Good morning. My name is Denise and I'll be your conference operator today. At this time, I'd like to welcome everyone to the TimkenSteel First Quarter 2018 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, Vice President, Corporate Controller, and IR, you may begin your conference.

Great. Thank you. Good morning everyone and thank you for joining us. I am here today by Tim Timken, Chairman, CEO, and President; as well as Chris Holding, Executive Vice President and Chief Financial Officer to discuss our first quarter 2018 financial results. 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 on www.timkensteel.com website. 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 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.

Well, good morning and thank you for joining us. We're off to a strong start this year. Our employees went to extraordinary efforts in the first quarter and marked a turning point both in commercial and production operations. We remain focused on a few key priorities to have an even stronger second quarter. First, let's talk operations. Our safety performance continued at top quartile levels on a record pace for preventing OSHA recordables. Our employees continue to keep safety as our highest priority working to identify and eliminate risks. We not only operated safely in the quarter, but also showed improving productivity. Working throughout the quarter, we put behind us some of the inefficiencies that came from the steep ramp in which hundreds of new people joined the company and even more transferred to new positions within the plant. By the end of the quarter, we achieved record bar shipments and we began the second quarter of 2018 with past due orders down 20% from the beginning of the year. You may also have read in our annual report about the progress we've made in our environmental performance over the last year. We reduced both our carbon footprint and waste to landfill by 8% and reduced electricity consumption in steelmaking by 10% per kilowatt-hour per ship ton. Just as we think innovatively about product development, we also bring that mindset to our steelmaking processes. We've continuously improved efficiency and sustainability as we make some of the cleanest steel in the world. TimkenSteel is an environmental leader in the U.S. and the U.S. industry leads the world. On the commercial side of things, we've seen a lot of movement in our markets in the last quarter. One significant action was the implementation of tariffs on steel coming into the U.S. I…

Thank you, Tim. Good morning. The first quarter results were in line with our guidance, excluding certain non-recurring expenses. EBITDA for the quarter was at the midpoint of our guidance range when adjusted for these expenses. More importantly, the operational improvements made within the quarter have set us up for a significant increase in shipments and profits in the second quarter. Total shipments of 300,000 tons in the quarter were 7% higher than last year and 5% higher than the fourth quarter of 2017. The year-over-year improvement was driven by a broad-based strengthening end market demand. Mobile shipments were 6% higher than the fourth quarter of 2017, mostly from a seasonal increase in the North American light vehicle production build rate. The 2018 projected SAAR of 17.3 million units is a slight increase over 2017. For the second quarter of 2018, we expect mobile shipments to be about 5% higher than the first quarter due to a shift in market demand towards light truck vehicle applications, particularly from new domestic OEMs. Industrial shipments were 8% higher than the fourth quarter 2017 and 14% higher than in the first quarter of last year. Industrial shipments were helped by the strength in demand from mining, bearing, and power transmission applications. In the second quarter, we expect a sequential increase in industrial shipments of about 58% as the general economic sentiment remains positive in most of the industrial market sectors and inventory levels remain balanced. Shipments to the energy end market increased about 4% sequentially and 71% compared to the same quarter a year ago, albeit off a low base. The U.S. rig count has stabilized at around 1,000 active rigs and we remain encouraged by more balanced customer inventory positions. We expect second quarter energy shipments to be about 40% higher than…

[Operator Instructions] Your first question comes from the line of Martin Englert with Jefferies. Your line is open.

Hi, good morning everyone.

Good morning.

You noted the recent price increases of around $40 to $150 per ton. Can you discuss how those are gaining traction in the market? And then also remind us of your overall spot market exposure?

Yes. Let me comment first and I'll ask Chris to add any color to it. As of right now, the four price increases that we put in place that are effective this year have all stuck. The industry, in general, has followed and our total exposure on the spot market is about roughly 30%.

Thank you. That's helpful. And then also just looking at the upcoming quarter, there's supposed to be some headwinds with some raw material spread compression there. Can you discuss what you may expect for that, looking towards the second half of the year?

I mean just in general, I mean, scrap markets have been pretty frothy here of late. And the thought is we're going to see that come off a bit. Our sense is there's not a significant correction out there, but it's going to just kind of putter around a little bit. No big swings either way.

Okay. And if I could one last one there for the quarter. I believe the LIFO expense is $1.3 million with the company projecting higher cost for the end of the year. Is this a reasonable run rate for the upcoming quarters here?

Yes, that's how the math works is, you estimate the full year and divide by four. So, we would expect about $5 million for the year.

Okay. Thanks for your help.

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

Thanks. Good morning Tim, Chris, and Tina. Just to touch on the pricing one more time. So, what percentage of the increases were reflected in Q1? And are there -- any that are will be flowing through and realized in 2Q? I understand that all of them have stuck, but I'm just wondering how they're going to flow through to P&L?

