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Edited Transcript of RS earnings conference call or presentation 23-Apr-20 3:00pm GMT

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Q1 2020 Reliance Steel & Aluminum Co Earnings Call Los Angeles Jun 11, 2020 (Thomson StreetEvents) -- Edited Transcript of Reliance Steel & Aluminum Co earnings conference call or presentation Thursday, April 23, 2020 at 3:00:00pm GMT TEXT version of Transcript ================================================================================ Corporate Participants ================================================================================ * Brenda S. Miyamoto Reliance Steel & Aluminum Co. - VP of Corporate Initiatives * James D. Hoffman Reliance Steel & Aluminum Co. - President, CEO & Director * Karla R. Lewis Reliance Steel & Aluminum Co. - Senior EVP & CFO * William K. Sales Reliance Steel & Aluminum Co. - EVP of Operations ================================================================================ Conference Call Participants ================================================================================ * Alexander Nicholas Hacking Citigroup Inc, Research Division - Director & Head of Americas Metals and Mining Sector * Christopher Michael Terry Deutsche Bank AG, Research Division - Research Analyst * John Charles Tumazos John Tumazos Very Independent Research, LLC - President and CEO * Philip Ross Gibbs KeyBanc Capital Markets Inc., Research Division - Director & Equity Research Analyst * Seth R. Rosenfeld Exane BNP Paribas, Research Division - Research Analyst * Timna Beth Tanners BofA Merrill Lynch, Research Division - MD ================================================================================ Presentation -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- Greetings, and welcome to Reliance Steel and Aluminum Company's First Quarter 2020 Earnings Conference Call. (Operator Instructions) As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Brenda Miyamoto. Please go ahead. -------------------------------------------------------------------------------- Brenda S. Miyamoto, Reliance Steel & Aluminum Co. - VP of Corporate Initiatives [2] -------------------------------------------------------------------------------- Thank you, operator. Good morning, and thanks to all of you for joining our conference call to discuss our first quarter 2020 financial results. I'm joined by Jim Hoffman, our President and CEO; and Karla Lewis, our Senior Executive Vice President and CFO; Bill Sales, our Executive Vice President, operations, will also be available during the question-and-answer portion of this call. A recording of this call will be posted on the Investors 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 COVID-19 and related economic conditions on our future operations, which may not be under the company's control, which 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 31, 2019, under the caption Risk Factors, disclosure in our press release this morning and other reports filed 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, President and CEO of Reliance. -------------------------------------------------------------------------------- James D. Hoffman, Reliance Steel & Aluminum Co. - President, CEO & Director [3] -------------------------------------------------------------------------------- Good morning, everyone, and thank you for joining us to discuss our first quarter 2020 results and our response to the COVID-19 pandemic. We had a strong start to the year, following several financial performance records in 2019. Overall demand levels were healthy, through most of the first quarter of 2020. Our strong non-GAAP gross profit margin of 31.9% was above our estimated sustainable range of 28% to 30% and produce non-GAAP gross profit dollars of $820.5 million on net sales of $2.57 billion and non-GAAP pretax income of $220.6 million. Our non-GAAP earnings per diluted share of $2.45 significantly exceeded our first quarter guidance. I will provide additional details on our Q1 performance drivers in a moment. But first, I would like to address the coronavirus pandemic and how we expect it to impact our business, and actions Reliance is taking to address this extraordinary situation. First and foremost, our thoughts and payers go out to everyone around the world fighting this war, especially those on the front line, helping the people who are directly impacted. Most of our locations continue to operate, albeit at reduced levels as essential businesses under the United States Department of Homeland Securities, Cybersecurity and Infrastructure Security Agency, CISA guidance. We continue to work closely with our suppliers and are grateful for their ongoing support and partnership to withstand these challenging circumstances. We are engaged with and listening to our customers and adapting to address and support their needs through this uncertain and difficult time. We have taken difficult actions, including workforce reductions to rightsize our operations to sustainable levels that we believe will enable us to emerge from this current crisis intact, prepared and positioned to face new business reality, including the ability to quickly ramp up with our customers and suppliers and to recall laid-off employees when the time come. Importantly, many of our businesses are supporting customers on mission-critical projects to aid in the COVID-19 response around the country. To name a few, we are pleased to be supplying processed aluminum necessary for ventilator production, metal doors for hospital walls and facilities being converted for patient care and metal for construction of decontamination systems to sanitize N95 masks. We are proud to support these and many other opportunities that improve our service and contributions to the communities in which we live and work. To that end, many of our businesses have been donating personal protective equipment such as masks and safety glasses to support first responders and health care providers on the front lines of the fight against COVID-19. As I have stated, time and time again, the health, safety and well-being of our employees is our most important core value at Reliance. As such, we took immediate action to lower the risk to our employees by promoting remote work routine, canceling employee travel and group events and restricting visitors to our facilities. We implemented social distancing and improved sanitation measures in the workforce to comply with heightened safety standards. We provided temporary aid in the form of paid time away from work to support our employees impacted by COVID-19, whether due to exposure to the virus or needed care for their families. We have expanded our employee emergency assistance fund Reliance Cares to provide grants to our employees impacted by COVID-19. I want to take a minute to thank each and every one of our employees for their unwavering commitment and dedication to health and safety at Reliance and our communities at large. Finally, I would like to reinforce that our operating model is designed to support the company through both good times and bad as we have demonstrated throughout our 80-year history. Although the current situation, unlike anything we have experienced, we believe the resilience of our business model will help us manage through this particularly challenging time just as it has in the past. For instance during the great recession on our 2009 shipments fell 32% and our average selling price declined 18.4% from 2008. We took immediate actions including reducing our workforce by 21% and lowering inventory by over $1 billion in a 9 month period from September 2008 through June of 2009. These actions allowed us to remain profitable for the 2009 year. We're doing what we need to do to ensure Reliance stay safe and healthy. We're concurrently focused on maintaining our solid financial position. We have a very strong balance sheet with an investment-grade credit rating of $831.5 million available for borrowing on our $1.5 billion revolving credit facility as of March 31. Our business model promotes countercyclical cash flow generation, which when combined with effective working capital management enhances liquidity. In addition, our highly variable cost structure provides financial flexibility, with approximately 65% of our SG&A expense being people-related. As I mentioned earlier, we made the difficult decision to reduce our workforce through layoffs and reductions in force. Since March 4, first, we have reduced our