Good morning. My name is Sharon and I will be your conference operator today. At this time I would like to welcome everyone to the TimkenSteel’s Fourth Quarter 2018 Earnings Conference Call. [Operator Instructions] Thank you. 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 fourth quarter and full year 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 the TimkenSteel website. Where non-GAAP financial information is referenced, we have included reconciliations between 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'd like to turn the call over to Tim.

Thanks Mitch and thank you all for joining us today as we wrap up 2018 and begin to talk about the year ahead. TimkenSteel earnings have continued on an upward trajectory for three straight years. We've remained focused not only on taking advantage of more favorable market conditions, but also on taking strategic actions to improve customer service, pricing and product mix. We are confident that our journey to improve the company's performance is on-track so let me break some of that down for you. First, everything begins with people. 2018 was the safest year in our history, even as we added new employees and increased production. I'd like to offer special congratulations to a team from our Material Services facility in Houston, who won our Golden Glove Award in 2018 for implementing a hand safety idea. The Golden Glove program has generated more than 80 new hand safety practices in the four years we've had it in place and during that time we've reduced hand injuries by 35%. Operationally in 2018, we also sharpened our customer service. We're known for the superior quality and performance of our product, but in 2018 we further improved quality performance and had record low customer claims. A steep increase in demand challenged our delivery performance in 2018, but we improved on-time delivery to more than 90% by the end of the year. Our plans also advanced our environmental goals. All six of our steel-making and processing facilities achieved ISO 14001 certification. We also reduced our Greenhouse Gas Emissions and energy intensity. In fact we are among the best steel facilities in the world according to World Steel's Environmental Measures. Safety, environmental responsibility, quality, service remain priorities for the company. Commercially, we also made strides. In 2018 we enriched the mix of our product…

Thanks, Tim, and good morning, everyone. I'm pleased to report that fourth quarter 2018 results exceeded guidance and the prior year. Our team stayed focused and disciplined to close the year strong, despite normal seasonality and customer inventory balancing. Fourth quarter 2018 net sales were $406 million, a $65 million or 19% increase from the prior year comparable quarter. Higher net sales were driven by a 10% increase in base sales per ton from improved price and product mix as well as higher surcharge revenue. On a GAAP basis, the fourth quarter 2018 net loss was $40 million compared with the fourth quarter 2017 net loss of $34 million. Excluding pension re-measurement adjustments, adjusted EBITDA was $26.7 million in the fourth quarter 2018, which exceeded our guidance range of $15 million to $25 million. Adjusted EBITDA of $8.2 million in the fourth quarter 2017 included $11 million of scheduled annual maintenance costs. You'll recall that we carried out our 2018 annual maintenance in the third quarter. Fourth quarter 2018 shipments of approximately 295,000 tons were 3% above fourth quarter 2017. Year-over-year improvement of 49,000 ship tons was a result of strong end market demand in energy industrial and mobile markets. Shipments to the energy end market increased 55% in the fourth quarter 2018 compared with the same quarter a year ago. Our oil and gas shipments recovered well in 2018, with an increase in the U.S. rig count despite volatility in crude oil prices. For first quarter 2019, we expect energy shipments to be similar to the first quarter of 2018, as customers closely monitor their current inventory on-hand. Industrial shipments in the fourth quarter 2018 were around the same as the prior year fourth quarter. As we expected, this end-market was impacted by normal seasonality in inventory balancing before…

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

Hi. Good morning, everyone.

Hi, Martin. Good morning.

Good morning.

So in 4Q it looked like LIFO expense was pretty high like maybe $10.4 million, if that's correct? And then also if you could just circle back on your commentary as far as what's baked into your 1Q EBITDA guidance for LIFO?

Hi, Martin. This is Kris. Yes, LIFO was higher as we wrapped up the year and calculated at year-end required reserve primarily driven by the mix of inventory that we had on hand and the cost that came out of production in the year. And as we look forward to 2019, we're not seeing a significant increase in that overall reserve level and from an expense standpoint, not a significant amount there either. So, that's what the comments around LIFO were intended to mean.

Okay. So, you would be baking in something though as far as an expense as opposed to LIFO income for the full year 2019 correct?

