Good morning, and welcome to TimkenSteel's Third Quarter 2023 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 and Chief Commercial Officer. 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?

Good morning, everyone, and thank you for joining us today. First and foremost, I'd like to thank our employees for their hard work and collaborative spirit as we continue to chart new pathways for growth. Our firm commitment to safety is beginning to show results, and our focus on strengthening our culture and fostering teamwork across our commercial, supply chain, and manufacturing operations has resulted in solid profitability while meeting the needs of our customers. Additionally, we continue to repurchase shares while strategically reinvesting in our business. The enhanced collaboration we've seen both with the United Steelworkers and within our teams is fueling our never-ending pursuit of manufacturing excellence and helping us to create a lasting culture of safety. In October, we launched our second employee safety survey for all employees. Results from this survey will help us improve hazard awareness, improve our engagement, build a safety-centric mindset, and gain valuable insights from employees for continued safety improvements. However, to encourage good safety ideas, it is essential that we provide concrete support. In 2023, we spent approximately $8 million on safety CapEx projects and $1 million in safety training. Moving to our performance. We saw a slight sequential decrease in sales and shipments in the third quarter. While I'm encouraged, we've experienced solid base prices across all end-market sectors; EBITDA was impacted by a continued decrease in surcharges given lower market prices for scrap and alloys in the past several months. Our melt utilization for the third quarter was approximately 76%, slightly higher than the previous quarter. Given our planned annual shutdown maintenance in October, we expect to see a sequential decrease in the average melt utilization rate in the fourth quarter. Mobile customer shipments were essentially flat with the second quarter. I wanted to take a moment to discuss the United Auto Workers strike and how it impacted demand for our products. Overall, the impact for the third quarter was relatively minimal. About one-third of our mobile OEM shipments go to non-U.S.-based automakers with U.S. manufacturing operations. Additionally, we ship to auto manufacturers with operations in Mexico, which were not impacted by the strike. During the early weeks of the strike, the supply chain was still catching up to fulfill past due orders. Although work stoppages directly affected a few programs we're involved in, we expect the OEM demand to quickly recover and remain strong in early 2024. Regarding EV-related products, we had a record third quarter representing a 62% net sales increase from the second quarter. As a reminder, last quarter, we had approved a $5 million investment for two additional manufactured component machining lines to be installed at our facility in Southwest Ohio in late 2024. This investment will broaden our EV component offering to customers and allow us to keep pace with industry growth. In the industrial market, our shipments increased by 5% over the prior quarter. We saw an uptick in demand for high-quality grades of steel, coupled with continued strength in the defense sector due to the expansion of the U.S. industrial supply base supporting major Department of Defense programs. We expect record sales to the defense sector in the fourth quarter. Our energy shipments in the third quarter declined 27% on a sequential basis as demand weakened. The average U.S. rig count dropped approximately 10% from the second quarter despite an increase in oil prices during the period. This reflects the industry's continued conservative approach. In support of our ongoing commitment to expanding our market presence and broadening our product portfolio, we are pleased to introduce Tim Lynch as our Vice President of Corporate Development, a newly established role. Tim's primary mission is to enhance the company's value by identifying and actively pursuing acquisitions that align with our strategic imperatives. With a career spanning over three decades, Tim brings extensive expertise in steelmaking operations, supply chain management, procurement, and strategic planning to our team. We extend a warm welcome to Tim and look forward to his valuable contributions to our company. We remain committed to our profitability improvement initiatives and work continues company-wide to achieve our target of $80 million by 2026. Again, our actions have been focused on commercial excellence, manufacturing and reliability excellence, and administrative process simplification with a strong balance sheet as our foundation. To date, we are about two-thirds of the way towards achieving our target with ongoing areas of focus including manufacturing excellence and administrative process simplification enabled by modernizing our IT systems. As we enter into the last few months of the year, we will remain focused on safety, customer service, and advancing our strategic imperatives to drive sustainable through-cycle profitability and cash flows. I thank our customers for their trust, our suppliers for their partnership, and our shareholders for their continued support.

