Reliance, Inc. (RS) Earnings Call Transcript & Summary

Good afternoon, everyone, and welcome back to the GS Metals and Mining Conference. My name is Emily Chieng, and I head up our North America's, metals and mining research effort. I'd like to welcome you all today to our next fireside discussion with Reliance Steel & Aluminum. Joining us today, we've got the full management team here. We've got Jim Hoffman, CEO; Karla Lewis, President; and Arthur Ajemyan, CFO. Thank you all for joining us today. [Operator Instructions] But before we do dive into the Q&A -- prepared Q&A, I'd like to open it up to Jim and the team to provide some opening remarks. Jim, over to you.

Great. Thank you, Emily. Thank you. Good seeing you again. I wish we were all together. I'm sure you have heard that before, but thanks to all the good folks at Goldman's for having us here today. Yes, I'd like just like to start off with just a couple of statements about our company. First, I'd like to start out with who we aren't. We are not a metals producer. We don't make metal. Sometimes we get thrown in with some folks who do that. We don't do that. We basically take what they make and we add value to it. So if you're going to call us anything, you can call a metals solution provider. We've been around for a long time, 82 years now. We have over 300 some-odd locations all over the world. Year-to-date, we've done a little over $10 billion. And I'd like to say this at this point, we've done a little over $10 billion year-to-date, about $2,000 at a time. So you can see how many different transactions that we do to add value to our customer base. We sell over 125,000 customers all over the world. And we've had a good year. We're on a good run. We appreciate our position in the supply chain. I think we add value. We're traditionally a domestic metals supporter. We just think that's a good way to manage our cash. Just a real quick beginning on how -- what we focus on our company. First and foremost, we focus on the safe and health -- the health and safety of our colleagues, our customers, our suppliers, our communities, that's first and foremost. We've always done it that way. And second, we focus on our quality of earnings. So that's the way we run our company. And I hope you remember that we do not make metal. And if you want to ask me what the price of hot rolled steel is going to be in a month from now, I probably don't have the answer. You can ask somebody who makes that. But thank you very much. Emily, so you can take it from there.

Fantastic, Jim, and thanks for the introduction. Maybe taking that point that you make that you're not actually a producer of steel, you can provide maybe a little bit of an unbiased view as to what the state of the current U.S. steel supply/demand dynamic is in the U.S. What we can say is that steel mill lead times are falling. From your perspective, is it easier for you right now to access steel than it was during the summer? Anything that you're still having difficulty securing, anything on the lines of how you're sourcing your metal here at this point in time?

Yes. Just in general, the overall environment is really good. Our customers are busy. In fact, they're so busy that a lot of orders have been pushed out into next year, which is, in my opinion, is a good thing. As far as getting metal, we really haven't had a problem getting metal. But again, we like to be a good corporate citizen, right? We've, all along, we've gotten what we need, not what we want because of our relationship and our size and what have you. We just want to make sure we're there for our domestic suppliers and also for our customers. So we've been -- we've done that quite well through this pandemic and continuing -- going on. Lead times are coming in. Now -- and a lot of times, folks like to look at hot-rolled coil. I understand that. You have to pick something. That just doesn't happen to be one of our big deals. I think it's the 11% of our business, which isn't -- it's important, but it's not really what drives our business. So we'll talk about hot rolled. Now lead times are coming in, which -- and we do watch lead times. Some of us have been in the business a long time, and that's kind of a good lead indicator, lead times, and also the capacity that our domestic partners are running. And they're still running in the 84% capacity range, which is high, by the way. So we don't see this big slowdown coming, even though we can get hot-rolled coil a little bit better, I think the lead times are in the 4 to 6 weeks maybe, down from 8 to 10. We didn't have any problem getting a metal then. We don't have any problem getting a metal now. Our inventories -- the way we run our inventory, we've run our inventory the same way for years and years and years. We basically stock what we think our customers are going to buy. There's really no need to go out there and buy offshore, try to speculate and try to scoop the market and do things like that. Our company doesn't make money on the buy/sell. We buy competitively and some would say we buy better than others, probably do. But that's -- we put that in our pocket. What we provide for our suppliers is a relief for the product they make. But more important, we provide the service and the value to our customer base. So whether we have a lot of it or a little, but we try not to have a lot of it. We like to have the right amount at the right times so we can continue our cash flow and continue to do the right things for our customers, and we're going to continue to do that. So lead times capacity, we look at things like that. That all kind of leads people to try to speculate on price, which we don't do because I just don't have that much time in my data to try to control something that we don't have anything to do with. They're going to charge whatever they're going to charge. They're going to make -- whatever they're going to make, whatever their import charges are, that's how they run their business. And whatever we need to pay, we'll pay, and we'll continue to add value to that. So long story short, business is good. Demand is good. And we've liked -- we like where we are. We've got a really fine 3 quarters. We had a good year last year, and we anticipate the demand being good. I don't know if it's going to get better, but it's pretty big on good right now. And as far as the price, I have no idea what the price is going to do. We'll see. Whatever it is, we'll pay it and we'll add value to it and pass it along to our customer.

