Reliance Steel & Aluminum Co. (RS) Q4 2022 Earnings Report, Transcript and Summary

Greetings. And welcome to the Reliance Steel & Aluminum Company’s Fourth Quarter 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Kim Orlando, with ADDO Investor Relations.

Thank you, Operator. Good morning. And thanks to all of you for joining our conference call to discuss Reliance’s fourth quarter and full year 2022 financial results. I am joined by Karla Lewis, President and Chief Executive Officer; Steve Koch, Executive Vice President and Chief Operating Officer; and Arthur Ajemyan, Senior Vice President and Chief Financial Officer. A recording of this call will be posted on the Investors section of our website at investor.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 inflation, geopolitics and the COVID-19 pandemic and related economic conditions on our future operations, which may not be under the company’s control and may cause the actual results, performance or achievement of the company to be materially different from the results, performance or other expectations implied by these forward-looking statements. These factors include, but are not limited to, those factors disclosed in the company’s annual report on Form 10-K for the year ended December 31, 2021 and updated on Form 10-Q for the quarter ended September 30, 2022, under the caption Risk Factors, disclosure in our press release this morning and other documents Reliance files or furnishes with the Securities and Exchange Commission. The press release and the information on this call speak only as of today’s date and the company disclaims any duty to update the information provided therein inherent. I will now turn the call over to Karla Lewis, President and CEO of Reliance.

Thanks, Kim. Good morning, everyone. And thank you all for joining us today to discuss our fourth quarter and full year 2022 financial results. Before I begin, I’d like to say that I am honored to have the privilege to serve as CEO of this wonderful family of companies. I look forward to continuing our longstanding track record of industry leading financial operational and safety performance, growing our company and increasing stockholder value in the years ahead. I would also like to acknowledge Jim Hoffman for his significant contributions to Reliance, both during his tenure as CEO and throughout his many years of service to the company. On behalf of the management team here at Reliance, we wish him all the best in his upcoming retirement at the end of the year. I will begin today with an overview of our 2022 performance and capital allocation strategy. Steve will then speak to our operating results and demand trends by end market. And Arthur will conclude with a review of our fourth quarter 2022 financial results, as well as our outlook for the first quarter of 2023. Turning to our results. We are very pleased to have achieved record financial performance in 2022 across nearly every metric during a period of continued metal price volatility and broader economic uncertainty. Our unique business model is designed to position Reliance as the customer and supplier of choice throughout industry cycles. We are differentiated by the diversity of our operations, superior customer service and ability to generate significant cash to fuel our longstanding commitment to both growth and stockholder returns. Our full year 2022 net sales were a record $17 billion, driven by solid demand in the majority of our end markets, along with favorable metals pricing. In 2022, more than half of our orders included value-added processing, which when combined with our product and end market diversification and focus on small orders with quick turnaround drove our strong gross profit margin of 30.8% for the year, which was at the high end of our estimated sustainable annual range despite declining prices for most products in the second half of the year. Effective expense management, coupled with our strong gross profit margin supported record annual non-GAAP pre-tax income of $2.44 billion and record non-GAAP diluted earnings per share of $30.03. And let me say that again, record non-GAAP diluted earnings per share of $30.03. We generated record annual cash flow from operations of $2.12 billion in 2022, far surpassing our prior record of $1.3 billion in 2019, made possible by our record profitability and working capital management. I applaud and thank our team on achieving these outstanding results and for doing so safely with 2022 marking an all-time low for our total recordable incident rate. Our strong cash generation and liquidity enables us to continue executing our disciplined capital allocation strategy with particular emphasis on both growth and stockholder returns. We invested nearly $342 million in capital expenditures in 2022, setting a new annual record with the majority of funding growth opportunities. Our full year 2023 capital expenditure budget is another new record at $500 million, with an expected total cash outlay of approximately $400 million to $450 million in 2023, which includes some carryover from 2022 and prior year projects due to ongoing extended lead times throughout the supply chain. We anticipate about two-thirds of our budget will be focused on growth initiatives in areas such as facility upgrades and expansions into new markets, new equipment to expand, automate and improve the efficiency of our value-added processing capabilities along with creating safer and improved working environments for our valued employees. Although we did not complete any acquisitions in 2022, the pipeline remains healthy and we continue to evaluate many opportunities with the goal of pursuing those that meet our disciplined criteria. We returned over $847 million to our stockholders in 2022 through dividends and share repurchases. Furthermore, as announced in our earnings release this morning, we were pleased to increase our quarterly cash dividend by 14.3% to $1 per share or $4 on an annualized basis, underscoring our confidence in our long-term strategy and outlook. Over the last five years, we have allocated nearly $2 billion of capital towards organic growth and acquisitions, and nearly $2.7 billion towards stockholder returns in the form of dividends and share repurchases. Looking ahead, we believe our strong balance sheet and liquidity will enable us to continue executing our capital allocation priorities, no matter the operating environment. In closing, I am extremely pleased with our record setting 2022 performance. These results were achieved in a highly challenging environment with ongoing inflationary headwinds, recessionary concerns, supply chain disruptions, labor shortages and overall declining metal prices in the second half of the year. Our managers in the field have done a tremendous job navigating these challenges, supporting our confidence and our ability to deliver strong performance in the year ahead. As we move into 2023, we are optimistic the Infrastructure Bill, the CHIPS Act and the Inflation Reduction Act should serve as tailwinds for growth in an environment of sustained higher metal pricing compared to historical levels. I would like to thank everyone at Reliance for their continuing and steadfast commitment to operational excellence and safety. Thank you all for your time today. I will now turn the call over to Steve who will review our fourth quarter operating results and demand trends. Steve?