workforce by approximately 1,600 people or 11% of our workforce, including reductions at the 3 energy businesses we have closed permanently. These decisions were made on a location-by-location basis, which provides us the flexibility to continue to make changes as warranted going further, either with further cuts, if business continues to flow or by quickly bringing back employees to support stronger demand. Recognizing the unique nature of this downturn, we extended health care benefits for a transitionary period to support impacted employees and their families, which is something we have never done in the past. We continue to actively monitor daily and hourly developments of this unprecedented emergency situation, including federal, state and local orders as well as recommendations of public health authorities. I would like to thank each of my reliance colleagues for sharing the commitment to promote a healthy and safe workplace by practicing social distancing and heightened sanitation procedures in the workforce and working from home, if practical. Perhaps most importantly, I am grateful to see the consistent application of practical common sense, good judgment as we all work together to protect each other in these extraordinary and unprecedented times. I'll now shift gears to a more detailed discussion of our first quarter performance drivers. Our shipments were generally in line with our expectations, supported by a relatively healthy demand environment, while overall metals pricing softened compared to the prior quarter. Despite pricing pressure, our non-GAAP FIFO gross profit margin of 31.1% remained at strong levels as a direct result of our management's disciplined approach to pricing and focus on high-quality, high-margin business. Turning to market conditions in our key end markets. Demand for nonresidential construction, the largest end market we serve remain solid. For the majority of the first quarter, supported by strength in shipment volumes of carbon steel structural and tubing products. While we are beginning to see some second quarter projects being deferred, we are cautiously optimistic that demand trends in the nonresidential construction market will recover, once construction activities picks up after the COVID-19 related shelter in place orders are lifted. Demand for the toll processing service we provide to the automotive market started the year off strong, supported by ongoing demand strength for aluminum content in vehicles. However, the sudden closure of many of these automotive OEMs and steel and aluminum mills in mid-March due to COVID-19 sharply reduced demand. Focusing us to drastically cut production at our toll processing operations in both the U.S. and Mexico. We took decisive, immediate action, reducing the workforce at our toll processing operations by almost 50%, by the end of the first quarter. While the duration of the shutdown remains highly uncertain at this time. We believe we are well positioned to support increased production level as the automotive market recovers due to our proactive investments in facilities and value-added processing equipment. And the expectations that we will be able to quickly bring back our highly skilled employees. On a more positive note, our toll processing volumes for the canned beverage and appliance end market remains fairly steady throughout the first quarter. Aerospace demand was relatively steady during the quarter as we continue to ship against strong backlogs and orders already in progress. With our first quarter of 2020 aerospace tons down only 3.2% compared to the first quarter of 2019, and our average selling price holding relatively flat. Going forward, we are expecting activity for commercial aerospace to decline beginning in the second quarter as the direct result of COVID-19. We will continue to monitor the evolving situation regarding air traffic and our aerospace businesses supporting these end markets, given the uncertain long-term impact. Conversely, defense-related aerospace demand has remained strong with stable trends continuing into April. Demand in heavy industry for both agriculture and construction equipment was steady throughout January and February. However, reductions in spending significantly declined in both of these markets in March and April, leaving our outlook highly uncertain at this point in time. Demand for energy, which is mainly oil and natural gas remains at low levels. Given changes in drilling technology and increased global oil production that led to significantly lower oil prices in the first quarter of 2020, we've made the decision to permanently close 3 of our businesses, supporting the energy end market. We also assessed our remaining energy business. Given that our long-term outlook for energy market has significantly reduced from prior cycles with an unclear path recovery, which resulted in impairment charges of those businesses as well as the closed business. As a result, we recognized impairment and restructuring charges of $137.5 million in the first quarter of 2020, which Karla will elaborate on shortly. The semiconductor market was a bright spot for the quarter, with demand continuing its steady improvement from 2019. While up overall, our semiconductor operations in Asia were negatively impacted by COVID-19 in the earlier part of the quarter as compared to our North American operations. In the first 2.5 weeks of April, our tons sold per day were down 20% compared to the same period in March, excluding our toll processing ton. While our outlook for nearly all of our end markets remains challenging and unclear today. I'd like to highlight that we anticipate that our intentional diversification of end markets, products and geography as well as our decentralized operating model will serve us well through recovery that will follow these difficult and uncertain times. Turning to capital allocation. Our overall philosophy on this subject has not changed. Even in challenging times like these, we're executing the same strategy through a balanced focus on growth and stockholder returns. Because we sell into cyclical market, characterized by pricing and demand volatility we believe it is critically important to maintain a flexible and opportunistic capital allocation strategy. Our operations continue to generate cash as a result of the countercyclical cash flow generation built into our business model, even during the first quarter, which is typically a period in which our working capital needs are higher. Further, consistent with our ongoing philosophy, we are continuing to rightsize our inventory to reflect current demand levels, which helps free up cash during a downturn. Although we remain comfortable with our current liquidity position, we have reduced our 2020 capital expenditure budget from $250 million to $190 million. We will deploy cash fund essential needs and certain strategic projects to support our customers through the additional innovative equipment and advanced technology in an effort to further strengthen our value-added processing capabilities. We will defer nonessential CapEx until we determine that it is prudent to invest in these opportunities. As it relates to M&A, we are not surprised to see a reduction in the number of potential acquisition opportunities in the market, given the current environment. Meanwhile, the integration of Fry Steel Company, which we acquired on December 31, remains on track. As you will recall, Fry Steel is a general line, long bar distributor in Santa Fe Springs, California, with a strong brand reputation, driven by a superior customer service diverse product offerings and next-day delivery commitment. In regard to stockholder return. We are pleased to continue delivering value to our stockholders through the payment of a regular quarterly dividend as we have done for 61 consecutive years. Since our IPO in 1994, we've increased the dividend 27x, including our most recent increase of 13.6% in the first quarter of 2020. We also repurchased $300 million of our common stock in the first quarter. While we expect to remain opportunistic in our approach to repurchases, we must concurrently consider our near-term focus on cash preservation as our markets recover from the impact of COVID-19. In summary, market conditions were generally favorable in the first quarter, and we delivered solid results despite extraordinarily difficult circumstances resulting from the coronavirus pandemic that directly impacted our business beginning in mid-March. I would like to once again thank