Reliance Steel & Aluminum Co. (RS) Q2 2016 Earnings Report, Transcript and Summary

Greetings and welcome to the Reliance Steel & Aluminum Co. Second Quarter 2016 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. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Ms. Brenda Miyamoto, Investor Relations for Reliance. Thank you. Please go ahead. Brenda Sumiye Miyamoto - VP-Corporate Initiatives & Head-Investor Relations: Thank you, operator. Good morning, and thanks to all of you for joining our conference call to discuss our second quarter 2016 financial results. I'm joined by Gregg Mollins, our President and CEO; Karla Lewis, our Senior Executive Vice President and CFO; Jim Hoffman, our Executive Vice President and COO; and Bill Sales, our Executive Vice President of Operations. 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 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, 2015 under the caption Risk Factors 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 Gregg Mollins, President and CEO of Reliance. Gregg J. Mollins - President, Chief Executive Officer & Director: Good morning, everyone, and thank you for joining us today. I would like to start off by saying that I am extremely proud of the outstanding execution by our managers in the field, which contribute to our sixth consecutive quarter of FIFO gross profit margin expansion. Over the past few years, we have made significant investments in cutting-edge, value-added processing equipment to provide higher value to our customers, which has benefited our gross profit margin. And as we have discussed in previous quarters, in 2015, we focused our efforts on reducing our inventory levels, resulting in a $433 million reduction in inventory. In addition to improving our inventory turn and working capital management, we believe our improved inventory position has also contributed to our increased gross profit margin by allowing us to be more selective in our efforts by focusing on higher margin business. During the second quarter, our gross profit margin further benefited from a rising pricing environment, most notably for carbon steel products. We were able to enhance our gross profit margin as we pushed through mill price increases in the marketplace. As a result of all these factors, our second quarter FIFO gross profit margin reached 31.1%, up 540 basis points from the second quarter of 2015. The metals pricing environment continued to improve as the second quarter progressed, with multiple price increases announced on certain carbon steel products. The mill price increases were supported by many factors, including steel demand and the filing of multiple trade cases by U.S. producers that have reduced import offerings. In addition, the domestic producers have maintained production capacity discipline and raw material costs have increased. Despite these positive factors, however, the overall pricing environmental remains below 2015 levels and far below peak levels. Our average selling price per ton sold during the second quarter of 2016 was 10.1% lower than in the second quarter of 2015. In regard to customer demand, we experienced the sequential increase in tons sold of 1.1% in the second quarter of 2016, which was in line with our expectation of flat to up 2%. Although end demand is not as strong overall as we had anticipated going into 2016, we believe demand is generally healthy with certain markets such as automotive and aerospace continuing to perform at high levels. Our strategy in diversifying our product and end market exposures, along with our ongoing investments in state-of-the-art value-added processing equipment and our relentless focus on customer service has allowed us to increase our market share. For the first six months of 2016, we once again outperformed the industry with our same-store tons sold down only 2.1% versus the MSCI industry average shipments, which were down 6.9% as compared to the first six months of 2015. Turning to M&A, we have completed two acquisitions so far in 2016. On April 1, 2016, we acquired Best Manufacturing, Inc., a custom sheet metal fabricator of steel and aluminum products on both a direct and toll processing assessing basis. Best is a great company and has been performing above our expectations since joining the Reliance family. Tubular Steel, which we acquired at the beginning of the year, is also performing well given these end market exposures. Both of these acquisitions meet our criteria of acquiring well-run businesses that are immediately accretive to earnings. Given the specialty products or high value-added services provided by these companies, they perform above our company-wide profitability levels. Strategic M&A opportunities and organic investments will both continue to be integral growth drivers for Reliance. Our balance sheet is strong because our managers have done a great job expanding our margins and rightsizing our inventory levels. Together, these actions have produced high levels of cash flow, enabling us to execute on our balanced capital allocation strategy, allowing for growth of the business as well as stockholder returns, including our 6.3% dividend increase effective for the third quarter of 2016. We have paid regular quarterly cash dividends for 57 consecutive years and increased our dividend 23 times since our IPO in 1994. In summary, I believe our execution in the first half of the year has been outstanding. Our strong financial performance is the result of margin expansion due in part to favorable pricing environment, as well as diligent expense and inventory management to drive improved profitability. Going forward, we will continue executing our strategy with the goal of extending our track record of delivering industry leading results. Reliance wouldn't be the company it is today without the incredibly talented team that we have in place. On that note, this month marks Dave Hannah's official retirement as Reliance's Executive Chairman as part of the executive leadership succession plan we announced in May of 2015. Dave will continue as a member of Reliance's Board of Directors. We thank Dave for his leadership and many contributions over his 35-year career at Reliance. We all wish Dave the very best in his retirement. I will now hand the call over to Jim to comment further on our operations and market conditions. Jim? James Donald Hoffman - Chief Operating Officer & Executive Vice President: Thanks, Gregg, and good morning everyone. First, along with Gregg's comments earlier, I would like to thank our operators for their tremendous efforts in achieving a 31.1% gross profit margin in the second quarter of 2016. To all of you listening in on the call, congratulations and keep up the good work. Now, I'll comment on both pricing of demand for our carbon steel and alloy products as well as our outlook on certain key end markets we sell those products into. Bill will then address our aluminum and stainless steel products and related end markets. Demand for automotive, which we serve as mainly through our toll processing operations in the U.S. and Mexico, remained robust throughout the second quarter. In addition to strong carbon steel demand, we're continuing to see increased demand for aluminum processing in the automotive industry. We recently opened a new facility in Mexico to support the increased automotive activity in that area. We also added a second line to process aluminum for the automotive industry in our Michigan facility in the second quarter of 2016. And we will be opening a new facility in Kentucky in 2017 to support both aluminum and steel processing in that area. These investments provide us with additional capacity to service this important end market in processing carbon steel, as well as aluminum where volumes are increasing at a rapid rate. We are very well-positioned from both the technology and capital perspective to continue to support this growth. As a reminder, while only a small percentage of our total sales dollars, our toll processing activities represent a far greater proportion of our total overall profitability. Second quarter demand in heavy industry, which includes railcar, truck trailer, ship building, barge manufacturing, tank manufacturing, and wind and transmission towers remain flat to slightly down from the first quarter of 2016 levels. Our exposure to heavy equipment also includes sales to agriculture equipment OEMs, which have been weak for the larger ag equipment. That said, Reliance's exposure is mostly to small and mid-sized agriculture equipment which has held up better than the heavier items. We are hopeful that the five-year infrastructure bill that was passed in December of 2015 will improve further demand trends in the infrastructure and road construction equipment markets beginning in 2017. Demand in non-residential construction continues its gradual, but steady improvement and we are seeing increased activity in these markets we serve with our tons shipped slowly improving. Despite volumes being well below peak levels, we believe that demand will slowly continue to improve in 2017. We have made investments in processing equipment for many of our businesses that support this market in order to provide higher levels of processing to our customers. Increased volumes will be absorbed into our existing cost structure as this end market continues to improve. Demand for energy, which is mainly oil and natural gas, has fallen further in the second quarter of 2016 from already weak levels due to continued reduction in drilling activities. We have been and continue to be proactive in reacting to these market conditions and managing our expenses accordingly. Although our outlook for energy remains weak in the near term, we have begun to see early signs of new activity in this end market. Although pricing for carbon steel products remains well below peak levels, prices continue to improve throughout the second quarter, primarily due to increases in raw material costs including scrap and multiple carbon steel trade cases filed in the U.S. that have resulted in reduced import offerings. The most significant price increases were for carbon steel flat-rolled products, which represent only about 15% of our total sales, with multiple price increases announced by the mills in the first half of the year. Carbon steel plate and structurals represent the single largest components of our product mix, with each accounting for 10% of our total sales. Plate volumes have been down in 2016 mainly because of the weakness in heavy equipment; however, prices have increased in both quarters of 2016. Demand for carbon steel structurals has increased in 2016 mainly due to the steady improvement in non-residential construction. Base prices for alloy products, the majority of which were sold into our energy end markets, have declined, although they have held up better than we expected considering the significant reduction in demand. I will now hand the call over to Bill to comment further on our non-ferrous markets. Bill?