Thanks, Karla, and good morning, everyone. First, I’d like to congratulate Karla on assuming the role of CEO at Reliance. Karla and I have worked together since 2005 when Chapel Steel was acquired by Reliance and joined the family of companies. Karla is extremely well respected within our organization and throughout the industry and I look forward to working more closely with her going forward. I’d also like to extend a sincere thank you to each member of our team of over 15,000 employees for showing up each day and working diligently and safely to ensure we exceed our customer’s expectations. Our record setting performance in 2022 is also made possible by our customers who count on us for quick deliveries of high quality products at competitive prices, as well as our suppliers have continued to support us through challenging times and supply chain disruptions. Now I will turn to our fourth quarter pricing and demand trends. Our fourth quarter tons sold declined 8.2% compared to the third quarter of 2022 due to anticipated seasonal declines in line with our expectations of down 6.5% to 8.5% and improved 0.8% from the prior year quarter. Our performance was primarily driven by strong demand in broader manufacturing and non-residential construction, as well as robust aerospace and semiconductor shipments. Similar to the last several quarters, we believe our fourth quarter shipments could have been even stronger had not been for a persistent supply chain related disruptions, including labor shortages at our customer’s facilities. Our fourth quarter average selling price per ton sold of $2,799 declined 7.9% compared to the third quarter of 2022, consistent with our expectation of down 6% to 8%, that remained elevated by historical standards. Prices for the vast majority of the carbon steel products sold, along with the stainless and aluminum products continued to decline throughout the fourth quarter. However, continued strong demand for higher value products, both at the aerospace, semiconductor and energy markets helped offset some of the downward pricing pressure on our average selling price. We have been seeing signs of stabilization on certain products to date in 2023 as our average selling price per ton overall remained relatively flat in January compared to December. Arthur will cover our first quarter 2023 outlook in more detail. On a non-GAAP FIFO basis, which is how we monitor our day-to-day operating performance, our gross profit margin remained consistent with the prior quarter at 28.6%. Although the quarter-over-quarter trend was flat, it’s important to note that our monthly FIFO gross profit margins improved throughout the fourth quarter in contrast to decreasing monthly FIFO gross profit margins in the third quarter of 2022. We are pleased to see continued FIFO gross profit margin improvement so far in 2023. The metal’s price volatility of 2022 tested our model with our sales and gross profit margins, once again improving the resiliency. I will now turn to a higher level overview of the trends we saw within our key end markets. Demand for non-residential construction, which includes infrastructure and is the largest end-market we serve was at healthy levels and trended slightly above the fourth quarter of 2021. We are continuing to experience a healthy backlog of new projects, including renewable energy and remain optimistic that we will see improved activity in Q1 2023. Although not included in our tons sold, demand for the toll processing services we provide to the automotive market improved from both the third quarter of 2022 in the prior year quarter due to increased production rates by certain automotive manufacturers despite lingering supply chain challenges. Demand across the broader manufacturing sectors we serve, including our industrial machinery, consumer products and heavy equipment was consistent with last year’s levels in the aggregate. Semiconductor demand trended well above the fourth quarter of 2021, despite some short-term headwinds coming into 2023, demand remains elevated. Our long-term outlook for this market remains strong and we are continuing to invest in increased capacity to service the significant expansion of semiconductor fabrication in the United States. Aerospace demand remained solid with our exposure split roughly 50-50 between commercial and defense. Commercial aerospace made a strong recovery in 2022, with all of our quarterly shipments increasing year-over-year. Demand in military, defense and space also remained healthy. Finally, demand in the energy sector remained relatively stable compared to the fourth quarter of 2021. Overall, we are optimistic underlying demand will remain healthy across the majority of the end markets we serve throughout the first quarter of 2023. I will now turn the call over to Arthur to review our financial results and outlook.

