Good morning. My name is Leandra and I will be your conference operator today. At this time I would like to welcome everyone to the TimkenSteel Fourth Quarter 2017 Earnings 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, VP Corporate Controller and Investor Relations. You may begin your conference.

Great. Thank you. Good morning, everyone, and thank you for joining us to discuss our fourth quarter and full year 2017 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 today in our 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 the www.timkensteel.com Web site, where non-cash 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 and we prohibit any use recording or transmission of any portion of the call without our express advance written consent. With that, now I would like to turn the call over to Tim.

Good Morning and Happy New Year to you all. A year ago when we spoke, our message was very different than what was reflected in our earnings release last night. The fourth quarter saw a 48% increase in shipment year-over-year despite heavier than usual maintenance activities. Record productivity for the days we were in operations resulted in the strong shipments in the quarter. Our financial performance was way up as well with EBITDA on the quarter showing a significant year-over-year improvement. We also secured a new four year labor agreement which was ratified by the USW membership in December. The performance in the fourth quarter capped off a year, our 100th year in which we delivered on increased market opportunity with one of the fastest and steepest production ramps in our history with melt utilization jumping from 40% at the end of 2016 to more than 70% in the first quarter. We sustained this production throughout 2017 by running our U.S. operations around the clock and exercising our assets with maximum efficiency, while at the same time adding hundreds of new employees. We had a record low number of customer claims during the year and our safety performance remains top quartile. The fact that we maintained and at times surpassed the previous safety product quality efficiency and productivity performance measures during this dramatic ramp up is a testament to the skill and dedication of our workforce which is as you've heard me say in the past, it is best in the industry. As a result, we are able to take advantage of returning customer demand and win business away from our competitors both foreign and domestic. In fact, we increased base sales by more than 60% compared to 2016. The upward momentum in our markets and the increased need for…

Thanks Tim. Good morning. The fourth quarter results were in line with our expectations and guidance. The quarter was impacted by normal seasonal events including annual maintenance activities and fewer ship days due to holidays and customer shutdown activities. Excluding the annual maintenance expenses of $11 million incurred in the quarter, our results were structurally similar to the second and third quarters of the year. Total shipments of 286,000 tons in the quarter were 48% higher than last year and relatively flat to the third quarter. The year-over-year improvement was a result of strength in end market demand and increased market penetration. Mobile shipments were 3% higher than the third quarter of 2017 mostly from an increase in the North American light vehicle production built rate. Production cuts made by the OEMs in the second half of 2017 were successful in rebalancing inventory levels which aided the sequential improvement. The 2018 projected SAR of $17.4 million units represents a 2% increase over 2017. For the first quarter 2018, we expect mobile shipments to be about 5% higher than the fourth quarter 2017 due to seasonality and increased participation on new programs. Industrial shipments were similar to the third quarter 2017 and 56% higher than in the fourth quarter of last year. Strength in the global commodity markets, new business and balanced inventory levels positively affected our industrial end markets. In the first quarter 2018, we expect a sequential increase in industrial shipments of about 13% as the general economic sentiment remains positive in most of the industrial market sectors. Fourth quarter 2017 shipments to the energy end market increased about 4% sequentially and up was almost 3.5x higher than the same quarter a year ago of a very low base. The U.S. rig count is stabilized to around 940 active…

[Operator Instructions] And your first question comes from the line of Seth Rosenfeld with Jefferies. Your line is open.

Good morning. Thanks for taking my question. I have two different questions, starting out first then I'll come back on the second please. But thinking about your 2018 annual contracts across the various business lines including industrial, mobile, energy, can you just give us a sense of what scale of year-over-year increase you were able to secure and what net margin impact that could have going into the coming year? I will come back for the second question please.

Yes. This is Chris. We don't discuss our price increases or price decreases year-over-year. I would say that if you look at what the market would bear we got what the market would bear and most of that increase in the OE comes in the first quarter of the year and a little bit bleeds in, in the second and third quarter

Okay. Thank you. So on that basis the EBITDA guidance of $20 million to $30 million, so we view that as a relatively fair run rate reflecting the contract wins you're able to secure for the year?