each and every employee in the Reliance family of companies for their ongoing hard work and flexibility as well as their unwavering commitment to operating in a safe environment. Their collective efforts empower us to support our customers in essential businesses as we manage through this unprecedented crisis. As a result, we will challenge ourselves to drive continuous improvement in all aspects of our business. However, as we make decisions moving forward. I want to emphasize that the health and safety of our employees, customers, suppliers and communities will always reign in supreme. As we look forward, we believe our diversification strategy and our model of focusing on higher-margin businesses and value-added processing will help support us through the recovery that will follow this crisis. Our decentralized operating model enables us to evaluate each of our business on its own merits and to ramp up individual operations quickly. Our strong balance sheet and cash flow enables us to continue operating our business today, preserve jobs for the majority of our employees, help support future demand from our customers and strategically partner with our key suppliers once the situation stabilizes. We believe that we are well positioned to emerge from this situation as a stronger and more innovative company, and we look forward to bringing back those dedicated employees who are currently laid off. Thank you for your time and attention today. I will now turn the call over to Karla to review our first quarter 2020 financial results in more detail. Karla? -------------------------------------------------------------------------------- Karla R. Lewis, Reliance Steel & Aluminum Co. - Senior EVP & CFO [4] -------------------------------------------------------------------------------- Thanks, Jim, and good morning, everyone. Net sales of $2.57 billion for the first quarter of 2020 decreased 13% from the first quarter of 2019, mainly due to lower metal prices, with our average selling price down 11%. Demand was healthy with only a slight 2.2% reduction in shipment levels. Compared to the fourth quarter of 2019, net sales increased 5.1%, driven by a 6.8% increase in tons sold, which was consistent with our guidance of up 6% to 8%. Our average selling price per ton sold declined 1.2% compared to the fourth quarter of 2019, and was below our guidance of up 1% to 2%, mainly as a result of downward pricing pressure due to the coronavirus pandemic. Our gross profit margin on a GAAP basis for the first quarter of 2020 was strong at 30.3% and was slightly above our estimated sustainable range of 28% to 30%. Our strong non-GAAP gross profit margin of 31.9% included $20 million of LIFO income and excluded charges related to the closure of certain of our energy businesses that resulted in a $39.8 million charge to inventory and cost of sales. On a non-GAAP FIFO basis, which is the best measure of our day-to-day operations, our gross profit margin of 31.1% increased 200 basis points from 29.1% in the fourth quarter of 2019. This is a direct result of the outstanding performance by our managers in this field, who, despite the challenging circumstances, continue to maintain pricing discipline by focusing on higher-margin orders and increasing the level of value-added processing services provided to our customers. We are very proud of and grateful for their efforts. As I mentioned, we recorded LIFO income of $20 million or $0.23 of earnings per diluted share in the first quarter of 2020 compared to LIFO income of $12.5 million or $0.14 of earnings per share in the first quarter of 2019 and LIFO income of $81 million or $0.89 of earnings per share in the fourth quarter of 2019. As a result of downward pressure on metal pricing and significant uncertainty in the current environment, we have updated our estimated annual LIFO adjustment to $80 million of LIFO income from our prior estimate of $20 million annual LIFO expense. Similar to what we experienced in 2019, should metal pricing continue to decline and as we rightsize our inventory quantities to reflect lower demand levels. We expect to generate LIFO income which will positively benefit our gross profit margin and earnings. At March 31, our LIFO reserve was $117.6 million and we believe that the LIFO method helps reduce the volatility of our earnings. Our first quarter same-store SG&A expenses decreased $15.3 million or 2.9% compared to the first quarter of 2019 on a 2.2% reduction in shipments, with our average headcount down 3.7% in the 2020 first quarter compared to the 2019 first quarter. Our performance-based compensation structure also contributed to lower expenses. I'll discuss our expense drivers in more detail shortly when I discuss the cost reduction actions we are in the process of implementing. As Jim noted, our overall outlook for certain of our energy businesses has deteriorated significantly. Although we have consistently reacted to declines in this market over the years, we made the decision during the first quarter to close 3 of our businesses and to assess future outlooks for our remaining businesses servicing the energy market. As a result, we recorded pretax charges of $137.5 million or $1.53 of earnings per share including a $97.7 million impairment charge and $39.8 million of inventory write-downs included in cost of sales in the first quarter of 2020. Our non-GAAP pretax income was $220.6 million, with a pretax margin of 8.6% for the first quarter of 2020, consistent with our pretax margin in the first quarter of 2019, and we are very proud of these results. Our effective income tax rate for the first quarter was 24.3%, down slightly from 25% in the first quarter of 2019. At this time, we estimate our effective tax rate for the full year of 2020 will be approximately 24.3%. Non-GAAP net income attributable to Reliance for the first quarter of 2020 was $164. 8 million, resulting in non-GAAP earnings per diluted share of $2.45. If you were to back out the change in our LIFO estimate to $20 million of income from $5 million of expense, our first quarter of 2020 non-GAAP earnings per share would have been approximately $2.17, which would have exceeded our guidance range of $2 to $2.10. Our earnings per diluted share were $0.92 in the first quarter of 2020 and down from $2.80 in the first quarter of 2019, mainly due to both lower metal pricing and the impairment and restructuring charges. Turning to our balance sheet and cash flow. We generated cash flow from operation of $170.8 million during the first quarter of 2020. We invested $55.5 million in capital expenditures, paid dividends of $41.9 million to our stockholders and repurchased approximately 3.3 million shares of our common stock at an average cost of $90.09 for a total of $300 million. As Jim mentioned, with the significant uncertainty that currently exists, we have adjusted our capital allocation priorities to focus on cash preservation, including rightsizing our inventory and pausing nonessential capital expenditures. Nevertheless, we remain committed to concurrently making investments that support the long-term growth and sustainability of our company as well as continuing to provide returns to our stockholders. At March 31, 2020, our total debt outstanding was $1.84 billion, resulting in a net-debt-to-total capital ratio of 25.4%. Our net-debt-to-EBITDA multiple was 1.4x. Our leverage ratios support our investment-grade credit rating and are well below our financial covenants. As of the end of the first quarter, we had $831.5 million available on our $1.5 billion revolving credit facility, and we believe we have ample liquidity to continue operating through this challenging environment and remain confident that we could raise additional capital in the credit markets if needed. Due to the macroeconomic uncertainty, stemming from the coronavirus pandemic and overall lack of visibility into future demand trends, metal pricing and market conditions in the end markets in which we operate, we will not provide guidance for the second quarter of 2020 at this time. However, we will provide general guidance as to overall market conditions and the actions we expect to take to help us manage through this downturn. We anticipate that shipment levels in the near-term could decline even further than the April levels previously discussed. And that metal pricing will remain under pressure and could fall further from current levels. In this type of environment, we expect competition to increase which could lead to some erosion of our currently