# Reliance, Inc.: Form 10-Q for the period ended Sep 30, 2022

- Company: [Reliance, Inc.](/companies/rs.md) (CIK 861884)
- Form: 10-Q
- Filed: 2022-11-03
- Accepted by EDGAR: Nov 3, 2022, 14:33 ET
- Period: 2022-09-30
- Accession: 0001558370-22-016206
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/861884/000155837022016206/rs-20220930x10q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/861884/000155837022016206/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2022-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2022-07-01 to 2022-09-30 | $4.25bn | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 9 months, 2022-01-01 to 2022-09-30 | $13.41bn | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Selling, general and administrative | 3 months, 2022-07-01 to 2022-09-30 | $630.1m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Selling, general and administrative | 9 months, 2022-01-01 to 2022-09-30 | $1.89bn | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2022-07-01 to 2022-09-30 | $548.5m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2022-01-01 to 2022-09-30 | $2.05bn | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2022-07-01 to 2022-09-30 | $15.6m | us-gaap:InterestExpense |
| Interest expense | 9 months, 2022-01-01 to 2022-09-30 | $46.8m | us-gaap:InterestExpense |
| Income tax | 3 months, 2022-07-01 to 2022-09-30 | $129.6m | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2022-01-01 to 2022-09-30 | $490.9m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2022-07-01 to 2022-09-30 | $394.4m | us-gaap:ProfitLoss |
| Net income | 9 months, 2022-01-01 to 2022-09-30 | $1.49bn | us-gaap:ProfitLoss |
| Diluted EPS | 3 months, 2022-07-01 to 2022-09-30 | $6.45 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2022-01-01 to 2022-09-30 | $23.98 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2022-07-01 to 2022-09-30 | $6.55 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2022-01-01 to 2022-09-30 | $24.35 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2022-07-01 to 2022-09-30 | 60,984,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2022-01-01 to 2022-09-30 | 62,114,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2022-01-01 to 2022-09-30 | $1.31bn | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months, 2022-01-01 to 2022-09-30 | $249.7m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Dividends paid | 3 months, 2022-07-01 to 2022-09-30 | $52.5m | us-gaap:PaymentsOfDividendsCommonStock |
| Dividends paid | 9 months, 2022-01-01 to 2022-09-30 | $160.6m | us-gaap:PaymentsOfDividendsCommonStock |
| Share repurchases | 9 months, 2022-01-01 to 2022-09-30 | $547.7m | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Cash and equivalents | at 2022-09-30 | $643.7m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2022-09-30 | $4.81bn | us-gaap:AssetsCurrent |
| Total assets | at 2022-09-30 | $10.20bn | us-gaap:Assets |
| Current liabilities | at 2022-09-30 | $1.48bn | us-gaap:LiabilitiesCurrent |
| Long-term debt | at 2022-09-30 | $1.14bn | us-gaap:LongTermDebtNoncurrent |
| Shareholders' equity | at 2022-09-30 | $6.85bn | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 33,629 characters.

***This report contains certain statements that are, or may be deemed to be, forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Our forward-looking statements may include, but are not limited to, discussions of our industry and end markets, our business strategies and our expectations concerning future demand and product pricing and our results of operations, margins, profitability, taxes, liquidity, macroeconomic conditions, including inflation and the possibility of an economic recession or slowdown, litigation matters and capital resources. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “could,” “would,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” “preliminary,” “range,” “intend” and “continue,” the negative of these terms, and similar expressions. All statements contained in this report, other than statements of historical fact, are forward-looking statements. These forward-looking statements are based on management’s estimates, projections and assumptions as of the date of such statements. We caution readers not to place undue reliance on forward-looking statements.***

***Forward-looking statements involve known and unknown risks and uncertainties and are not guarantees of future performance. Actual outcomes and results may differ materially from what is expressed or forecasted in our forward-looking statements as a result of various important factors, including, but not limited to, actions taken by us, including restructuring and impairment charges, as well as developments beyond our control, including, but not limited to, the impact of the COVID-19 pandemic, as well as the impact of actions taken or contemplated by government authorities to mitigate the spread of the COVID-19 pandemic, and changes in worldwide and U.S. political and economic conditions (including as a result of COVID-19, rising interest rates, stock market volatility, an economic recession or the ongoing conflict between Russia and Ukraine) that materially impact our customers, the demand and availability of our products and services, including further or sustained supply disruptions, labor shortages and inflation. Other factors which could cause actual results to differ materially from our forward-looking statements include those disclosed in this report and in other reports we have filed with the United States Securities and Exchange Commission (the “SEC”). Important risks and uncertainties about our business can be found elsewhere in this Quarterly Report on Form 10-Q, including in Item 1A “Risk Factors,” and in Item 1A “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2021 filed with the SEC and in other documents Reliance files or furnishes with the SEC.***