Well, on the contract business keep in mind, there will be couple of things in play. One we'll have a little bit of a lag impact, so you won't quite see all the January 1 effective date impact in Q1 because we have a little bit of a lag. Then we also have spot price teed up for Q1. I mean pardon me Q2 April 1 for tube. And we also have some of the OE price increase kicking in, in the second quarter.

Okay. Thank you. And then, separately thinking about your scrap consumption, can you give us a sense of the rough mix between prime scrap versus obsolete in 2017? And then, can you discuss a little bit the scale of benefit you saw in the last year given particularly widespread between bushling and shred. What impact could you see in 2018 if that spread normalizes over time? Thank you.

Yes. We'll talk about the spread. The spread for the year was positive year-over-year was a great year in terms of spread. And there was a dynamic in the year relative to prime and obsolete grades. And that clearly benefited our results in 2017. We see that probably a little bit less in 2018, we think that will narrow. For the first quarter, our spread versus the fourth quarter should be a little bit better. So I think for the first quarter the spread dynamics in the fourth quarter hold plus maybe a slight little tailwind.

Okay. Thank you. So I guess a slight benefit in Q1, but in some normalization viewed as being very likely thereafter.

That's fair.

Okay. Thank you very much.

Your next question comes from the line of Novid Rassouli with Cowen. Your line is open.

Thanks. Good morning, Tim, Chris and Tina. Thanks for taking my questions. First I just wanted to talk about the EBITDA guide. I just wanted to see, you can help us better understand kind of the bridge from 4Q to 1Q, just kind of looking at the backdrop, shipments of better pricing higher raw materials spreads. I would have maybe expected a little bit higher level of earnings, so if you could help quantify maybe the impact of the margin dilution from the past orders that you mentioned earlier on the call and potentially what your earnings range would've been without the impact of that.

Yes. I don't think that's a really large number, Novid. I mean, it will impact the quarter but it's not a major driver, if you bridge from Q4 of 2017 to Q1 of 2018. You look at kind of volume price mix with price probably being the heavier hitter that in manufacturing really are going to make up the bridge from Q4 to Q1. And we have a little bit of favorable spread baked in, but it's pretty small. So I mean take out a little bit of spread and I'd say half the improvement is in manufacturing and the other half is volume price and mix.

Okay. And then just on pricing, I know you mentioned it on the previous question. But, 85% of your shipments are contracted, it sounded like you're getting most of that in 1Q with some in 2Q. Is there a way that you can quantify that kind of the percentages of contract resets that are built into this 20 to 30 versus what we'll see incrementally in 2Q?

Probably the best to say, you could see most of it in Q1 and again, this is all the annual contract stuff. And I think you'll see most of it occur in Q1 and numbers in Q2 and Q3 are really relatively small.

We do have at least couple of contracts that reset mid-year. And then, we have a number that are still multi-year that weren't renegotiated this time around.

Got it. Thanks guys.

Your next question comes from the line of Phil Gibbs with KeyBanc Capital Markets. Your line is open.

Good morning.

Good morning.

I had a question on the billet agreements into next year and it looks like based on your implied guidance that the billet sales are stopping down a bit. Any color you could provide us on the outlook there for the year?

Yes. Phil, as you know we don't really comment on individual negotiations, but I will say that as we looked into 2018, we have reduced the total billet exposure as part of our overall mix.

Okay. And I think Tim you mentioned in your prepared remarks some impacts from electrodes and refractories. Does that begin to impact you in the first quarter or does that start to really impact you in the second quarter based on existing call inventory of consumables, I'm just trying to understand what the cadence is, as we move through the year?

Yes. I mean we've begun to feel it. We will feel it in the first quarter but obviously to the extent that we replace old inventory with new inventory at higher prices obviously we'll feel bigger impact of that.

