Ladies and gentlemen, thank you for standing by and welcome to the TimkenSteel Fourth Quarter 2021 Earnings Call. At this time, all participants are in a listen-only [Operator Instructions. I would now like to hand the conference over to your speaker today. Jennifer Beeman, Senior Manager of Communications and Investor Relations of TimkenSteel. Thank you. Please go ahead.

Thanks and good morning. Welcome to TimkenSteel's fourth quarter and full year 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 Beeman, and I appreciate everyone joining us on the call today. 2021 was without a question of transformative year for TimkenSteel, the accelerating momentum in our markets throughout the year resulted in great opportunities and some challenges. Namely the supply-chain disruptions related to semiconductors and the COVID resurgence. However, our teams worked together to effectively serve our customers and remain committed to cost control and working capital discipline to drive year-over-year improvements in profitability. I am proud of how far our team has come in a short period of time. And I thank the employees of TimkenSteel for their unwavering focus to transform our business. Now, turning to safety, our lost time incident rate improved in 2021 to 0.32, but our offshore recordable rate of 1.85 was slightly higher than last year. With the full engagement of our employees and the United Steelworkers, we will continue to focus on safety for 2022 and are implementing a number of new initiatives, including special attention to hazard awareness and training, safety leadership training, housekeeping, and continued safety protocols related to COVID-19. Overall, we will continue to drive better safety performance through sustainable process and cultural improvements. As we close 2021 and start 2022, our end market demand has remained healthy and our order book now extends in the third quarter. However, we experienced a sequential decline in fourth quarter shipments given the planned annual maintenance outage at our Faircrest melt shop and unplanned downtime at the Faircrest melt shop, which created some disruption to our supply chain that our team has effectively managed, consequently, we are staying close to customers to fulfill their needs. And with lessons learned, technology improvements, and the continued implementation of best practices centered around manufacturing excellence, I expect we'll be better positioned in the…

Thanks, Mike. Good morning, everyone, and thanks for joining us today. I'd like to start by thanking our employees for their hard work and dedication in 2021. We made progress throughout the year to establish and advance our strategic imperatives. These imperatives are aimed to deliver sustainable through-cycle profitability and operating cash flow for the long term as an outcome of our work in 2021, I'll be sharing our long-term financial targets and capital allocation priorities towards the end of my remarks today. Turning now to our financial results. On a full-year basis in 2021, net sales totaled $1.3 billion and net income was $171 million or $3.18 per diluted share. Adjusted net income was slightly higher at $172.7 million or $3.21 per diluted share. Adjusted EBITDA was $245.9 million in 2021, the highest level since 2014. These much improved financial results, reflect the continued success of the company's ongoing business transformation. In the fourth quarter of 2021, net income was $57.1 million or $1.07 per diluted share. Comparatively, the company reported a net loss in the fourth quarter of 2020 of $12.8 million or a loss of $0.28 per diluted share. Third quarter of 2021 net income was $50.1 million or $0.94 per diluted share. On an adjusted basis, net income in the fourth quarter was $42.3 million or $0.80 per diluted share. For comparison purposes, the fourth quarter of 2020 adjusted net income was $600,000 or $0.01 per diluted share. Adjusted net income in the third quarter of 2021 was $55.2 million or $1.04 per diluted share. Adjusted EBITDA improved to $62.1 million in the fourth quarter of 2021, compared to $20.7 million in the same quarter of 2020. This significant year-over-year increase was reflective of the strong demand in raw material surcharge environment, as well as the…

As a reminder to ask a question you will need to press star one on your telephone to withdraw your question, press the pound key. Please stand by while we compile the Q&A roster. For first question comes from the line of Seth Rosenfeld with BNP.

Good afternoon, congrats on strong set of results and thanks for taking our questions today. If I can kick off this with the link, uncomfortable with the question on the outlook for volumes. I'm a bit surprised by the guidance for volumes sequentially down in Q1 recognizing the bullish outlook on demand, normal seasonal strength in first quarter, you don't station of the outages from Q4. Please walk us through the sequential bridge what's driving that shipment guidance for the first quarter, please.

Sure. So the biggest impact is we had some unscheduled downtime that did not allow us to position our working capital or our supply chain to maximize shipments to the order of demand that we have on us. Does that answer your question, sir?

So was that the downtime in Q4, now impacting your working capital position in the Q1 shipments?

Predominantly it was a downtime in Q4, but we did have some unplanned downtime carried over into early Q1. We have those issues resolved and behind us. And we will satisfy all our customers needs.

Okay. With that in mind, then it could -- I know it's quite early, but on a normalized basis, assuming that you didn't have any of those unplanned issues continuing through Q1, what would that imply for Q2 improvements, so we can understand, I guess, where the real demand is going to lie for the year?

