Reliance(RS) - 2024 Q1 - Quarterly Report

PART I — FINANCIAL INFORMATION Item 1. Financial Statements This section presents Reliance, Inc.'s unaudited consolidated financial statements for the quarter ended March 31, 2024, including balance sheets, income statements, comprehensive income statements, equity statements, and cash flow statements, along with detailed notes explaining significant accounting policies, acquisitions, revenue breakdown, goodwill, intangible assets, debt, leases, income taxes, equity, commitments, earnings per share, and employee benefits Unaudited Consolidated Balance Sheets Consolidated Balance Sheet Highlights (in millions) | Metric | March 31, 2024 | December 31, 2023 | | :-------------------------------- | :------------- | :---------------- | | Total assets | $10,712.2 | $10,480.3 | | Total liabilities | $2,769.5 | $2,747.5 | | Total equity | $7,942.7 | $7,732.8 | - Total assets increased by $231.9 million from December 31, 2023, to March 31, 2024, primarily driven by increases in accounts receivable and inventories[8] Unaudited Consolidated Statements of Income Consolidated Statements of Income Highlights (in millions, except per share) | Metric | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :----------------------------------- | :-------------------------------- | :-------------------------------- | | Net sales | $3,644.8 | $3,965.3 | | Operating income | $393.1 | $513.6 | | Net income attributable to Reliance | $302.9 | $383.1 | | Diluted EPS | $5.23 | $6.43 | - Net sales decreased by 8.1% and net income attributable to Reliance decreased by 20.9% year-over-year, leading to a 18.6% decline in diluted EPS[10] Unaudited Consolidated Statements of Comprehensive Income Consolidated Statements of Comprehensive Income Highlights (in millions) | Metric | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :----------------------------------- | :-------------------------------- | :-------------------------------- | | Net income | $303.8 | $384.4 | | Total other comprehensive loss | $(16.6) | $(0.2) | | Comprehensive income | $287.2 | $384.2 | | Comprehensive income attributable to Reliance | $286.3 | $382.9 | - Total other comprehensive loss significantly increased to $(16.6) million in Q1 2024 from $(0.2) million in Q1 2023, primarily due to foreign currency translation losses[12] Unaudited Consolidated Statements of Equity Consolidated Statements of Equity Highlights (in millions, except per share) | Metric | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :----------------------------------- | :-------------------------------- | :-------------------------------- | | Total equity, beginning balances | $7,732.8 | $7,095.9 | | Net income attributable to Reliance | $302.9 | $383.1 | | Cash dividends and dividend equivalents | $(65.3) | $(62.0) | | Total equity, ending balances | $7,942.7 | $7,354.4 | | Cash dividends declared per common share | $1.10 | $1.00 | - Total equity increased to $7,942.7 million by March 31, 2024, from $7,732.8 million at the beginning of the period, driven by net income partially offset by dividends and other comprehensive loss[14] - Cash dividends declared per common share increased by 10% to $1.10 in Q1 2024 from $1.00 in Q1 2023[14] Unaudited Consolidated Statements of Cash Flows Consolidated Statements of Cash Flows Highlights (in millions) | Activity | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :----------------------------------- | :-------------------------------- | :-------------------------------- | | Net cash provided by operating activities | $126.3 | $384.6 | | Net cash used in investing activities | $(177.4) | $(102.6) | | Net cash used in financing activities | $(90.3) | $(639.2) | | Cash and cash equivalents at end of period | $934.9 | $816.2 | - Net cash provided by operating activities significantly decreased by 67.2% year-over-year, mainly due to increased working capital spending and lower profitability[16] - Net cash used in investing activities increased by 72.9% due to an acquisition in February 2024 and higher capital expenditures[16] Notes to Unaudited Consolidated Financial Statements Note 1. Summary of Significant Accounting