Good morning. My name is Denise, and I will be your conference operator today. At this time, I would like to welcome everyone to the TimkenSteel, Third Quarter 2017 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions] Thank you. Tina Beskid, you may begin your conference.

Good morning and thank you for joining TimkenSteel's third quarter 2017 earnings call to discuss our financial results. I am joined here today by Tim Timken, our Chairman, CEO and President; as well as Chris Holding, Executive Vice President and Chief Financial Officer. During today's conference call, we may make forward-looking statements as defined by the SEC. These statements relate to our expectations regarding future financial results, plans and business operations among other matters. Our actual results may differ materially from those projected or implied due to a variety of factors, which we describe in greater detail in today's press release, supporting information provided in connection with today's call and in our reports filed with the SEC, all of which are available at www.timkensteel.com. Where non-GAAP financial information is referenced, we have included reconciliations between such non-GAAP financial information and its GAAP equivalent in the press release and/or supporting information as appropriate. Today's call is copyrighted by TimkenSteel Corporation. We prohibit any use, recording or transmission of any portion of the call without our expressed advanced written consent. With that, I’d like to now turn the call over to Tim.

Good morning and thank you for joining us today. I’d like to start today’s call with some comments about our team in Houston. The recent hurricane impacted employees at our facilities there some in a pretty significant way. At this stage, I am happy to tell you all that they are doing well and beginning to get back on their feet. Our team there also worked very hard to quickly get our facility back in full operation. I want to wish our employees and their families well and thank them and all of our employees for rallying together at such tough time. The hurricanes also affected customers in the area and we saw some delay in their ability to receive products which had a modest impact on shipments in the quarter. We are still feeling the effect of the hurricanes on transportation with some limited availability of trucking services. Given the magnitude of the situation in Houston and elsewhere, we are fortunate and thankful that these weather events only had a minor impact on our business. So that brings us to our earnings performance. To put it simply, what a difference a year makes. Sales and shipments are up over 60% for the third quarter - over the third quarter of 2016. The magnitude of the year-over-year change has brought challenges but even more opportunities. Our sales team not only has captured business from improving industrial and energy end-markets, but they’ve also won new business and increased penetration across all of our market segments. Two quick examples. You might remember last year that we developed an advanced manufacturing process for high pressure tubing used in the production of low-density polyethylene. The process improvements not only paved the way for our high performance steels to reenter the polyethylene market but it…

Thank you, Tim. Good morning. Our third quarter results were in line with our expectations and structurally similar to the second quarter. Total shipments of 290,000 tons in the quarter were 63% higher than last year and slightly lower than the second quarter. The year-over-year improvement was a result of the strength in the end-market demand and increased market penetration. Mobile shipments were down about 7% from the second quarter 2017. We had anticipated the sales decrease due to the decline in the North American light vehicle production rate as the OEMs began to rebalance inventory levels. Despite the lower production forecast, build rates remain at historically high levels. The projected SAR of 17.3 million units for the year represents the third highest rate in over a decade. We continue to increase our participation on new programs which helps to offset lower vehicle production rates. For the quarter, we expect mobile shipments to be similar to the third quarter. Industrial shipments increased about 3% from the second quarter 2017, primarily due to market share gains and fundamental end-market demand. Global commodity markets stabilized in the first half of the year which positively impacted our industrial end-markets. Moving into the fourth quarter, we expect industrial shipments to be about 5% higher than the third quarter as a general economic sentiment remains positive in most of the industrial sectors. Third quarter shipments to the energy end-market increased about 4% sequentially as customer inventory positions became more balance with demand. We remain encouraged by the steady improvements in market supply and demand dynamics in the energy sector and expect fourth quarter energy shipments to be similar to the third quarter. Net sales for the quarter were $339 million with days sales of $261 million and surcharges of $78 million. Days sales per ton…

[Operator Instructions] Your first question comes from Novid Rassouli with Cowen & Company. Your line is open.

Good morning, Tim, Chris and Tina.

Good morning.

Good morning, Novid.

So, starting with energy shipments, so we were up slightly quarter-over-quarter, essentially flat and it looks like the rate of recovery of energy shipments appears to be kind of flattening relative to the past few quarters. Chris, you had mentioned that energy shipments will be kind of flat sequentially in the fourth quarter. I was wondering if you guys could provide maybe some color here on what you are seeing with respect to buyer sentiment, and the order book and maybe what we would need to see in order to get shipments kind of moving closer to the level that we saw during the previous up cycle.