Okay. And I wanted to clarify a comment you made on the distribution channels in the energy side I think you said improved. Does that mean you believe that the distributors are more well-stocked with inventory or less or less stocked. I was just trying to go off the comment.

Based on the feedback that we're getting Phil, it seems like they've got a pretty good balance in the channels right now. I talked to one of our larger distributors yesterday and he's feeling pretty good about where they are.

Okay. Thanks very much.

Thanks Phil.

[Operator Instructions] And your next question comes from the line of Justin Bergner with Gabelli & Company. Your line is open.

Oh, hey, good morning, Tim. Good morning Chris. Good morning Tina.

Good morning.

Good morning.

Good morning.

To start off, I'd like to follow up with the earlier question which is on the billet shipments if I sort of back out the implied first quarter billet shipments within your sort of overall shipment guide. It suggests that there are going to be downs sort of on the order of 10,000 per ton, 10,000 tons sequentially. I guess could you confirm that sort of in the right ballpark? And then, is the first quarter billet shipments indicative of what we can expect for the remainder of 2018?

Yes. Your numbers are in the ballpark. We do have a little bit of a past due that we're working our way through. As a result of some weather issues that we had in the fourth quarter that we'll get through that in the first quarter and then you'll see -- begin to see the actual rate kind of normalized.

Okay. And industrial shipments, I guess you would enter the fourth quarter expecting them to be up I think 3% to 5%, they were down slightly. What was behind that, does that relate to some of these shipping disruptions, any color there would be helpful?

Yes. Justin, I think you hit the nail on the head there, clearly wasn't market demand. It was some short-term shipping disruptions in the fourth quarter.

Okay. And then, on the machinery side, has there been any sort of deceleration, I mean in that market -- the head market slide suggests that it's a green light from a market sensitive point of view and flat sequentially from a TimkenSteel centre point. I think that's similar to what you had last quarter, but I'm just trying to gauge if you see any sort of tempering of that market?

Now we've seen good activity out of that space. It began to improve earlier and we see that maintaining.

Okay. I also want to address to section 232 tariffs. I realize that the jury is still out on what's going to happen there as it relates to steel. But do you have any more color, if those tariffs were to go through how they would affect the steel markets you competing versus sort of the broader commoditized steel markets?

Yes. I mean I think that they submitted the report, Commerce Department submitted the report to the President in kind of middle of January, which starts the 90-day clock, you run that out theoretically something is going to happen at the latest by April. Our hope is from an industry's perspective is that it doesn't take that long. There have been a couple of recent developments out of the administration on both the solar case and the washing machine case that says they're not afraid to take our trade partners head on and they've already begun to see the impact of that in the market, you've seen the first of the washing machine guys come out with a price increase. So our sense is that they will take action on this. We are encouraging them to take broad action not just country specific action. And to the extent that that is where we end up we believe it will have a positive impact on the marketplace.

Okay. And your -- the grades of steel that you produce would seemingly be part of a broader program if these 232 tariffs were enacted?

That's correct.

Okay, great. Thanks so much.

Great.

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

Thanks. Thanks for taking my follow up. Tim I had a more of -- more of a question on the recent on ramp of the Q&T line and let us know where you're at in terms of that process. And I think it's a 40,000 or 50,000 ton bump and mix or differentiation for you guys. How much of that gets shipped in 2018? And are you looking at that as a driver to do some nice improvement in mix in 2018?

The total capacity on that facility is 50,000 tons. As we continue to see improvement on the oil and gas and industrial side, the big consumers of Q&T kind of product. We would expect to get a pretty good loading on that facility as we run through the year. End markets seem to be supporting it, our first quarter orders would support that assumption. So we feel pretty good about where we are right now in the ramp.

So, you think you can utilize that 50%, 75%, I'm just trying to understand how you can ramp up to that capacity that you have -- what you have visibility to perhaps.

Sure. It is a ramp as you know. And so our expectation we'll get better quarter-by-quarter as we continue to see improvements in the oil and gas markets in the industrial space. So we feel good about being able to load that facility toward -- by the end of the year.