strong gross profit margin. To offset lower shipment levels, we have reduced our workforce by approximately 11%, which is expected to reduce our SG&A expenses beginning in the second quarter of 2020, net of any related severance and extended benefit coverage costs. We expect further workforce reductions if our shipment levels continue to decline. In addition, lower profitability levels will result in reduced performance-based compensation expense. We are also focused on rightsizing our inventory to meet current shipment levels. We have worked with our mill partners to cancel and push out certain orders and expect to reduce our mill purchases in the near term. We will look to leverage Reliance's company-wide inventory and purchase from each other in smaller quantities to bring down our overall inventory levels. However, with lower shipment levels, there will be a lag to rightsizing our inventory. While we never take these actions lightly, given the impact to our employees and their families, and also to our suppliers, we believe these are the necessary and appropriate steps to maintain our operating efficiencies and to help preserve liquidity and long-term profitability. In closing, we produced strong first quarter results despite a softer pricing environment than we had anticipated. Excellent execution by our managers in the field along with our strategic focus on high levels of customer service and value-added processing resulted in yet another quarter of strong non-GAAP earnings. Thank you again to all of our employees in the Reliance family of companies for your ongoing commitment to health, safety and operational excellence. While we face difficult times ahead as we all work together to slow the spread of COVID-19. I'd like to echo Jim's statement that we believe our proven business model, strategy and the proactive measures we're taking today will help us emerge from this downturn even stronger than before. Our thoughts are with our impacted employees and their families, and we look forward to improved business activity levels so that we can safely bring our employees back to work. We wish good health to all. That concludes our prepared remarks. Thank you for your attention. And at this time, we would like to open the call up to questions. Operator? ================================================================================ Questions and Answers -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- (Operator Instructions) Our first question comes from Seth Rosenfeld with Exane BNP. -------------------------------------------------------------------------------- Seth R. Rosenfeld, Exane BNP Paribas, Research Division - Research Analyst [2] -------------------------------------------------------------------------------- Just like to get a better sense, please, of the impact of the sharp decline in the auto market on your toll processing operations. You commented earlier that, I believe, headcount has been reduced by roughly 50% in this part of your business. Is that representative of the scale of volume decline you witnessed? Or have you seen perhaps a sharper decline in that figure? And when we think about the outlook for gross margins going into Q2, obviously, the Q1 performance is particularly robust. I believe that you commented earlier in the prepared remarks, you should expect to see some compression in the margin figure. How should we think about that in terms of the risk of perhaps fixed costs under-absorption, inventory holding losses or just much lower contribution from toll processing? How should we think about the moving part in the potential scale of gross margin compression into Q2? -------------------------------------------------------------------------------- James D. Hoffman, Reliance Steel & Aluminum Co. - President, CEO & Director [3] -------------------------------------------------------------------------------- Okay. So a couple of questions in there. Let me talk about -- a little bit about the automotive first, and we have Bill sales, who's not in the room, but I'm going to ask Bill to jump in on the auto part. The 50% reduction, that's kind of reflective of what the business drop we saw. I'll remind you that we've been through this before, 2009 is a good example of what happens when a certain market that goes down. We're having a nice start and fulfilling our obligations to our partners. I'll remind you that our customers are not the automotive companies themselves, but the suppliers of metal. We were doing well, and they started announcing closures on the steel and aluminum market and in response to the automotive shutdowns. The good part about that is we have a schedule as to when they are coming up. We'll see those are estimates on their part. So again, we simply react to what our customers are telling us. We don't speculate. But it's a strong market for us. We've invested a lot of money in. We continue to see that as a great market going forward. And I'm going to ask Bill, if you don't mind, Bill, giving us some more color, to address Seth's question on the automotive? -------------------------------------------------------------------------------- William K. Sales, Reliance Steel & Aluminum Co. - EVP of Operations [4] -------------------------------------------------------------------------------- Yes, Jim. Yes, the 50% reduction was really tied to those auto plant closures. And so as Jim said, we've got a schedule. It looks like a majority of those plants are going to be reopening in early May. We've got a structure in place in terms of how we structured the layoff, where those highly skilled employees, we can bring back as those plants start to ramp back up. So I think that was a snapshot in time based on the closures as things reopen and they start to ramp back up, we'll react to that and be able to meet their requirements. -------------------------------------------------------------------------------- Karla R. Lewis, Reliance Steel & Aluminum Co. - Senior EVP & CFO [5] -------------------------------------------------------------------------------- And Seth, this is Karla to comment on some of your questions around cost and gross profit outlook. Certainly, with volumes down, we do see a decline there, but we can also, with our variable cost structure. The majority, 65% of our SG&A expenses are people related. So as we, unfortunately, had to do that precision strip, we did take some big workforce reductions very quickly, but we hope to be able when auto's come back up to ramp that up again very quickly. But while we're down, that takes a big chunk of our cost out of the system. There are a lot of other variable costs that go along with that. So we are scaling. We can't take out necessarily one-for-one, but we're certainly bringing our expenses down with the lower volumes that we're experiencing there. And it was most drastic because of the sudden stop in auto, but we've done that across other of our businesses as they're impacted, depending on which of their customers can continue to operate as essential businesses. So we've been focused on that. We'll continue to focus on that. You asked about inventory losses because of prices coming down. That's one of the reasons with our LIFO inventory costing method that it somewhat gives you a buffer, so to speak, from taking those inventory losses because of the LIFO reserve that we have and helps reduce the volatility in our earnings. So we're not anticipating taking inventory losses. And remember in auto, which, as we said, is the hardest hit end market has suddenly hit that we sell into, we don't own the inventory there. So there aren't any inventory losses gains, anything related to that part of the business. And I did comment in the prepared remarks that just when things are more competitive when there's less demand and there's still supply out there and people are holding higher cost inventory. Often, we can see things happen in the marketplace by competitors and others that can erode margins a bit. We weathered through this before, we still have -- we had extremely strong gross profit margins in the first quarter. And a lot of that's because of the value-add processing we're doing, our next-day delivery, our small order size. We don't think those get impacted as much as the general market, but we're just being cautious in trying to explain the landscape out there and that there could be some downward pressure. -------------------------------------------------------------------------------- James D. Hoffman, Reliance Steel & Aluminum