Ladies and gentlemen, good morning, and welcome to the Reliance, Inc. Third Quarter 2024 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. [Operator Instructions]. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Kim Orlando, ADDO Investor Relations. Please go ahead.

Thank you, operator. Good morning, and thanks to all of you for joining our conference call to discuss Reliance's third quarter 2024 financial results. I am joined by Karla Lewis, President and Chief Executive Officer; Steve Koch, Executive Vice President and Chief Operating Officer; and Arthur Ajemyan, Senior Vice President and Chief Financial Officer. A recording of this call will be posted on the Investors section of our website at investor.reliance.com. Please read the forward-looking statement disclosures included in our earnings release issued this morning and note that it applies to all statements made during this teleconference. The reconciliations of the adjusted numbers are included in the non-GAAP reconciliation part of our earnings release. I will now turn the call over to Karla Lewis, President and CEO of Reliance.

Good morning, everyone and thank you all for joining us today to discuss our third quarter 2024 results. Our businesses continued to execute well through challenging market conditions in the third quarter, once again outperforming industry shipments, while maintaining gross profit margin within our sustainable range which we refer to as smart profitable growth. Although metals pricing declined more than anticipated the inherent resilience of our business model, servicing diverse end markets with expansive value-added processing capabilities and quick turn orders as well as increased volume from our targeted growth efforts helped mitigate the impact of lower pricing on our gross profit margin and on our earnings level resulting in non-GAAP earnings per diluted share of $3.64 in line with our guidance. In the third quarter, we generated $463.9 million in cash flow from operations, underpinned by strong profitability and effective working capital management through cyclical markets. Our consistently strong cash flow continues to fuel execution in all elements of our capital allocation strategy. We invested $112.8 million in capital expenditures, the majority of which was directed toward growth activities. Our CapEx budget for the calendar year 2024 remains $440 million with an expected total cash outlay of approximately $425 million to $450 million. Since our 1994 IPO, we have completed 76 acquisitions that support our growth strategy, expanding our product diversification and value-added processing capabilities. We've completed four acquisitions to date in 2024, including our August acquisition of certain toll processing assets of the FerrouSouth division of Ferragon Corporation and the M&A pipeline remains active. We will continue to seek acquisition candidates that align with our standards for well-managed service centers and metals processors that possess strong brand equity and solid reputations in the marketplace and are immediately accretive to our earnings. During the quarter, we repurchased $432 million…

Thanks, Karla, and good morning, everyone. I'd like to begin by expressing my gratitude to our dedicated team for their commitment to operating safely and executing our strategy. I'll now turn to our third quarter demand and pricing trends. Our tons sold increased 7.1% or 3.7% on a same-store basis compared to the third quarter of 2023, significantly outperforming the service center industry decrease of 1.2% as reported by the MSCI. While tons decreased 2.1% compared to the second quarter of 2024, we beat our expectations of down 2.5% to 4.5% due to increased shipments of carbon steel plate and structural products to the nonresidential construction market as the quarter progressed. We believe our growth and continued outperformance of our MSCI peers while maintaining industry leading profitability are supported by our diversified business model, customer service and strategic investments in organic growth and acquisitions. Our third quarter average selling price per ton sold of $2,246 declined 4.3% compared to the second quarter of 2024, exceeding our expectations of down 2% to 4%, as carbon steel product prices declined more than anticipated as the quarter progressed. Aluminum prices also declined to the global market corrected from the short-lived impact of Russian sanctions and the U.S. market dealt with an abundance of low-priced imports. Stainless steel prices showed signs of stabilization. Next, I will turn to an overview of notable third quarter trends within our key end markets and products. Beginning with nonresidential construction. Carbon steel tubing, plate and structural products, which are predominantly sold into the nonresidential construction market, represented about one-third of our sales in the third quarter. All three products had significant year-over-year growth outperforming industry shipment levels. Our diversified exposure to the nonresidential construction market, including publicly funded infrastructure projects, data centers, and related energy projects supported solid…