Thanks, Jim. Good morning, everyone. Today, I will discuss pricing and demand for our aluminum and stainless steel products in certain markets we sell those products into. But before I begin, I would also like to recognize our managers for their excellent execution in the second quarter. Keep up the great work. Demand for our aluminum and stainless steel products continue to improve in the second quarter of 2016. Aerospace continues to be one of our strongest end markets. Sales to the aerospace market represented approximately 11% of our total sales in the second quarter of 2016. Our tons sold to the aerospace market were up 2.9% compared to the first quarter of 2016, and up 4.4% compared to the second quarter of 2015. Demand in aerospace continues to be strong for the products we sell. However, we expect the growth rate to moderate slightly as build rates for certain aircraft decline and mill lead times compress a bit. Our investments in new international markets have expanded our presence in the global market, allowing us to support our customers as they expand. The backlog for orders of commercial planes remains robust. As a result, our outlook remains positive and we will continue to look for investment opportunities to expand our aerospace exposure. The majority of the products that we sell to the aerospace market are heat-treated aluminum products, especially plate, as well as specialty stainless steel and titanium products. Since we last spoke with you in April, our sales of aerospace aluminum plate and general engineering aluminum plate have increased and volumes continue to be strong despite some pressure on pricing. In terms of our outlook for the balance of the year, we expect continued steady demand with some pressure on margins for both aerospace and general engineering aluminum plate. Common alloy aluminum pricing has remained stable and volume has increased modestly, with most of the products being sold to sheet metal fabricators that support a variety of end markets. Pricing on common alloy sheet follows ingot, and we expect some modest improvement as the Midwest spot price trends up slightly. The Midwest spot price has been trading in the $0.82 per pound range, with the Midwest premium in the $0.07 per pound range, which was fairly steady compared to the first quarter of 2016. Turning to stainless steel products, demand for our stainless steel flat products, which are primarily sold into the kitchen equipment, appliance and construction end markets, continue to be very strong. Domestic mill lead times have extended to eight to 10 weeks and we believe there's room for a potential base price increase in the back half of the year. Pricing for stainless steel products is heavily impacted by nickel prices, which have been improving modestly on a sequential quarter basis. We expect to continue to see some improvement in nickel pricing in the back half of the year. I'll now turn the call over to Karla to review our second quarter financial results. Karla? Karla R. Lewis - Chief Financial Officer & SEVP: Thanks, Bill, and good morning everyone. Our sales in the second quarter of 2016 were $2.2 billion, down $219.8 million or 9.1% from the second quarter of 2015 due to lower metal prices, with our average selling price per ton sold down 10.1%. Demand was relatively consistent with our same-store tons sold down 0.4% year-over-year. Compared to the first quarter of 2016, our sales were up 1.9%, with our average selling price per ton sold of 0.9% and our tons sold up 1.1%. We increased our gross profit margin for the sixth consecutive quarter to 31.1%, up from 29.4% in the first quarter of 2016 and 27.1% in the second quarter of 2015. Along with the outstanding execution by our managers in the field that Gregg discussed previously, the increase in our FIFO gross profit margin in the second quarter of 2016 benefited from our ability to push through announced mill price increases. When mills announce price increases, we attempt to increase our selling price at date of announcement, which is before we receive the higher cost material in our inventory. This allows us to increase our gross profit margin until we receive in the higher cost materials. The increased gross profit dollars generated from both a higher gross profit margin and the higher average selling price increased our profitability at all levels, with our pre-tax income margin increasing to 6.9% from 5.0% in the first quarter of 2016. Similar to the prior quarter, we did not record a LIFO inventory valuation adjustment for the second quarter of 2016, as we continue to expect that overall metal prices will be higher at December 31, 2016 as compared to January 1 based on current pricing trends. This would typically result in a LIFO charge or expense in 2016. However, given our current expectation of higher metal prices, we anticipate that any LIFO expense would be offset by a decrease in our lower cost per market reserve established as of December 31, 2015. In the second quarter of 2015, our results included LIFO income of $32.5 million. As a percent of sales, our SG&A expenses were 20.7% compared to 18.2% in the second quarter 2015 and 20.8% in the first quarter of 2016. On a year-over-year basis, the increase as a percent of sales was mainly due to lower metal prices. Our increased gross profit margin drove our operating income margin up to 7.9% for the second quarter of 2016, a significant improvement from 6.6% in the second quarter of 2015 and 6.0% in the first quarter of 2016. Our effective income tax rate for the second quarter of 2016 was 32.7% compared to 32.6% in the second quarter of 2015 and 14.4% in the first quarter of 2016. As a reminder, our tax rate in the first quarter of 2016 was significantly reduced as we favorably resolved certain tax matters that had been under examination. We currently estimate that our full-year 2016 effective income tax rate will be approximately 28%, down from 31.1% in 2015. Net income attributable to Reliance for the second quarter of 2016 was $100.9 million or $1.38 per diluted share compared to $90.2 million or $1.20 per diluted share in the second quarter of 2015, and $92.2 million or $1.27 per diluted share in the first quarter of 2016. The Non-GAAP earnings were $1.36 per diluted share, which was above our expectations, mainly because of our stronger-than-anticipated gross profit margin. And this compares to $1.21 per diluted share in the second quarter of 2015 and $1.03 per diluted share in the first quarter of 2016. Please refer to our earnings release issued earlier today for a reconciliation of our non-GAAP adjustments. Now turning to our balance sheet and cash flow, we generated $49.8 million of cash from operations during the second quarter of 2016 and $205.2 million during the first half of 2016. Given both increased metal pricing and increased demand, we used cash to build working capital by $109 million in the first half of 2016. However, our higher gross profit margins produced cash in excess of our working capital needs, with $174.7 million of additional gross profit dollars resulting from the margin expansion in the first half of 2016 compared to the first half of 2015. Our inventory turn rate at June 30 was 4.7 times or 2.6 months on hand based on tons. Our successful efforts to reduce inventory in 2015 allowed us to reach our company-wide inventory turn goal in 2016. At June 30, 2016, our total debt outstanding was $2.17 billion and our net debt-to-total capital ratio was 33.4%. We had significant liquidity with $831.1 million available on our $1.5 billion revolving credit facility. We continue to execute our balanced capital allocation strategy of both growing the business and returning value to our stockholders. In addition to the two acquisitions we have completed so far in 2016, we spent $71.7 million on capital expenditures during the first half of 2016, primarily on purchases of new equipment to increase our value-added processing capabilities. Our 2016 CapEx budget remains unchanged and $180 million. In the first half of 2016, we paid our regular quarterly cash dividend totaling $58 million, and we increased the quarterly dividend by 6.3% for the third quarter of 2016 to an annual rate of $1.70 per share, up $0.10 from our prior annual rate. Now, turning to our outlook, we continue to believe the U.S. economy is generally healthy and anticipate the continued slow recovery in demand subject to normal seasonal factors. We're optimistic that metal pricing is sustainable at current levels through the third quarter of 2016, and we are confident in our ability to execute well in this environment. As a result, we estimate tons sold to be down 1% to 3% in the third quarter of 2016 compared to the second quarter of 2016 due to normal seasonal factors. We also expect our average selling price per ton sold in the third quarter of 2016 to be up approximately 1% to 3% from the second quarter of 2016, assuming current mill prices remain in place for the full quarter. As a result, we currently expect non-GAAP earnings per diluted share to be in the range of $1.25 to $1.35 for the third quarter of 2016. In closing, I'd like to once again thank our managers in the field for their hard work and dedication to Reliance. Their successful execution of our strategy resulted in yet another quarter of FIFO gross margin expansion and strong financial results. 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?