Co. - President, CEO & Director [6] -------------------------------------------------------------------------------- Yes. So just one more comment, silver lining, the automotive companies do not hold inventory at their plant. So when they do ramp up, they look to us to get right back in as quickly as possible, which we can do very quickly to start supplying parts to that. -------------------------------------------------------------------------------- Seth R. Rosenfeld, Exane BNP Paribas, Research Division - Research Analyst [7] -------------------------------------------------------------------------------- If I can just press with one quick follow-up. The recently revised guidance range of 28% to 30% gross margin. Obviously, you're now expecting a greater LIFO tailwind into Q2. But are you still confident that at least the bottom end of that range can be met going into Q2? -------------------------------------------------------------------------------- Karla R. Lewis, Reliance Steel & Aluminum Co. - Senior EVP & CFO [8] -------------------------------------------------------------------------------- I think we're confident about that as we are about anything right now. I mean, Q2, we're currently anticipating that, that would be the hardest hit time period as we work through this COVID-19 crisis. It extends, we'll see. But could we bump down? I think we kind of try to say it's sustainable on an annual basis. We certainly -- we think we should be in there. But as we said, depending on how things unfold because this -- I'm sure you've all seen things change every day. But currently, I think we should stay within that range on a LIFO basis. -------------------------------------------------------------------------------- Operator [9] -------------------------------------------------------------------------------- Our next question comes from Timna Tanners with Bank of America Merrill Lynch. -------------------------------------------------------------------------------- Timna Beth Tanners, BofA Merrill Lynch, Research Division - MD [10] -------------------------------------------------------------------------------- So I was just hoping to clarify, I think the last questions were pretty all-encompassing. So I just wanted to drill down a little bit and understand. I think the key thing we want to understand is how much you can rightsize operations because you've done a lot. But I just want to ask on the framework for your overhead. If it's -- 2/3 of that is labor and the other 1/3. Is it fair to assume that 2/3 is flexible and then 1/3 is less variable? Or can you provide us a little bit more framework on how to think about that? -------------------------------------------------------------------------------- James D. Hoffman, Reliance Steel & Aluminum Co. - President, CEO & Director [11] -------------------------------------------------------------------------------- That's a good way look at it. You kind of need to factor in the -- how unusual this is. We don't know. I mean, we use the word uncertainty and challenging quite a bit when we're talking about how we're running our facilities. There is a certain level of people you need to keep to fill orders. We're filling orders as we are right now. As these -- the businesses ramp up, we'll be able to ramp up quickly. But we -- that's why we laid people off and remind them that they could be called back fairly quickly also because we are a major part of our customers' business. They continually ask us to do more and more. We anticipate or I anticipate additional value-added when they do come back. So with the choppy kind of market the way we are right now, we think we have the right level of employment right now as far as the headcount, and we have some really good people that we don't want to go elsewhere. So we keep them laid off and try to take care of them the best we can. So we've done this before, Timna, as you well know, we're good at it. And this is unusual, but we'll continue to make good decisions when it comes to rightsizing our SG&A cost. -------------------------------------------------------------------------------- Karla R. Lewis, Reliance Steel & Aluminum Co. - Senior EVP & CFO [12] -------------------------------------------------------------------------------- Yes. And so -- and Timna, I can't give you a formula to plug into a model on this one because this is different than downturns that we've been through in the past. As I mentioned earlier, we think it's a fairly short list. So our approach has been a little different because of the nature of this. If we come back in a B or in U, differently than we came back from '09, where it was a very long, slow improvement. We expect to bring a lot of those employees back. So even the way we've approached our workforce reduction has been different during this downturn so far than it did. Previously, in 2009 -- 2008 and '09, over a 9-month period, we took out 23% of our workforce. We took out over half of our inventory, which is over $1 billion at the time. But again, that was over a 9-month period. That was more where we were actually letting people go, separating from employment as opposed to putting them on a temporary layoff structure. So we have to see how this evolves. We don't have a model for exactly how far we could go. A lot of our -- we do have a lot of variable costs, but a lot of our businesses are structured differently, so it's not cookie-cutter to give you a percent fixed versus variable. So as Jim said, I mean, we are -- we think we’re taking the right actions to reduce, but there is uncertainty out there. -------------------------------------------------------------------------------- James D. Hoffman, Reliance Steel & Aluminum Co. - President, CEO & Director [13] -------------------------------------------------------------------------------- And it helps that our model is so diverse when it comes to product, geography, markets. We have a sound model. And in good times and bad the model -- it remains easier to manage because we can look at it operation by operation, depending on what that particular location is what their order count is. -------------------------------------------------------------------------------- Timna Beth Tanners, BofA Merrill Lynch, Research Division - MD [14] -------------------------------------------------------------------------------- Sure. So I guess to summarize, like if we look at the Q3 '08 to Q3 -- or Q2 '09, you had depressed gross profit margins for 4 quarters in a row, but you’re saying that this time you're thinking it could be a more contained, short-lived situation and that's why you're talking about full year gross margins maybe being within the range or if that's what I understood you saying. So I just wanted to clarify that. And then just to understand how is it working when you go to the mills? And can you delay and extend? I mean, how are those negotiations going? Are they just understanding that you'll recoup those volumes when demand is back? Just wanted a little more color if that's unusual as well. -------------------------------------------------------------------------------- Karla R. Lewis, Reliance Steel & Aluminum Co. - Senior EVP & CFO [15] -------------------------------------------------------------------------------- Yes. So to the first part of your question, yes, you're right. Our actions are a little different this time with the way we're reacting because like we said, we think the nature of this is more short-term based on what we know today. So I think that's the positive that we're taking the appropriate actions, but we're taking it in anticipation of coming out of this fairly quickly and being able to be there to support the increased business activity at whatever level that is. And with our model, with our high-value add with our quick deliveries, we anticipate maintaining the value that we provide our customers and being able to get those gross profit margins that we've risen to over the last few years. -------------------------------------------------------------------------------- James D. Hoffman, Reliance Steel & Aluminum Co. - President, CEO & Director [16] -------------------------------------------------------------------------------- Yes. And as far as the mills, obviously, we don't like to do what we're doing. However, we've got long-standing relationships with these folks. We've supported them year in, year out for a long period of time. We're a domestic buyer. I'll remind you that less than 5% of our spend even in normal times has been