Thanks, Steve, and thank you, everyone for joining today's call. Our third quarter 2024 non-GAAP diluted earnings per share of $3.64 came in toward the low end of our guided range. Despite the difficult pricing environment, which was the primary driver of a 21.7% decrease in our non-GAAP diluted earnings per share compared to the second quarter of 2024. Our tons sold surpassed our expectations, leading us to outperform industry shipment levels once again across nearly all products. The differentiating value of our significant scale and diversified product offerings to diverse end markets is made evident in the current choppy economic environment as they allow us to participate in the pockets of the economy where activity is strong. These factors, along with our broad and expanding processing capabilities and industry-leading quality of service contributed to our 3.7% year-over-year growth in tons sold on a same-store basis in the third quarter. Our gross profit margin declined from 29.8% in the second quarter to 29.4% in the third quarter from continued pricing headwinds. Again, our value-added processing capabilities moderated the decline in gross profit margin as orders with value-added processing continue to experience significantly less gross profit margin contraction in times of declining prices versus orders without processing. Our LIFO inventory valuation method provides further stability to our gross profit margin by adjusting our cost of sales to align with current replacement costs. Consistent with our guidance, we recorded LIFO income of $50 million in the third quarter, and we continue to anticipate LIFO income of $200 million for the full-year 2024, which implies $50 million of LIFO income for the fourth quarter of 2024. As a reminder, LIFO for the fourth quarter will include a true-up to our interim annual LIFO estimate based on year-end inventory levels. Factors such as inventory…

Thank you. Ladies and gentlemen, we will now be conducting a question-and-answer session. [Operator Instructions]. The first question is from the line of Katja Jancic from BMO Capital Markets. Please go ahead.

Hi, thank you for taking my questions. Maybe starting on the commentary about 4Q being impacted by temporary factors. Can you talk a bit about what gives you confidence that some of the impact in 4Q is temporary? And what will drive better demand into next year?

Hi, Katja, thanks for joining the call today. We just -- as we reach out to our different teams running our businesses who are close to our customers, as we talked with them over the past week or two, there just seems to be more uncertainty at the customer level than we have seen in prior periods, the Presidential election being cited as quite a bit of that. I would say overall, we're confident long-term because either administration seems to be supporting manufacturing and trade policy. And even if investments had in different directions, whether it's on energy or different areas, most of those products, those solutions require steel of one kind or another. And with our diversified breadth of products, we expect to have a position wherever the policy may go. It just seems though there's more trepidation of our customers trying to understand where is it headed? What impact and when will the lower interest rates will help spur economic activity. The question is, at what point does that really kick in? We believe in 2025, maybe not January 1. But with the trajectory as we move through 2025, we expect some pickup in activity related to that. So again, we also have heard of a few customers taking extended shutdowns maybe over the holidays in Q4. So we're being probably a little cautious with our Q4 guide just because there are a lot of factors that we can't control. But we do think having the Presidential election behind us, the lower interest rates, the continued strong tailwinds that are there with a lot of unspent dollars still under the different government stimulus products set us up in the industry up well for 2025.

And then maybe just quickly on the auto side. And I know you're exposed to it through the tolling business. But are you hearing any slowdown in that market or that business?

Yes, for the most part, from the platforms we're on with our automotive toll processing customers, we have not seen a pullback. We think it will be normal seasonality for those businesses. In Q4 and generally stable demand, our platforms were on a lot of the SUVs and light trucks. Even some of the Super Duty trucks where there is a lot of demand and some ramp-up coming. So we read the headlines. We hear people are concerned. Also, again, the lower interest rates could help with consumer activity in the automotive market. So we have not experienced a slowdown yet and currently expect stable activity.

Thank you very much.

Thanks, Katja.

Thank you. [Operator Instructions] The next question comes from the line of Phil Gibbs from KeyBanc Capital Markets. Please go ahead.

Yes, good morning.

Good morning.

Hi, Phil.

So the pricing and mix in the third quarter was a little bit below what you all were anticipating with the guidance and completely understandable with the market dynamics. But I guess, try to help me a little bit why the LIFO reserve wasn't changed to reflect that?

