Good day, and thank you for standing by. Welcome to the Q1 2022 TimkenSteel Earnings Conference Call. [Operator Instructions]. I would now like to hand the conference over to Jennifer Beeman. Please go ahead, ma'am.

Thank you, and good morning, and welcome to TimkenSteel's First Quarter 2022 Conference Call. I'm Jennifer Beeman, Director 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 I appreciate everyone joining us on the call today. During the first quarter, we delivered strong profitability despite melt shop interruptions early in the quarter. In this high demand environment, our teams performed well, and we continue to meet the needs of customers while keeping safety at the forefront. Market demand and pricing remained favorable, and we are relentlessly working to improve our commercial and manufacturing effectiveness to ensure sustainable success throughout the year and beyond. Before I move on, let me say a few words on safety. As we said in the past, our goal is to continually drive better safety performance through sustainable improvements. We began the year by creating a set of action plans based on last year's performance and feedback from our teams, including safety leadership training, hazard awareness training and systemic improvements around life-critical safety hazards. Additionally, housekeeping and COVID-19 safety protocols continue to be a focus area. Once again, we will conduct our Annual Iron Shield program where we gather safety recommendations from our employees and recognize teams for innovative ideas. We also continue to collaborate with our union safety representatives. The well-being of our people is a core value and nothing we do is more important than returning employees home safely at the end of their workday. End market demand remained healthy in the first quarter, and our order book now extends out to the end of the third quarter. In mobile, shipments increased by 5% sequentially as customer demand remained strong and dealer inventories remain low. Similar to previous quarters, supply chain disruption continues to weigh on our mobile customers. We estimate that our sales were negatively impacted by approximately $10 million in the first quarter. We are working closely with our customers as they continue to navigate…

Thanks, Mike. Good morning, everyone, and thanks for joining us today. I'm pleased that we started off 2022 with strong profitability and positive operating cash flow. Our first quarter results reflect continued strength in customer demand combined with higher base selling prices as well as the benefit of profitability improvement actions, continued working capital discipline and implementation of our shareholder return program. Turning to our first quarter of 2022 results. Net sales totaled $352 million and net income was $37.1 million or $0.70 per diluted share. Comparatively, fourth quarter of 2021 net sales were $338.3 million with net income of $57.1 million or $1.07 per diluted share. First quarter of 2021 net sales were $273.6 million with net income of $9.8 million or $0.20 per diluted share. On an adjusted basis, net income for the first quarter improved to $48.6 million or $0.92 per diluted share. For comparison purposes, adjusted net income in the fourth quarter of 2021 was $42.3 million or $0.80 per diluted share. Adjusted net income in the first quarter of last year was $22.6 million or $0.43 per diluted share. Adjusted EBITDA improved to $65.3 million in the first quarter of 2022, a $3.2 million sequential increase. Drivers of the increase included higher base selling prices and improved manufacturing fixed cost leverage. Partially offsetting these items was a lower raw material surcharge environment driven by a decline in scrap prices. Compared to the same quarter in 2021, adjusted EBITDA significantly increased by $24.5 million, reflective of higher base selling prices and improved mix. Turning now to the details of the financial results in the first quarter. Shipments in the quarter were 196,400 tons, a decrease of 1,900 tons or 1% compared with the fourth quarter of 2021 and consistent with our expectations. The sequential decrease in…

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

So you've said that volumes are expected to improve this quarter versus the first quarter. Does that also include automotive?

Well, we think that automotive is going to continue to be choppy. So it's somewhat unpredictable. That's about the best way I could phrase it. They're still -- as you know, they still have an impact from the supply chain. I will tell you that our April mobile shipments were slightly down compared to the average of the first quarter, the monthly average for the first quarter. But we'll react and respond accordingly. We've been very successful in moving our tons to the proper markets when needed, when there's openings.

So then should that read the pickup will largely be in the stronger part of your mix, and that's a little bit of a bounce back in industrial and continued growth in oil and gas?

Yes. That's our expectation.

Okay. And then on the inflationary pressures. Kris, you mentioned largely intact versus your last iteration. As we look at the second quarter versus the first quarter, should we be modeling or thinking about a pickup in conversion costs even further versus the first quarter level, either on a per ton basis or an absolute dollar amount basis, however you want to capture that if it's applicable?

