Thank you for standing by and welcome to the TimkenSteel Third Quarter 2021 Earnings Call. At this time all, participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions] I would now like to hand the conference over to your speaker today, Jennifer Beeman. Thank you. Please go ahead.

Thanks and good morning. Welcome to TimkenSteel’s third quarter 2021 conference call. I’m 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’d like to turn the call over to Mike. Mike?

Thank you, Jennifer and thanks to everyone on the call for joining us this morning. During the third quarter, our end market demand remained robust. And I'm pleased, the first half of our 2022 order book to filling up in a strong pricing environment. While our sales to the mobile market continue to be impacted by the semiconductor supply chain disruption during the quarter, we had steady industrial sales, thanks to the hard work of the team and continued focus on our customer needs. In addition to our top priorities of employee safety and customer service, we remain committed to cost control and working capital discipline, and therefore, we were able to achieve record adjusted EBITDA in the third quarter and significant operating cash flow. Turning to our efforts around environmental safety and governance. In the third and fourth quarters, we successfully completed all of our annual maintenance outages. I'd like to thank the teams for careful planning, execution and adhering to our high safety standards. Nothing is more important than returning our employees and contractors home safely at the end of each shift. In October, we published our 2030 environmental goals. These goals included a 40% absolute reduction in combined scope 1 and scope 2 greenhouse gas emissions, a 30% absolute reduction of total energy consumption, a 35% absolute reduction of fresh water withdrawn and a 10% reduction in waste to landfill intensity. We believe these environmental targets are aligned with regional, national and international environmental priorities, and are firmly supported by efforts throughout our manufacturing supply chain and corporate operations. Initiatives around energy conservation and renewables, recycled metal sourcing and handling, and water management and reuse, positions the company as an environmental leader. We have confidence that steel will continue to be a critical component of a reduced…

Thanks, Mike. Good morning, everyone, and thanks for joining us today. I'm extremely pleased with the team's continued focus and execution in this strong demand environment. As a result, the company was once again able to deliver record third quarter adjusted EBITDA, strong operating cash flow, and record quarter end cash and total liquidity. Turning to our third quarter of 2021 results. Net income on a GAAP basis was $50.1 million or $0.94 per diluted share. Comparatively, the company reported a net loss in the third quarter of 2020 of $13.9 million, or a loss of $0.31 per diluted share. Second quarter of 2021 net income was $54 million, or $0.98 per diluted share. On an adjusted basis, net income for the third quarter was $55.2 million, or $1.04 per diluted share. For comparison purposes, the third quarter of 2020 adjusted net loss was $17.3 million, or a loss of $0.38 per diluted share. Adjusted net income in the second quarter of 2021 was $52.5 million, or $0.96 per diluted share. As a relates earnings per share or diluted share count in the third quarter was $53.9 million shares down 2.2 million shares from the second quarter, primarily due to the prior quarter convertible debt settlement. For further details, please refer to the earnings per share disclosure on our form 10-Q filed yesterday. Returning to profitability adjusted EBITDA improve to record $72 million in the third quarter. This was a substantial improvement of $69.4 million in the third quarter of last year, and a slight improvement from a previous adjusted EBITDA record of $71 million in the second quarter of 2021. Through the first three quarters of the year, adjusted EBITDA totaled $183.8 million, representing the company's strongest adjusted EBITDA performance, since energy markets peaked in 2014. Turning to the…

[Operator Instructions] And your first question comes from the line of Phil Gibbs of KeyBanc.

You said 70% of your business's are repricing next year. Does that mean you've implicitly moved more of your business to spot because I think from what I remember, it was about 80 to 85% most recently? And then just wanted to affirm that you said you have roughly half of that 70% [indiscernible]?

That's correct, Phil so our strategic approach to the market in 2022 is to be more of a 70 contract, 30 spot and 50% of that 70% has already been negotiated and settled upon.

Okay. And then just generally speaking, your thoughts on capital returns, your net cash right now, your financial performance is as good as it's ever been. Your 2022 visibility is above average it appears, your pension contributions from what I heard Kris say, just got delayed. What's holding you back?