Thanks, Mike. Good morning, everyone, and thanks for joining the call today. TimkenSteel's third quarter financial results reflect solid profitability and another quarter of positive operating cash flow. Thanks to all of our employees for their teamwork and collaboration in delivering these financial results while remaining focused on advancing the company's strategic imperatives. Now turning to the third quarter financial results. Net sales totaled $354.2 million with net income of $24.8 million or $0.51 per diluted share. Comparatively, sequential second quarter net sales were $356.6 million with net income of $28.9 million or $0.62 per diluted share. Net sales in last year's third quarter were $316.8 million with a net loss of $13.3 million or a loss of $0.29 per diluted share. On an adjusted basis, the company reported net income in the third quarter of $24.9 million or $0.52 per diluted share. Comparatively, the second quarter adjusted net income was $27.6 million or $0.60 per diluted share. Adjusted net loss in the third quarter last year was $4.1 million or a loss of $0.09 per diluted share. Adjusted EBITDA was $46.8 million in the third quarter, a $3.7 million sequential decline. A market-driven decrease in the raw material surcharge environment and the start of our planned annual shutdown maintenance were the drivers of the sequential decrease in adjusted EBITDA. Partially offsetting these items were higher base sales prices and an improvement in product mix. Compared with adjusted EBITDA of $10.8 million in the third quarter of last year, adjusted EBITDA increased by $36 million in the quarter. As a reminder, the third quarter of 2022 included unplanned downtime at the melt shop. Turning now to the details of the financial results in the third quarter. Shipments were 175,800 tons in the quarter, a slight decrease of 1,700 tons or 1% compared with the second quarter of 2023. In the industrial end market, shipments totaled 82,400 tons in the third quarter, a sequential increase of 4,000 tons or 5%. The increase was driven by higher third quarter shipments to the defense sector. Sales to defense customers continue to strengthen and represented 16% of industrial shipments in the third quarter compared with 12% in the sequential second quarter and 10% in the third quarter of last year. Shipments across other industrial sectors were fairly steady in the third quarter on a sequential basis. Mobile customer shipments were 79,100 tons in the third quarter, essentially flat with the second quarter. Through the end of September, the automotive work stoppage resulted in a minimal impact on net sales and shipments. Shipments to energy customers totaled 14,300 tons in the third quarter, a sequential decrease of 5,300 tons or 27% as energy customer demand softened in the third quarter. Of our total third quarter shipments, approximately 16,000 tons or 9% was sourced from third-party melt producers that enrolled, finished, and shipped by TimkenSteel. As expected, this represented a sequential decrease of 33% given improvements in our internal melt productivity. Net sales of $354.2 million in the third quarter decreased 1% sequentially. The decline in net sales is primarily due to a market-driven 16% decrease in average raw material surcharge per ton as a result of lower scrap and alloy prices. Additionally, slightly lower shipments contributed to the decline in net sales. Partially offsetting these items were higher base sales prices and favorable product mix. Turning now to manufacturing. Melt utilization was 76% in the third quarter compared with 75% in the second quarter. Manufacturing costs increased sequentially by $6.1 million in the third quarter as we began the planned annual shutdown maintenance at our rolling, piercing, and finishing operations. Switching gears to income taxes. The company's effective tax rate was 28% in the third quarter and 27% on a year-to-date basis through the end of September. Cash taxes were $8.4 million in the third quarter, and we anticipate cash taxes to decline in the fourth quarter. Moving on to cash flow and liquidity. During the third quarter, operating cash flow was $28.1 million, driven by quarterly net income. This marks the company's 18th consecutive quarter generating positive operating cash flow. Year-to-date, through the end of September, operating cash flow was $51.2 million. Capital expenditures totaled $17.5 million in the third quarter and included various investments to drive operational efficiency, growth, and improvements in safety. In the fourth quarter, the company anticipates approximately $15 million of CapEx to bring the full year total to approximately $50 million, consistent with previous guidance. From a share repurchase perspective, the company bought back 353,000 common shares during the third quarter at a total cost of $7.7 million. As of September 30, the company had $44.5 million remaining on its share repurchase program. Since the inception of the program early last year through the end of September 2023, the company has repurchased 4.5 million shares at a total cost of $80.5 million. In total, the common share repurchases plus the 2022 and 2023 convertible note repurchases have resulted in a significant 16.1% reduction in diluted shares outstanding compared to the fourth quarter of 2021. The company's cash and cash equivalents totaled $225.4 million, and total liquidity was $519.1 million as of September 30, 2023. Interest income generated by the company's cash balance was $2.4 million in the quarter and nearly $7 million year-to-date. As we proceed forward, we expect the strength of our balance sheet, combined with expected through-cycle profitability and positive operating cash flow to provide us the opportunity to continue to execute on our capital allocation strategy. This includes investing in profitable growth, maintaining a strong balance sheet, and returning capital to shareholders through continued share repurchases. Turning now to the outlook. From a commercial perspective, fourth quarter shipments are expected to decrease sequentially as a result of normal seasonality and potential volatility from the automotive work stoppages and restarts. Base sales prices per ton are anticipated to remain strong in the fourth quarter, while surcharge revenue per ton is expected to be sequentially lower. The expected decline in surcharge revenue per ton is due to a reduction in the #1 Busheling Scrap Index in September, which impacts subsequent monthly surcharges. Operationally, melt utilization is expected to sequentially decrease in the fourth quarter as a result of the planned annual maintenance shutdown at the melt shop, which was completed in October. Costs associated with this planned annual shutdown maintenance were approximately $7 million in the fourth quarter, slightly higher than the third quarter shutdown maintenance costs. Additionally, we plan to further reduce the melt operating schedule around the fourth quarter holidays to balance inventory with current demand, manage cost, and set up for a strong start to 2024. Given these elements, the company anticipates fourth quarter operating cash flow to remain positive, while adjusted EBITDA is expected to decline sequentially. To wrap up, thanks to all of our employees who work together as a team to again deliver solid financial results while continuing to strengthen our safety culture. We appreciate your interest in TimkenSteel. I would now like to open the call for questions.