Policies - The company changed its corporate name from Reliance Steel & Aluminum Co. to Reliance, Inc. in February 2024[17] - The majority of inventory is valued using the last-in, first-out (LIFO) method[20] - New FASB guidance on segment reporting and income tax disclosures will be effective for fiscal years beginning January 1, 2025, requiring additional disclosures but no impact on financial results[21][22][24] Note 2. Acquisitions - Acquired Cooksey Iron & Metal Company on February 1, 2024, contributing $16.1 million to net sales in Q1 2024[25] - Acquired American Alloy Steel, Inc. and Mid-West Materials, Inc. on April 1, 2024; their sales were not included in Q1 2024 net sales[26][27][28] Note 3. Revenues Net Sales Disaggregated by Product and Service (in millions) | Product/Service | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :---------------------- | :-------------------------------- | :-------------------------------- | | Carbon steel | $2,012.9 | $2,128.5 | | Aluminum | $596.1 | $670.2 | | Stainless steel | $559.9 | $657.3 | | Alloy | $171.9 | $191.4 | | Toll processing and logistics | $157.8 | $155.4 | | Copper and brass | $75.3 | $82.0 | | Other and eliminations | $70.9 | $80.5 | | Total | $3,644.8 | $3,965.3 | - Carbon steel remains the largest revenue contributor, though sales decreased across most product categories year-over-year[30] Note 4. Goodwill Goodwill Carrying Amount (in millions) | Metric | Amount | | :-------------------------- | :----- | | Balance at January 1, 2024 | $2,111.1 | | Acquisition | $16.5 | | Effect of foreign currency translation | $(2.3) | | Balance at March 31, 2024 | $2,125.3 | - Goodwill increased by $14.2 million in Q1 2024, primarily due to acquisitions, with no accumulated impairment losses[31] Note 5. Intangible Assets, Net Intangible Assets, Net (in millions) | Category | March 31, 2024 (Net) | December 31, 2023 (Net) | | :-------------------------------- | :------------------- | :-------------------- | | Intangible assets subject to amortization | $207.9 | $212.9 | | Intangible assets not subject to amortization (Trade names) | $778.2 | $768.2 | | Total Intangible Assets, Net | $986.1 | $981.1 | - Amortization expense for intangible assets was $10.3 million in Q1 2024, down from $11.8 million in Q1 2023[34] - Estimated future amortization expense totals $207.9 million, with $30.6 million remaining for 2024[35] Note 6. Debt Debt Composition (in millions) | Debt Type | March 31, 2024 | December 31, 2023 | | :----------------------------------- | :------------- | :---------------- | | Senior unsecured notes (various maturities) | $1,150.0 | $1,150.0 | | Other notes | $1.4 | $1.4 | | Total long-term debt | $1,142.6 | $1,141.9 | - The weighted average effective interest rate on outstanding borrowings was 3.02% as of March 31, 2024[37] - No outstanding borrowings on the $1.5 billion unsecured revolving credit facility as of March 31, 2024[39] Note 7. Leases Lease Cost and Cash Flow (in millions) | Metric | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :----------------------------------- | :-------------------------------- | :-------------------------------- | | Operating lease cost | $25.2 | $23.6 | | Cash payments for operating leases | $25.3 | $23.5 | | Right-of-use assets obtained | $28.2 | $15.6 | - The weighted average remaining lease term for operating leases was 6.3 years as of March 31, 2024, with a weighted average discount rate of 4.5%[46] Note 8. Income Taxes - Effective income tax rate for Q1 2024 was 23.3%, down from 24.4% in Q1 2023, primarily due to state income taxes[47] Note 9. Equity Stock-Based Compensation and Dividends (in millions, except per share) | Metric | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :----------------------------------- | :-------------------------------- | :-------------------------------- | | Stock-based compensation expense | $13.0 | $13.5 | | Cash dividends and dividend equivalents | $65.3 | $62.0 | | Share repurchases | $0.0 | $38.9 | | Cash dividends declared per common share | $1.10 | $1.00 | - The Board of Directors declared a Q2 2024 cash dividend of $1.10 per share, a 10% increase from the prior year[51][74][98] - No