Good morning and welcome to the TimkenSteel Second Quarter 2021 Earnings Conference Call. I would now like to turn the conference over to your host.

Thanks and good morning. Welcome to TimkenSteel’s second quarter 2021 conference call. I am Jennifer Beeman, Senior Manager of Communications and Investor Relations for TimkenSteel. Joining me today is Mike Williams, President and Chief Executive Officer; Kris Westbrooks, Executive Vice President and Chief Financial Officer; and Kevin Raketich, Executive Vice President of Sales, Marketing, and Business Development. You all should have received a copy of our press release, which was issued last night. During today’s conference call, we may make forward-looking statements as defined by the SEC. Our actual results may differ materially from those projected or implied due to a variety of factors, which we describe in greater detail in yesterday’s release. Please refer to our SEC filings, including our most recent Form 10-K and Form 10-Q and the list of factors included in our earnings release, all of which are available on the TimkenSteel website. Where non-GAAP financial information is referenced, additional details and reconciliations to its GAAP equivalent are also included in the earnings release. With that, I would like to turn the call over to Mike. Mike?

Thank you, Jennifer and thanks to everyone on the call for joining us this morning. Like many in our industry, we benefited from robust market demand during the quarter. Most of our end markets performed well despite semiconductor-related customer outages, which slowed down our second quarter automotive shipments. However, I am pleased that our teams remained agile and effectively shifted our product mix to serve industrial customer needs, while maintaining a high level of service. In fact, our overall on-time delivery was at 92%, a testament to our continued operational focus. Our lead times have significantly extended, but remain competitive and our order backlog is strong. With the ongoing economic recovery, favorable pricing environment and continued cost discipline, we achieved record net income and adjusted EBITDA and continue to generate positive operating cash flow, yet above all else’s safety and we continue to focus on driving continuous improvements throughout our organization. While there are many initiatives underway, most recently, we focused on the safe execution of a portion of our annual maintenance shutdown, which occurred in July with excellent safety results. I am also encouraged that our teams have made good strides with our corporate sustainability efforts. As we work to refine our future strategic direction, we recognized that ESG must play an integral role in our future growth. As you recall, last quarter, we published our first ever SASB Disclosure. And I am pleased that we have continued the positive momentum not only has the teeth and gathering data to build realistic and achievable targets, but they have begun work on sustainable initiatives. We look forward to sharing our long-term goals, including GHG reduction targets as early as September. Moving to our markets, in automotive, we believe the semiconductor supply chain disruption was most profound in the second quarter…

Thanks Mike. Good morning, everyone and thanks for joining us today. I also wanted to extend my thanks to our hardworking and dedicated employees. Excellent teamwork enabled the company to deliver record second quarter net income and adjusted EBITDA, strong operating cash flow, and record quarter end total liquidity, while continuing to improve our cost structure and maintain working capital discipline. Turning to our second quarter results, on a GAAP basis, net income for the second quarter was a record $54 million or $0.98 per diluted share. Comparatively, the company reported a $15.3 million net loss in the second quarter of 2020 or a loss of $0.34 per diluted share. The first quarter of 2021 net income was $9.8 million or $0.20 per diluted share. On an adjusted basis, net income for the second quarter was $52.5 million, or $0.96 per diluted share, a significant improvement from prior periods. For comparison purposes, the second quarter of 2020 adjusted net loss is $14.3 million, or a loss of $0.31 per diluted share. Adjusted net income in the first quarter of 2021 was $22.6 million or $0.43 per diluted share. As it relates to earnings per share, our diluted share count in the second quarter of 2021 was $56.1 million. For further details, refer to the earnings per share disclosure and our Form 10-Q filed yesterday. Turning back to profitability, adjusted EBITDA improved a record $71 million in the second quarter of 2021. This was a substantial adjusted EBITDA improvement of $65.3 million in the second quarter of last year and an improvement of $30.2 million in the first quarter of 2021. Through the first half of this year, adjusted EBITDA totaled $111.8 million and represented the company’s strongest start to a year since its inception in mid-2014. Moving now to the…

[Operator Instructions] Your first question is from Tristan Gresser with Exane BNP Paribas.

Yes. Hi, thank you for taking my question. Certainly two please. You did not provide any EBITDA guidance compared to the last quarter with stable volumes, rising prices, is there any particular reason why we should not expect better results in Q3? I know you mentioned maintenance of that impacted that should be relatively small and how good our Q2 margins for guide for H2? Thank you.

Hi, Tristan, this is Kris. Good morning. And you are correct we did not provide specific or even directional guidance on EBITDA. We do still expect our profitability to be strong in the third quarter and we did provide the building blocks there. There are going to be higher maintenance costs as we alluded to and there are some other dynamics with surcharges in our raw material pricing as well as the volume impact as semiconductors on the quarter. The second quarter also benefited from a release of inventory reserves as you probably saw in the tables in the back. So there is some puts and takes. We still believe the third quarter to be strong and we look forward to sharing those results as they are produced later in the quarter.

Alright. That’s helpful. And finally, just then on prices and ASP, how we should think about ASP moving forward? I believe you announced for a total of $200 per ton of base price hike for SBQ effective this year. How much of that has already been in the P&L? I don’t think we have seen much of the base sales per ton increase in Q2. So, how we should think about ASP to H2? Thanks.