So, let me make a few comments and then I'll turn it over to Kris to make few comments as well. First of all, I want to say that we're very confident in our near term outlook, given the current demand environment, the upcoming reset of all our customer pricing arrangements, and the ongoing benefits of our cost reduction efforts, those over the last few years, as well as a number of additional opportunities that we're pursuing right now to improve our cost. And of course, we're very pleased with the flexibility that our improved balance sheet provides us. You have to recall that our objective is to generate sustainable profitability through the business cycle. And for that, I'll turn it over to Kris for few of his thoughts.

Thanks, Mike. And thanks Phil for the question. I completely agree with Mike's comments. We'd like to add that, we're actively collaborating with our board on the topic of capital allocation. Although, we can't yet share the specifics of the strategy because it's an active and ongoing evaluation. Our capital allocation framework, it's going to be balanced and will be focused on a few things. First, it's about maintaining a strong balance sheet, adequate liquidity to provide a set necessary flexibility throughout the cycle. And we also like to use our operating cash flow and balance sheet flexibility to execute on strategic projects with returns in excess of our cost of capital. Our initial focus here will be on internal investments with strong returns to drive manufacturing excellence, asset reliability, and also with an eye on ESG. We have several of these projects in the pipeline. We're in the process of evaluating and prioritizing those to ensure we maximize returns in 2022. All of this has been done while ensuring that our shareholders are ordered as well. So we look forward to sharing our capital allocation framework details with you in the first quarter of next year. And while we continue our analysis, our focus is going to be on the execution and continues delivery of strong operating results.

Thanks, Kris. So I would think more to come on -- hopefully on that. And your maintenance item was 5 million. I think you said that was completed. Was it 5 million overall for the year? Did you take some in the third quarter and in some in the fourth. There was a 5 million in total for both quarters.

5 million in the third quarter and it was 5 million in the -- actually early in the third quarter at Harrison and Gambrinus plants and then fair price was 5 million, so 10 million in total?

Yes, nothing incremental in Q4 Phil of continuation.

Okay. Thank you.

Thank you.

The next question comes from the lineup Tristan Gresser with Exane BNP Paribas.

Hi, thank you for taking my questions. The first one was wondering if you could provide a bit of color. What do you expect on Q4 in terms of mix and maybe ASP given that your order book is full? And I guess you had a bit of visibility there? Do you expect a similar increase in terms of ASP compared to Q3 or something a bit lower? That’s the first question.

Yeah, do expect ASP to continue to improve. As you know, there was a price increase announcement effective November 1 on our spot business. So yeah, we expect it to continue to improve. And of course, I just want to reiterate that, we're in negotiations right now with the remaining contracts for 2022. And I'm very positive about the price environment that we've been successful to achieve. And expect that to continue with the remaining contracts.

And Tristan, if I could add on the mix side of things, it's going to be somewhat dependent on mobile and the chip shortage, much shipments off, look like there, and our ability to flex into industrial, as we've done in the past.

All right, that's – that's really helpful. And so I may pull up on that. You flagged the auto shipments that you – you kind of mix in Q3 and Q4, which – what are your expectations for Q – sorry, for Q3, in Q2, whatever your expectation for Q4? Do you see this 15,000 could be higher in Q4, you see maybe some improvement on the demand side or not yet?

Honestly, your guess is as good as ours. But what we expect, the best we expect right now is four to be -- Q4 to be similar to Q3. However, the automotive OEMs have been making changes to their production schedules at short notice. So that's the best we can predict right now.

All right. Thank you. And maybe last one on the ESG announcement and your targets for 2030. You made, is there any CapEx associated with it? You can share this stage or is it still working progress in determining how much you will have to spend to meet those targets?

Yes. There is CapEx associated to our overall plan to achieve those targets. And there'll be CapEx spent every year between now and 2030, to deliver those targets. When we – when we – when we come out with 2022, we'll be a little more specific on how much is allocated to the ESG investment.

And Tristan, just to add a little bit to that, we believe it's going to be modest, it's going to be impactful to the outcome of our ESG program, but be balanced with our remaining CapEx spend similar to what we've done in the past.

All right, Perfect. Thanks a lot.

[Operator Instructions] And there are no further questions at this time.

Great. And thank you all for joining us today.

Thank you for participating. This concludes today's conference call. You may now disconnect.