Reliance Steel & Aluminum Co

Greetings and welcome to the Reliant Steel and Aluminum Company third quarter 2021 earnings conference call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Madeline Crane, Investor Relations. Thank you. You may begin.

Thank you, operator. Good morning, and thanks to all of you for joining our conference call to discuss Reliance's third quarter 2021 financial results. I'm joined by Jim Hoffman, CEO, Carla Lewis, President, and Arthur Jemmian, Vice President and CFO. A recording of this call will be posted on the investor section of our website at investor.rsac.com. The press release and the information on this call may contain certain forward-looking statements which are based on a number of assumptions that are subject to change and involve known and unknown risks, uncertainties, or other factors, including the impacts of the COVID-19 pandemic and related economic conditions on our future operations, which may not be under the company's control and may cause the actual results, performance, or achievement of the company to be materially different from the results, performance, or other expectations implied by these forward-looking statements. These factors include, but are not limited to, those factors disclosed in the company's annual report on Form 10-K for the year ended December 31st, 2020, under the caption risk factors, disclosures in our press release this morning, and other documents Reliance files or furnishes with the Securities and Exchange Commission. The press release and the information on this call speak only as of today's date, and the company disclaims any duty to update the information provided therein and herein. I will now turn the call over to Jim Hoffman, CEO of Reliance.