Yes, it's minor overall in terms of what's baked into 2019 given where we finished 2018 at a pretty high level.

Okay, got it. Thanks for that.

You're welcome.

And then as far as the 1Q guidance can you provide a little bit more detail regarding the scale of several of the cost headwind that you're facing such as the maintenance that you're planning scrap spreads and overall impact that you would expect from the reduced volumes there on EBITDA? And also do you still expect seasonal maintenance in the second half of the year?

Yes, so if we start with the first half of the question, we had higher manufacturing costs and as you know in the fourth quarter had that carryover impact from the third quarter of 2018. As we get into 2019, we're not seeing manufacturing being a significant headwind for us. We do still have some inflation that we're experiencing in the first half, but we hope to see that settling down as we get into the second half and maybe even softening a bit. We do have manufacturing maintenance scheduled. The annual shutdown is scheduled for the third quarter of 2019 and that will be at a similar level than we experienced in the third quarter of 2018. But as we mentioned we are looking to have some downtime here in the first quarter. It is balancing that inventory with short-term demand which comes at some cost because we'll be producing less tons. So, really a lower fixed cost leverage in the first quarter 2019 where we had pretty solid fixed cost leverage in the fourth quarter of 2018.

Got it. And I guess why not pull -- is it just too soon to pull forward the maintenance if you're going to have downtime anyway in 1Q as opposed to letting it run in the third quarter of this year?

Yes, we're doing a little of that on a selective basis where it makes sense. We're still planning to have our major outage though in third quarter.

Okay, got it. All right. Thanks for all the color there.

Yes, thanks.

Thanks Martin.

Your next question comes from Tyler Kenyon with Cowen. Your line is open.

Hey good morning.

Hey Tyler.

Good morning Tyler.

Hey. We're just wondering if you could provide us any color just on the annual contracts, how those went this year? What proportion of your overall business you're anticipating in 2019 being on contract? I know that that has shifted a little bit and I'm speaking ex-billet. And then also just how to think about the timing of the realization of better contract pricing? I know last year I think there was a bit of a delay in the realization of contract pricing.

Well, yes, Tyler, this is Tim. On the whole, I'd say we are very satisfied with the way the contract negotiations went. Obviously, we're in a bit of a different environment this year compared to last year when we were going through it. So, we think we achieved what we needed to achieve. We're running -- we're still running about 70/30 contract to spot and the bulk of that impact should be realized now going forward.

Okay. Thanks. And in 70 to 30 spot are you referring just to the value-added business, so excluding billet? Or including billets that you have now?

70/30 I believe includes billet, Tyler, if I remember right.

Okay. And just as -- while we're on the subject, any thoughts on kind of the strategy with the billet business right now or any update there?

Sure. As we've said in past calls, we've reduced our dependency on billet going forward. When we originally signed up it was a pretty significant piece of business for us. We have reduced that exposure as other markets have improved. We think we've got it kind of about where we want it at this point. We've also broadened out the customer-base for that product. Initially we were pretty much dependent on one customer. We've realized over time that it makes sense to kind of broaden that out a little bit. So we are talking to a number of the OCTG producers here in the U.S. from a supply point of view. Obviously, you're probably thinking about the Fairfield announcement the U.S. Steel made here recently. It was fairly obvious that over time they would look to be less dependent on billet supply externally and more capable of producing that internally. So we've kind of factored that into our thinking all along from a billet strategy point of view. And so I think we're kind of where we need to be. Obviously, the OCTG guys are taking a little bit of a breather here in the first quarter. We're confident with oil where it is that that's just a breather that we haven't seen a structural step down and that things will improve throughout the year.

Okay, great. Appreciate that. And then just one last one from me, on the CapEx guidance the increase year-to-year I know you mentioned just in your prepared comments about some investments that you're making. Wondering if you could elaborate on those?

Sure. We announced a $50 million budget. $30-ish million of that would be maintenance, CI, safety, environmental. We do have a little bit of growth capital built into that focused primarily on our value-add business. We've got a number of new automotive platforms that we're going to be bringing on here in the near future that requires some capital investment as well as some capability building investment in our long product business as well. So it's a nice balance between the maintenance side and the growth side.