At this time, we'll be conducting a question-and-answer session. Our first question comes from the line of Tony Rizzuto with Cowen & Company. Please proceed with your question. Anthony B. Rizzuto - Cowen & Co. LLC: Thanks very much. Good morning, all, and thanks for taking my questions. Gregg J. Mollins - President, Chief Executive Officer & Director: Good morning, Tony. Anthony B. Rizzuto - Cowen & Co. LLC: My first – good morning, Gregg. I just wanted to extend my heartiest congrats to both Dave on his long-term accomplishments while he's at the helm and also to Mark, too, as he takes on the new role. So wishing you guys both all the best. So Gregg, Karla and team, excellent progress on number of areas. I think we were most impressed by the continued ability that you guys are capturing market share. You had six consecutive quarters of gross profit margin improvement. It's got to be disappointing when your shares are down 5% on a day you report results like this and it would seem to indicate that there's some skepticism out there about the sustainability of these achievements. And I was wondering, first of all, if you could provide your thoughts on this and then maybe, two, how we should think about your gross margin a little bit more in a granular manner as we move forward? You said that you kind of finished the quarter with inventories where they are, so how should we think about that? And then I've got some other questions, too. Gregg J. Mollins - President, Chief Executive Officer & Director: Well, Tony, obviously we're very pleased with the 31.1% and six consecutive quarters of increased gross profit margin. There's been a tremendous amount of time and effort put forth not only by our people in the field, but certainly by our operators here in this office. And we couldn't be more proud of their accomplishments. I think we mentioned on our last call about sustainability issue, which is a legitimate question, okay? Very legitimate, but with six quarters of increases. I think we guided last time to the 28% range, thinking with the prices going up, but still a little questionable that maybe that would be more prudent to go in that direction and then we increased it by 1.7% above that, so above the 29.4% that we finished the first quarter with. So, obviously, we kind of missed again on that one, but I wouldn't guide to a 31% or do my modeling on that. And maybe we can get a couple of thoughts from Karla on that. Karla R. Lewis - Chief Financial Officer & SEVP: Yeah. And I guess first, Tony, on the stock price, certainly it is disappointing when we execute the way we do to see the stock price go down. But we're confident that everyone will realize that we deserve a higher stock price and we'll see it go back up. On the gross profit standpoint and sustainability, as you know, we've been conservative. We typically are conservative. But we have seen very good progress for all the different reasons Gregg had in his comments. And in the second quarter, we did get a little bit of a lift because mills were announcing price increases mainly on carbon steel products. And as we've done consistently in periods of rising prices, we're typically able to expand our gross profit margin when the prices are announced before we get a higher cost inventory in. So we do believe there was a little extra expansion in the second quarter because of the timing of the price increases. In the third quarter, assuming mill pricing remains flat, as we start to receive in our higher cost metals, we do believe we will see a bit of compression from the 31.1% margin that Gregg talked about. But we do believe our gross profit margins are certainly sustainable at a higher level than 25% to 27% we had talked about previously because of all the good things we've done with pricing, additional value-add processing, good inventory management, et cetera. Anthony B. Rizzuto - Cowen & Co. LLC: Right. That's a bit of a wide range there. You could drive a Class 8 truck through there a little bit, but 25% to 27% to 31%. But let's maybe perhaps look at it. So if we are maybe assuming that pricing is – maybe some possibility of retracement, not a collapse, but maybe taking that into account and looking at what has structurally changed with your gross margin, maybe that's a way to look at it? I mean, are we talking about possibility closer to 28% to 30% versus that type of level? Just trying to figure out of that, how much of a boost? You mentioned a bit of a boost. Karla R. Lewis - Chief Financial Officer & SEVP: Yeah. Anthony B. Rizzuto - Cowen & Co. LLC: And I hate to split hairs on this, but it's obviously very important. Karla R. Lewis - Chief Financial Officer & SEVP: Yeah. I think, Tony, if you look at our first quarter this year, we were at 29.4% FIFO gross profit margin, which didn't have that margin expansion from the mill price increases during the quarter. I think the current environment hasn't changed. We're still feeling good, like we were in the first quarter. So I think probably something close to the first quarter number is reasonable for the third quarter. Anthony B. Rizzuto - Cowen & Co. LLC: Okay. Okay. That's very helpful. And what can you tell us about your willingness or unwillingness perhaps to perhaps buy more foreign material? Obviously, we're beginning to hear reports of, obviously, the widening spreads out there for some products. And with inventories seemingly quite low across the board, what can you tell us about the attractiveness of foreign material and your view towards possibly changing your behavior? Gregg J. Mollins - President, Chief Executive Officer & Director: Tony, I think our behavior is one of the main reasons why our margins have improved to the extent that they have. We turn our inventories. Whenever we turn our inventories effectively, we get a kick on our margins because we don't have to change truckload quantities of material at low margins just to flow out inventory. We have been doing that in the last six quarters. And if we brought in foreign material, it would expand our inventories and probably put us into a position where we would chase some of the orders that we choose to walk away from today. So, I think our position of keeping as much domestic material here by way of purchases has served us very well. I mean we could go out in the market and buy foreign material and go chase orders and increase our tons and make certain people that follow our stock happy because our tons are going up and all this other stuff, but we wouldn't have anything to show for it. There wouldn't be anything on the bottom line improvement that we've seen thus far with our increase in our gross profit margin. So I think our model of keeping our purchases domestically to the extent that we have, which is about 95% of what we buy is produced in North America has served us very, very well and I don't see any reason to move astray from that. Yes, some of the spreads are pretty high, but we have some very good relationship with the domestic producers. And they're not going to let us get too far out of whack because if we lose position, they lose position and that's a lose-lose proposition. James Donald Hoffman - Chief Operating Officer & Executive Vice President: Hey, Tony. This is Jim. Anthony B. Rizzuto - Cowen & Co. LLC: Understood. Hey, Jim. James Donald Hoffman - Chief Operating Officer & Executive Vice President: How are you? Anthony B. Rizzuto - Cowen & Co. LLC: Yes, good. Good. Thank you. James Donald Hoffman - Chief Operating Officer & Executive Vice President: Another point. One of our strategies for margins was our investment in value-added equipment. That's certainly still a strategy of ours. Our budget was $180 million. It's still $180 million, like we haven't spent anywhere near $180 million. We've got a long way to go, so we've got more equipment coming in. And as the quarters roll by, we'll be bringing that equipment online and be able to offer our customers more activity at better tolerances. So that – we hope it continues to play out like it has so far. Anthony B. Rizzuto - Cowen & Co. LLC: All of you guys, I'd be interested in hearing your thoughts, do you believe in the theory or are buying the theory that because inventories – we look at the MSCI data and certain product categories are extremely low and the lowest we've seen in years. Do you buy into the theory that inventories are so low and with demand relatively stable, that there could be a pretty significant restock maybe in the fourth quarter? Or do you just think it's kind of steady as she goes in terms of inventory behavior generally speaking now? Obviously, this is – you've obviously done an excellent job. I'm just asking you to think a little bit more broadly in terms of the service center industry. Gregg J. Mollins - President, Chief Executive Officer & Director: Yeah. Tony, I don't think that there's going to be a surge in purchases from service centers "restocking". I think inventories are low. I think everybody has been keeping their inventories close to their guess. I think that's the absolute right thing to do. That's certainly what we've done. And I think there's some question as to this "sustainability" of some of the prices that are out there today. Certainly, there's fewer imports that are coming in, fewer offerings, although that's picking up just a little bit now. But overall, I think that people will – it'll be more or less business as usual going through the second half of the year. What do you guys think? Do you agree with that?