Yes. And Emily, if I could just add, as Jim commented, and he talked a little bit about the hot-rolled coil, and as he said, I just want to remind everyone, that's only 11% of our revenue dollars. We sell a lot of other products. Some of those products, we're still seeing very extended lead times. Metal is still tight. Stainless is still really strong. Pricing is still going up. A lot of the aluminum products, there's a lot going on in that space right now. So we're seeing increased prices coming there. So we just want to be sure to remind everybody to think much more broadly and recognize that just because hot-rolled coil is under some pressure right now we have a lot of other parts of our business where we're seeing strong and increasing prices.

Maybe just while we are talking about that, a question that we have received more recently from investors is some of the comments you made at your third quarter results, I think you're guiding to fourth quarter average realized prices being about 5% to 7% higher sequentially. So maybe tying that back into what you said, hot-rolled prices, not necessarily as big of an impact to you guys. How do you still see that? Or what do you want to remind everyone aside from the stainless and the aluminum there that is driving those prices higher, even if you are seeing that moderation? Is there any sort of product mix and -- clearly that some product mix are different there, but any sort of timing lags that we should be thinking about as well?

Arthur, do you want to talk about?

Yes, I could take a shot at that. So good question, Emily. So I think one of the points that we also wanted to make abundantly clear on the call is that if you're looking at hot-rolled coil, you're going to see that the benchmark pricing for hot-rolled coil is up 300% year-over-year, so Q3-over-Q3 of 2020. So naturally, if you're looking at that index, you're -- and you're concerned about prices going down, there's a significant amount of downside. But I think when you step back and you look at our product mix, our average selling prices for that same period were up about 80%. So what that tells you is we're not really exposed to the most volatile product, which is hot-rolled coil. And at the same time, we're not exposed to that same downside risk that one would assume if you just looked at the hot-rolled coil index. So I think it's that issue of getting over-indexed and kind of being -- associating the hot-rolled prices with our product mix, which is not the case. And many of the products we sell, like the long products, et cetera, never saw that type of appreciation. So -- which means that the downside risk really is nowhere near as much as you might have with hot-rolled coil. So -- and the other point on the sequential price increases, the product mix, stainless, there has been some price increases there. And aluminum, there are some activity on that front, too. So that's one component of that sequential increase quarter-over-quarter. And the other is just the average price. Basically, we said prices at the beginning of the fourth quarter being higher than the average, that also is contributing to the sequential increase. So I hope that adds some color to that question and issue.

And Emily, just one other thing, and I'm sure somebody will ask Arthur along the lines, I hope they do anyway. When the price fluctuates like it does up and down, there's a thing called LIFO that collects that money and puts it in a bank account. And when the price has been dramatically going up for the last x amount of quarters, so we've got a pretty great bank account that can handle if it goes back the other way. And that's a -- don't -- yes, you might want to remember that, but if you see the prices coming down, when it comes to Reliance, there's -- you got to think about a bigger picture. So just a comment I'd like to make.

Fantastic, and duly noted there. But maybe coming back to sort of the steel markets, you do have exposures to a number of different end markets, autos, construction and a variety of others. But maybe would you mind touching through each of those end markets there? What you're seeing in terms of your order book and perhaps sort of the length of the backlog into the next year for each of those end markets?