Yes, I think if you – this is Tim, if you start with the market dynamics, rig count is up year-over-year. Breakevens are down, inventory levels are down, hearing a lot about OPEC holding. A lot of the higher level industry dynamics seem to be continue to working in our favor. I think you are hearing from the distribution channels that the inventory balance is pretty good. If you look at what the market is saying about oil next year, they still have a trading in a band between what 50 and 70. So, I mean, all of those are positive dynamics for us. I think there is a little bit of a breather going on. I think probably a little bit of some of the post-hurricane recovery trying to kind of figure out what’s going on from an inventory supply chain point of view. None of that really troubles me all that much at this point. So, as I look out, I think still pretty good looking market for us. Chris, do you want to add anything?

No, other than to reiterate the supply demand characteristics continue to improve and the inventory continues to come out of our channel. So those are positive for us going forward into 2018.

Would you guys expect 2018 in total to be higher than your current runrate based on what you are seeing?

Probably a little bit too early to make that call. I mean, that’s going to be a result of those supply demand characteristics which are seemingly improving and those drive oil price and obviously if oil price goes up, shipments will be better too.

Got it. And then, just one more on energy. The – just more nitpicky, on the – it looks like base sales prices move down about 5% for energy shipments, I just wanted to see if you can comment on, I was interested just to some more spot tonnage being sold, or any comments there?

Yes, it’s a one-off I mean, you make a great point, Novid, if you look at sequential base sales per ton in our sectors, industrial and mobile were up and energy was down, but that’s not a trend that’s one-off related to some specific items that we shipped and did not shipped in the quarter.

Perfect. Thanks for taking my questions guys.

Thanks, Novid.

Your next question comes from Seth Rosenfeld with Jefferies. Your line is open.

Good morning. Thanks for taking my question. I’d like to take a little bit more into the outlook for your cost base please. You’ve commented in past quarter as you saw obviously elevated ramp up cost during H1 as your utilization rate increased dramatically. Can you ease up with a better sense of how you feel about your cost base now moving forward as utilizations are already back to very healthy level? Is there still more upward pressure on OpEx or should we start to see better fixed cost leverage given the continued expectations for higher shipments going into Q4 and into 2018 as well? Thank you.

Yes, well, Seth, the third and then you can remind me, because I think you had a couple of questions there. I think our cost base is in line with where we were in the second quarter and the fourth quarter will be similar to the third. I think what we are finding is, we are going to be more efficient in the fourth quarter because if you look at the tons we guide to, it will be the highest tons for the year by quarter. And that’s with fewer ship days and I think a lot of that is a result of as we’ve gone through the change and hired like 12% more of employees. They are now settling into their new jobs and producing at a higher rate.

Okay, that’s great. And from a headcount side with 12% growth you mentioned, should we expect any incremental growth or is that now in these steady rate going into 2018?

Yes, it’s a steady state going into 2018, Seth.

Okay, great. And just one last follow-up, with the new Q&T facility, can you just give us bit more color on the ramp up progress for what sort of volumes we should expect in the next one to two quarters in that business?

Yes, as I said, Seth, in my comments, we are in the ramp process right now. We do expect to begin shipping product in November, but it’s going to be a nice kind of slow steady ramp through 2018.

That’s great. Thank you very much.

Thanks.

Your next question comes from Justin Bergner with Gabelli & Company. Your line is open

Good morning, Tim. Good morning, Chris. Good morning Tina.

Good morning.

Hey, Justin.

The first question just relates to the third quarter volume. I guess, it came in a fair degree softer than what you had expected. I guess, notably, I think on the industrial side. What was the contributing factor there? And was any of that pushed out to the fourth quarter?

Yes, I’ll take a shot at that, Justin. For all of our sectors, the hurricane hurt us a little bit in a couple of sectors. So that hurt our shipping. It’s hard to some trucks. And then by and large I think there is probably some level of efficiencies that we had anticipated that we didn’t gain.

Okay, with those hurricane delayed shipments then, are those going to help the fourth quarter?

Yes, and those are built into the fourth quarter. As I mentioned to Seth, you see our fourth quarter shipments are pegged to be the highest of the year.

Okay, so I guess, will it be safe to sort of take an average of the third quarter and the fourth quarter as a runrate as we look into 2018 then?

Well, I’d like to think fourth quarter is a better indication, because our issue hasn’t been enough market. Our issue has been ramping up to be able to produce the product to get it out. So, I would say, fourth quarter is a better look than the third.

Okay. That’s helpful. And then, secondly, the other tonnage, is that going to ramp in the fourth quarter or be relatively similar to the third quarter?

It will be very similar.

Okay. And are there other opportunities in the other business that are going to materialize as you look into 2018, are those lower – is that lower margin business something that you want to expand or you add sort of a level of utilization where you are happy where it is to the extent that opportunities are low margin in nature?