I do. And probably, the most important, Tony, is really speaking for our guys and we definitely will not be doing that. So, I agree with Gregg. I don't think we're going to see any major restocking take place. Anthony B. Rizzuto - Cowen & Co. LLC: Okay. James Donald Hoffman - Chief Operating Officer & Executive Vice President: Tony, remember, in my opinion, I mean when the kind of general consensus is as prices are growing up, that's when people buy a little more. If there's a gut feel or somebody thinks the pricing may come down a hair or more imports come in, people take a little bit of a pause and they watch their dollars. So we've seen – we can only control 62 companies. We don't know about the rest of them out there. They're going to do what they're going to do. But if you look at the MSCI numbers, I think the inventories are sort of in pretty good shape right now and there's really no pressing reason to screw that up. Anthony B. Rizzuto - Cowen & Co. LLC: Great. Listen, final question for Bill and I'm going to turn it over then. So the recent affirmation against the Chinese in stainless flats, how positive an impact is that for you guys?

Tony, I think that's going to be very positive. I think we'll see the Chinese back away from this market and I think that should be very positive for the domestic guys. And as you know, demand has been good there and I think that will be very positive from a pricing standpoint. Anthony B. Rizzuto - Cowen & Co. LLC: Has your competitor, who's getting out of the market, have they liquidated their inventory at this point?

I'm not sure about that, Tony. Anthony B. Rizzuto - Cowen & Co. LLC: Okay. Karla R. Lewis - Chief Financial Officer & SEVP: I don't think we can comment on that.

Yeah. Anthony B. Rizzuto - Cowen & Co. LLC: No worries. All right. Thanks. Thanks very much, all. Gregg J. Mollins - President, Chief Executive Officer & Director: Okay. Have a great day, Tony.

Our next question comes from the line of Jorge Beristain with Deutsche Bank. Please proceed with your question.

Wow. Thanks, guys. I appreciate Tony taking the lead there. I guess I just have a few questions remaining. Karla, my question is kind of sort of the flip side of what Tony's question was earlier. We did see the gross margin expansion of 170 basis points quarter-on-quarter, yet average selling prices were actually disappointingly a bit low. And so what I'm trying to figure out is, were you fully able to affect as quickly as you say and as fully across your carbon steel – the price hikes? Or could there be a little bit still in the kitty into the second half? And then also, what about other later cycle metals that we're starting to see move up in non-carbon, like aluminum and stainless? Are you seeing any kind of – I think you touched on that in your comments earlier, but some second half momentum there where maybe average selling prices will not fall as much as list prices as they start to correct? So that's my question. Karla R. Lewis - Chief Financial Officer & SEVP: Yeah. Good morning, Jorge. So I think from the average selling price not going up as much as we had anticipated, if you do break it down by commodity, most of the price increases were on the carbon steel products. And our carbon steel average sell price per ton was up 2.6%. What did happen during the quarter was our average inventory costs on hand continue to trend down a bit because we were still receiving in some of the lower cost inventory that we had ordered previously. So, I think we got the spread that we expected to get based upon the price increases that were out there. It was just off of a lower base than we had anticipated. So that's what we talked about in Q3. We think our average inventory cost will start to go up a bit as we receive in some of that higher cost inventory. We might give up a little bit of that carbon margin spread from the price increases, but we still expect the margins to be very healthy and for us to sustain our margin on those. So I think that was really the costs going down that caused our average sell price to not be up as much as we thought it would over the first quarter. And to your point about the other products, yeah, during the second quarter compared to the first quarter, the other commodities – aluminum, stainless, alloy – we saw average sell prices down. There are some reasons out there that we might see some increases in those in the back half, which could help us in those products as we pass through those price increases.

Yeah, particularly on stainless. I think we have the opportunity there, where surcharges, we expect those to go up in the second half. And then, I think there's a good possibility we'll see a base price increase sometime in the second half. Gregg J. Mollins - President, Chief Executive Officer & Director: And we've had a couple of base price increases okay already...

Right. Gregg J. Mollins - President, Chief Executive Officer & Director: ...in the first half of the year. So, I thought that reading those trade cases on China okay. I know that Bill was having somewhat of a party (42:41). Actually, that could be a game changer.