***The statements contained in this quarterly report on Form 10-Q speak only as of the date that they were made, and we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required by law. Except as required by law, we disclaim any obligation or undertaking to update or revise any forward-looking statements contained herein to reflect any change in assumptions, beliefs, or expectations or any change in events, conditions, or circumstances upon which any such forward-looking statements are based. You should review any additional disclosures we make in any subsequent press releases and Forms 10-K, 10-Q and 8-K filed with or furnished to the SEC.***

### Overview

We produced another quarter of solid financial performance through outstanding operational execution despite declining metal prices trends compared to the preceding quarter that led to a temporary contraction in our gross profit margin. We believe key elements of our strategic business model helped stabilize our operating results during the quarter amid challenging macroeconomic circumstances, including value-added processing capabilities that support our sale of higher priced products, prioritizing purchases from our domestic suppliers to shorten the supply chain and ensure metal availability, and focus on smaller order sizes with quick turnaround.

Certain key results for the third quarter and nine months ended September 30, 2022 included the following:

- Quarterly net sales of $4.25 billion were up 10.4% from the third quarter of 2021. Net sales of $13.41 billion in the nine months ended September 30, 2022 were up 32.8% from the same period in 2021.
- Record third quarter earnings per share of $6.45 were up 4.9% from the third quarter of 2021. Earnings per share of $23.98 in the nine months ended September 30, 2022 were up 56.2% from the same period in 2021.
- Record quarterly cash flow from operations of $635.7 million in the third quarter of 2022.
- $547.7 million of share repurchases in the nine months ended September 30, 2022 compared to $155.0 million in the same nine-month period in 2021. Our third quarter of 2022 share repurchases were $336.7 million compared to $131.0 million in the third quarter of 2021.

We experienced ongoing healthy demand across a majority of our end markets. However, we believe our tons sold and tons toll processed continue to be limited by continued supply chain-related challenges.

Our gross profit margins in the third quarter and nine months ended September 30, 2022 were lower compared to the same periods in 2021 mainly due to the 2021 periods benefiting from rapid and significant sequential quarterly increases in our average selling price per ton sold. In the 2022 periods, our inventory costs were more in-line with replacement costs with our average selling prices per ton sold peaking at record levels in the second quarter of 2022 and declining throughout the third quarter of 2022, with further decline expected in the fourth quarter of 2022.

Our same-store SG&A expense in the third quarter and nine months ended September 30, 2022 increased $2.3 million, or 0.4%, and $137.2 million, or 8.1%, from the same periods in 2021. Our third quarter SG&A expense reflected lower incentive-based compensation from lower first-in, first-out (FIFO) pretax income that offset inflationary impacts for wages, fuel and plant supply costs, while our nine-month increase was primarily due to these same inflationary cost increases. Despite increases in our SG&A expense, increased metals pricing decreased our SG&A expenses as a percentage of sales, resulting in our operating and net income margins for the nine months ended September 30, 2022 remaining at record levels despite a lower gross profit margin.

Our cash flow from operations of $1.31 billion in the nine months ended September 30, 2022 increased $904.3 million compared to the same period in 2021, driven by an increase in net income of $497.8 million and reduced investment in working capital during 2021, primarily accounts receivable and inventory. The working capital investment decline from the prior year was driven by declining metal pricing trends during the third quarter of 2022 compared to the rapid and significant increases in metals prices and limited metal availability throughout 2021.

We believe our strong liquidity position that includes substantial cash on hand, strong cash flow generation and $1.5 billion of availability under our revolving credit facility will support our continued prudent use of capital as we maintain a flexible approach focused on growth, both organically and through acquisitions, and stockholder return activities.

We believe our industry-leading results are attributable to our unique business model and strong execution of our strategies. We believe our business model characteristics, including broad end market exposure, a wide geographical footprint, diverse product offerings, significant value-added processing capabilities, strong relationships with suppliers, and focus on small order sizes and when-needed delivery differentiate us from our industry peers. We believe these unique business model characteristics and strong operational execution of our strategies, including pricing discipline, concentrating on higher margin business and cross selling inventory within our operating locations provide the foundation of our strong financial results.

### 2021 Acquisitions

In the fourth quarter of 2021, we acquired each of Merfish United, Inc., Admiral Metals Servicenter Company, Incorporated, Nu-Tech Precision Metals Inc. and Rotax Metals Inc. with cash on hand for a combined transaction value of $440.3 million. Included in our net sales for the nine months ended September 30, 2022 were combined net sales of $681.7 million from our 2021 acquisitions.