Yes, Emily, I'll take a stab at that and these guys can fill in then if they'd like. Our largest end market that we ship into is nonresidential construction, and we include infrastructure in there as well. A lot of different products that we're selling going in there. Demand has been good. Obviously, we took a hit in the pandemic, but we've come back to that. And I think it was the first quarter of this -- first or second quarter of this year, we felt, we were kind of back to prepandemic levels on our shipments there. . And remember, when we talk about nonres construction, we're talking about buildings that are 4 or 5 stories high or below. And so a lot of the shifts that are going on in the demographics in the U.S. coming out of the pandemic where there are new communities and they need infrastructure for those communities, hospitals, schools, strip malls, that's the type of business we do. So we're doing the smaller construction jobs. And we've been seeing throughout the year that -- and especially more recently, the faster jobs, the smaller jobs are getting done as priority because I think they feel they don't have as much exposure there. So that has been strong for us. We see that continuing. There are some projects that have been pushed out. But again, that just means we ship them later. Some of the contractors are getting new quotes, but a lot of the products we're selling there, it's not flat rolled. It's not hot-rolled coil that we're selling into those markets generally. So we're still seeing good strength and people just want the product. So there's good activity continuing on nonres. And certainly, if the infrastructure bill, at some point, gets passed, that will be positive for us as well. We talk about heavy industry, but also heavy industry, construction equipment, ag equipment, that has been really strong for us. The only thing there are some of the OEMs and others throughout the supply chain have some issues with labor shortages or to they're getting different components. So again, we see that as just pushing demand into future periods. We see underlying demand there very strong. The same, we do just general manufacturing, whether it's firearms, recreational vehicles, kitchen equipment. I mean we sell into so many different industries. And generally, our customers there have been very busy. We're seeing a lot of continued strength coming from there. But again, not a lot of backlogs because we're generally not selling to the OEM. We're selling into someone else within the supply chain. Automotive, we touch that primarily through our toll processing companies in both the U.S. and in Mexico. And while we've had some impact sporadically, as different of the platforms that we're servicing and with the tolling, we do not own and resell the metal. We just process the metal for a fee. So we'll store it. We'll process it. We'll inspect it. We'll deliver it to the end user. Whatever it is that our customers who are typically the steel and aluminum producers, whatever they need us to do, we will support them and charge that just a fee for those services. So even though we've had a couple of the platforms that we sell into shutdown for 2 weeks here, 3 weeks here, it has not been broad-based. So it's been a pretty minimal impact as the auto company has been working through the chip shortages. We see that starting to get a little better, but expect some continued impact. But I think part of the good news is our companies don't just toll process for automotive, right? That's the biggest part of their business, but they've got a lot of opportunity to keep their lines busy and running. And also in the U.S., the platforms we support lean more towards the pickup and SUV markets, which have been a little more popular. So they have not had as much of a shutdown in Mexico. Our operations there, we support more of the sedans. And so we have seen a bit more of an impact down there. But again, nothing material to Reliance overall. Aerospace, another key market for us, that really with the pandemic got hit hard. And so we're -- now exposure-wise is about half of what it was previously. So it's probably about 5% of our sales now compared to 10%. But then we split that into commercial aerospace and then also military space and defense. Military space and defense continue to be strong. Commercial aerospace certainly had quite a hit. We think we troughed in Q4 of last year. But then in Europe, we had a bit more of an impact in Q2 of this year with some of the shutdowns again from COVID. But we're starting to see -- we don't expect that to really approach prepandemic levels until 2023-ish. But we are seeing more for activity. So we're continuing as our customers all of a sudden were out of inventory of a certain product, they're starting to order again because they've worked through that. So I think that's pretty consistent across that supply chain that we're continuing to see more activity there. And on the energy space, that's about the same, too, and that's a pretty small market for us, now probably about 4% -- 3% to 4% of our sales dollars. With the higher oil prices, more drilling, we are seeing improvements there. We're seeing people out buying also to restock for the excess inventory that they've had, that they worked through and a little better activity and outlook there. So overall, we're positive on pretty much everything I just talked about.

And just to add one more thing, Emily, Karla had mentioned the chip shortage, which is problematic. The good news for Reliance is we're in the semiconductor business as well. Now we don't make chips, but we do sell the plumbing that goes into the clean rooms, into vacuum chambers. And that business is obviously doing fantastic. And not only that, with the reshoring that has been going on, some of these big campuses that other companies have announced to build chips in North America, mostly United States, to shorten that supply chain. We happen to -- we assist in the building of those big campus. This is what [indiscernible] we're not good with the chip shortage. It hurts us in one, but we're okay on the other one. So we're -- once again, our model has proven out to be pretty good.