Well, with markets recovering, obviously, we are looking pretty closely as our mix as we roll through this year into next year. We are right in the middle of contract period. So we are making a lot of those decisions as we speak. With industrial markets recovering, that tends to hit us positively on the large size of our mix. So, those are all moving pieces in the puzzle that will be 2018.

Okay. And on the pricing side, I guess, the presentation alluded to price increase that began October 1, 2017 and when that should take effect in January 1, 2018, how are those being received by the market? And how much of your business is sort of benefiting from those price increases?

Yes, you remember about 15% of our book right now is spot, the other rest is 85% is contract. So, on that 15%, you would begin to have the impact in October on bar product and then two big product gets to the January 1 increase.

Great. Thank you.

Great, thanks.

[Operator Instructions] Your next question comes from Phil Gibbs with KeyBanc Capital Markets. Your line is open.

Good morning.

Hey, Phil.

Hi, Phil.

I just had a question on the union negotiations and whether or not there were any specific costs we should have thought about for 3Q at those and if there are any that we should be thinking about for the fourth quarter?

Yes, it’s hard to tell because, they are still negotiating. So I think there is a possibility, but we really don’t know at this stage.

But there wasn’t anything material in the third quarter?

No.

No.

Okay. And then with regard to the maintenance, it sounds like everything, from what you are saying is extremely back-end loaded this year. Is that $10 million, call it at the midpoint of your $8 million to $12 million a good rate to use moving forward in terms of how we should think about the annualized spend for you?

No, remember, this is not an annualized spend. This is just an adder, we do outages on an annual basis for our plants and we typically do them in the third and fourth quarter, but this year as the order book came back so strong and to make our customer obligations, we would push all the outages back to the fourth quarter. So we have maintenance costs in every quarter that $8 million to $12 million guidance is just over and above our normal maintenance.

It’s over and above your normal maintenance, okay.

Yes, right.

Got it. And then, in terms of the other piece of the volume here which is just the billet business which we’ve talked about in the past, is there a thought that that picks up a little bit into the fourth quarter, Tim or is that going to be fairly similar to the rate that we’ve seen here today?

Yes, I’d say, it’s fairly flat over the third quarter.

Okay. And then, a last question from me from more of a strategic perspective is, what opportunity you see out there for increased penetration of SBQ products? Whether it be small diameter or large diameter in terms of what’s coming up the pike for new usages? Thanks.

Yes, it’s a great question, Phil. We are seeing a lot of opportunities, obviously on the larger size of our mix right now as industrial markets recover and oil and gas comes back and so that’s creating a lot of opportunities I talked about coupling stock during my comments, it’s a relatively new market for us and we are seeing some really good business there. You might have seen a release we put out yesterday on our new endurance steel which is ultra strength, ultra toughness material going into the gearing applications. So we are seeing great opportunities there not only in automotive , but really across all of our mobile markets anything that turns with the gear, we see as a target opportunity. Those are the kind of places we are looking at. On the tubing side, there is pressure tubing that I referenced earlier, I think has got a lot of opportunity. Polyethylene is a great business for us, but it’s relatively small. When you start getting into some of the more standard pressure tubing, you end up with lot of opportunity there as well. So, we are seeing a lot of places to go as markets recover and we are taking advantage of them.

Thank you.

Thanks, Phil.

Your next question comes from Justin Bergner with Gabelli Company. Your line is open.

Hi, everyone thanks. One follow-up here. As I look at the sequential EBITDA trend, I guess, it’s indicated that it should be flat sort of excluding the outages and excluding the raw material spread as we look into the fourth quarter. What’s holding it back from being up given the shipped tonnage is supposed to increase 3% to 5% in the fourth quarter on that apples-to-apples basis?

Yes, Justin, as much as anything else, right, our melt utilization will decrease in the fourth quarter. So as much as anything else, it’s fixed cost leverage on lower melt utilization in the fourth quarter.

Okay, so, the – in a normal melt utilization, the normal seasonal melt utilization, we would potentially have higher EBITDA than what you are guiding towards?

Yes, so if you compare to the third quarter, we’ll be down in melt utilization. So, that’s what we’d anticipate.

Okay, thanks for the follow-ups.

[Operator Instructions] There are no further questions queuing up at this time. I’d like to turn the call back over to Mr. Tim Timken, Chairman, CEO and President.

Well, thanks again for your questions today and for your interest in TimkenSteel. I’ll say it again, what a difference a year makes. Looking ahead, we are encouraged by the positive market dynamics and what that will mean for our business. Thank you again to all our employees for their work in the quarter and for all that they do to make us successful and for you for calling in today. Any questions going forward, please do not hesitate to call Tina. Thank you very much.

This concludes today's conference call. You may now disconnect.