### Results of Operations

The following table sets forth certain income statement data for the third quarter and nine months ended September 30, 2022 and 2021 (dollars are shown in millions, except for per share amounts and certain amounts may not calculate due to rounding):

| ​ ​ ​ ​ ​ ​ | ​ ​ Three Months Ended September 30, 2022 ​ ​ $​ | ​ ​ | ​ ​ ​ % of ​ Net Sales ​ | ​ ​ ​ ​ | ​ ​ 2021 ​ ​ $Net Sales | ​ ​ | ​ ​ ​ ​ ​ % of ​ ​ | ​ ​ ​ ​ ​ ​ | ​ ​ Nine Months Ended September 30, 2022 ​ ​ $Net Sales | ​ ​ | ​ ​ ​ % of ​ ​ | ​ ​ ​ ​ | ​ ​ 2021 ​ ​ $Net Sales | ​ ​ | ​ ​ ​ ​ ​ % of ​ ​ |
| --- | --- | --- | ---: | --- | --- | --- | ---: | --- | --- | --- | ---: | --- | --- | --- | ---: |
| Net sales | $4,247.2 |  | 100.0% |  | $3,847.4 |  | 100.0% |  | $13,414.2 |  | 100.0% |  | $10,104.6 |  | 100.0% |
| Gross profit(1) | ​ 1,239.0 | ​ | 29.2 ​ | ​ | ​ 1,211.1 | ​ | 31.5 ​ | ​ | ​ 4,121.5 | ​ | 30.7 ​ | ​ | ​ 3,247.0 | ​ | 32.1 ​ |
| Warehouse, delivery, selling, general and administrative expense (SG&A) | ​ 630.1 | ​ | 14.8 ​ | ​ | ​ 606.8 | ​ | 15.8 ​ | ​ | ​ 1,890.6 | ​ | 14.1 ​ | ​ | ​ 1,688.6 | ​ | 16.7 ​ |
| Depreciation and amortization expense | ​ 60.4 | ​ | 1.4 ​ | ​ | ​ 56.7 | ​ | 1.5 ​ | ​ | ​ 178.8 | ​ | 1.3 ​ | ​ | ​ 172.1 | ​ | 1.7 ​ |
| Operating income | ​ 548.5 | ​ | 12.9 ​ | ​ | ​ 547.6 | ​ | 14.2 ​ | ​ | ​ 2,052.1 | ​ | 15.3 ​ | ​ | ​ 1,386.3 | ​ | 13.7 ​ |
| Net income attributable to Reliance | ​ 393.5 | ​ | 9.3% | ​ | ​ 395.7 | ​ | 10.3% | ​ | ​ 1,489.6 | ​ | 11.1% | ​ | ​ 991.7 | ​ | 9.8% |
| Diluted earnings per share attributable to Reliance Stockholders' | $6.45 | ​ | ​ ​ | ​ | $6.15 | ​ | ​ ​ | ​ | $23.98 | ​ | ​ ​ | ​ | $15.35 | ​ | ​ ​ |

(1) Gross profit, calculated as net sales less cost of sales, and gross profit margin, calculated as gross profit divided by net sales, are non-GAAP financial measures as they exclude depreciation and amortization expenses associated with the corresponding sales. About half of our orders are basic distribution with no processing services performed. For the remainder of our sales orders, we perform “first-stage” processing, which is generally not labor intensive as we are simply cutting the metal to size. Because of this, the amount of related labor and overhead, including depreciation and amortization, is not significant and is excluded from our cost of sales. Therefore, our cost of sales is substantially comprised of the cost of the material we sell. We use gross profit and gross profit margin as shown above as measures of operating performance. Gross profit and gross profit margin are important operating and financial measures, as their fluctuations can have a significant impact on our earnings. Gross profit and gross profit margin, as presented, are not necessarily comparable with similarly titled measures for other companies. Gross profit in the nine months ended September 30, 2022 was reduced by $8.1 million of non-recurring amortization of inventory step-up to fair value adjustments for our 2021 acquisitions.