Definitely having a diversified footprint across multiple end markets is certainly helping. But maybe I did want to touch a little bit on sort of the infrastructure plan. I think over the course of the conference, we have heard a couple of different management teams talk about how the infrastructure plan could lead to about 40 million to 50 million tons of incremental steel demand over the next, call it, 5 to 10 years. How do you think that will start to impact Reliance? And how do you sort of expect to see your business grow in some of the different end markets that serve those that benefit from the infrastructure plan?

Well, I can start with the obvious, Emily, I'm not sure where you live, but wherever you live, there's a pretty good chances of a bridge or 2 that you wouldn't want to cross with your family. So there's a lot of things that need repair in the United States. A lot of things haven't been kept up to safety standards for a long period of time. So we're already seeing some of that. I'm not -- it has nothing to do with this one. We're still participating in 2015 shovel-ready projects. You can see how this government moves when it comes to spending money. But taking on a -- bridges are obviously a big deal with water treatment plants, just the electrical grids. Karla had mentioned the demographics. You can't change demographics to these people who are getting older and there's more assisted living facilities and things like that are going to be part of that package. So I think it will be slow but not as slow as the 2015, whatever the -- I think the word was fast in there, somehow. I don't remember what they call that project. But I don't think it will be that slow. I think it will be quicker. I think that -- I've been saying for a long period of time that America is going to need Reliance to rebuild. I believed it then, I believe it now. I think now that -- now that things are getting a little less political, and even politicians are understanding that it's not all about getting reelected. Sometimes you have to do the right thing. And I think that's going to happen. So it will -- my guess is that it will hit some of the producers first. They'll get the big orders, and we're okay with that. Yes, they can have all the big orders, and we'll take the ones with all the value-added piece to that because you can make more money on that. But we're -- I think it's going to hit us and it's going to hit for a long period of time, and we're more than ready.

Fantastic. Maybe shifting gears a little bit on focusing on the Reliance strategy here. I think a hallmark of the company has been the impressive way that you've been able to grow your gross profit margins over time. I think historically, maybe call it 10 years ago, they were ranging between sort of 25% to 27%. And now you've got a new target range of 29% to 31% going forward on a sustainable basis. Maybe highlight the measures that you have taken that has driven this margin expansion over the last decade. And perhaps what's the scope for that to continue to grind even higher?

Okay. Well, the biggest piece of that would be our value-added play. [indiscernible] 8 years ago, we looked at what people were doing out there. Now we noticed there's not a lot of people that were ours, that had our balance sheet, and we're able to do what we did. So we went heavy into the value added and it worked. And those kind of things have a tendency to take on the life of their -- of itself. And as companies came out of these dips in market, whether it's a recession or a pandemic, it's hard to get people. And it's hard for some of the companies we sell that aren't as -- we don't do the big contractual-type business. Like I said earlier, year-to-date, we're over $10 billion, $2,000 at a time. The folks that we get to do business with, they don't have that kind of money. And they're not going to go out and spend $2.8 million on a laser -- a tube laser. We can, in fact, we'll buy a multiple of those. And we keep them running. It wouldn't make a lot of sense to spend $1 million on a new piece of equipment and run it 2 hours a day. So we went heavy into that, and it works. So I'd say the biggest portion of that is our value-added play. Now it's grown and grown and grown. And I would -- my guess will be with reshoring and some of these other things that are going on, that will continue to grow. Certainly, some of the acquisitions we've done, the acquisitions that we look at have a tendency to look a lot like -- more like Reliance, a value adder, somebody who makes money can be immediately accretive. I'm not going to say that they're cash star, but they're not going to spend the kind of money we can. So that's helped a lot. And as I said, our customers just continue to ask us to do more and more and more, and we're more than happy to oblige. Our CapEx budget this year is $310 million, which isn't -- that's not a small amount of money. We spent over $1 billion in the last 7 years. My guess is, Karla and the team, they are working on a CapEx budget now. And my guess it will be north of $310 million, and we're good with that because that is one of the buckets that we spend money. That internal growth through CapEx spend helped with that margin. But again, we'd like to stay flexible. And the good news is we generated enough cash, not only from operations, but because of Arthur and his team have done such a wonderful job on our financing that we're able to take cash and not only spend money on the CapEx side that helps the margins, but we're also able to borrow on stock back. We're able to -- we've paid a dividend for 68 years. And I don't think we can pay debt down anymore because it's so cheap, but I'm not sure we can do a whole lot of that anymore. But we're able to do -- basically execute on all those different things. So I know I got off a little bit on what you're talking about margins. But I'd say the value added in the M&A activity have grown that for us.