Yeah, it could be. Absolutely.

Great. Thank you for the full response. So just one second follow-up. Just on the aluminum, you mentioned that you're basically making better margin on tolling. Could you just give us a kind of sense as to – with your aerospace exposure now at 11%? Should we be expecting you to be growing sort of in line with the build rate for aircraft going forward or are you expecting an above build rate growth average just because you're kind of winning market share? Just if you could just talk about that.

Yeah. On the aerospace side, we still think we'll see growth in the second half. And so, our outlook is still positive. The build rate changes that have been announced, I think we're seeing a little bit of an impact there when we look at mill lead times. Those have compressed just a bit, but that's still very dependent on what programs you're supporting. And for our guys, our outlook is still positive and we think we'll still see improvement from a demand standpoint in the second half.

Okay. Thanks very much.

Our next question comes from the line of Phil Gibbs with KeyBanc Capital Markets. Please proceed with your question.

Hey. Good morning. Karla R. Lewis - Chief Financial Officer & SEVP: Good morning. Gregg J. Mollins - President, Chief Executive Officer & Director: Good morning.

Hey, Bill. I had a question on the aerospace side as well in terms of the more moderate growth you're talking about. What's that really keyed off of?

Really, Phil, we're just looking at the programs we have, looking at the demand that we saw through the first half and we think we're going to see that continue. And when we say moderated growth, it may not be at the same growth rate, but we still see it as positive in the second half.

And then how much of the lead times, in general, for the aerospace each should be played – come in relative to maybe three months ago?

To three, yeah, they come in like one to two weeks, Phil. So, overall, we've seen that. When I said they compressed a bit, I'm really referring to kind of a one- to two-week timeframe.

Okay. I appreciate that. And, Jim, on the energy side, I believe there were some comments about a little bit of light coming out of the darkness in the press release. Anything that you could comment on in terms of what you're seeing and what the allusion, too, was there? James Donald Hoffman - Chief Operating Officer & Executive Vice President: Yeah. Yeah. So it's – when you've been down like this for a long period of time, just a little bit makes you feel good. So just the quoting activity has come up a little bit, the feet drilled came up a little bit. There's been a couple of announcements where some of the big boys announced that they're going to release some CapEx dollars and we're seeing better quoting activity. So, that's what I mean by a little light at the end of the tunnel.

Perfect. And any sense you could give us as to how much inventory that still needs to be churned through maybe relative to the current rig count levels and when we're through the kind of mopping up some of the excess pipe and tube and bar products? James Donald Hoffman - Chief Operating Officer & Executive Vice President: I mean, if I understand your question properly, our inventory is in okay shape. We kind of got on this early before it started really coming down. So we took light inventory out before it really started crashing. I'm not going to tell you we don't have some excess A items (46:30), but they are A items (46:32) and we know they're going to come back so we keep them in line. We're not going to increase our inventories. We don't need to. If the business came back X amount of percent, we'd be able to absorb those orders without adding any expense and without adding a whole lot of inventory to tell you the truth. So... Gregg J. Mollins - President, Chief Executive Officer & Director: And we've been pleasantly surprised, okay, that the producers – okay, we would've expected alloy pricing to go down much greater than it actually did. In large part, that's because automotive has been so strong. So there's been a lot of alloy being consumed in that market. But we think the suppliers have exercised some very prudent discipline on the pricing side, so we haven't seen the major price discounts that normally you'd expect to see when business is down 40%, 50%. James Donald Hoffman - Chief Operating Officer & Executive Vice President: Yeah. And just the product itself, it's – SBQ bar or the S stands for special. It's hard to make and there's not a whole lot of players in the game. Heavy roll tubing, those are very high-quality products and thankfully, to Gregg's point, they really haven't come down as much as they could.

I appreciate all the color. I just have a housekeeping one for Karla and then I'll jump off. Your tax rate guidance for the year, was that on a GAAP basis? Karla R. Lewis - Chief Financial Officer & SEVP: Yes.

Okay. Thanks so much. Karla R. Lewis - Chief Financial Officer & SEVP: You bet.

Our next question comes from the line of Aldo Mazzaferro with Macquarie. Please proceed with your question. Aldo Mazzaferro - Macquarie Capital (USA), Inc.: Hey. Good morning, Karla, and gentlemen. Karla R. Lewis - Chief Financial Officer & SEVP: Hi, Aldo.

Yeah. Aldo Mazzaferro - Macquarie Capital (USA), Inc.: I was just wondering about the demand side a little bit more. Gregg, I think you said in your initial comments that when you made your first guidance for the second quarter, you had a view of demand that came in a little bit weaker than you thought. I wonder, could you specify a little bit about where those sectors were in terms of they came in a little weaker or was it generally across the board? Gregg J. Mollins - President, Chief Executive Officer & Director: It was generally across the board, but it was fairly much in line. I think we were up 1.1%. Karla R. Lewis - Chief Financial Officer & SEVP: Yeah. I think, Aldo, on Gregg's comment that you're talking about was more about 2016 in general compared for the first half. Second quarter was in line. Earlier in the year, we thought 2016 was going to be a little stronger... Gregg J. Mollins - President, Chief Executive Officer & Director: Yeah. When we... Karla R. Lewis - Chief Financial Officer & SEVP: ...but we've seen it sliding out. Gregg J. Mollins - President, Chief Executive Officer & Director: Good point. When we were going into 2016, our outlook was a little bit more positive than what it turned out. In the second quarter, I think we were up in tons 1.1% over first quarter, which was in line with our guidance of zero to flat 2%. So, there wasn't really any big surprise there. Non-res came in just about where we thought it would. We've seen some improvement there. The heavy equipment basically, no big surprises there at all. Aerospace is doing well. Automotive and toll processing is doing extremely well. And as Jim mentioned in his comments, we just opened up a new facility down in Monterrey, Mexico, just had our opening day ceremonies on July the 12th. So we're really upbeat about that particular one. We put a brand new slitter in place in our Michigan operation. That was commissioned in April, so we're anticipating more growth there. We broke ground in Kentucky just recently in the last 30 days and expect to have a facility there operational and to support the automotive industry that are moving into the "Louisville area", and that should be open and running sometime in the second quarter of 2017. So we're seeing – there's been really no industry that has surprised us. We thought it might be a little bit stronger than it actually is. We're continuing to make investments, like the ones that I just described, and those investments are paying off quite well. So with those investments, you go to your people and you say we need to pay for those investments. This $180 million that we've been spending basically every year for the past five years, damn near $900 million in the last five years, we want to get paid for that stuff. And we don't see our competition very honestly pouring as much money in CapEx spending, so that tells us that our tolerances are superior. Okay, the finished parts are better and we want to get paid for it. So that's the message that we've given to our four op guys and they've set the guidelines for the people in the field who ultimately are the ones who'd execute the plan. So there are no big changes, Aldo. Karla R. Lewis - Chief Financial Officer & SEVP: Yeah. Aldo, I think when we came into the year, we were – at the – after the fourth quarter, when we talked to you guys in February, we were anticipating that our volumes might be up a couple percentage points for the 2016 year compared to 2015, but we've seen the overall demand down. So, at Reliance, we're down only 2.1% in tons sold on a same-store basis for the first half of the year. The industry is down 6.9%. So, we think we're definitely doing well given the overall demand environment we're in and we're kind of out beating the industry even with our higher gross profit margins we're achieving because of those reasons Gregg talked about. Aldo Mazzaferro - Macquarie Capital (USA), Inc.: Great, and thank you. Just a quick follow-up. I know you answered a lot of questions already, but on stainless steel specifically, are you anticipating any price gains in the second half from the tariffs that were announced on a preliminary basis?