### Third Quarter and Nine Months Ended September 30, 2022 Compared to Third Quarter and Nine Months Ended September 30, 2021

#### Net Sales

*(dollars in millions)*

| ​ ​ ​ ​ | ​ ​ ​ ​ ​ September 30, 2022 ​ 2021 | ​ ​ ​ ​ | ​ ​ Dollar Change ​ ​ | ​ ​ ​ ​ | ​ ​ Percentage ​ Change ​ ​ ​ |
| --- | ---: | --- | --- | --- | ---: |
| Net sales (three months ended) | $4,247.2 $3,847.4 |  | $399.8 |  | 10.4% |
| Net sales, same-store (three months ended) | $4,039.2 ​ $3,847.4 | ​ | $191.8 | ​ | 5.0% |
| Net sales (nine months ended) | $13,414.2 ​ $10,104.6 | ​ | $3,309.6 | ​ | 32.8% |
| Net sales, same-store (nine months ended) | $12,732.5 ​ $10,104.6 | ​ | $2,627.9 | ​ | 26.0% |
| ​ | ​ ​ ​ ​ ​ | ​ | ​ ​ | ​ | ​ ​ |
| ​ | **September 30,** | **​** | **Tons** | **​** | **Percentage** ​ |
| ​ | **2022** **2021** | **​** | **Change** | **​** | **Change** ​ |
| ​ | **(tons in thousands)** | **​** | **​** ​ | ​ | ​ ​ |
| Tons sold (three months ended) | 1,406.0 ​ 1,358.2 |  | ​ 47.8 |  | 3.5% |
| Tons sold, same-store (three months ended) | 1,364.3 ​ ​ 1,358.2 | ​ | ​ 6.1 | ​ | 0.4% |
| Tons sold (nine months ended) | 4,279.6 ​ ​ 4,191.9 | ​ | ​ 87.7 | ​ | 2.1% |
| Tons sold, same-store (nine months ended) | 4,150.2 ​ ​ 4,191.9 | ​ | ​ (41.7) | ​ | (1.0)% |
| ​ | ​ ​ ​ ​ ​ | ​ | ​ ​ | ​ | ​ ​ |
| ​ | **September 30,** |  | **Price** |  | **Percentage** ​ |
| ​ | **2022** **2021** |  | **Change** |  | **Change** ​ |
| Average selling price per ton sold (three months ended) | $3,039 $2,862 |  | $177 |  | 6.2% |
| Average selling price per ton sold, same-store (three months ended) | $2,972 ​ $2,862 | ​ | $110 | ​ | 3.8% |
| Average selling price per ton sold (nine months ended) | $3,156 ​ $2,428 | ​ | $728 | ​ | 30.0% |
| Average selling price per ton sold, same-store (nine months ended) | $3,083 ​ $2,428 | ​ | $655 | ​ | 27.0% |

Our tons sold and average selling price per ton sold exclude our tons toll processed. Our average selling price per ton sold includes intercompany transactions that are eliminated from our consolidated net sales. Same-store amounts exclude the results of our 2021 acquisitions.

Our net sales in the third quarter and nine months ended September 30, 2022 increased from the same periods in 2021 due to increased average selling prices per ton sold and modest increases in tons sold compared to the same periods in 2021. Our strong sales in the 2022 periods were supported by ongoing healthy demand in most of the end markets we serve and elevated metals pricing.

Since we primarily purchase and sell our inventories in the spot market, our average selling prices generally fluctuate in accordance with the changes in the costs of the various metals we purchase. Our average selling price per ton sold in the nine months ended September 30, 2022 was significantly higher than the comparable 2021 period mainly due to significant mill price increases for our major product categories. However, our quarterly year-over-year average selling price per ton sold increase was more moderate mainly due to a 4.3% decline in pricing for the carbon steel products we sold.

The mix of products sold has an impact on our overall average selling prices per ton sold. Year-over-year changes in selling prices of our major commodity products and related mix of gross sales dollars are presented below:

| ​ ​ ​ ​ ​ ​ ​ | ​ ​ ​ ​ ​ ​ ​ | ​ ​ Three Months Ended September 30 Change in ​ Average Selling ​ Price Per ​ Ton Sold ​ | ​ ​ ​ ​ ​ | ​ ​ ​ ​ ​ ​ ​ ​ % of ​ Total Sales ​ | ​ ​ ​ ​ ​ ​ ​ | ​ ​ Nine Months Ended September 30 Change in ​ Average Selling ​ Price Per ​ Ton Sold ​ | ​ ​ ​ ​ ​ | ​ ​ ​ ​ ​ ​ ​ ​ % of ​ Total Sales ​ |
| --- | --- | ---: | --- | ---: | --- | ---: | --- | ---: |
| Carbon steel | ​ | (4.3)% |  | 54.2% |  | 21.5% |  | 54.6% |
| Stainless steel | ​ | 17.4% | ​ | 16.3% | ​ | 39.6% | ​ | 16.5% |
| Aluminum | ​ | 18.8% | ​ | 15.1% | ​ | 27.6% | ​ | 15.0% |
| Alloy | ​ | 31.0% | ​ | 4.3% | ​ | 33.7% | ​ | 4.1% |