Fantastic. And maybe moving -- before we move into the capital allocation piece, can you remind us exactly where -- what percentage of your orders do constitute value-add services? And how that's sort of grown over time and where that could potentially go to?

Karla, why don't you go ahead and answer that?

All right. Yes, so Emily, in 2020, 49% of the orders that we shipped had processing performed on those. Historically, prior to us, about 8 years ago or so, really looking at growing our value-added processing and seeing a lot of opportunity to do that. We have been more in the 40% range. So during that time period, we basically went from about 40% up to almost 50%. We see -- and that we think is the key element, although there are multiple, but that is the primary driver of getting our sustainable gross profit margin up as we've been increasing that. And we think there's continued opportunity to do that. Jim talked about our customers asking us to do more for them. We think our folks are getting better at making customers understand what we can do for them to help them, which creates a lot of those opportunities. And we've got the balance sheet, the ability to do it. So we're not going to give you a number of where we think it will be, but we will always be trying to continue to grow that as long as we see good opportunities out there.

Fantastic. And then maybe moving into capital allocation. And the one that we will start with is the M&A bucket since we just last talked about that. And you've recently closed the Merfish acquisition, which I believe is the largest acquisition you've made in, call it, the last 5 years. Any color that you can provide on sort of expected earnings or margins contributions there? And how does the next 12 months look like for how that business specifically evolves within the Reliance family of businesses?

Karla, you got it. They report to you, so you should go ahead and answer that.

Okay. Yes, so Merfish United that we just acquired on October 1, annual revenues this year, about $600 million. They kind of have 4 major product categories where copper and steel, pipe and tubing, PVC, electrical conduits, so it broadened our product breadth. So they're doing distribution. They're doing pretty minimal value add because that's their model, and we recognize that. And they're really good at what they do, and we want them to continue to do that. And hopefully, we can bring some tools and resources to further support them, whether it's through growth or improving the earnings on what they're doing currently. But they are -- with the products that they're selling, I can say they're having a good year. We're not going to give you any numbers on that. But we're very happy with that. And so over the next 12 months, we look to continue to support them. Certainly, we do some things with, as Jim mentioned in the beginning, the health and safety of our colleagues is #1. So we'll put some attention there. But really, what we'll do and under our ownership with our balance sheet, we'd like to grow. So whatever ideas they have for growth, could be organic growth for them, could be bolt-on. They're in a pretty fragmented industry, could be growing that way. We'll put them in touch and have put them in touch with a lot of our existing Reliance companies to see if there are opportunities, whether it's just exploring best practices, turning your inventory. I think we've got some very key supplier relationships where we may be able to help them convert some of their current working capital into cash and have a lower working capital hold. And then just also see how they can potentially partner up or complement each other. So it's something and, with all of our acquisitions, we think we've been able to improve their earnings profile and have them grow as they're part of Reliance. But it's different for each company depending on what really makes them special. And so we figured it out over time. And we're just really excited to have them as part of the Reliance family now.

And just one other thing, they're just a really fine company. We didn't go out looking for a, let's go buy somebody that looks like a Merfish. It just came to us, really fine company, great management group, realistic. A lot of companies today are out there fishing. They won't be valued on this year, go figure. We don't do it that way. We look at how much money they've made in the past, what kind of potential they can do. So it just worked out very well. They also sell into a lot of the same markets as a lot of our other companies, whether it's residential or nonresidential. And to Karla's point, they may be a jumping off point for us to do a couple more acquisitions in that space because they're big. They do a nice job. Well, they're big in that space. And they've got a great market, a great name in that market. And it just fit. So we'll continue to look for those types of companies. And this is a real nice timing, nice acquisition for us.

Fantastic. And maybe as a follow-up, how do you think about what makes the good acquisition targets? And are there any specific metrics? I know -- I think you mentioned it had to be earnings accretive to begin with. And then as a follow-up to that piece, just around, what could be the potential targets? I think earlier this year, you talked about adjacent businesses, which looks like Merfish was a little bit more adjacent to what Reliance's sort of core competencies are, but how far out would sort of you look out in terms of acquisitive targets there?