domestic. I know they appreciate that. They appreciate Reliance. And we do everything we can to be a good partner with them. And we're -- our communication with them is almost on a daily basis, and we're here to support them in these situations, they're going to support us, and we're both going to need each other in the supply chain when this does ramp up. So they're going according to plan. -------------------------------------------------------------------------------- Karla R. Lewis, Reliance Steel & Aluminum Co. - Senior EVP & CFO [17] -------------------------------------------------------------------------------- And just to clarify 95% domestic, 5% import. -------------------------------------------------------------------------------- James D. Hoffman, Reliance Steel & Aluminum Co. - President, CEO & Director [18] -------------------------------------------------------------------------------- Oh, what did I say? The other way around? Yes, good point. -------------------------------------------------------------------------------- Operator [19] -------------------------------------------------------------------------------- Next question comes from Chris Terry with Deutsche Bank. -------------------------------------------------------------------------------- Christopher Michael Terry, Deutsche Bank AG, Research Division - Research Analyst [20] -------------------------------------------------------------------------------- The first question I had just on working capital expectations. And just wanted to get a bit more sense on the ground. Are you getting any issues with cash collection from any of your customers? Or are there any things to think about there just in terms of the collecting accounts receivable or generally thinking that you'll be able to get more opportunities in working capital and it will be beneficial throughout the year? -------------------------------------------------------------------------------- Karla R. Lewis, Reliance Steel & Aluminum Co. - Senior EVP & CFO [21] -------------------------------------------------------------------------------- Chris, so from a customer payment standpoint, we've been monitoring that just to be on top of it. And we've seen a fall yet. So we're very positive that our customers are continuing to pay us in normal patterns. We do think there could be a little slowing in the next quarter, but we haven't seen anything yet. And we do look at working capital is really being a source of liquidity during this year because as -- with the expectation that metal pricing could come down and shipment losses coming down that reduces our accounts receivable. Therefore -- more quickly than the inventory. As we talked about, we're looking to bring inventory down. Both of those factors, lower metal pricing, bringing inventory down and that to our lower shipment levels also throws off cash. So we do anticipate some good contributions to cash flow from working capital reductions this year. -------------------------------------------------------------------------------- Christopher Michael Terry, Deutsche Bank AG, Research Division - Research Analyst [22] -------------------------------------------------------------------------------- Okay. And then you talked specifically about the auto market. I just wondered if -- I think you -- if I heard correctly, you said 20% decline in April in shipments. So I just wondered if you could talk about the aerospace market, in particular, what you're seeing there. And maybe there's a bit more granularity on that 20% decline, that's excluding tolling, I assume. So just if you could talk about aerospace in the context of the different market splits? -------------------------------------------------------------------------------- James D. Hoffman, Reliance Steel & Aluminum Co. - President, CEO & Director [23] -------------------------------------------------------------------------------- Bill, why don't you take that one? -------------------------------------------------------------------------------- William K. Sales, Reliance Steel & Aluminum Co. - EVP of Operations [24] -------------------------------------------------------------------------------- Okay. Chris, much like auto. I mean, the aerospace business, obviously, has been impacted negatively from this. We've always said we track build rates, backlogs and mill lead times to give us an indication of the health of that business. Airbus has announced that their build rates are going to be down by about 1/3. The picture of Boeing is not quite as clear, but we know build rates are coming down there. Backlogs are shrinking. They're seeing order cancellations. We think the backlog could shrink as much as 50%. But that still brings us to a backlog that is probably in that 3- to 4-year time frame. That if you go back and look over time, historically, that's kind of where the backlog used to be before this super cycle that we've been in. And what we're doing, much like auto is we're monitoring the situation on a program-by-program basis, and we're adjusting inventory and staffing based on what we see there. So that picture is still a little bit cloudy in terms of it's -- the commercial aerospace business is driven by passenger miles. And as we come out of this, I think we need to -- we'll just have to wait and see how quickly people go back to flying again. So we'll keep a close watch on that, but we will adjust accordingly based on what we see happening. -------------------------------------------------------------------------------- Karla R. Lewis, Reliance Steel & Aluminum Co. - Senior EVP & CFO [25] -------------------------------------------------------------------------------- Yes. And Chris, Bill just address primarily the commercial market. We've also got some good exposure on the defense side. And as we've talked about the last few quarters, that's been strong. We see that continuing at strong levels. So far through April, defense has held up. And we actually just extended our Joint Strike Fighter program. We announced that about 4 years ago when we initially got that program. It's a big program for us, and we were just awarded a 5-year extension on that, about $660 million over that time frame. -------------------------------------------------------------------------------- James D. Hoffman, Reliance Steel & Aluminum Co. - President, CEO & Director [26] -------------------------------------------------------------------------------- Yes. That program will take us out through 2026. And then the other thing to remember about our aerospace business is we're less than 50%, probably around 40% commercial aerospace, and then the balance of that would be noncommercial aerospace with defense being a big part of that. -------------------------------------------------------------------------------- Christopher Michael Terry, Deutsche Bank AG, Research Division - Research Analyst [27] -------------------------------------------------------------------------------- Okay. And just one more, if I may. The energy -- the 3 businesses you talked about supporting the energy market in your release. Just to put that in context, maybe as a percentage of your total energy exposure, just to see how big those facilities are. Can you give any color on that? -------------------------------------------------------------------------------- Karla R. Lewis, Reliance Steel & Aluminum Co. - Senior EVP & CFO [28] -------------------------------------------------------------------------------- Yes, Chris. So those 3 businesses that we shut down. In total, annual revenue -- currently, the run rate is about $100 million. So we were -- we used to be around 10% of our total revenue dollars within energy coming out of the last downturn, we were down to about 4% to 5%. So now it's about 3% to 4%. So not a huge portion. We've still got relatively consistent energy exposure. But I think what remains are the -- what's been the better part of our energy exposure. We're going to continue to service still a good market for us, and we hope to see improvements there in the future. But we felt it was -- we had a couple of businesses that have been struggling and we didn't see that really recovering at the levels we needed, so we made the decision. -------------------------------------------------------------------------------- James D. Hoffman, Reliance Steel & Aluminum Co. - President, CEO & Director [29] -------------------------------------------------------------------------------- And in my prepared comments Chris I made. Those decisions have