#### Gross Profit and Cost of Sales

*(dollars in millions)*

| ​ ​ ​ ​ ​ ​ | ​ ​ September 30, 2022 ​ ​ $​ | ​ ​ | ​ ​ ​ % of ​ Net Sales ​ | ​ ​ ​ ​ | ​ ​ 2021 ​ ​ $​ | ​ ​ | ​ ​ ​ ​ % of ​ Net Sales ​ ​ | ​ ​ ​ ​ ​ ​ | ​ ​ ​ ​ ​ ​ Dollar Change ​ ​ | ​ ​ ​ ​ ​ ​ | ​ ​ ​ ​ ​ ​ Percentage ​ Change ​ ​ ​ |
| --- | ---: | --- | ---: | --- | ---: | --- | ---: | --- | ---: | --- | ---: |
| Gross profit (three months ended) | $1,239.0 |  | 29.2% |  | $1,211.1 |  | 31.5% |  | $27.9 |  | 2.3% |
| Gross profit (nine months ended) | $4,121.5 | ​ | 30.7% | ​ | $3,247.0 | ​ | 32.1% | ​ | $874.5 | ​ | 26.9% |
| Cost of sales (three months ended) | $3,008.2 |  | 70.8% |  | $2,636.3 |  | 68.5% |  | $371.9 |  | 14.1% |
| Cost of sales (nine months ended) | $9,292.7 | ​ | 69.3% | ​ | $6,857.6 | ​ | 67.9% | ​ | $2,435.1 | ​ | 35.5% |

Gross profit in the nine months ended September 30, 2022 increased from the same period in 2021 mainly due to a significant increase in our average selling price per ton sold that outpaced higher average cost per ton sold.

Additionally, adjustments to our LIFO method inventory valuation reserve, which are included in cost of sales and, in effect, reflects cost of sales at current replacement costs, resulted in a credit, or an increase to gross profit, of $27.5 million in the third quarter of 2022 compared to a charge, or a decrease to gross profit, of $262.5 million in the third quarter of 2021. We recorded LIFO expense that lowered gross profit by $22.5 million and $562.5 million in the nine months ended September 30, 2022 and 2021, respectively. As of September 30, 2022, the LIFO method inventory valuation reserve on our balance sheet was $842.9 million. Furthermore, gross profit in the nine months ended September 30, 2022 was reduced by $8.1 million of non-recurring amortization of inventory step-up to fair value adjustments related to our 2021 acquisitions.

Our gross profit margins in the third quarter and nine months ended September 30, 2022 were strong, but declined from the same periods in 2021 due to different product pricing trends during the periods. Our gross profit margins in the third quarter and nine months ended September 30, 2021 benefited from the rapid and significant increases in metal prices and limited metal supply throughout the periods, while our gross profit margins in the 2022 periods compressed as our average selling price reached a peak in the second quarter of 2022 and declined throughout the third quarter of 2022.

See “*Net Sales”* for further discussion on product pricing trends.

#### Expenses

*(dollars in millions)*

| ​ ​ ​ ​ ​ ​ | ​ ​ September 30, 2022 ​ ​ $​ | ​ ​ | ​ ​ ​ % of ​ Net Sales ​ | ​ ​ ​ ​ | ​ ​ 2021 ​ ​ $​ | ​ ​ | ​ ​ ​ ​ % of ​ Net Sales ​ ​ | ​ ​ ​ ​ ​ ​ | ​ ​ ​ ​ ​ ​ Dollar Change ​ ​ | ​ ​ ​ ​ ​ ​ | ​ ​ ​ ​ ​ ​ Percentage ​ Change ​ ​ ​ |
| --- | ---: | --- | ---: | --- | ---: | --- | ---: | --- | ---: | --- | ---: |
| SG&A expense (three months ended) | $630.1 |  | 14.8% |  | $606.8 |  | 15.8% |  | $23.3 |  | 3.8% |
| SG&A expense, same-store (three months ended) | $609.1 | ​ | 15.1% | ​ | $606.8 | ​ | 15.8% | ​ | $2.3 | ​ | 0.4% |
| SG&A expense (nine months ended) | $1,890.6 | ​ | 14.1% | ​ | $1,688.6 | ​ | 16.7% | ​ | $202.0 | ​ | 12.0% |
| SG&A expense, same-store (nine months ended) | $1,825.8 | ​ | 14.3% | ​ | $1,688.6 | ​ | 16.7% | ​ | $137.2 | ​ | 8.1% |
| Depreciation & amortization expense (three months ended) | $60.4 | ​ | 1.4% | ​ | $56.7 | ​ | 1.5% | ​ | $3.7 | ​ | 6.5% |
| Depreciation & amortization expense (nine months ended) | $178.8 | ​ | 1.3% | ​ | $172.1 | ​ | 1.7% | ​ | $6.7 | ​ | 3.9% |

The increase in our same-store SG&A expense in the nine months ended September 30, 2022 was mainly due to higher variable expenses associated with inflationary impacts for wages, fuel, freight and packaging costs. Our same-store SG&A expense in the third quarter of 2022 included the same inflationary cost pressures, but was offset by a reduction in incentive compensation as a significant majority of our incentive compensation programs are tied to FIFO profitability, which declined from the same period in 2021. The decreases in our SG&A expense as a percentage of sales in the third quarter and nine months ended September 30, 2022 compared to the same periods in 2021 were due to our higher sales providing us with better operating leverage.