Yes, Novid, I'll take a shot at that. Obviously, in the first quarter, most of the contract pricing came through. We'll have a little bit more in the second quarter. And then until further notice, we'll see more impact in Q2. So, yes, if you -- in the script we talk about another increase of, call it, 5% in terms of price mix in the second quarter, so that should help you understand how the pricing flows through.

Got it. And then on the $6 million raw material headwind, can you just give us more insight of the driver of that $6 million headwind?

Yes, it's really the slope of what we buy in terms of various scrap and the spread between that and the Busheling Index from where we surcharge.

So, it's basically the fact that shredded has gone up dramatically more than Busheling in the past couple of months or so?

Yes, that's exactly right. The obsolete grades have accelerated versus the Busheling slope.

Okay. And there's no other -- there's nothing other than scrap in that number?

Just a little bit of alloy in that number, but it's primarily over time driven by scrap.

Got it. And then just one last one. The billet shipments are running a bit higher than kind of our expectations. Can you just talk about the progression of billet shipments for the year? And should we expect those to fall as you kind of get other business or should we expect those to be pretty steady from the current run rate?

Yes, the number you saw in the first quarter is us catching up on the past due that we carried into the year. That will -- those will come off starting in the second quarter.

Got it. Thanks for taking my questions guys.

Yes, thanks.

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

Hey good morning. Tyler Kenyon on for Phil.

Hey Tyler, welcome.

So, just with respect to your guidance and just a question on the cost side is -- do you think that this kind of truly reflects what your expectations for the cost structure to look like moving forward given the current mix situation?

Yes, I think from a cost structure perspective, I think, it's pretty indicative. Obviously, we had some inefficiencies in the first quarter that we look to have corrected for the second quarter. So, that will improve us on the cost side a little bit.

So, should we expect an improvement in the third quarter relative to the second quarter as you're still catching up on shipments here? Or are you basically all caught up at this point in the second quarter?

No, we're not caught up yet. So, we clearly have some product that's in backlog and we're going to try to get caught up here in the second quarter. We'll see if we're there by the third quarter or not. I don't think our structural cost structure in Q3 should be much different than Q2.

Got it. And so in terms of just timing of maintenance, should we expect that to be more heavily loaded toward the back half of the year, like it typically is? And should there be a substantial change versus last year?

Yes, I think the amount of the maintenance will be pretty similar and we believe, at this point, will all take place in the third quarter outage.

Okay. And one last one. Just with respect to working capital, any way to be thinking about that as we move into the second quarter and towards the latter half of the year?

Yes. Clearly, most of the working capital build is in the first quarter seasonally and this year is no different, it's very similar to last year, if you look at the total working capital. We'll see a little bit of working capital build in the second quarter, but considerably less than the first quarter. And then second half of the year, that will reverse out and it ought to be on the other side and have some working capital decrements.

Great. Thanks for taking our questions.

Yes, thanks Tyler.

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

Hey, good morning Tim, good morning Chris.

Good morning.

Good morning.

First question, just I hopped on a little bit late, so I hope, I know this is redundant. But in terms of the base pricing per ton, could you maybe take us through sort of the first quarter sequential increase versus the fourth quarter by end-market, and give us a view as to how much of that was sort of mix and how much of it was real base pricing? And then just sort of reiterate how that first quarter delta is going to translate into further second quarter increases?

Yes, sure Justin, I'll take a shot and Tim can provide some color, if appropriate. The change sequentially was really pretty more broad-based. If you look at the base sales per ton improvement in our market sectors, 5% in industrial, 2% in mobile, 6% in energy. That's pretty broad-based and very much within our expectations. And most of this, I would call price sequentially. And in my script, Justin, I'd mentioned that we anticipate between price and mix in the second quarter another 5% increase.

Okay, that's helpful. I guess, secondly, given that just volume price and sort of mix seem to come in line with what you expected in the first quarter. What sort of held EBITDA back from being at the high end of the range?

Yes. We had a couple of things. One, we had some one-off expenses of about $4 million that are non-recurring. Then we had some costs to catch-up on backlog and really some manufacturing inefficiencies, I'll call it, kind of generally.

Okay. And then in terms of that 5% base price increase for the second quarter, if I apply that to 300,000 tons, I'm getting something on the order of $15 million or so -- or maybe not quite that much, but something close to $15 million. What prevents you from sort of seeing the full benefit of that $15 million price increase in terms of your sequential EBITDA bridge looking at the second quarter prospectively?

Yes, there's a little bit of mix and little bit of cost is really what makes up the difference relative to the bridge you created.

Okay. All right. Thank you.

And there are no further questions queued up at this time, I'll turn call back over to Tim Timken.

Well, thank you for your questions today. If you have any remaining questions, be sure to contact Tina after the meeting. As we look ahead for the rest of 2018 and keep an eye on 2019, we expect to deliver greater value to our shareholders. I thank you for your interest in the company. Have a great day.

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