Thanks, Steve. Good morning, everyone, and thank you for joining us today. My remarks this morning will mainly focus on the factors that drove our fourth quarter performance. Despite significant declines in metal pricing continuing from the third quarter of 2022, we experienced solid overall demand trends consistent with typical seasonal patterns. We achieved fourth quarter earnings per diluted share of $5.88, which when combined with effective working capital management resulted in record quarterly cash flow from operations of $808.7 million. While metal pricing continued to decline through the end of the year, the third quarter of 2022 represented the trough for our gross profit margin, and as Karla highlighted, value-added processing continue to provide stability to our gross profit margin. In addition, our use of the LIFO inventory valuation method benefited our gross profit margin and earnings in the quarter. We recorded LIFO income of $99.1 million in the fourth quarter, compared to $27.5 million of income in the third quarter of 2022, which drove a 210-basis-point improvement in our gross profit margin for the prior quarter. We ended 2022 with a LIFO reserve of $744 million as our inventory cost on hand continue to catch up with lower replacement costs or should metal prices trend lower in fiscal 2023, this reserve will generate LIFO income and continue to support our gross profit margins and reduce the volatility of our earnings. Our current estimate of LIFO income for 2023 is $60 million. As always, we will update our expectations quarterly to account for actual inventory cost and metal pricing trends. Moving on to expenses. Our fourth quarter non-GAAP SG&A expenses decreased $17 million or 2.7% compared to the third quarter of 2022, mainly due to moderation in inflationary pressures, lower incentive based compensation resulting from lower profitability and lower variable warehousing and delivery expenses associated with lower tons shipped. On a year-over-year basis, our fourth quarter same-store non-GAAP SG&A expenses decreased $9 million or 1.5% as lower incentive based compensation from lower FIFO pre-tax profits offset moderating inflationary factors, including higher wages, freight, steel and plant supply costs. Our fourth quarter 2022 diluted earnings per share of $5.88 benefited from the combination of a LIFO income impact of $1.25 per share, compared to anticipated LIFO expense of $0.09 per share and lower than anticipated tax rate of $0.24 per share. Excluding the benefits of both higher than expected LIFO income and lower than expected tax rate, our diluted earnings per share would have been $4.30 in line with our guidance of $4.30 per share to $4.50 per share. Turning to cash flow. Our strong profitability and working capital release generated record quarterly cash flow from operations of $808.7 million in Q4. Our 2022 record annual operating cash flow of $2.12 billion funded a record $341.8 million in capital expenditures and the return of $847.4 million to our stockholders comprised of $217 million of cash dividends and $630 million of share repurchases, resulting in nearly 6% reduction in common shares outstanding. We are very proud that our strong financial position enabled us to reinvest a record amount back into our business to support continuing organic growth and to return approximately 46% of our full year net income to our stockholders. As previously announced, on January 15th, we redeemed our $500 million, 4.5% senior notes due April 15, 2023. I will now turn to our first quarter outlook. We expect healthy demand trends to continue in the first quarter of 2023, which includes the normal seasonal increase in shipping volume compared to the fourth quarter. We estimate our tons sold will be up 11% to 13% in the first quarter of 2023 compared to the fourth quarter of 2022, which is better than a typical seasonal recovery. To-date, pricing for many of our products has started to stabilize compared to December, which was the low point in the fourth quarter, and as a result, we estimate our average selling price per ton sold in the first quarter of 2023 will be down 3% to 5% compared to the fourth quarter of 2022. Based on these expectations, we anticipate non-GAAP earnings per diluted share in the range of $5.40 to $5.60 for the first quarter of 2023. In closing, I’d also like to acknowledge and thank everyone at Reliance for their contributions to our phenomenal performance in 2022. This concludes our prepared remarks. Thank you for your attention. At this time, we would like to open the call up to questions. Operator?