#### Operating Income

*(dollars in millions)*

| ​ ​ ​ ​ ​ ​ | ​ ​ September 30, 2022 ​ ​ $​ | ​ ​ | ​ ​ ​ % of ​ Net Sales ​ | ​ ​ ​ ​ | ​ ​ 2021 ​ ​ $​ | ​ ​ | ​ ​ ​ ​ % of ​ Net Sales ​ ​ | ​ ​ ​ ​ ​ ​ | ​ ​ ​ ​ ​ ​ Dollar Change ​ ​ | ​ ​ ​ ​ ​ ​ | ​ ​ ​ ​ ​ ​ Percentage ​ Change ​ ​ ​ |
| --- | ---: | --- | ---: | --- | ---: | --- | ---: | --- | ---: | --- | ---: |
| Operating income (three months ended) | $548.5 |  | 12.9% |  | $547.6 |  | 14.2% |  | $0.9 |  | 0.2% |
| Operating income (nine months ended) | $2,052.1 | ​ | 15.3% | ​ | $1,386.3 | ​ | 13.7% | ​ | $665.8 | ​ | 48.0% |

The increase in our operating income in the nine months ended September 30, 2022 compared to the same period in 2021 was due to increased gross profit, mainly as a result of a significant increase in average selling price per ton sold and fundamentally strong demand that offset a decline in our gross profit margin and inflationary increases in certain SG&A expenses.

Our operating income margin in the third quarter of 2022 decreased 130 basis points from the third quarter of 2021 mainly due to a 230 basis point decrease in our gross profit margin that was partially offset by a 100 basis point decrease in our SG&A expense as a percentage of sales due to our higher sales and better operating leverage. Our operating income margin in the nine months ended September 30, 2022 was at a record level and increased 160 basis points from the same period in 2021 mainly due to our higher sales that decreased our SG&A expense as a percentage of sales by 260 basis points, offsetting a 140 basis point decrease in our gross profit margin.

#### Income Tax Rate

Our effective income tax rate of 24.7% for each of the third quarter and nine months ended September 30, 2022 declined from 25.5% in each of the same 2021 periods due to lower state income taxes as a result of changes in the allocation of our U.S. income to the states in which we operate.

The differences between our effective income tax rates and the U.S. federal statutory rate of 21.0% were mainly due to state income taxes, partially offset by the effects of Company-owned life insurance policies.

### Financial Condition

#### Operating Activities

Net cash provided by operations of $1.31 billion in the nine months ended September 30, 2022 increased $904.3 million, or 223.0%, from the same period in 2021. The increase was mainly due to a $497.8 million, or 50.0%, increase in net income that required moderate additional working capital investment in the nine months ended September 30, 2022 when compared to the same period in 2021 which had significant and rapid increases in metals pricing and limited metal availability that required a significantly higher investment in working capital. To manage our working capital, we focus on our days sales outstanding and inventory turnover rate as receivables and inventory are the two most significant elements of our working capital. As of September 30, 2022 and 2021, our days sales outstanding rate was 39.6 days and 39.1 days, respectively. Our inventory turnover rate (based on tons) during the nine months ended September 30, 2022 was 4.3 times (or 2.8 months on hand), compared to 4.9 times (or 2.4 months on hand) in the same period in 2021.

Income taxes paid were $596.8 million in the nine months ended September 30, 2022 compared to $297.3 million in the same period in 2021. The significant increase in our tax payments was mainly due to higher estimated tax payments in the nine months ended September 30, 2022 compared to the same period in 2021, as a result of our significantly higher pretax income.

#### Investing Activities

Net cash used in investing activities was $244.4 million in the nine months ended September 30, 2022 compared to $148.2 million in the same period in 2021 and was substantially comprised of capital expenditures partially offset by proceeds from sales of property, plant and equipment. The majority of our capital expenditures in the nine months ended September 30, 2022 and 2021 were related to growth initiatives.