We probably wouldn't go far out. We're still Reliance. When we look at a company, it's the same listing of priorities that we've had for a long time. They have to be immediately accretive. They have to make money. We don't buy fixer uppers. We don't have the wherewithal to do that, and we don't want to do that. And they have to fit our culture. We've walked away from really fine company that look great on paper. And we got -- we delved into it and got into the management culture and those types of things, and we just -- we don't -- you don't want to -- you don't -- because we call ourselves a family of companies. It sounds cute, but it really is because you don't want to get somebody in the family of companies that's going to be the crazy uncle in the corner that nobody wants to deal with. You want to bring the right people in, and so those types of things. And they have to understand what Reliance is about, what we can bring to the party. So the way we've looked at companies for as long as I've been around, and Karla has been around for all 68 of them, the model -- the different hurdles you have to jump over really haven't changed. Merfish hit on all of them. But more important, are they adjacent? Sure. But you have to kind of define what adjacent means. We've bought other companies, but they were much smaller, and nobody cared about them. Nobody even noticed that they were adjacent. But the traditional metal service center, there's plenty of those out there. There's a target-rich environment as they like to say. We're -- we still look at them. There are some good ones out there. There's a lot of ones we won't touch because it's just that they don't make money, or they don't make enough money, or they've got issues or they've got a different style than we do. But there's plenty to really find traditional service centers out there. But when you go into the adjacent distribution kind of value-added kind of company that's available to us, we'll keep looking at those. We'll keep looking at those. And like I said, we bought several in the past that nobody even mentioned, but listen, I guess they have a bigger top line than a lot of companies. So they got a little press. But we're not going to go crazy and start building electric cars or whatever the new fad is, we're not going to get into the fad things. So...

Makes a lot of sense. Maybe shifting to your final prong of the capital allocation strategy and just around the capital returns program. I think you've got a very good track record of raising the dividend every year for many years. You've been paying out the dividend for decades now, but you also have a share repurchase program outstanding. So maybe talk to us about how you think about what the capital return strategy looks like. Will the buybacks be implemented more opportunistically or perhaps on a more systematic basis?

Well, I'll start then Arthur can do. We think buying Reliance stock is probably one of the best investments anybody can make. So why wouldn't we do that, right? So that's -- I'll start with that, and we'll turn it back over to Arthur, and he can give you the rest of it.

Yes. Good question, Emily. And as you know, back in July, we had a $1 billion stock buyback authorization. We increased our existing authorization. That's about 10% of our market cap. When you look at capital allocation for Reliance, we want to just emphasize the point that you shouldn't look at it on a quarterly basis or an annual basis. It's over time. When it makes the most sense when you look at it over a 5-year period, we actually have a slide in our deck that kind of shows our very balanced capital allocation strategy, the balance between both growth and shareholder returns. Jim said that we have the wherewithal to do it all, right? We could -- and we have the balance sheet then the liquidity and the free cash flow to be able to invest in organic growth and M&A activities, at the same time, pay a very healthy dividend rate and opportunities to strictly by our stock back. And our buybacks over the last 5 years were north of $1 billion. And we have an open authorization. We were in the market last quarter, and it's something we'll continue to look at and utilize as part of our balanced capital allocation strategy.

Fantastic. That makes sense. Maybe shifting gears and moving on to cost inflation, and this is a topic that may, in the industry and the companies that I've been looking at, have been talking about over the last couple of quarters, from a Reliance perspective, I understand that most of your costs are related to the workforce, have labor shortages have had a material impact to your operations in terms of either operational efficiency or costs? Or how do you see some of those more inflationary pressures move through the system?

Yes. Emily, so certainly, we're not immune to the labor shortages that we're seeing throughout the supply chains. As you know, the driver shortages have been there for a while and that continues coming out of the pandemic. Same with a lot of our machine operators, other warehouse employees. And just in general, it's a tight labor market right now. So we're still able to -- we have not had any location significantly impacted. But certainly, we could use a few more people in most of our operations because -- and the reason being because underlying demand is so strong that we're busy. So we certainly would love to hire smart folks. We've seen some of our customers and suppliers certainly be more impacted than we have. We've been able to maintain most of our folks. We have done some bonuses, some wage increases out of cycle to remain competitive because we've seen the need to do that. So certainly, we've seen some inflation there. Just on a lot of our variable costs at some of our packaging supplies are full -- a fuel cost. We see higher cost and the inflation in different areas. And really, that gets passed on, for the most part, to our customer base and our product because that's what it takes to support them and provide the value to them. And I think one of the things we've seen that we have not seen for quite some time is a lot of our customers being able to increase their prices, both for the metal cost but also for inflation and push that down the cycle. So we think that overall, cost price -- selling prices will be at higher levels going forward to cover all of those increased costs.