Well, our fixed cost leverage is going to improve, primarily due to increased melt shop utilization in the upcoming -- this quarter versus last quarter? So yes, we do expect our conversion costs to improve...

I agree, Mike.

So the inflation on alloys and energy and all those factors isn't getting any stronger or higher than the first quarter, just maintaining?

Correct. Just maintaining. We're locked in for our base volume, for the majority of the alloys for 2022 that are non-surchargeable. To the extent mix changes, that could create some additional headwinds from an inflation standpoint, but we think it's manageable in comparison to Q1.

And your next question comes from the line of Marco Rodriguez from Stonegate Capital.

I was wondering if I can follow up just on the prior question on the inflation aspects. You've provided the range for the year of 10% to 15% increase. I just wondered if maybe you can kind of frame what you've seen here in the first 5 months. Are we sort of trending to the low end to the high end? Any kind of color there?

Well, I think our -- and I'll let Kris provide some additional color. But I think our perspective, our view and what we're experiencing is that inflationary forecast that we put forth is pretty much in line with what we expect in Q2.

Yes, that's right. We're right around the 12%, 13% range in Q1, maybe slightly higher, but still within that range as we look forward. We did refresh that just recently. As a reminder, just the math on that is every percent is worth about $3 million of cost.

Understood. And in your prepared remarks, you guys talked about refreshing some of the sales and marketing activities. I was wondering if you could provide a little detail around that. Are there special or changes to incentives or reallocation of individuals to different segments?

Yes. It's basically a refocused orientation of what end markets and what customers within those end markets that we really want to develop a long-term relationship with, a partnership with and expanding and really focusing on our most profitable products. We've gone through some structural changes with our commercial organization, and we've recently implemented those in Q1. There's additional action plans and items that we'll be implementing throughout the remainder of the year. But that's predominantly as the execution and focus of our sales engagement in the right end markets and the right customers within those end markets focused on margin expansion and profitability growth.

Got it. And is there a need to add additional heads or additional bodies into that function? Or do you think you have the right people thus far?

No, there's no additional heads. The next -- we've actually done a little bit of shrinking in that area, but it's really -- it's about focused execution, driving efficiency of our engagement with our customers on value creation through margin expansion and profitability growth.

Got it. And if I can squeeze one more in here. Just on the end markets. You noted some particular strength in the mining area. I was wondering if you could discuss that a little bit as it relates to geographies or what sort of feedback you're getting as to the strength you're noticing?

Well, it's really related to the heavy equipment that is utilized in the mining industry itself. That's a large concentration focus for us in that particular end market on the heavy equipment used in mining. We've seen expansion in demand there. It's a good product line for us. It leverages to our large bar, SBQ bar, and that's one of our key focuses from a commercial perspective and strategy.

Your next question comes from the line of Xin Wang from BNP Paribas.

Question. So I want to ask two questions on scrap, please. The first one is, can you discuss a bit or maybe quantify the impact of prime obsolete scrap spread expansion on Q1 earnings and maybe give a bit of indication on Q2 earnings, if possible? And then the second one is can you share your views on scrap availability and price trajectory through Q2?

Okay. Kris and I will tag team this. I'll let you take the first one and I'll take the second part.

Yes. In the first quarter, it was a headwind for us, and we quantified that in our earnings release. Fourth quarter to first was about a $17 million headwind on adjusted EBITDA. But we saw the raw material spread difference between bush and the shredded grades decline in Q1. And then as you know, that rapidly went the other way in Q2, at least through April and May, we surcharge generally on a 1-month lag. So the increases that were announced in April and May are now impacting -- I'm sorry, March and April are now impacting our April and May surcharges. The way to think about it is the headwind that we faced in Q1 is essentially we estimate going to reverse in Q2 to a similar, if not higher level given the spike that we're seeing at least through 2/3. June is still need to determined -- to be determined there in terms of how that will play out. But the first 2 months are a pretty significant increase.

And in regards to your second question, in regards to scrap availability and pricing, there was no issues with availability predominantly based on our geographic region where we sit. So availability is there. In regards to pricing, it hasn't settled -- May haven't settled yet for June surcharge, but all indications are that it will decline. Pricing will decline, and we're just going to have to wait and see where it settles.

[Operator Instructions]. And there seems to be no further question at this point. Presenters, please continue.

Great. Well, thank you, everyone, for joining us today, and we look forward to continuing to update you next quarter. Thank you.

Thank you, presenters. Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.