doesn't really change for you all. Yeah. I would say the U.S. mills had more of a direct pickup in volume last year with the tariffs as import reduced because 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- Okay. from that. It was much more impactful at the producer level than at our level. Got it. The positive point of that is 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. They're going to have to charge a fair price, where we pride ourselves on a higher margin. They're going to have to get into that space. It puts us more on a level playing ground. Are you seeing much benefit from the derivative product tariffs? Are we seeing much reshoring yet or early signs? We've seen some reshoring 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 cost going away, and then prices will come down for the equipment or the facilities that I need to purchase?" 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. It's really confusing, to be honest. It's hard to tell you exactly what that direct benefit has been. It should be positive- Yeah. for the industry. 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 just really, really favorable. In this last couple of years, aerospace supply chains have been kind of destocking. What are you seeing in terms of timing for a turnaround there? Maybe to put that in context too, back, certainly pre-COVID and maybe even earlier than that's probably when you heard that. In our aerospace businesses, it's higher value per pound product, and at the pre-tax income margin level, our aerospace businesses did use to generate higher returns than a lot of our carbon steel general line businesses. With the dynamics that have happened in the market with carbon prices elevating, also with our carbon companies doing more value-added processing, that margin profile is more comparable. Okay. The carbons come up. Okay. We used to talk about that aero and energy, we don't have as much differentiation anymore because of the improvement in the other parts of our business. That being said, in aerospace, we do have a company or two that are selling specialty products, a lot of stainless alloy products into aerospace that are very high per unit values. Post-COVID, when there was a lot of scarcity, 80-week lead times, pricing was very good, margins were very good. 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 being worked down. 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, that's been pretty consistent. Pricing generally holds up. The pricing's a little different. We do anticipate with build rates at the airplane manufacturers increasing, and they're working through their metal, that potentially the back half of this year, we'll start to see a little more activity. Anything you want to add? No, that's good. You said favorable margins. That's a big investment in some of these products, like Karla said, 80-week lead times. You need to charge a fair margin to carry everything. You're going to sit on material for a long time. Heat-treat aluminum was on allocation. 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, it's been a little bit of a lull, and it seems like sometimes that means you're ripe to do one. Just in your words, obviously, what's the M&A setup here? 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. 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 we're not paying off of trailing 12 months because we're in the industry. We understand the volatility that goes along with it. 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. 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. From our standpoint, just because our multiple's higher, that doesn't mean it increased the value of a target company. We still are looking at them consistently and at how we value them. We're looking at stuff now. We'll continue to look at stuff, and hopefully, we'll find some good opportunities. Who are you competing? 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. Okay. Yeah. Okay, cool. Well, stay tuned. I guess we ran out of time. Perfect. Thank you so much. All right. It was really nice having you here. Yes, thank you. Thanks, everyone. Thank you