I'd like to start with your comments on the UAW strike. Did it impact October's results? Or are you anticipating it to impact more of November? Just kind of color how the fourth quarter is kind of playing out?

Sure, John. So yes, we had a much more significant impact in October versus the prior months during the strike. And we also have to wait and see how quickly they ramp up and how strong they pull through the rest of this quarter. That's still a question mark.

Okay. And then giving you no color as how that's going to play out?

Well, basically, they've just kind of given us what the plants are restarting and what that schedule is, but we don't know what the demand requirements are going to be yet.

Okay. And out of curiosity, are you exposed to the Mack truck UAW strike? Or is that something that won't impact you?

Not that I'm aware of. There could be something in the supply chain, but I don't think anything significant from our sales perspective would be affected.

Good. That's reasonable. Regarding the industrial sector, the improvement you mentioned for the fourth quarter is commendable. My initial question was about how the business profile has changed over the past three months. However, I will rephrase it to ask if you could provide more details on whether the increase you anticipate is primarily due to the defense segment, or if there are other areas contributing positively as well.

That's predominantly the defense sector that's pulling hard to restock their supply chain.

Okay. Got it. And on the energy side, you touched on that the rig count is down. Would you expect the energy volumes to remain at this kind of threshold in the fourth quarter? Or would you expect it to be sequentially weaker due to seasonality?

I think from our perspective, it's pretty much going to be flat to maybe down in Q4, the energy demand. We've seen a couple of rigs added, I think, over the last 30 days, but they're being very disciplined with their working capital.

Just wanted you to touch on the comments you made on the front of the call about having a gentleman in a role looking at acquisition targets. Do you think you can share in terms of just the broader strategy? This appears to be a little bit of a pivot or an augmentation to what you guys have already been doing because you haven't been very acquisitive recently. So anything you could add there would be helpful.