Thank you. [Operator Instructions] Our first question comes from the line of Emily Chieng with Goldman Sachs. Please proceed.

Good morning, Karla, Steve and Arthur. Congratulations on a strong quarter. My first question is just around the M&A front. You mentioned that you hadn’t done anything there in 2022, but curious what you were seeing there in the market that led to that sort of dry spell, was it the bid-ask spread being too high at that point in time or just the options available not as interesting to you at that point?

Hi, Emily. Thank you very much for joining the call today. So in 2022 we did continue to see a lot of opportunities in the market. We try to be selective on which companies we look to acquire. We don’t want to compete with our customers, so that pushes out a lot of potential opportunities, but we did see some good interesting opportunities in 2022. We did do work on some companies and there were some, in our opinion, elevated bid-ask prices. I think we are seeing some of those opportunities come back around at what are more reasonable levels to us. And we think the market is going to be pretty attractive this year for continued potential opportunities for us to look at and we did -- we didn’t not do acquisitions for any reason other than we didn’t reach agreement, but we want to continue to grow the company both organically and through acquisitions and we look to 2023 to potentially be a fairly active year.

Understood. Thanks, Karla. And maybe as a follow-up on that pace related to growth and can you remind us how much spend related to the semiconductor plant that you are constructing is still perhaps to flow into the 2024 period and are there any other projects of this group that you would consider executing given the demand outlook ahead?

Yeah. So we are always looking at opportunities. Our people working out in the field do a great job of staying close to their customers and identifying opportunities for us to do more. We do have a couple of greenfields that we are working on currently at some of our companies. One of those is our company Valex that is really dialed into providing kind of the plumbing of the semiconductor fabrication companies and so we are expanding in Texas. They have their first phase of their expansion into Texas that will be coming online anytime, but that’s the smaller part of it and then their larger expansion with increased capacity will come online, we are anticipating in the first quarter of 2024.

Great. Thank you.

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

Hey. Good morning.

Hey, Phil.

Good morning.

Good morning, Phil.

So you have a pretty hearty cash CapEx budget this year. I think you said about 4.25% at the midpoint. Relative to maybe what you all were thinking six months ago, 12 months ago, what may have been added to that as you have seen the needs internally change in terms of your own capabilities and/or what your clients or customers rather asking of you?