shares were repurchased in Q1 2024, compared to $38.9 million in Q1 2023. The company has $1.44 billion remaining authorization under its share repurchase program[53][54][99] Note 10. Commitments and Contingencies - The company is involved in an environmental remediation project but does not expect a material adverse impact due to insurance coverage[57] - Routine legal actions are not expected to have a material adverse impact on financial position, results of operations, or cash flows[58] Note 11. Earnings Per Share Earnings Per Share Computation (in millions, except per share) | Metric | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :----------------------------------- | :-------------------------------- | :-------------------------------- | | Net income attributable to Reliance | $302.9 | $383.1 | | Weighted average shares outstanding (Basic) | 57,340 | 58,832 | | Weighted average diluted shares outstanding | 57,882 | 59,534 | | Basic EPS | $5.28 | $6.51 | | Diluted EPS | $5.23 | $6.43 | - Diluted EPS decreased to $5.23 in Q1 2024 from $6.43 in Q1 2023, reflecting lower net income and a slight reduction in diluted shares outstanding[60] Note 12. Employee Benefits - Recognized estimated withdrawal liabilities of $4.6 million in Q1 2024 due to anticipated withdrawal from two multiemployer plans[61] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides an overview of Reliance, Inc.'s financial performance and condition for the first quarter of 2024, highlighting a decline in operating results due to lower metals prices and decreased tons sold, despite healthy demand in most end markets. It details recent acquisitions, analyzes changes in net sales, gross profit, expenses, and operating income, and discusses liquidity, capital resources, and critical accounting estimates Overview - Operating results in Q1 2024 declined year-over-year due to lower metals prices and a decrease in tons sold, impacted by one less shipping day[69] - Gross profit margin remained stable at 31.0% in Q1 2024 (vs. 30.9% in Q1 2023), supported by strong operational execution, product/market diversity, and increased value-added processing[70] - Same-store net sales decreased 8.8% in Q1 2024, driven by a 6.5% decline in average selling price per ton and a 2.9% decline in tons sold[71] - Demand improved in non-residential construction and automotive, remained stable in aerospace, and modestly lower in semiconductors and broader manufacturing[72] Acquisitions - Completed three acquisitions in 2024 with combined 2023 annual sales of nearly $500 million[75] - Acquired Cooksey Iron & Metal Company on February 1, 2024, contributing $16.1 million to Q1 2024 net sales[75] - Acquired American Alloy Steel, Inc. (2023 net sales ~$310 million) and Mid-West Materials, Inc. (2023 net sales ~$87 million) on April 1, 2024, with no sales included in Q1 2024[77] Results of Operations Net Sales Net Sales and Volume Trends (Q1 2024 vs. Q1 2023) | Metric | 2024 | 2023 | Dollar Change | Percentage Change | | :----------------------------------- | :----- | :----- | :------------ | :---------------- | | Net sales (in millions) | $3,644.8 | $3,965.3 | $(320.5) | (8.1)% | | Net sales, same-store (in millions) | $3,618.1 | $3,965.3 | $(347.2) | (8.8)% | | Tons sold (in thousands) | 1,494.0 | 1,520.1 | (26.1) | (1.7)% | | Tons sold, same-store (in thousands) | 1,476.4 | 1,520.1 | (43.7) | (2.9)% | | Average selling price per ton sold | $2,442 | $2,623 | $(181) | (6.9)% | | Average selling price per ton sold, same-store | $2,453 | $2,623 | $(170) | (6.5)% | - Same-store net sales declined primarily due to lower selling prices and a decrease in tons sold, impacted by one less shipping day[82] Year-over-Year Changes in Selling Prices and Mix of Major Commodity Products | Product | Change in Average Selling Price Per Ton Sold | Change in Percentage of Total Tons Sold | | :-------------- | :----------------------------------------- | :-------------------------------------- | | Carbon steel | (4.1)% | 0.3 % | | Aluminum | (6.3)% | (0.2)% | | Stainless steel | (13.3)% | — % | | Alloy | (1.2)% | (0.2)% | Cost of Sales and Gross Profit Cost of Sales and Gross Profit (Q1 2024 