Good morning. My name is Mariamma, and I will be your conference operator today. At this time, I would like to welcome everyone to the TimkenSteel Third Quarter 2018 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. I would now like to turn the call over to Mitch Byrnes, Senior Manager of Investor Relations. You may begin your conference.

Great, thank you. Good morning, everyone. And thank you for joining us. I’m here today with Tim Timken, Chairman, CEO and President; as well as Kris Westbrooks, Executive Vice President and Chief Financial Officer to discuss our third 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 expressed advanced written consent. With that, now I would like to turn over the call to Tim.

Good morning. Thanks, Mitch, and thank you all for joining us. I want to formally welcome our new CFO, Kris Westbrooks. Kris brings a deep financial and accounting experience to the company and a track record of contributing to growing companies. In the one month since he has come on board, he has already made a strong addition to our executive team. As I look at the big picture of our performance, I see three things. First, we outperformed our adjusted EBITDA guidance in the third quarter, which is indicative of the improvements we’re driving in product mix and on-time delivery. Second, as we look ahead, it appears the fourth quarter is not going to be as strong as we originally anticipated. We’ll see some carryover costs related to a couple of onetime manufacturing issues from the third quarter. Also, our forecast has an assumption around the fourth quarter customer buying that was stronger than usual, but now we are seeing normal seasonality. We believe that the upcoming quarter will be a short-term pause in our favorable trajectory. And third, given the strength of our markets and improving trade environment and a solid strategy, we’re looking forward to a strong 2019. So let’s take a look at each one of these three time periods. First, the third quarter. We had record safety performance. Employees are working together across the company to challenge the status quo, identify safety risks and remove them. As a result, our safety performance is top quartile in our industry and is on the way to becoming the best in the industry, because as I have often said, the goal is that every one of our employees and contractors goes home safely at the end of each day. When it comes to our financial results in the…

Thanks, Tim. Good morning, everyone. Since joining the company in late September, I have had an opportunity to speak with many of our employees and visit our facilities. I’m extremely excited about the future. I look forward to meeting with more of our shareholders, business partners and analysts soon. Now turning to our financial results. Our third quarter of 2018 net income was $1.4 million or $0.03 per diluted share, and came in at the top end of our guidance range. This compares to a loss of $5.9 million or a negative $0.13 per diluted share in the third quarter of last year. Adjusted EBITDA was $26.5 million in the third quarter of 2018, above both the guidance range of $15 million to $25 million and the prior year quarter of $18.8 million. As Tim said, our markets remain stable, product mix has improved, and we’ve been successful in securing pricing improvements that are expected to fully benefit our 2019 financial results. Our shipments totaled 295,500 tons in the quarter and were 2% higher than the same period last year. This year-over-year improvement was driven by stronger demand within our industrial, energy and mobile end markets. Shipments to the energy market increased 51% compared to the same quarter a year ago, as the oil and gas industry has recovered well. We expect fourth quarter energy shipments to be around the same as the third quarter of 2018. Industrial shipments were 13% higher than the same quarter last year. Strong demand for bearing and power transmission applications continues, and we benefited from an increased demand in the overall industrial market. Going into the fourth quarter, general economic sentiment remains positive in most industrial market sectors, but we anticipate normal seasonality will impact the quarter as customers balance inventories in advance of…

[Operator Instructions] And your first question comes from the line of Theodore O’Neill with Litchfield Hills. Your line is open. Theodore O’Neill: Great. Thanks very much. Just a quick question on the fourth quarter. So to find the seasonality that you’re talking about, I’ve got to go back to 2015 to see a down quarter December versus September, which I understand is what you’re saying. But what I want to know is, do I get the seasonality – the traditional seasonality back in the first quarter?

Yes. Usually, what we see going into the tail end of the year is our distributors, a number of OEs adjusting inventory levels going into the tail end. And generally we see that pop back in early in the first quarter. And based on what we’re seeing in the order book, that would seem to be the case for this year as well. Theodore O’Neill: Okay. Thanks very much.

Yes. Thanks.

Your next question comes from Stephanie Yee with JPMorgan. Your line is open.

You have talked about improving your delivery reliability, and I was wondering what additional steps you’re looking to take? What other initiatives you have in place to further improve on-time delivery that you are targeting?

Well, we’ve actually showed really good progress through this year despite some – the two manufacturing issues we talked about earlier. We don’t generally give the numbers on on-time delivery performance, where we’ve seen a consistent improvement throughout the year, and we’re confident that as we run our manufacturing playbook that they will continue to get better. Our customers are seeing it directly, and we’re hearing very positive feedback from them. At the end of the day, we just have to run our manufacturing assets extraordinary well. We’ve got to make sure that we have the appropriate inventory on the ground to service our customers. And we’re in the process of continuing to drive that.

Okay, got it. And you had mentioned some cost inflation from consumables. Do you anticipate that to continue into 2019? Or will you have absorbed most of those cost pressures, especially on the electrodes front?

Yes. I see no – it’s been kind of hard to read the electrode market this year. I think the general sense is that we’ve begun to see that level of inflation taper off. And that anything that we see through the end of this year, into next year will be at a more – at a lower level than what we saw in 2018. I would say the same probably goes for refractory as well.