Yeah. I think, Phil, so we do an annual CapEx budget. Last year we were at a record budget of $455 million. We only spent $342 million last year, mainly just because of supply chain constraints. But we have to -- we have really long lead times on some of the opportunities we see now. This year our budget is $500 million. We think the actual cash spend, which will include some carryover from prior years is probably only going to be like $400 million to $450 million this year. But we -- like I said, our folks stay close to their customers, they go out in their warehouses, they look for opportunities for us to do more for our customers with the labor shortages, a lot of our customers have struggled with that and if they have to invest money in new machines, which have become more expensive, maybe they decide not to do that and they ask Reliance to do that for them. So we have a couple of hundred different types of processing equipment in the budget for this year, same as last year. So we have got over 300 locations and we are trying to grow all of them and give them more resources to be able to serve our customers better.

So, Karla, I -- this is a rough math, so there’s -- it seems like there’s over $300 million of growth CapEx in your cash guidance this year of about 4.25%. Do you see returns on those immediately or is there a gestation period in terms of when you would realize a return, because I know you all are good at adding capabilities and value-add and they end up being very accretive to your business and margins, but how long does that typically take for those to bear out?

Well, for all the Reliance people listening, we expect it immediately and we do have a pretty short runway with the equipment we put in. We have good well trained people out there. We are able to leverage people through our family [Technical Difficulty] it’s not a long -- so it’s not a long lead time. We are putting a lot of CapEx items in place all the time and it’s a pretty short lead time, but it is hard to measure exactly what the return is on each individual piece of equipment.

Yeah. And Phil, it’s Steve. I’d just like to add regarding CapEx. The CapEx budget that we are spending for 2023 is a good sign, because the past spendings in 2021 and 2022, our customers have asked us for more capabilities and we -- whether it’s plate, burning machines or new saws [ph] or new cut the length lines. They are filling up pretty quickly almost as soon as we install them. So lead times are extended, so we are just trying to get out in front and try to make sure we continue to exceed our customer’s expectations.

Understood on that. And then you mentioned on automotive improvement year-on-year and sequentially and I know the end market itself has been very choppy since the pandemic recovery. So what are you seeing now looking ahead? Are you expecting business levels to improve or with this a little bit of improvement you saw in the back part of this year, you basically just expect those levels to sustain? Thanks.

We have to give our companies that do the toll processing for automotive, a lot of credit for working through the automakers supply chain issues probably the last, at least two years. Whenever we think that things are kind of smooth, there’s a step backward. But we think going into 2023, they are much better shape from their component point of view, their labor point of view and we are looking for a healthy 2023 from an auto toll point of view.

Our next question comes from the line of Katja Jancic with BMO Capital Markets. Please proceed.

Hey. Thank you for taking my question. Just maybe going on the first Q guide. Can you talk a bit more about what is driving the above seasonal pickup in volumes, maybe what markets or how are you looking at it, please?

Hi, Katja. We have been pleased to see the way that we have rebounded in Q1. We are used to the normal seasonal downturn in Q4, and certainly, Q4 shipments we are at the low end of our guidance and so we are seeing a little bit better than typical bounce back in Q1. We have our -- we think we have our people excited to pick up some market share and to be out there selling. We are just out there to service our customers well and overall all, there are a couple of markets down potentially down a little bit, but overall, our customers are busy. We have been telling you guys this for a while and our customers truly do still have backlogs. They just need people and all their components and underlying demand remains pretty healthy. So we are seeing generally across most of the markets we serve with our small customers, quick turnaround. We see continued strong demand coming from them.

Okay. And maybe just on the tolling business. Can you remind us how much is auto, I think, there is also other business in that outside of auto?

Yeah. So our tolling businesses, we have a company in the U.S. with about 13 locations. They are very good at what they do and then we have another company down in Mexico with four locations. We have expanded their operations, continue to expand them for both of our companies. They see a lot of opportunity out there, because they are really good at what they do and their customers keep asking them to do more, about 65% of our tolling business is automotive related. And remember on tolling, we don’t own the metal, so we have no price risk on there. We don’t have to deal with the volatility from metal prices. We charge a fee for processing, delivery, storage, which has been in high demand in the last couple of years through all the supply chain disruptions. And then the next biggest market in our tolling business behind automotive is appliance and we have seen some weakness on some of the residential appliance recently. But we are able to make that up with increased business with automotive and also some beverage can and other applications.