been under consideration for quite some time. The technology and drilling has just changed. So if you look at it from a metals consumption in that market, it has shrunk. And the pie is smaller, and we have every intention to be a strong player in a smaller piece of the pie, of which we are. We still have some very fine energy-related companies in the oil patch, and we'll continue to support them and be that leading player in that market. -------------------------------------------------------------------------------- Operator [30] -------------------------------------------------------------------------------- Next question comes from Alex Hacking with Citi. -------------------------------------------------------------------------------- Alexander Nicholas Hacking, Citigroup Inc, Research Division - Director & Head of Americas Metals and Mining Sector [31] -------------------------------------------------------------------------------- Just 2 follow-up on the last question. I guess, after the closures of those energy facilities, what kind of utilization rate would your residual energy business be operating at? -------------------------------------------------------------------------------- James D. Hoffman, Reliance Steel & Aluminum Co. - President, CEO & Director [32] -------------------------------------------------------------------------------- I can't give you a number. That's too soon to tell, but the customers that we have serviced through those companies that we decided to firmly shut. We're able to absorb in our other energy business. I can't say what percent, but that is the intent. So I don't know what the utilization will be in the new operations. But suffice it to say, it will be better than it was. I just don't know what the percent would be. -------------------------------------------------------------------------------- Karla R. Lewis, Reliance Steel & Aluminum Co. - Senior EVP & CFO [33] -------------------------------------------------------------------------------- And Alex, some of the remaining energy businesses, part of the reason they're remaining is because some of them are not 100% energy. They have other parts of the business, too. So giving you a pure utilization rate would be difficult. We've, over the last few years, as we've seen declines, all of those different businesses right-sized as appropriate. So I think utilization might be a little less company-wide average during normal times, we usually operate about 2/3 of capacity. So the energy businesses are probably a little below that, but not significantly or we would have looked at it differently. -------------------------------------------------------------------------------- James D. Hoffman, Reliance Steel & Aluminum Co. - President, CEO & Director [34] -------------------------------------------------------------------------------- And that whole market is pretty much in shock right now with what's going on with the price of oil. So we'll let you know when the fog clears. -------------------------------------------------------------------------------- Alexander Nicholas Hacking, Citigroup Inc, Research Division - Director & Head of Americas Metals and Mining Sector [35] -------------------------------------------------------------------------------- Okay. And then I guess within the context of your shipments being down around 20% in early April, how does construction fit into that? I would assume that construction is holding it a little better than the average. Is that fair? -------------------------------------------------------------------------------- James D. Hoffman, Reliance Steel & Aluminum Co. - President, CEO & Director [36] -------------------------------------------------------------------------------- Yes, that's fair. That's fair. Up until that point, we were -- okay, I said call after call, it's become a nice slow burn-up, and that continued for the majority of the first quarter. And all of a sudden, these jobs that are already in the books, they've been deferred. We don't know how long, but they have to be canceled. You can't cancel an order or a big project midstream. So we anticipate that business to come back most likely sooner than some of the others, and we're a big participant in there. And there's always I hope, I guess, even though we don't think hope is a strategy that the -- there will be an infrastructure spend perhaps on the horizon. And when that happens, that will be good for that market as well. But we're -- that's a good business for us. And it just kind of had a slow drag right now based on the end user, the way they see their business and their cash flow. So we're obviously monitoring that on a daily basis. And I'll remind you that we've spent a lot of money over the years on the value-added end of that business, and we anticipate that to actually increase when the -- in the history when you go through these kind of sudden recessions, our customers ask us to do a lot more when they do come back. And we're positioned to do that, and we have spent money again, this year, to put in innovative equipment that allow us to meet and exceed our customers' needs. -------------------------------------------------------------------------------- Alexander Nicholas Hacking, Citigroup Inc, Research Division - Director & Head of Americas Metals and Mining Sector [37] -------------------------------------------------------------------------------- Okay. And then just one more quick one, if I may. I apologize. I should already know this, but I know about 1/3 of your shipments are into the transportation sector, roughly what's the split there between aerospace, autos and other? -------------------------------------------------------------------------------- Karla R. Lewis, Reliance Steel & Aluminum Co. - Senior EVP & CFO [38] -------------------------------------------------------------------------------- Yes, Alex. So yes, we think about 1/3 is transportation, what we can identify within that is aerospace, which probably averages around 12%. This is based on total revenue dollars. Outside of that, there's very little metals sold into auto. We break out the toll processing where the majority is auto is about 4% of our total revenues. And then you just got truck trailer, barge, shipbuilding, railcar, various other things in that category. -------------------------------------------------------------------------------- Operator [39] -------------------------------------------------------------------------------- (Operator Instructions) Our next question comes from Phil Gibbs with KeyBanc Capital Markets. -------------------------------------------------------------------------------- Philip Ross Gibbs, KeyBanc Capital Markets Inc., Research Division - Director & Equity Research Analyst [40] -------------------------------------------------------------------------------- Some of the essential growth CapEx that you're keeping for this year? Anything that we should be thinking specifically in terms of the projects? -------------------------------------------------------------------------------- James D. Hoffman, Reliance Steel & Aluminum Co. - President, CEO & Director [41] -------------------------------------------------------------------------------- You could -- look, in general, again, we talk about our Capex. Our CapEx is 300 line items. There are ones that we've decided to keep or orders or projects that were already placed and we need going forward. That's basically equipment, replacement equipment, maintenance. Remember, we have a piece of our CapEx every year that we could call maintenance. There's another piece of it that's growth that's the new innovative type equipment. We've kept that. It's probably easier to focus on what we've decided to hold up on. And we holding up on things like lease buyouts, resurfacing, parking lots and redecorating offices and all those types of things that they're just not mandatory. There are things that we can defer to next year if we need to do that. So we went through with a fine tooth comment realizing like I've mentioned before, that during these recessions when we come out on the other end, our customers ask us to do a lot more. So we've kept the innovative equipment that allows us to do more. And the equipment -- maintenance equipment that allows us to be more efficient. We've kept that going. So we're going to -- we're still going to be a participant in the CapEx spend and not to the degree that we had originally thought. -------------------------------------------------------------------------------- Philip