Yes. Good question, Phil. So we spoke to this briefly at the last call, but I'll provide some additional color as we're seeing some things play out as the year is progressing. So we're having some interesting mix impact this year that we really haven't seen in the past. There's some specialty aerospace products that have really long lead times. And while the rest of our inventory cycling through and getting the lower replacement costs, some of these products have 50 to 70 week long lead times. So we're basically going to see the benefit of lower cost of those products in 2025. So what's effectively happening is that is shifting some of that LIFO income from 2024 into 2025. And that's the primary reason why you haven't really seen us up our LIFO estimate for the year as the years progressed because some of that impact is going to be felt or realized in 2025.

Yes, and Phil, I would just add, this is kind of a unique phenomenon. I've been here over 30 years, and this is the first time we've really had something like this happen because the pricing of those products had basically doubled and they're high-priced products, and we've never seen lead times like that for -- especially for that large of a chunk of our inventory. The dollars are higher on a relatively lower volume just because of the type of product. So this is something we've been kind of learning as we've gone through the year this year and seeing the impact on LIFO of those unique characteristics on those products.

Well, you're not alone. I've never seen it either. So we're aligned. Question on the gross margins that you made about the fourth quarter, you said you expected things to better align and stabilize in the fourth quarter. Does that mean that you expect the fourth quarter to be the trough? Or are you saying you already saw the trough in the third quarter?

Good question, Phil. So it depends what pricing does in the first quarter, right? So if you are forecasting that pricing in the first quarter will go up, then that would imply that Q4 would be a trough. But just to be clear, we're not putting guidance out for Q1 for our views for pricing for Q1. But if, again depending on what pricing does in 2025, then yes, I mean if there's some tailwinds in the beginning of the year then presumably, that would be true, the Q4 could be the trough.

I'm just -- I appreciate that. I'm just saying relative to the third quarter, are you saying the third quarter -- you're saying it's going to be lower than the third quarter, but stabilizing? Or is it going to be consistent?

It should be consistent based on our guidance, we're staying consistent with the third quarter.

Okay. That's helpful. And then last question for me on the semi side. You largely do semi's infrastructure from what I remember, not semis consumables, but been a little bit squishy, but saying maybe seeing some signs that, that might be stabilizing. What does that mean from year-end? Is it just that the supply chain feels a little bit over inventoried now that some of these projects have been a little bit deferred and that might be breaking after the Election cycle? Just trying to get some kind of context behind that. Appreciate it. Thanks.

Yes, Phil, on the semiconductor, we do sell some into the consumables, to the equipment manufacturers and then the infrastructure, as you mentioned. And at one of our companies selling more into the consumables. We did see a little more activity in Q3 than we had seen through the last I guess, several quarters as we see customers working through the inventory glut that they had, still some room to go on the equipment manufacturers, some activity there, but not really picking up yet. And then on the infrastructure side, the new chip build, there are a lot of factors, I think, impacting timing. We're still very bullish long-term. I don't know how much of that is the election. We hear about permitting slowdowns, getting construction workers just different reasons why it's starting to stop on some of the projects. And most of the projects, you see the big headline numbers, but a lot of them were planned in different phases where it wasn't all going to come immediately, which is quite honestly a better environment where it's spread out a little bit.

Thank you.

Yes. Thanks, Phil.

Thank you.

Thank you. [Operator Instructions] As there are no further questions, I now hand the conference over to Karla Lewis, President and CEO for our closing comments.

Thank you, and thanks again to everyone who joined our call today. I would like to remind everyone that next month we'll be in Chicago presenting at Baird's Global Industrials Conference, and we hope to meet with many of you there. I also want to just reiterate our confidence in the ability of the Reliance team to operate well through all market conditions even with some potential temporary headwinds in Q4, and we're confident with our team moving into 2025. And we'd like to thank our customers, our suppliers and our stockholders for all of your support. Thank you.

Thank you. The conference of Reliance, Inc. has now concluded. Thank you for your participation. You may now disconnect your lines.