Okay. Thank you very much.

Thanks, Katja.

Our next question comes from the line of Lawson Winder with Bank of America Securities. Please proceed.

Thank you, Operator. Good morning, Karla, Stephen and Arthur. Nice to hear from you all. I wanted to ask about the capital deployment in another way. So net debt is very low, which you have referred to several times on this call. How should we think about capital deployment in terms of the buyback versus the now higher dividend and the CapEx that you have discussed?

Yeah. Good morning, Lawson. So as we have said before, we are very aware of where we are from a balance sheet perspective, and then as Karla alluded to earlier, we have been pretty active on the M&A front, looking for potential deals and just because we didn’t close any, it doesn’t mean we are not active on that front. So our capital allocation is largely opportunistic on both fronts, right, whether that’s growth or returns. And we ask that we kind of measure capital allocation for us with a five-year look back and there’s going to be some periods where there’s a low and that doesn’t mean we are not deploying capital. We are just being very patient and disciplined with our deployment. And we are kind of very proud of where we are with our balance sheet and we are -- how we navigated the last couple of years and positioned the company today in an environment where there’s going to be some opportunities, both on the growth side and on the shareholder return side. And we have been pretty consistent with our returns or balanced capital allocation. When you do a five-year look back, it’s pretty balanced, Lawson, with about 50% of capital being dedicated towards growth and the other 50% towards returns.

Okay. That’s helpful context. Thanks very much. And then can I also ask about the year-over-year stainless volumes being down 10% and carbon was up 2%, alloy was off a bit. Any color on the weakness in those volumes in Q4?

Steve can fill in maybe a little more specifically, but we don’t think it was weak. We had a really strong 2021 on the stainless front. It’s been a good strong market for us over the years and I think the fluctuation you see is probably based on dollars, so obviously, pricing impacts that. But our stainless business demand, there continues to remain pretty strong. Steve, anything to add?

Yeah. I would just say that as far as the stainless prices dropped a little bit, but our people in the field did a great job of cycling through their inventory. There were some import that came into the market towards the second half of the year, which we did not participate in. So we got a little bit of -- just a little bit of a correction in the market, but we are going into 2023 with good inventories at good cost and ready for business.

And okay, maybe just to drill down a little bit on that last point, when you say ready for business, could you maybe elaborate on kind of the outlet look for full year in terms of sort of volumes directionally, maybe even some sort of range of growth?

Yeah. I wouldn’t say we would give direct it for the rest of the year, but I would say that, we think that a lot of the import has worked its way through the system and that the market is normalizing a little bit more.

And Lawson, just as a reminder, Reliance is really kind of a spot business and our customers call us and we ship them what they need. So we are pretty dependent on our customer’s needs and we are ready to do that for them continuing throughout 2023 and we see our customers continuing to be busy. In the stainless market, with pricing they oftentimes have a little more visibility of where prices are heading. So you see a little more fluctuation in our customer buying patterns than in some of the other products we sell, but we are bullish as our customers on demand in 2023.

Okay. No. That’s great. Thank you. Nice work in the quarter.

Thanks.

Thank you.

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

Hi, there. I was curious on net working capital as you look out to 2023 versus maybe 2022. I think we are looking for it to be a pretty decent source, but you did bleed down a lot of net working capital in the fourth quarter. So I am just looking for some thoughts there.

Sure. And I will speak to the first quarter guide, Phil. So based on our pricing and volume assumptions, the billed working capital billed in the first quarter should be seasonal and kind of an absolute number, it should come in below the levels of the release that we had in the fourth quarter.