Ross Gibbs, KeyBanc Capital Markets Inc., Research Division - Director & Equity Research Analyst [42] -------------------------------------------------------------------------------- That makes sense, Jim. When we think about the here and now, I know a lot of people are basing their decisions on survival and cash preservation. But as you look out over the next several years, are your customers being more adamant and saying we need to diversify our supply chain away from China. We need you to make these components. We need to start moving more of these specialized value-added steps away from them. Because clearly, what happened in the last 2 or 3 months shouldn't be acceptable to anyone. -------------------------------------------------------------------------------- James D. Hoffman, Reliance Steel & Aluminum Co. - President, CEO & Director [43] -------------------------------------------------------------------------------- I agree. I hope -- I hope a lot of are listening. We've seen that with a way to turn for reshoring. I guess, there'll be more of that. Our strategy -- our model is modeled to do more of that, and we anticipate more of that coming back that certainly would be good for U.S. and North America, and we'll see how that goes. I mean, if I was running one of those companies, not see what's going on in the world, we talk about now not only how do we operate now, but how are we going to operate in the future. And we look to see how the business is going to change, and we want to be on front of that. And certainly, that will be one of our considerations, and it should be as far as I'm concerned. As an American, the more domestic manufacturing that does come back will be good for the country and certainly good for Reliance and our domestic suppliers. -------------------------------------------------------------------------------- Karla R. Lewis, Reliance Steel & Aluminum Co. - Senior EVP & CFO [44] -------------------------------------------------------------------------------- And Phil, we can't say that this has been broad-based at this point. But certainly, with all the trade issues over the past few years. We have seen some of our customers take some actions to do that. And now we've talked about the fact that overall shipment levels are down. But within that, we have picked up some new pieces of business and seeing some opportunities where some customers and further downstream are adjusting and have to look for new partners to help them breach their products. -------------------------------------------------------------------------------- Philip Ross Gibbs, KeyBanc Capital Markets Inc., Research Division - Director & Equity Research Analyst [45] -------------------------------------------------------------------------------- If I could. I appreciate that. If I could sneak in one more for Bill, and then I'll hop off. But just on the semiconductor market, Bill, what are you seeing there? And in terms of momentum and what your customers are telling you just in terms of readiness? -------------------------------------------------------------------------------- William K. Sales, Reliance Steel & Aluminum Co. - EVP of Operations [46] -------------------------------------------------------------------------------- Yes. Sure, Phil. The semiconductor market, as Jim said earlier, has kind of been a bright spot. And we did see a little impact early in the first quarter in Asia, primarily China from the COVID virus. But that's rebounded, and our customers are still optimistic and still talking about good demand through the balance of the year. I will tell you, we're keeping a close watch on that. As you know, that market can stop on a dime. So we're watching it very closely. But so far, all the indications are, it should continue to be very good through the balance of the year. -------------------------------------------------------------------------------- Operator [47] -------------------------------------------------------------------------------- Next question comes from John Tumazos with Very Independent Research. -------------------------------------------------------------------------------- John Charles Tumazos, John Tumazos Very Independent Research, LLC - President and CEO [48] -------------------------------------------------------------------------------- Could you elaborate a little more on the outlook for acquisitions? It would seem like there could be some smaller operations here and there that with less revenue and less volume could be a lot more willing to sell because they have debt? And maybe even chances to buy things below tangible book value since inventory values have fallen so much? -------------------------------------------------------------------------------- James D. Hoffman, Reliance Steel & Aluminum Co. - President, CEO & Director [49] -------------------------------------------------------------------------------- Yes, John, this is Jim. Yes, they're out there. And we look -- our M&A strategy hasn't changed. We don't buy fixer uppers. They have to be immediately accretive. We've bought small companies. We've bought large companies. There's a significant amount of work involved regardless of how large or small the acquisition is. I can just tell you what we've seen has been on the extremely small side. Nothing that meets our requirements for profitability or interest, but we remain open for business over a period of time, it's been pretty fast and furious over the last couple of years of companies we look at. And I'm sure you realized, we've only pulled the trigger on one. And that was in December of 2019. We got -- we bought a really nice company there. But so far this year, there's fewer of them. And what we see it doesn't tickle our fancy, as they say. -------------------------------------------------------------------------------- John Charles Tumazos, John Tumazos Very Independent Research, LLC - President and CEO [50] -------------------------------------------------------------------------------- The accounts receivable category used up about $150 million of cash in the March quarter. Is there a seasonal explanation to that or do you have some customers that are paying a little bit slower? -------------------------------------------------------------------------------- Karla R. Lewis, Reliance Steel & Aluminum Co. - Senior EVP & CFO [51] -------------------------------------------------------------------------------- Yes. No, that's the typical seasonality, John, along with our sales because of the holidays and customer closures around that during Q4. Our shipment levels are down, we -- receivables go down. And then with the seasonality comes back up in Q1, our -- we monitor days sales outstanding and that stays pretty consistent quarter-over-quarter, kind of normally around 42-ish days. And so we've seen that so far, stay pretty consistent. -------------------------------------------------------------------------------- Operator [52] -------------------------------------------------------------------------------- Thank you. There are no further questions. I would like to turn the floor over to Jim for closing comments. -------------------------------------------------------------------------------- James D. Hoffman, Reliance Steel & Aluminum Co. - President, CEO & Director [53] -------------------------------------------------------------------------------- Okay. Thank you very much for taking the time and attention today. And I'd like to reiterate that the health, safety of our employees, their families, our suppliers, our customers and our communities has always been our top priority. And I'd like to sincerely thank the first responders, especially the health care workers serving on the front lines to care for those needs. Our thoughts and prayers are with all of you through this difficult time. Now before I conclude, I'd like to remind everybody that in May, we plan to participate in a B&A of Merrill Lynch Global Metals and Mining Steel Conference as well as the KeyBanc Basic Materials conference both of which will be held virtually. So I'd like to thank you all for your continued support and commitment to reliance, and I hope you all stay safe and healthy. Thank you very much. -------------------------------------------------------------------------------- Operator [54] -------------------------------------------------------------------------------- This concludes today's teleconference. You may disconnect your lines at this time, and thank you for your participation.