Okay. Got it. Thank you.

Great. Thanks.

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

My first question just relates to the manufacturing issues that affected utilization in the third quarter. So were there any sort of meaningful costs associated with the – those issues as they float into the third quarter? Or are most of them effectively those issues getting sort of capitalized in inventory and expensed in the fourth quarter?

Thanks, Justin. There were some costs not overly significant in the third quarter, but the bigger cost is the piece that’s going to impact us in Q4, just as you described as that inventory is sold

Okay. And were there other aspects of the third quarter EBITDA, whether it was sort of raw material spread or LIFO that came out materially different than you expected? Or was the strength of, sort of, price and mix and the manufacturing issues, obviously, not flowing into the third quarter, but into the fourth quarter?

It was primarily mix that we talked about the energy, volumes there driving a lot of that and price. LIFO was pretty flat with the second quarter, so not a big driver of the results there in Q3 versus our expectations.

Okay. And given that the shipments came up light of where you were targeting, I mean, was the mix and to a lesser extent the pricing that strong that it sort of offset the shortfall in the shipments?

It certainly helped, Justin.

Okay. And then, I guess, lastly, I haven’t had a chance to fully review the end market slide, but are there any end markets that have materially changed, looking forward now at the end of the third quarter versus where you stood at the second quarter?

No, we don’t think so. Pretty much across the board, we’re seeing pretty good activity. But the one yellow dot – well, I guess, we had two yellow dots. Real is kind of flattish, but doing reasonably well. And then obviously, we’re seeing the distributors taking a breather in the fourth, but we assume they’re coming back in the first. And as I indicated earlier, the order book would validate that. So no significant changes at this point. In fact, if anything, with the oil prices kind of percolating a little bit and jumping around, we’re beginning to see a little bit of better activity there. So we remain positive about the start of the year. I think we just got to work through some inventory issues here at the end of the fourth.

Okay. And then just lastly, there was a big jump up in the base sales per ton in the mobile segment sequentially. Was that just a reflection of sort of the unusual dip in the second quarter that was maybe mix driven and you sort of bounced back to a more normal level? Or any color there?

So we’re seeing the benefit of our price per ton coming through there.

Yes. And as you remember that we did roll off a platform in the second that hit that, and we’ve begun to recover from that a little bit. So a little bit of mix in there as well. So in general, that business is still performing well and kind of the way it’s been running all year.

Okay. But that’s mainly priced annually. So mix would be a better driver of sequential than any pricing changes? Okay. Thank you.

Thanks, Justin.

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

Hi, good morning guys. It’s Michael in for Phil. So just first question here. There was an EBIT bridge in last quarter’s presentation, Slide 4, I believe. And it was helpful to see the sequential bridge there given the volatility in the business. So I’m just wondering why the bridge was – from 2Q to 3Q wasn’t included in this quarter’s presentation? And if you could, maybe walk through that bridge a bit, if possible?

Yes. So the focus that we wanted to keep is just on our continued improvement year-over-year there. The data is out there to recreate that bridge. It’s all public information. But we just didn’t feel the need to walk everyone through that quarter-over-quarter. But we are seeing significant year-over-year improvement. There were some moves sequentially that we talked about before, primarily in the manufacturing cost area. Mix continues to improve sequentially from last quarter to this quarter. So those are a couple of the drivers. We saw lower LIFO expense a little bit, but not a big driver there either. So it’s really just mix and manufacturing cost were the two biggest pieces there versus Q2.

Okay. And then could you touch a bit on why energy shipments were light in the third quarter versus guidance?

Well, some of that was due to the manufacturing issues that we had showing up. Again, we assume that those markets continue to improve. That’s a big part of the mix shift that we’ve been talking about, and we feel good about kind of where we look rolling into 2019 on.

Got it. And then just lastly, what impact – are you seeing a material impact at all from vanadium prices. They’ve just – considering they’ve gone up quite a bit from $0.04 to $0.32 a pound in the past two years or so and a bit more sharply recently. Any impact you’re seeing there?

Well, vanadium would be one of our surcharged alloys. So not a significant impact – negative impact of the increase. And to the extent we can buy better than market, we actually get a little bit of a benefit. But it has obviously been very – the most aggressive movement of all the alloys that we consume.

All right. Thank you.

Thanks, Michael. Mariamma, do we have any additional questions?

There are no further questions at this time.

Well, thank you very much for your questions today and for joining us. Before we wrap up, I want to thank our employees, again. Our team is made up of some of the deepest technical and operational experts in the industry, working in a culture that recently was recognized as one of the best places to work in our region, which is something we’re, obviously, very proud of. This is a team who is focused squarely on growing the company and improving performance for our shareholders. The way we outperformed our guidance in the third quarter is indicative of the improvements we’re driving in product mix and on-time delivery. We’ll be working hard to optimize performance in the fourth quarter, and we’ll position ourselves well to realize even better price, product mix and volume in 2019. I want to thank you for your interest in the company. If you have any additional questions, please do not hesitate to contact Mitch Byrnes. Thank you very much for joining us on the call today. And have a good day.

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