Okay. That’s helpful. And I think the rest of the year obviously will depend on, for the most part, on pricing as things progress. And then, Karla, just on the Infrastructure Bill, are you seeing anything in terms of asks or requirements for some of the stuff or is it largely still in bidding and design?

Yeah. So, Phil, the majority, we think is still in bidding and design. With our customer base, which is so diversified and we are going to get some of those projects. We are not really going to beat the main supplier of those, but we get a lot of good activity, infrastructure projects. We haven’t seen them really start to flow through the books yet. We are hearing more on the bidding and design phase right now. So we think that’s probably a little later in 2023 when we and others really start to see the benefit of those times.

And then I appreciate that. And then lastly, can you just remind us where you all are on the buyback and if you were to increase the amount under authorization, when would you typically do that? Thanks.

Yeah. So we just did that a few months ago, reset the authorization of $1 billion and we have $680 million or so remaining under our program. So I mean that authorization, the $1 billion that we had was roughly about 10%. So and we have been active since then. So, and as you know, we don’t necessarily provide forward-looking guidance, but in 2022, we were pretty active on that front. So in the last 12 months, we reduced our share count by about 6%.

Yeah. And we as management and our Board, Bank Reliance is a pretty good buy and so our Board is very supportive. If we do it opportunistically increase our activity under that we will certainly look to refresh as needed.

Thanks, everyone.

Yeah.

Thanks, Phil.

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

Congratulations on everything, Karla.

Thanks, John.

I am trying to understand the tremendous performance were adjusted for LIFO, the margins were the same in a falling steel price environment where average distributors have holding losses, which you managed to avoid. Did your inventory turnovers rise materially in the third or fourth quarters first, and for the 8% of your sales that were hot-rolled or 15% total flat-rolled steel, are those differentiated flat-rolled tons in particular ways?

So, hi, John. Reliance, I think, one of the things we try to do is be pretty consistent with our expectations of how we perform out in the field and we try to give our leadership teams out there, consistent guidance. So we always push for strong inventory turns. We do have different expectations based upon the product mix of each of our companies. For our flat-rolled companies, we do expect them to turn their inventories faster just because of the lead times with the mills and them servicing their customers. So we do have higher expectations for them. Steve and his team really worked with our FOCs. When prices are down, we will see some of our customers somewhat adjust their buying patterns. But, overall, I think, we are trying to be pretty consistent and have been with the way we manage our inventories. Our companies are working better together now. We call it SOC [ph] collaboration and they are able to offload inventory to each other if one of them is a little heavier than others. So we also have the benefit of our large network of companies where they can step in, help each other out. Steve, anything to add?

Yeah, I would just add to being a domestic buyer for the most part. Our domestic mills have done a great job and we understand that they are working through supply chain issues and they have been really good partners, making sure that we have enough steel, not too much steel, very flexible with the order books, and I think that overall, our business model has worked by buying close to our locations.

And John, the only thing I would add is, our value-added processing capabilities, the margin volatility on that part of the business is much lower than the stock pool business. So that’s another dimension to the story. The smaller order sizes, quick turnaround, transactional nature of the business. That also contributes to the relatively stable margin profile. So it’s not one thing, it’s a combination of multiple factors that contribute to that relatively stable margin profile.

Thank you and congratulations. I am in awe of the great results.

Thanks, John.

Thank you, John.

There are no further questions at this time. I’d like to turn the call back to Karla Lewis for any closing remarks.

Thank you, Operator. Thanks again to all of you for your time and attention today. Before we close out the call, I’d like to remind everyone that we will be in Hollywood, Florida, in early March presenting at the BMO Global Metals, Mining & Critical Minerals Conference and we hope to see many of you there. And to our Reliance family, thank you again to everyone throughout the Reliance family of companies for your record setting 2022 performance and thank you all for your continued support of and commitment to Reliance. Thank you.

This concludes today’s conference. You may disconnect your lines at this time. Thank you for your participation.