#### Financing Activities

Net cash used in financing activities was $711.1 million in the nine months ended September 30, 2022, compared to $301.8 million of net cash used in financing activities for the same period in 2021, mainly due to increased share repurchases. In the nine months ended September 30, 2022, we spent $547.7 million to repurchase shares of our common stock compared to $155.0 million in the same period in 2021. Our other stockholder return activities included an increase in our quarterly dividend rate with total dividend payments of $163.5 million in the nine months ended September 30, 2022 compared to $132.3 million in the same period in 2021.

On October 25, 2022, our Board of Directors declared the 2022 fourth quarter cash dividend of $0.875 per share. We have increased our quarterly dividend 29 times since our IPO in 1994, with the most recent increase of 27.3% from $0.6875 per share to $0.875 per share effective in the first quarter of 2022. We have paid quarterly cash dividends on our common stock for 63 consecutive years and have never reduced or suspended our regular quarterly dividend.

See *Note 9—“Equity”* to our consolidated financial statements in *Part I, Item 1 “Financial Statements”* for information on our stock repurchases.

On July 26, 2022, our Board of Directors amended our share repurchase program to increase the remaining repurchase authorization to $1.0 billion. At September 30, 2022, $763.3 million of our common stock remained authorized for repurchase. The share repurchase program does not obligate us to repurchase any specific number of shares, does not have a specific expiration date and may be suspended or discontinued at any time.

Since 2017, we have repurchased approximately 15.9 million shares at an average cost of $111.51 per share, for a total of $1.77 billion, resulting in a 21.8% reduction in our common shares issued and outstanding. We expect to continue to be opportunistic in our approach to repurchasing shares of our common stock.

#### Purchase Obligations

During the first quarter of 2022, we increased our 2022 capital expenditure budget, including unspent amounts from prior years, to $455 million from $350 million. Our actual capital expenditure spending over the next 12 months is ultimately dependent on market conditions, lead times and availability of property, plant and equipment when the capital project is initiated.

#### Debt

The Company’s debt obligations have not changed significantly since December 31, 2021. See *Note 6—“Debt”* to our consolidated financial statements in *Part I, Item 1 “Financial Statements”* for further information on our debt obligations.

#### Liquidity and Capital Resources

We believe our primary sources of liquidity, including funds generated from operations, cash and cash equivalents and our $1.5 billion revolving credit facility, will be sufficient to satisfy our cash requirements and stockholder return activities over the next 12 months and beyond. As of September 30, 2022, we had $643.7 million in cash and cash equivalents with no outstanding borrowings on the revolving credit facility and our net debt-to-total capital ratio (net debt-to-total capital is calculated as carrying amount of debt, net of cash, divided by total Reliance stockholders’ equity plus carrying amount of debt, net of cash) was 12.8%, down from 18.1% as of December 31, 2021.

As of September 30, 2022, we had $910.1 million of debt obligations coming due before our $1.5 billion revolving credit facility expires on September 3, 2025.

We believe that we will continue to have sufficient liquidity to fund our future operating needs and to repay our debt obligations as they become due, including $500.0 million of senior notes that mature in April 2023. In addition to funds generated from operations and nearly $1.5 billion available under our revolving credit facility, we expect to continue to be able to access the capital markets to raise funds, if desired. We believe our sources of liquidity will continue to be adequate to maintain operations, make necessary capital expenditures, finance strategic growth through acquisitions and internal initiatives, pay dividends and opportunistically repurchase shares of our common stock. Additionally, we believe our investment grade credit ratings enhance our ability to effectively raise capital, if needed. We expect to continue our acquisition and internal growth and stockholder return activities and anticipate that we will be able to fund such activities as they arise.

#### Covenants

The Credit Agreement and the Indentures include customary representations, warranties, covenants and events of default provisions. The covenants under the Credit Agreement include, among other things, two financial maintenance covenants that require us to comply with a minimum interest coverage ratio and a maximum leverage ratio.

We were in compliance with all financial maintenance covenants in our Credit Agreement at September 30, 2022.

### Seasonality

Some of our customers are in seasonal businesses, especially customers in the construction industry and related businesses. However, our overall operations have not shown any material seasonal trends as a result of our geographic, product and customer diversity. Typically, revenues in the months of July, November and December have been lower than in other months because of a reduced number of working days for shipments of our products, resulting from holidays observed by the Company as well as vacation and extended holiday closures at some of our customers. The number of shipping days in each quarter also has an impact on our quarterly sales and profitability. Particularly in light of the COVID-19 pandemic, we cannot predict whether period-to-period fluctuations will be consistent with historical patterns. Results of any one or more quarters are therefore not necessarily indicative of annual results.