Yes. So you have to remember that about 80% of our business is under contract for the year and about 20% is more spot-orientated. So, however, we do expect further price appreciation or positive development going forward throughout the remainder of the year. As you recall, the last price increases were announced to be effective both on bar or SBQ and seamless tube in early July. So, we should expect to see that appreciate throughout the rest of the year.

Alright. Thank you.

Your next question is from Michael Leshock with KeyBanc Capital.

Hi, guys. Good morning.

Good morning.

So first, I wanted to follow-up on the prior question on pricing. During the call, you mentioned lead times are now extending into 2022, was that for SBQ? And are you expecting those longer lead times to drive a stronger pricing environment – contract pricing environment in 2022, versus what you were expecting maybe 3 months ago?

Sure, good question. So yes, our lead times for both SBQ and stainless mechanical tubing are into next year. And we do expect even though pricing conversations from my perspective, or a private conversation between us and our customers, but I believe we are in a very good – I am very positive about the position we are in to negotiate 2022 pricing.

Okay. And when I look at the shift from auto to industrial shipments, given some of the chip shortages that your customers are facing, Have you made any share gains there within industrial? And then secondly, how quickly are you able to pivot between end markets, should the chip shortage get resolved?

Sure, another good question. The – as you know, the industrial recovery from the pandemic was a little bit slower than the automotive. However, it’s accelerated tremendously. And we expect that to continue. We have basically are sustained – in the overall increase in demand, we are sustaining our market share position in industrial. And our ability to pivot, we are fairly flexible. We had to do that in Q2. We are able to do that throughout the remainder of the year as well. So, we have, significant contractual arrangements with our automotive customers, will support their needs, and will serve them as I think I mentioned, our service capability with regards to on-time delivery is extremely high, at 92%. So, we have been performing extremely well.

Got it, that’s helpful. And then as we look on inventories, we saw a modest pick up in the quarter, that you anticipate a further build to meet demand going forward and in the absorption benefits that come with that?

Again, we will react to the markets appropriately. We will have the appropriate inventory to service our customers to maintain that high level of service. We have had some inventory, because in automotive, we are planning for automotive sales that didn’t develop. We had to quickly pivot to the industrial segment. And that’s where we are focused across all our segments and wherever the opportunities are, that’s where we will be. And we will position our inventory accordingly to maintain that high level of service.

Great. And then just last for me on SG&A, you had some impressive cost control in the quarter despite the higher revenue baseline. And I am just wondering what you are seeing there in terms of inflationary pressures and how we should think about SG&A as a percentage of sales going forward. Thanks.

Good morning, Michael. It’s Kris Westbrooks, again. Not a lot of inflationary pressures in the SG&A area. So, there is just good cost control, managing all of the various professional fees that rolled through there as well as our overall headcount levels and feel that we are well positioned to move forward there. Percent of sales is going to vary depending on what the top line looks like in the surcharge levels, but it’s improving. And that’s going to be a continued focus for us going forward.

Got it. Thanks for all the color guys.

Thanks for the questions.

Your next question is from Justin Bergner with Gabelli Funds.

Good morning. Mike and, Kris, hope you are doing well. First question relates to the melt utilization. I mean, how high can you get that in sort of a quarter with maintenance and in the quarter without downtime?

Sure, I think we can, you know, between 85% and 90% with the ebb and flows of the maintenance requirements within a quarter. They could go higher in a given month. But then you always have to maintain and keep your assets protected and operating efficiently.

Okay. Second question would relate to the pricing, it didn’t seem to increase much sequentially on a base basis. I mean, I know that you did have some price increases that did kick in, in the second quarter. Was there sort of the mix effect, maybe in some of the short cycle industrial stuff being a little bit lower priced steel?

Good question. Yes, there is primary two impacts there. The first impact is we had lower sales in the area of our manufactured components, which is formerly known as value added segment. We have rebranded that to manufacturing components, because that’s basically what they do. So, we had lower sales there, which historically have higher realized prices in that product segment or area. And then the other mix shift is a mix between small – small SBQ sizes. And we basically sold much larger SBQ sizes in Q2 versus Q1.

Okay. And the larger SBQ sizes actually had lower base sales per ton?

And it’s a lower unit price per ton, yes. However, the margins are better.

Okay. And how does mix look to be shaping up in the second half, similar to the second quarter?

Yes. We believe right now, what we see, with one month under our belt, it’s a very similar mix going forward. I think the real question is what happens with the automotive segment and with their production interruptions and what that impact is to us going forward. We – as we found we are able to pivot pretty quick and make our sales goals and objectives.

Sure. So I mean, if the auto disruptions are greater, do you actually pull forward some of the sort of industrial shipments you are planning for the beginning of next year or do you sort of take sort of near-term orders? How does that exactly play out?

Well, as I think there is a two-fold approach there that we have been applying. One is that there are customers that want more steel from us than we can provide. So, we can – if we fall short in the automotive area, we can pursue those opportunities. And we are also taking advantage of spot opportunities, particularly in the distribution channels, the distribution channel.

Great. Thank you. That’s it for my questions.

Thank you for the questions.

[Operator Instructions] And at this time there are no questions. I would like to turn the call back over to Jennifer for closing remarks.

Great. Thank you everyone for joining us today. We look forward to informing you next quarter. Thank you. This concludes our call.

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