Yes, Aldo. I think we said that, that we do think there's a very good potential for a price increase in the second half. Aldo Mazzaferro - Macquarie Capital (USA), Inc.: Right.

And we also think that we'll see continued increases on the surcharge side based on nickel pricing, too. Aldo Mazzaferro - Macquarie Capital (USA), Inc.: Right. Okay. Thanks very much.

Thanks, Aldo. Gregg J. Mollins - President, Chief Executive Officer & Director: Yeah, Aldo.

Our next question comes from the line of Timna Tanners with Bank of America Merrill Lynch. Please proceed with your question.

Hey. Good morning, guys. James Donald Hoffman - Chief Operating Officer & Executive Vice President: Good morning. Karla R. Lewis - Chief Financial Officer & SEVP: Good morning. Gregg J. Mollins - President, Chief Executive Officer & Director: Good morning.

I just had two left, and I know we've probed at oil and gas end market and I know we've probed aerospace. But I just wanted to touch on the automotive industry and was really interested in the new facilities and capacity you were talking about. All automotive counterparts are starting to get a little bit more cautious in terms of the outlook, not negative but just maybe closer to a peak. And I was wondering if you have any contacts or maybe a few more on the aluminum side, or what gives you the confidence in adding capacity at this point in the market? James Donald Hoffman - Chief Operating Officer & Executive Vice President: Timna, this is Jim. I've always said when you're speeding down the highway going 85 miles an hour and you slow down to 70 miles an hour, you're still speeding. The automotive count is still in excess of 17 million. I think I've read an article the other day where they adjusted their 17 million build down from 17.7 million to 17.4 million. That's still a lot of activity. And a lot of our activity happens to be in the light truck and the kind of medium duty trucks. And everything we see and all the folks we deal with are telling us that the build rates are exactly what we thought they were going to be. So we don't see in the foreseeable future any real issues. Those are tremendous numbers. Karla R. Lewis - Chief Financial Officer & SEVP: But, Timna, even if the build rates for auto stay where they are, a lot of our investments are going into the shift from carbon to aluminum. James Donald Hoffman - Chief Operating Officer & Executive Vice President: Aluminum.

Okay, yeah. Karla R. Lewis - Chief Financial Officer & SEVP: And we process a lot more aluminum. So that's why we're very bullish and see our piece of that market increasing because of that shift to aluminum that we're supporting. James Donald Hoffman - Chief Operating Officer & Executive Vice President: And those are... Gregg J. Mollins - President, Chief Executive Officer & Director: Certainly the investments, Timna, that we've made...

Yeah. Gregg J. Mollins - President, Chief Executive Officer & Director: ...in the United States. So the Kentucky operation, the slitter that went into Michigan, in our new plant in Michigan, which was April of last year, and a new piece of equipment that was commissioned in April of this year, those three operations are all centered around aluminum going into light trucks, okay. The one in Mexico that we're opening in Monterrey is not necessarily aluminum-related, but we're at capacity in our plant down there. So, we needed to either add on or get closer to Monterrey. We decided to get closer to Monterrey for logistic purposes. So that was put in there not necessarily for aluminum, although the piece of equipment that we put into Monterrey, Mexico is designed to be able to do light gauge aluminum going into automotive. So the majority of what you're seeing, especially in the United States, is actually being put in place because of the switch from carbon steel to aluminum. James Donald Hoffman - Chief Operating Officer & Executive Vice President: And one other thing to remember, Timna, we process a lot of steel that goes into the appliance industry as well so – and that's strong as well.

Okay. That makes a lot of sense. Thanks for that answer. The only other question I had for now was just in terms of the guidance, I want to clarify because you make the comment here assuming current mill prices remain in place for the full quarter. And I'm not as sophisticated on how long products are priced in the carbon steel side. So just wondering, is that already baking in the recent declines in scrap prices and/or any declines that may result from what's happening in Turkey and the weakness there or what scrap price may that be baking in when you talk about current mill prices? Karla R. Lewis - Chief Financial Officer & SEVP: Yeah. I think we didn't put anything in specifically because of what's going on in Turkey or pull it down, so kind of the general prices. Remember, we've got a very broad product mix.

Yeah. Karla R. Lewis - Chief Financial Officer & SEVP: And scrap certainly impacts many of our products, but I think we're still kind of consistent with where prices have been over the last three to four weeks in our guidance. Gregg J. Mollins - President, Chief Executive Officer & Director: Yeah. And the scrap's going to probably have more of an impact on the many mill product that – the long products that you're referring to.

Yeah. Gregg J. Mollins - President, Chief Executive Officer & Director: But they've had pretty good discipline in those products through the years and they may go down. We're not anticipating that they will. But even if they do, they're not going to go down in our opinion significantly or dramatically that's going to make any impact on us one way or the other. So, we're not overly concerned about that, but it wouldn't shock us. But right now, we're of the opinion that it's going to remain fairly flat.

Okay. Thanks, guys. Appreciate it. Karla R. Lewis - Chief Financial Officer & SEVP: Thank you. Gregg J. Mollins - President, Chief Executive Officer & Director: Thank you.

Our next question comes from the line of Michael Gambardella with JPMorgan. Please proceed with your question. Michael, you can proceed with your question. Can you please check to see if your phone is on mute? Gregg J. Mollins - President, Chief Executive Officer & Director: Well, that was easy to answer.

Okay. Our next question comes from the line of Chris Olin with Rosenblatt Securities. Please proceed with your question.

Hey. Thanks for taking my call. Karla R. Lewis - Chief Financial Officer & SEVP: Hi, Chris. Gregg J. Mollins - President, Chief Executive Officer & Director: Hey, Chris.

I just have a basic question. A couple of companies have started to mention weather, especially the rain in Texas as part of an issue in the past quarter. I was just wondering if you think you lost any volumes because of the amount of rainfall and your leverage to construction markets.