Well, again, we have strong demand. Our lead times are out into the third quarter. So that should give you a perspective of based on our melt shop capacity and utilization rate, similar to Q3 of last year could position you to where those potential shipment levels will be.

Okay, very clear. And if I can ask a second please with regards to the outlook for scrap pricing that's impacting your business. You commented earlier with the expected decline in surcharge revenues on sequentially lower scrap prices. Can you perhaps give us a bit of quantification the range of pressure there? And then also on the scraps we've seen meaningful compression of the prime versus obsolete scrap price premium. If remember correctly in the past, when there was a wide premium for prime scrap that aided your margin performance, what aid are we expecting going forward?

So as you know, there -- over the last quarter, there was significant scrap contraction between prime and obsolete. So we continue to see that effect going into Q1 and from my perspective, we'll see what develops for Q2. Very difficult to forecast. There's somethings out there that I've read recently. We've had some pretty difficult weather conditions, so the collections probably been strained. We see demand for scrap increasing domestically as some of these other [Indiscernible] come online through the remainder of the year. It's really hard to forecast Seth but there has been compression. We're expecting further compression in Q1 as Chris had mentioned in his remarks. very hard to forecast what it will look like for Q2.

Anyway that we can quantify how much the benefits that perhaps was historically that we shouldn't expect repeating going forward.

Again, very difficult to forecast with a lot of moving parts with the scrap markets and some complexities. So very difficult for us to forecast that beyond the next month.

That's right, Mike. And just to add, if you look at the fourth quarter, for example, there was a $7 million headwind to us. Something similar to that, to be determined. But January, February definitely, we're seeing that compression. March to be determined, based on the dynamics that we're all experiencing right now.

Okay, thank you very much.

Thank. Thanks, Seth.

Your next question comes from the line of Phil Gibbs with KeyBanc Capital Markets.

Thank you. Good morning

Good morning.

So the targeted 80 million of run rate profitability improvement. I see that $50 million of that is essentially cost and efficiency goals, and $30 million of that is commercial. How much of that are you expecting to glean in 2022? And how much of that is -- maybe we get a little bit this year, we get a little bit next year. I mean, what was the timeline? Where are you in terms of achieving that $80 million? Because obviously, the $100 million you already got is seemingly in the bag [Indiscernible].

Good question, Phil. I'll start and I'll turn it over to Kris. He will give you a more quantitative information, but it is spread over that five-year period that we're looking at and I'll let Kris give you some more quantitative information on the timing of that.

Good morning. For 2022, we have clear line of sight to 20% to 30% of that 80 being realized in our P&L in 2022, a significant portion of that's coming from the commercial category as it relates to product mix optimizing that mix as we've talked about in the past, it helped with the 70% targeting for the base price contracts, and that gives us 30% of the work for our customers in the spot market. So that's where we're seeing for '22. And then the other piece there is the manufacturing investments that we're making this year, that's included in our Capex steps you'll begin to see those benefits in '23 and beyond for those significant investments.

Thank you. And I just wanted to drill down a little bit into or clarify the comments you made on consumable costs, I think, you said 10% to 15%. So trying to think about what that's relative to, we will frame it up in terms of dollar impact or something and how that stages in over the course of the year? I'm just trying to make sure I got my thought process correct here.

Sure. Most of our consumables and our non - surchargeable alloys, we had those under contract for 2022, so we have locked in those prices. That's what gives us the confidence in the range of 10 to 15%. To put it in dollar terms, every percent's worth about $3 million of cost. So you can do the math there on what a 10% to 15% incremental inflation would be relative to our overall financial results.

Got it. That's really helpful and then on the side of the EV transition, I noticed you had in your slides that you're actually viewing as an opportunity, which I think is somewhat intuitive, but maybe you guys can touch upon that.

Sure. So what's really come to light as we continue to participate on work with the EM's is that we see certain vehicle platform and that actually contained more SBQ than the traditional combustion engine platforms. So we view that as an opportunity because we can actually put more TimkenSteel into the EV vehicles on certain platforms versus the internal combustion one. So that's why we're highlighting that as an opportunity.

To add that, Mike. The margin profile on this business that we've been awarded to-date is higher as well. You're seeing higher prices on the piece that we do have.

Is that because the parts are more complex?

That's correct.

Okay. Thanks very much.

And they weigh more too. The individual parts weigh more.

Good news. Thanks very much.

And that -- once again, if you would like to ask a question, [Operator Instructions] And there are no further questions at this time. Do you guys have any closing remarks?

No, not at this time. Just to thank you everyone for joining and we look forward to updating you in the future.

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

Thank you.