Good morning, everyone, and thank you for joining us today to discuss our third quarter 2021 financial results. I will begin with a high-level overview of our third quarter performance and capital allocation priorities. Carla will then speak to our operating results and demand trends by end markets. and Arthur will conclude with a review of our third quarter 2021 financials. I continue to be inspired by the outstanding operational performance by my colleagues throughout the Reliance family of companies. Our resilient business model, favorable metals pricing trends, and excellent execution combine to produce another quarter of record-setting financial results. Beyond execution of our business model, Operational excellence includes our top priority of ensuring the health and safety of all of our Reliance colleagues. And I'd like to extend my gratitude to each and every one of them for their unwavering commitment to operating safely despite the many challenges that have persisted during the ongoing pandemic. I would especially like to recognize our teams that were directly impacted by Hurricane Ida last month. While Ida had a minimal impact on our operations, some of our colleagues were impacted personally. We're very happy that everyone is safe and that our employee-funded and company-matched program, Reliance Cares, was available to support those who are impacted and in need of assistance. Reliance Cares is an inspirational example of how the Reliance family of companies come together and meaningfully take care of each other. Turning to our results, the trends of strengthening metals pricing persisted through the third quarter, which featured multiple mill price increases, most notably for carbon and stainless steel products. The favorable pricing environment, along with fundamentally strong underlying demand in many of the key end markets we serve, drove record quarterly net sales of $3.85 billion. In addition, strict pricing discipline by our managers in the field helped us generate a strong gross profit margin of 31.5%, which, when combined with our record sales, resulted in a record quarterly gross profit dollars of $1.21 billion in the third quarter of 2021. Various supply disruptions and continued increases in metals pricing that drove LIFO expenses of $262.5 million in the third quarter, our record quarterly net sales along with record gross profit dollars, and our continued focus on expense control led to the third consecutive quarter of record quarterly pre-tax income of $532.6 million. As a result, our earnings per diluted share of $6.15 were also a record, representing an increase of 21.1% from our record EPS achieved in the prior quarter that substantially exceeded both our guidance and analysts' consensus. We attribute this performance to our highly resilient business model, which is strategically designed to perform throughout changing macroeconomic circumstances. First, we are highly diversified by end markets, products, and geographies. Second, our decentralized structure leaves the decision-making and resources close to the end customers. We rely on our managers in the field to appropriately price the value of the products and services we provide, which is particularly important in times of tight metal supply and volatile pricing. In this localized and entrepreneurial environment, our focus on small order sizes with quick turnaround has also proven particularly effective. Further, our ability to purchase inventory in a spot market through our long-standing, strong relationships with our domestic mills, coupled with our unique ability to cross-sell inventory among the family of companies, allows us to source the metal we need despite tight supply. We were pleased our inventory turn rate for the third quarter came in just below our company-wide goal, which indicates that our inventory is properly balanced with current demand levels as we continue to secure the raw materials we need to meet customer demand. Third, our significant investment in organic growth and innovative technology has significantly expanded our value-added processing capabilities. empowering us to focus on higher quality, high margin business, and enabling us to increase our estimated sustainable gross profit margin range. To expand on that last point, I'd like to emphasize that the strong cash flow generation our model provides fuels our flexible and dynamic capital allocation strategy that supports concurrent investments in growth and stockholder return activities. We believe that it is our resilient business model and our execution of our capital allocation strategy that sets Reliance apart. We estimate that approximately half of our $310 million capital expenditure budget this year will be directed towards new, innovative, value-added processing equipment, along with enhancements to existing equipment to strengthen our value proposition and overall service offerings. As I highlighted earlier, these investments help support our increased sustainable gross profit margin range as they provide our managers in the field the ability to offer additional value to our customers. As discussed last quarter, our 2021 capital expenditures will also be focused on opening new facilities as well as expanding, upgrading, and maintaining existing operations, including renewable energy investments at many of our facilities. As our focus on growing the company is two-pronged, we also remain highly focused on M&A. On October 1st, we completed our acquisition of Murr Fish United, a leading master distributor of tubular building products in the U.S. The company is based in Massachusetts and services 47 states through 12 strategically located distribution centers. The MERFISH acquisition aligns with our strategy of acquiring immediately accretive companies with strong management teams and significant customer product in geographical diversification. The MERFISH transaction is a bit unique in that MERFISH is not a traditional metal service center, and yet the transaction is one of the larger acquisitions that we have completed in our history, as MerFish had approximately $600 million in annual net sales in the 12-month period ending September 30, 2021. However, MerFish's broad product offerings expands Reliance's exposure into copper and plastic products, among others, which MerFish sells to wholesale distribution customers in adjacent end markets in the commercial, residential, municipal, and industrial building spaces. We expect Murphish will help position Reliance in the broader industrial distribution space, as well as provide a platform for further growth in this area, both organically and through further acquisitions. During the third quarter of 2021, we also returned $174.7 million to our stockholders through the payment of $43.7 million in dividends and the repurchase of $131 million of Reliance common stock at an average cost of $147.89 per share. In the last five years, Reliance repurchased 11.7 million shares of our common stock at an average cost of $89.92 per share for a total of $1.8 million. We are extremely pleased to have the capital and the flexibility to simultaneously focus on both growth and stockholder returns and expect to maintain our dynamic approach moving forward, remaining prudent allocator of capital. Before I conclude, I'd like to announce that Reliance will be relocating our corporate headquarters from Los Angeles, California to Scottsdale, Arizona in the first half of 2022. The Scottsdale office will serve as Reliance's new principal executive office and the company's senior corporate officers will have offices there. Reliance is a Delaware corporation operating through approximately 300 division and subsidiary locations in 40 states and 13 countries outside of the United States. And the relocation of Reliance's principal executive office to Scottsdale reflects our growth and expansion, as well as our evaluation of post-pandemic business opportunities and related operating practicalities. We will, however, maintain a presence in Los Angeles with revamped and innovative office offerings that reflect and complement the redefined post-COVID workplace and meet the needs of our corporate administrative colleagues who will remain in California. In addition, I'd like to extend a warm welcome to our two new independent board members, Dave Seeger and Frank Dellaquilla. Dave has been a strategic and valued partner to Reliance for more than 30 years for his involvement in the metals industry. And Frank is a seasoned and respected public company senior executive and chief financial officer. We look forward to benefiting from both of their unique perspectives, experience, and expertise. With the addition of Dave and Frank, Reliance's board consists of 12 members, 10 of whom are independent. In summary, I am once again highly pleased to share our record-setting third quarter financial results and commend all of my colleagues for their hard work and unwavering focus during the quarter. Despite the challenges of the ongoing pandemic, supply chain disruptions, and tight labor markets and limited metal availability, we sustained our efforts to ensure that we continue to provide valued customers with the products they need, often in 24 hours or less. At the same time, we also continue to successfully execute our growth strategy while generating strong earnings and returning value to our stockholders. As we look ahead, we look forward to remaining a key contributor to the value chain through the ongoing support of our colleagues, customers, suppliers, and communities and remain confident that America is going to need Reliance to rebuild. Thank you for your time and attention today. I will now turn the call over to Carla to review our operating results and demand trends.