No, I don't think we do. When we have weather issues, whether it's in the winter time in Cleveland, Ohio or rain in Texas, if we lose a day, we pick it up the next day because you always end up getting the orders you were going to get but they're just get pushed out in the future. So, no, I wouldn't – we don't blame things on weather. Gregg J. Mollins - President, Chief Executive Officer & Director: Yeah. Rarely will you ever hear us say anything about our business being negatively affected by weather conditions, unless there's an absolute devastating five-day hail storm at least to say, right? But because the orders are still there, the fact of the matter is we just can't ship them because either issues on the road or our customers aren't open to receive it. But at the end of the day, whether it'd be in the end of the month or at the beginning of the following month, it's going to ship. So, it has not been an issue with us and we've had certainly some complaints about 14 inches of rain in 24 hours and stuff like that, but I haven't heard or – and by the mercy of God, none of our people have been affected. They're all healthy and whatnot, that's the most important thing. But I haven't heard any and if Jim would have heard something, I would have heard it. And so the answer to your question is no. It's business as usual at Reliance.

Okay. Thanks a lot.

All right.

Our next question comes from the line of John Tumazos with John Tumazos Very Independent Research. Please proceed with your question.

Just want to thank Dave and congratulate Dave on his retirement and the whole team under the – for the accomplishments over the last 22-plus years. Gregg J. Mollins - President, Chief Executive Officer & Director: Thank you.

And when you think about it, even Ken Iverson at Nucor made a mistake once, iron carbide or steel concrete railroad ties 50 years out of the railroad industry or maybe Tom Graham once or twice spent money on a oilfield tube machine or an automotive processing plant that didn't earn returns the first 10 years. And a lot of people – I don't think Reliance has made a significant strategic mistake since it's gone public and God bless you. Gregg J. Mollins - President, Chief Executive Officer & Director: Thanks. We had good leadership with Dave. That's for sure.

Well, the team, too. Gregg J. Mollins - President, Chief Executive Officer & Director: Yeah.

So with regard to several metrics, I'm trying to remember what are the best ones ever. Is the 31.1% FIFO margin the best ever? And could you just refresh us as to what was the best quarterly revenue ever and the best quarterly tonnage ever and the best quarterly EPS ever? And it's so extraordinary to have the record margin without having record volume and price. You must have really bought steel well at the beginning of the price runoff. Karla R. Lewis - Chief Financial Officer & SEVP: Yeah. I think, John, as far as the question on records, the FIFO gross profit margin in the quarter of 31.1%, I thought that probably had to be a record. But we went back and in 2004, when we had that first price spike, there were the second, third and fourth quarters of 2004 – or first, second and third quarters, we were actually a little bit above that with the record at 34.3% during that time. Revenues were not quite there because pricing is still down. We've been building the company, but the third quarter of 2014 was kind of our record there. And from an EPS standpoint, we hit our record in the second quarter of 2008. Prices were certainly a lot different in the second quarter of 2008 than they are now. And I think we would easily beat that with the fundamental improvements we've in the business through the companies we've acquired and through the value add that we've added and the way our people are executing on getting the margins. So I think with that pricing, like I said, we'd be there, but we feel really good about how we've performed in the current environment. Gregg J. Mollins - President, Chief Executive Officer & Director: John, speaking from our team's point of view, we really appreciate that question. It's very valid. But we had a board meeting last night and a board member brought up that very question about our 31.1%. And I happened to glance at the report card, I was looking at it today, and I said, no, it's not a record but it's the best GP percent we've had in the past 12 years. So, I can't tell you how proud and excited we are as a management team here that we're able to do that. And out of the six consecutive increases in GP per quarter, four of those quarters were in 2015 when prices were going down. And nine times out of 10, when prices are going down, you're margins are going right down with it, okay? We've reduced our inventory in 2015 by $433 million and we increased our gross profit margins in each one of those quarters throughout that particular year. And I have to tell you, there's not a whole lot of companies I've ever seen. And when prices fall 15 months in a row, that are able to increase their prices every single quarter throughout a year like that. So, it was a heck of an accomplishment. I think what it did for us, it just gave our team, both here and in the field, a lot more confidence in our ability to be able to sell product at higher prices based on the processing that we're doing and the outstanding commitment to customer service that we have. So, you could ask those questions to us any time.

If you could elaborate on the 1% to 3% up pricing guidance for the third quarter, nickel is up almost $1 now and stainless is strong and I don't think any of the non-ferrous prices are worse right now. Do you think you might be a little conservative on that? Or do you think steel is softening? Gregg J. Mollins - President, Chief Executive Officer & Director: We're thinking steel's pretty flat, okay. For the quarter, that's our best guesstimate is that steel will be pretty much at flat levels throughout the third quarter. But we're anticipating a kick into stainless, but normally that takes a little bit of time to get – work its way into the marketplace. So, our guidance is considering that to be a little bit flat. But if this trade case kicks in, it's not going to affect us in the third quarter, but it could have an impact in the fourth quarter. Karla R. Lewis - Chief Financial Officer & SEVP: Yeah. And in all honesty, John, we're probably a little more hesitant of the price increase in Q3 versus Q2 since we missed a bit on Q2 versus Q1. I mean, carbon was there. And also, with our product mix in the third quarter, stainless is about 14% of our total sales dollars, on some – a lot of our stainless products are sold into the energy industry, so we don't know that we'll necessarily get above this quickly on those stainless steel products as we will on the flat-rolled and some of the other stainless products. So, certainly, we think it's positive. As you know, we're generally conservative or try to be in our guidance so there is some upside there.

Could you elaborate on the 11% of your total revenue now from aerospace and just review how much of it is aluminum versus jet engine alloys? Or which parts of the plane, fasteners or – and if it's helping contribute to the 31.1% higher margin?

Yeah. Yeah. John, I'll take that. It's Bill. I think of that 11%, most of it is on the aluminum side. And so, probably... Karla R. Lewis - Chief Financial Officer & SEVP: It's probably about 9%.

...about 9% of that mix would be on the aluminum side. And then, where the balance would be in those specialty alloys, the aerospace steel and titanium products. And it goes across a wide range of end uses. On the aerospace steel, we're a big player in landing gear. And then on the aluminum side with the monolithic design for aluminum plate, it goes really all over the airframe. So... Gregg J. Mollins - President, Chief Executive Officer & Director: Of that 9% though, Bill, what would you consider to be our plate?

A significant part of that is plate. I mean... Gregg J. Mollins - President, Chief Executive Officer & Director: 70%?

Yeah. Probably 70%, 75% of that would be on the aluminum plate side. Gregg J. Mollins - President, Chief Executive Officer & Director: Right.

If I could just interject on the stainless and the nickel.

Sure.

There's a real sweet lady in the Philippines, it's the Minister of Environment and Mines – not sure. She wants to close every open-pit mine and outlaw the use of explosives. And last year, the Philippines were 23% of world nickel mine output first and even through the first half of this year, they're still number one. So there's a new patron saint of the nickel market out there.

We'll get on our knees and say a prayer for her.

Yeah, I've got my rosary beads in my hand.

I got you.

Take care.

You, too. Karla R. Lewis - Chief Financial Officer & SEVP: Thanks. Gregg J. Mollins - President, Chief Executive Officer & Director: Thanks, John.