### Goodwill and Other Intangible Assets

Goodwill, which represents the excess of cost over the fair value of net assets acquired, amounted to $2.10 billion at September 30, 2022, or approximately 21% of total assets and 31% of total equity. Additionally, other intangible assets, net amounted to $1.03 billion at September 30, 2022, or approximately 10% of total assets and 15% of total equity. Goodwill and other intangible assets deemed to have indefinite lives are not amortized but are subject to annual impairment tests and further evaluation when certain events occur. Other intangible assets with finite useful lives are amortized over their useful lives. We review the recoverability of our long-lived assets whenever events or changes in circumstances indicate the carrying amount of such assets may not be recoverable.

### Critical Accounting Estimates

*Management’s Discussion and Analysis of Financial Condition and Results of Operations* discusses our Unaudited Consolidated Financial Statements, which have been prepared in accordance with U.S. GAAP. When we prepare these consolidated financial statements, we are required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Some of our accounting policies require that we make subjective judgments, including estimates that involve matters that are inherently uncertain. Our most critical accounting estimates include those related to goodwill and other indefinite-lived intangible assets and long-lived assets. We base our estimates and judgments on historical experience and on various other factors that we believe to be reasonable under the circumstances, the results of which form the basis for our judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Our actual results may differ from these estimates under different assumptions or conditions. The impacts of the COVID-19 pandemic increase uncertainty, which has reduced our ability to use past results to estimate future performance. Accordingly, our estimates and judgments may be subject to greater volatility than in the past.

During the quarter ended September 30, 2022, there were no material changes to our critical accounting estimates as compared to the critical accounting estimates disclosed in *Management’s Discussion and Analysis of Financial Condition and Results of Operations* contained in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2021.

### Website Disclosure

The Company may use its website as a distribution channel of material company information. Financial and other important information regarding the Company is routinely posted on and accessible through the Company’s website at www.investor.rsac.com. In addition, you may automatically receive email alerts and other information about the Company when you enroll your email address by visiting the “Email Alerts” section at www.investor.rsac.com. The website is for informational purposes only and is not intended for use as a hyperlink. The Company is not incorporating any material on its website into this report.

## Market risk

As filed, 507 characters.

In the ordinary course of business, we are exposed to various market risk factors, including fluctuations in interest rates, changes in general economic conditions, domestic and foreign competition, foreign currency exchange rates and metals pricing, demand and availability. See *Item 7A “Quantitative and Qualitative Disclosures About Market Risk”* in our Annual Report on Form 10-K for the year ended December 31, 2021 for further discussion on quantitative and qualitative disclosures about market risk.

## Controls and procedures

As filed, 1,277 characters.

Under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, the Company carried out an evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures pursuant to and as defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act. Based upon that evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that, as of the end of the period covered in this report, the Company’s disclosure controls and procedures are effective to ensure information required to be disclosed in the reports that the Company files or submits under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC rules and forms, and that it is accumulated and communicated to our management, including our Chief Executive Officer and our Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

There have been no changes in the Company’s internal control over financial reporting during the third quarter of 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

## Risk factors

As filed, 2,106 characters.

Except as discussed below, there have not been any material changes to the risk factors disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021. These risks are not exclusive and additional risks to which we are subject include the factors mentioned under “Forward-Looking Statements” and the risks described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this Quarterly Report on Form 10-Q.

***A period of sustained inflation in operating costs and declining metals pricing could negatively impact our profitability and cash flows.***

We have experienced higher variable costs in 2022 resulting from inflationary impacts to wages, fuel, freight and packaging costs, among others. To date, these increased costs have been offset by significantly larger increases in our gross profit mainly as a result of elevated metals prices. We expect that a period of sustained, elevated and/or worsening inflation during periods of declining metals prices could result in decreased earnings. As we primarily purchase and sell our inventories in the spot market, our selling prices are mainly influenced by changes in replacement costs for the metal products we carry in our inventory and to a lesser extent changes in our SG&A expense to fulfill our customers’ orders. During periods exhibiting significantly declining metal replacement costs and sustained inflation across our significant operations, we may be unable to pass along our increased SG&A expense to our customers through higher pricing for the products we sell, which would decrease our earnings. In addition, significant inflation throughout the economy could impact our customers’ access to capital, leading to a decrease in their ordering volume and frequency. If we are unable to increase our product pricing or take other actions to increase our gross profit at the same rate as our higher SG&A costs, or if our tons sold or tons toll processed decline as a result of inflationary pressures on our customers, our profitability and financial position would decline.

Filed Nov 3, 2022.
Source: SEC EDGAR, the filing index for accession 0001558370-22-016206. Last ingested by Listed: Oct 27, 2026, 17:56 ET. No prices; not investment advice.