And if I look at the Q&T line ideally for you, how much of that split would be between industrial and energy?

Yes. I don't have that off the top of my head Phil. Yes, I mean it is think about big industrial product, big oil and gas. I mean that's why we built the facility and that's how we intend to load it.

Thank you.

Yep. Thanks Phil.

[Operator Instructions] And your next question comes from the line of Scott Blumenthal with Emerald Advisors. Your line is open.

Good morning. Thank you for taking my question.

Good morning.

Chris, Could you maybe talk a little bit about what your expectations are with regard to guidance. You have about $10 million range there for EBITDA guidance. And what would have to happen for you to get to the top and what would be your expectations as how the quarter would play out for you to be kind of at the bottom of the range?

Yes. Well, I'll address the positive side first, if that's okay. For us it's going to be about shipments. I mean, we did not have as good a shipment quarter as we would've liked in Q4 for a couple of reasons that Tim alluded to. So our upside is going to be primarily around shipments in the quarter. And the downside would be if something probably goes materially wrong in the scrap markets.

Okay. And when you're talking about shipments, we realized that I think the Wall Street Journal even this morning had a piece about trucking capacity, hauling capacity being very, very tight. Is that what do you guys are struggling with or is it actually getting the stuff out of the plant.

It's clearly the latter. With clearly inflationary impacts, some freight and it is tight and we do have to be careful but that hasn't been limiting our shipments it's really been internal production issues.

Okay. All right. Thank you.

Thanks.

Your next question comes from the line of Alex James with Bronson Point. Your line is open.

Good morning. Tim, could you just spend a little more time on the first quarter guidance and the bridge from Q4 into Q1. Just walking through a) back the 11 maintenance expenses plus some incremental volume plus a small scrap benefit into Q1 that seems to get you towards the midpoint of guidance before any price and mix benefit and presumably pricing mix is better in Q1. Just trying to better understand that bridge please? Thank you.

Yes. I'll let Chris fill in any gaps that he didn't -- that might have come out of his first answer.

Yes. So in the -- remember the volume price mix, right, I said is going to be kind of call it half of the difference from the bridge from Q4 to Q1. Again to reiterate spread relatively small, the rest of the difference is manufacturing will be one half of the difference in volume price mix will be the other half. And most of that volume price mix would be shaded towards the price side.

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

Thanks for taking my follow-up. Just on the question of price and mix, I mean as we look at the 4Q base sales per ton in your industrial and energy markets, the increases sequentially from the third quarter, are those mainly price, are those mainly mix, just to get a sense as to how the fourth quarter looked ahead of 2018?

It's a little bit of both because we had spot prices in the market and so a significant portion of our energy sales are in the distribution side and that's all supply. So call it half of each.

Okay. Half of each price and mix for both industrially and energy?

No. I was just referring to energy.

Okay. And the industrial side with the sequential base sales per ton increase the more price or more mix?

It's a little bit more mix and industrial side just because the OE site is larger and industrial than on a percentage basis than on the energy side.

Okay. That helps. And then, just one thing I guess that was in the slide deck, but wasn't as discussed on the call was sort of new products and technologies. Obviously, the slide deck focuses on or highlights the Endurance deals, any material updates on the new product front you guys want to highlight?

Justin, we continue to run a very active portfolio of new product development. The Endurance is one that we've talked a lot about, but we have a number of other specialty grades that we continue to take to the marketplace. Some of the ultra premium work that we're doing high performance kind of products as well as advances in our value-added business. So we're excited about the portfolio. We believe that we will begin to see some of that impact in 2018 and beyond.

Great. Thanks.

I would now like to turn the call back over to Mr. Tim Timken for closing remarks.

All right. Well, thanks very much for the questions. Obviously, we're looking forward to a year of continued improvement and performance and appreciate your interest in the company. I'd like to reiterate that for the first quarter shipments are expected to be up between 3% and 6% which is obviously exciting and bodes well for our performance for the year. If you have any remaining questions be sure to contact Tina after the meeting. Thank you. And have a great day.

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