vs. Q1 2023, in millions) | Metric | 2024 | % of Net Sales | 2023 | % of Net Sales | Dollar Change | Percentage Change | | :------------- | :----- | :------------- | :----- | :------------- | :------------ | :---------------- | | Cost of sales | $2,516.6 | 69.0 % | $2,739.3 | 69.1 % | $(222.7) | (8.1)% | | Gross profit | $1,128.2 | 31.0 % | $1,226.0 | 30.9 % | $(97.8) | (8.0)% | | LIFO income | $(50.0) | (1.4)% | $(15.0) | (0.4)% | $(35.0) | | - Gross profit decreased mainly due to lower sales from reduced average selling prices and tons sold. Gross profit margin remained stable at 31.0%[84][86] - LIFO income increased to $50.0 million in Q1 2024 from $15.0 million in Q1 2023[83] Expenses Expenses (Q1 2024 vs. Q1 2023, in millions) | Metric | 2024 | % of Net Sales | 2023 | % of Net Sales | Dollar Change | Percentage Change | | :----------------------------------- | :----- | :------------- | :----- | :------------- | :------------ | :---------------- | | SG&A expense | $671.5 | 18.4 % | $651.3 | 16.4 % | $20.2 | 3.1 % | | SG&A expense, same-store | $668.1 | 18.5 % | $651.3 | 16.4 % | $16.8 | 2.6 % | | Depreciation & amortization expense | $63.6 | 1.7 % | $61.1 | 1.5 % | $2.5 | 4.1 % | - Same-store SG&A expense increased due to higher headcount for organic growth, partially offset by lower incentive-based compensation[88] - SG&A expense as a percentage of sales increased due to decreased sales volume[89] Operating Income Operating Income (Q1 2024 vs. Q1 2023, in millions) | Metric | 2024 | % of Net Sales | 2023 | % of Net Sales | Dollar Change | Percentage Change | | :--------------- | :----- | :------------- | :----- | :------------- | :------------ | :---------------- | | Operating income | $393.1 | 10.8 % | $513.6 | 13.0 % | $(120.5) | (23.5)% | - Operating income decreased by 23.5% due to lower gross profit (from reduced metals prices and tons sold) and a moderate increase in SG&A expense[90] Other Income, Net Other Income, Net (Q1 2024 vs. Q1 2023, in millions) | Metric | 2024 | % of Net Sales | 2023 | % of Net Sales | Dollar Change | | :-------------- | :----- | :------------- | :----- | :------------- | :------------ | | Other income, net | $(12.8) | (0.4)% | $(5.8) | (0.1)% | $(7.0) | - The increase in other income, net, was mainly due to higher interest income from increased cash balances[93] Income Tax Rate - Effective income tax rate for Q1 2024 was 23.3%, down from 24.4% in Q1 2023, primarily due to state income taxes[94] Financial Condition Operating Activities - Net cash provided by operations decreased to $126.3 million in Q1 2024 from $384.6 million in Q1 2023, mainly due to lower profitability and increased working capital spending[95] - Days sales outstanding were 40.8 days (Q1 2024) vs. 40.0 days (Q1 2023); inventory turnover rate was 4.6 times (Q1 2024) vs. 4.9 times (Q1 2023)[95] Investing Activities - Net cash used in investing activities increased to $177.4 million in Q1 2024 from $102.6 million in Q1 2023, primarily due to capital expenditures and an acquisition[96] Financing Activities - Net cash used in financing activities significantly decreased to $90.3 million in Q1 2024 from $639.2 million in Q1 2023, mainly due to the redemption of $500 million senior notes in January 2023 and reduced share repurchases[97] - Increased quarterly dividend rate by 10% to $1.10 per common share in Q1 2024[98] Share Repurchase Plan - As of March 31, 2024, $1.44 billion remained authorized under the $1.5 billion share repurchase program[99] Debt - No outstanding borrowings on the $1.5 billion unsecured revolving credit facility as of March 31, 2024[100] - Aggregate of $1.15 billion principal amount of senior unsecured note obligations with maturities through 2036[100] Liquidity and Capital Resources - Primary sources of liquidity (operations, cash, credit agreement) are believed to be sufficient for cash requirements and stockholder returns[103] - As of March 31, 2024, cash and cash equivalents were $934.9 million, and the net debt-to-total capital ratio was 2.6%[103] - $400.3 million of debt obligations are due before the Credit Agreement matures on September 3, 2025[104] Covenants - The company was in compliance