Great. Thanks for taking our question.

Thanks, Tyler.

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

Hi, morning, Tim, Chris and team. How are you?

Hi, Phil. Great. How about you?

Great.

Doing well.

Great.

In terms of 2018 and moving forward what -- how can we think about your mix versus bar and tube maybe from a volume perspective or maybe from a sales perspective in 2018? And whether or not you expect that to change here as we look into the new year?

You said 2018, you mean 2019 I assume?

Well 2018 where we were coming from and then how that may change in 2019?

Oh, looking into 2019?

Yes.

Yes I would say that we've seen a little bit of softness on the tubing side off late. We think part of that is just end-market related. Some of the tubing consuming markets had been a little bit slower. We don't see a fundamental shift in the ratio between bar and tube, but obviously that's somewhat dependent on what we're seeing from an import point of view. I guess another piece of it too is when -- as we were struggling with our on-time delivery performance last year, we did give up a little bit of share. And as we've improved that in the latter half of 2018, we've begun to see that share come back. So that ought to help beef up the two business a little bit that we did see some weakness in.

Okay. That’s helpful. And net working capital, Kris, as you're looking out into 2019 versus 2018 what's your expectation there?

Yes. So we built quite a bit of inventory in 2018. We're sitting at pretty high level so we'll work that down some in 2019, but as a percent of sales I see it about the same. I don't see us growing significantly in 2019 from a working capital standpoint. I feel pretty comfortable where we're at and we're going to try to optimize where possible, while still keeping that customer service number one in our mind.

And last question, just here on the pension. Are you expecting to make any cash contribution to pension and/or OPEB in 2019? Thanks.

There's no material required contributions here in 2019 that we're looking to be making.

Thanks, everyone.

Cool. Thanks Phil.

Thanks Phil.

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

Good morning, Tim. Good morning, Kris.

Good morning

Good morning, Justin.

Just had a couple extra questions here. Just starting with the billet business, if we were to average sort of the fourth quarter shipments and what you've implied for the first quarter, just to average that over two quarters, is that a decent run-rate? Just, how to think about your billet shipments going forward as things look at this point in time?

Well, we talked about the weakness that we're seeing in the first quarter related to just the strength in the end-market for the OCTG guys. I would say fourth quarter is probably a better kind of run-rate level to think about. Obviously, that -- a lot of that depends on what's going on in the other markets, but certainly we've worked our exposure down over time to a level that we think is sustainable.

Okay. So the fourth quarter of the sort of 43,000 tons versus the low to mid 30,000 tons shipped in the second and third quarter, you think is indicative of where the market can sort of play out for TimkenSteel once things pick back up in the second half of 2019?

Yes, we think so.

Okay. Great. Secondly, I want to ask about the -- I guess, price mix in the fourth quarter. I guess, you saw some nice increase in base sales per ton sequentially in both the industrial and energy segments of your business or end-markets. Was that more price or was that more mix? And should we think about there being more room to go as we get into 2019? Or are those sort of good launching points for the price mix in those end-markets in 2019?

Yes, I guess, the best way to think about it is that, it was kind of a 50-50 split between price and mix in the quarter. Obviously, as we reset contract pricing for 2019, we'll see the benefit of that immediately and then increasingly as we return to what we would think would be more normal volumes.

Okay, that’s helpful. And then you start off the call by talking about business development activities. Are you thinking mainly in terms of organic initiatives to address new markets with new products? Or are you thinking about anything inorganic at this point of view?

I guess my comments were more focused on the organic successes that we saw in 2018 and that we expect to see the impact of in 2019. But as we said all along, we're continually looking externally for opportunities to grow as well. So we do have an active program to look at the inorganic side also.

Okay, thank you.

[Operator Instructions] We do not have any questions at this time. I'll turn the call over to the presenters.

Well thank you very much for your questions today. The team at TimkenSteel is working hard to improve performance. We're pursuing a strategy to improve the core of this business and reach to new customers and applications that will benefit our value proposition. The bottom-line is we are driven to generate even greater shareholder value. I want to thank you all for your interest in this company. If you have any additional questions don't hesitate to contact Mitch Byrnes. Thanks for joining us today and have a great day.

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