Got it. That makes sense. And maybe before we wrap it up, I do want to come back to something that I find very unique to the Reliance story, which is the fact that your order sizes are very, very small, as I think, Jim, you alluded to, many of your order sizes sort of within that $2,000 range there. Maybe give us some color as to exactly what that means. When it comes to your customers, you're a lot more diversified clearly because you've got a lot more orders. Are your customers, given the order size, a lot less price sensitive? How should we contextualize how that sort of unique part of the Reliance story actually helps?

Yes. It just kind of formed into that over the years. It used to be -- I'll give you an example. It used to be, if somebody wanted to build a building or do some kind of project that they'd go directly on their own, buy a truckload of beams, that's all the same size or call Reliance, and we'd ship a truckload of beams to some big fabricating house somewhere, and they'd go -- they'd do whatever they're doing. Well, after a period of ups and downs, ups and downs and the fact that we have a strong balance sheet, and we're able to buy all this new equipment, and there's a lot of smart customers out there. They say, "Why would I buy a truckload of beams and put it out in the yard, let it get rusty. And I have to bring it in, and blast it, and do all this work." They just give us a print. They say, "Listen, I need these 4 parts, and I need you to miter cut them. I need to tap them and paint one in blue and to etch a name in it and put that with some gusset plates and put that on a skid. And oh, by the way, I need that tomorrow, and I need you to deliver right to the job site." Well, that's what our business is, that's where we structured our business to do that. And so basically, that's an order, the way that cost $2,000 versus a truckload of beams going to somewhere else. So that's just -- that's the easiest example of trying to show how that all works. But -- and we pay our people differently. We train our people differently. We like our colleagues to be a part of our customers' business because once you're part of your customers' business, remember, value-added is a 2-way street. The value for them is they don't need as many people, okay? Value for them is they don't do -- they have to do as much work. They can build whatever there is that they're building. And a lot of our customers are job shops, meaning this week, they're building tanks. Next, they're building widgets. Next week, they're building a building. So that's a job shop. So they have the flexibility on their end to call us to do all those things for them. And with 300, and not even [indiscernible] locations we have, with all those locations, with the decision-making at that location and, basically, most of those locations, they kind of service the market about 150 miles away. And they have competitors in town who we own as well. So they can help each other around. If they can't do something here, they can do something there. And I think what's happened over a period of time, Emily, is the word has gotten out. And the market realizes these guys are for real, let's just -- let's let them do that. And it's okay if we pay more because that's the value we get. We make more money. They make more money. But when we make more money, we can -- we give x amount back to the shareholders, but we also pump a lot of money back into our company to buy more equipment to make their job even easier. So that's -- it's kind of a cycle that started years ago, and it's really ramped up. And certainly, during a pandemic, it has really helped. It has really helped. And I don't see any reason in the world why that would change. And in fact, we're taking proactive steps to make sure it doesn't go back the other way.

Fantastic. Well, we are coming back to the -- we're coming to the end of our allotted time. So maybe I'll turn it back to Jim, Karla or Arthur, any closing remarks that you might have? Or anything that you do think is still underappreciated about the Reliance story here?

I've probably [indiscernible] on all of them, but I'll hit them all again. We're probably not who you think we are because we have steel and aluminum in our name. We're proud of our name. The name has been around for 82 years. But I think if you really delve into what we really are, we're kind of a uniform, if you will. We're good at what we do, and we're always evolving. We've -- where we have a lot of really fine, innovative ideas coming forward, all based on what our customers are looking for us to do. We've got a wonderful balance sheet with some really fine people. We also think we're talking about the employees, the hard to get people. Our benefits are outstanding. They've been outstanding for a long period of time. That's how you attract talent because I personally think the ones who are going to win are the ones who can attract talent and retain talent, and Reliance is going to do that. And I would -- if you don't know us, please give us a call. We'd love to show you what we do, But look at our model. Our model has been around a long time. Now the execution of our model over the last x amount -- 5, 6 years has been inspiring to somebody who does what I do for a living. So I -- we don't get frustrated, we just keep going on and proving that, once again, America is going to need Reliance to rebuild. So we're there for you.

Fantastic. Well, Jim, Karla, Arthur, thank you so much again for your time, and we'll look forward to seeing you guys help to rebuild the U.S.

Thanks, Emily.

Thank you.

Appreciate it.

Thanks for having us.