with all financial maintenance covenants in its Credit Agreement at March 31, 2024[106] Seasonality - Overall operations have not shown material seasonal trends due to geographic, product, and customer diversity[107] - Revenues in July, November, and December are typically lower due to fewer working days[107] Goodwill and Other Intangible Assets Goodwill and Intangible Assets (as of March 31, 2024, in billions) | Asset Type | Amount | % of Total Assets | % of Total Equity | | :-------------------------- | :----- | :---------------- | :---------------- | | Goodwill | $2.13 | 20% | 27% | | Other intangible assets, net | $0.986 | 9% | 12% | - Goodwill and indefinite-lived intangible assets are not amortized but are subject to annual impairment tests[108] Critical Accounting Estimates - Critical accounting estimates involve significant estimation uncertainty and include the recoverability of goodwill, other indefinite-lived intangible assets, and long-lived assets[111] - No material changes to critical accounting estimates occurred during Q1 2024[112] Website Disclosure - The company uses its website (www.reliance.com and investor.reliance.com) as a distribution channel for material company information[113] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section states that there have been no material changes to the company's exposures to market risk as disclosed in its Annual Report on Form 10-K for the year ended December 31, 2023 - No material changes to market risk exposures since the 2023 Annual Report on Form 10-K[114] Item 4. Controls and Procedures Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of March 31, 2024. No material changes to internal control over financial reporting occurred during the first quarter of 2024 - Disclosure controls and procedures were effective as of March 31, 2024[115] - No material changes to internal control over financial reporting during Q1 2024[116] PART II — OTHER INFORMATION Item 1. Legal Proceedings This section incorporates by reference the information on legal matters and environmental contingencies from Note 10 of the Unaudited Consolidated Financial Statements, indicating no material adverse impact is expected from current legal actions or environmental projects - Information on legal matters and environmental contingencies is incorporated from Note 10[117] Item 1A. Risk Factors This section states that there have been no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the year ended December 31, 2023 - No material changes to risk factors since the 2023 Annual Report on Form 10-K[119] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section indicates that there were no unregistered sales of equity securities or use of proceeds to report for the period - No unregistered sales of equity securities or use of proceeds[120] Item 3. Defaults Upon Senior Securities This section reports that there were no defaults upon senior securities during the period - No defaults upon senior securities[121] Item 4. Mine Safety Disclosures This section states that mine safety disclosures are not applicable to the company - Mine safety disclosures are not applicable[122] Item 5. Other Information This section confirms that no directors or officers adopted, terminated, or modified a Rule 10b5-1 or non-Rule 10b5-1 trading arrangement during the first quarter of 2024 - No directors or officers adopted, terminated, or modified Rule 10b5-1 or non-Rule 10b5-1 trading arrangements in Q1 2024[123] Item 6. Exhibits This section lists the exhibits filed or furnished with the Quarterly Report on Form 10-Q, including certifications from the CEO and CFO, Sarbanes-Oxley Act certifications, and unaudited financial information formatted in iXBRL - Includes certifications from CEO and CFO (Exhibits 31.1, 31.2), Sarbanes-Oxley Act certification (Exhibit 32), and unaudited financial information in iXBRL format (Exhibit 101)[124] SIGNATURE This section contains the signature of Arthur Ajemyan, Senior Vice President and Chief Financial Officer, on behalf of Reliance, Inc., certifying the filing of the report - Report signed by Arthur Ajemyan, Senior Vice President and Chief Financial Officer, on May 2, 2024[127]