Our next question comes from the line of Michael Gambardella with JPMorgan. Please proceed with your question.

Yes, good morning. And sorry, I got disconnected before. Congratulations on the quarter. And just wanted to get some color on the processing end of your business, the tolling business, can you give us an idea? The gross profit margin in the quarter of 31%, what would that be if you excluded the processing part of your business? Karla R. Lewis - Chief Financial Officer & SEVP: Yeah. So the toll processing part, Mike, does have higher gross profit margins than the other part of the business so it brings it up a bit, but it's right around 3% of our sales dollars so it's not moving it significantly. So we saw that trend in the gross profit margin percent truly was across the company. It wasn't achieved only because of the toll processing. Toll processing helps pull it up a bit, but the rest of our operations all increased their gross profit margins and really have that improvement that you see in the total GP percent. Gregg J. Mollins - President, Chief Executive Officer & Director: We take a look at that basically every month and as happy as we are with the toll processing operations and their contributions to earnings, and believe me, we are. But as a whole, when you look at all – the entire corporation, okay, basically every business unit had increased gross profit margins over the past six quarters.

Right. But the toll processing business, I mean their gross profit margins must be more than double what the company reported, right? Karla R. Lewis - Chief Financial Officer & SEVP: Not at the gross profit margin level. They're significantly better than the company-wide average, but not to that extent. When you go down to kind of the operating income or pre-tax, you are going to see a higher multiple to the company-wide average produced by our toll processing company.

But you're saying that the total revenue on toll processing is 3%. Karla R. Lewis - Chief Financial Officer & SEVP: Of total sales dollars because remember, we're only charging for the processing fee.

Right. Karla R. Lewis - Chief Financial Officer & SEVP: Yeah. So it's 3% of total sales dollars, but it is a bigger percentage of the operating income or pre-tax income lines.

And that tends to be stickier business, right, than the rest of – the vast majority of the other business. Karla R. Lewis - Chief Financial Officer & SEVP: Yeah. It's kind of high volume long run where the customers were looking...

Right. Karla R. Lewis - Chief Financial Officer & SEVP: ...but they were going into large pieces of business.

Okay. And that's contracted on an annual basis. Gregg J. Mollins - President, Chief Executive Officer & Director: Actually, when we get into the contracts there, there are more agreements that we have with the suppliers and the end users, and of course, the suppliers are ultimately our customer. But we're also very, very close with the end users, so we understand the quality needs of that end user. So, it's not like you walk into a signed agreement; it's a handshake agreement. That is what you're going to do and this is the volume associated with it and this is what our price is for the various processes that we perform. So you have to understand our business and toll processing is a little bit different than the majority of toll processors and that we do the really, really difficult things that most toll processors don't even want to touch. We do processing in our toll processing operations that we could not do in any of our service centers throughout the country, okay? They're very niche-orientated and it's very, very high-quality needs. So we don't have a tremendous amount of competition and we do a really good job with that, but we don't have a firm commitment for a year with basically anybody.

Okay. And is that part of the reason why your several expenditure commitments is higher than some of your competitors? Gregg J. Mollins - President, Chief Executive Officer & Director: It definitely is. Some of the equipment that we put in – well, let's put it this way. The most expensive equipment that we put in at Reliance Steel is associated with our toll processing operation basically. Karla R. Lewis - Chief Financial Officer & SEVP: But even outside of that, putting the toll processing investments aside, Mike, we still spend significantly more than our competitors on capital expenditures and putting in kind of new state-of-the-art equipment into our facilities.

Okay. And just another shot, I assume this is in the 10-K. I can look it up. But what percent of the locations at this point, if you look at it on a square footage basis, is owned versus leased? Karla R. Lewis - Chief Financial Officer & SEVP: Sorry, Mike. Give me one second here. I'm flipping in our 10-K. Gregg J. Mollins - President, Chief Executive Officer & Director: It's the only number Karla doesn't have memorized. Karla R. Lewis - Chief Financial Officer & SEVP: I know. It's at our big tables so it's harder for me to find right now. I think it's the majority, Mike. We could – wait. Got it. So about 80% of our total square footage in our operating facilities we own.

Great. Thanks again and congratulations on the quarter. Gregg J. Mollins - President, Chief Executive Officer & Director: Thank you very much. Karla R. Lewis - Chief Financial Officer & SEVP: Thanks, Mike.

Our next question is a follow-up question from Phil Gibbs with KeyBanc Capital Markets. Please proceed with your question.

I think at this point, my questions are answered. Actually, I just remembered it. It was a question on the sheet business because I think you acquired a lot of that from Metals USA. So is there a lag, Karla and Gregg, in terms of the pricing there? Is this more of that business on a CRU reset? Gregg J. Mollins - President, Chief Executive Officer & Director: The contract business that, in carbon steel, that we have with the Metals USA companies, a degree of that is based on CRU, okay. So, whenever you have any contract based on that index, there is a lag, okay? So what you see in a particular month or a quarter, I should say, okay, could lag the market and then you can get higher margins in the following quarter. And just the opposite, if prices go down, we might have higher margins this quarter and lower commodities the next quarter. So, yes, there is. But if you look at our total company, okay, as a whole, what that lag is, whether it's going up or it's going down, is relatively insignificant when you look at the entire scheme of things. It's not something that I'd worry about.

Okay. I was just trying to gauge in your carbon steel portfolio if you had a lot of lag in the business. And I think in my mind, if you had any, it would be on the sheet side, but it sounds like even that is pretty mixed. Gregg J. Mollins - President, Chief Executive Officer & Director: Yeah, it is. It is. It's a good question. And we don't have the CRU on anything other than the carbon steel flat-rolled business. We don't have it in any other products. Karla R. Lewis - Chief Financial Officer & SEVP: Yeah. And carbon flat-rolled is 15% of our total sales dollars. 3% of that is hot-rolled – I'm sorry, 6% is hot-rolled. The rest is in kind of galvanized – the majority is in galvanized and then cold-rolled.

Okay. Thanks so much. Karla R. Lewis - Chief Financial Officer & SEVP: All right. Thanks. Gregg J. Mollins - President, Chief Executive Officer & Director: Okay. Thank you.

There are no further questions at this time. I would like to turn the call back over to Gregg Mollins for any closing comments. Gregg J. Mollins - President, Chief Executive Officer & Director: Okay. Thank you for joining us today. I'd just like to reiterate the fact that our focus is on maximizing earnings, not tons or sales, and that starts with gross profit margin, which is why we speak so much towards that particular bottom line. We're not a tonnage-type company; we're an earnings company. So I just wanted to reinforce that. Also, we'd like to remind you that in mid-September, we will be in Boston presenting at the KeyBanc Basic Materials Conference, and we hope to see many of you there. Thanks for joining us and have a great day.

This concludes today's conference. Thank you for your participation. You may disconnect your lines at this time, and have a wonderful day.