Sure. I mean, we've been going through this transformation process for a couple of years now. We have a solid balance sheet. We've totally revamped our commercial approach to various markets, beefed up our team and skill set. And I think we're reaching a point in discussion with the Board that we need to start looking more aggressively for some external growth opportunities that align with our strategic imperatives, which is going to be around our manufacturing footprint, our product capabilities, and targeted certain end markets for expansion. There'll be more color to come over the next several quarters on this topic. But we just wanted to identify the fact that we're kind of shifted into fifth gear as our overall focus and strategic evolution.

And then as it relates to the pricing and mix, I think your bridge and your filing spoke to somewhere around maybe $10 million, $11 million sequential pickup in EBITDA from pricing and mix in the third quarter versus the second. How much of that pickup is related to some of the defense comments you're making?

A significant amount of it is related to the demand growth in defense-related products that we manufacture. However, we've seen also a richer alloy mix as well in the industrial sector.

There was a significant increase in pricing and product mix across all your target markets, including automotive, industrial, and energy, which is quite noteworthy. Will any of this normalize in the next few quarters because there was a unique step change this quarter?

Yes. There was some retroactive pricing that was caught up in Q3, but those are solid annual agreements, and that pricing will continue going forward. That was one of the big influencers besides the richer mix tied to the defense market sector and the alloy mix of product.

Okay. So some catch-up on pricing or orders that maybe were backlogged from some of the operational issues last year?

Yes. I would say it's more retroactive pricing that went back a couple of quarters. They got caught up in Q3.

Great. And then lastly, anything on the conversion cost side that's notable between energy alloys, consumables, anything like that, that could be changing? Or how does it compare to last year?

You mean for 2024?

I just mean in terms of trends, in terms of what you've seen at present and how that maybe compares to last year?

Yes. I think most of our consumables and energy requirements, whether it be gas, electricity, or annual contracts or longer-term contracts. So I think those pricing from that perspective is flat to the remainder of this year. And we're in the progress of negotiating, beginning the negotiation of our supply contracts for 2024. So too early to tell you how that's going to play out, but we'll know probably by the end of the year.

This is John stepping in for Dave. So you had mentioned utilization was 76% in the quarter and it's supposed to decrease in Q4. So relative to historical levels, what are your expectations for 2024, was reaching 80% a reasonable expectation?

Yes. That's our target average per quarter. We would have achieved that in Q3, but we experienced a malfunction in our environmental system which required a couple of days for repairs at our melt shop. Without that disruption, we would have been slightly above 80% for Q3. That remains our target for 2024, and we've explained why we anticipate a lower performance in Q4.

Got it. Very helpful. And then cost improvements that remain in Q3, which ones are structural, which of them are discretionary...

Well, I mean, most of our cost improvements are going to be structural outside of supply agreements and arrangements and raw material purchases and energy purchases, those can vary. But when we look at our manpower, we look at our productivity, we look at our yield, and cost of quality, those things are all structural improvements. And that's what we've been focused on. A number of investments that were implemented during the outage, we'll start to see those improvements through the remainder of this year and for the full year 2024.

Just a couple of quick follow-ups. Firstly, how does the capital expenditure outlook change in 2024 versus 2023? I know you got the additional piece of equipment that you're putting in at the end of next year, but can you kind of ballpark what the CapEx spend looks like for next year?

For next year, we're currently in the planning process, which will continue until mid-December, after which we will discuss it with the Board. At this point, I prefer not to disclose any specifics, as it would be merely speculative. However, by year-end, we should be able to provide clearer guidance on the capital expenditures for 2024. I do want to mention that I don't anticipate anything in our current planning that would lead to a significant increase.

Okay. And regarding the tax rate, it's kind of been volatile for the past couple of quarters. Any thoughts on how you're going to finish the year, full year or fourth quarter, either one would be helpful.

Kris, do you want to take that one?

Sure, yes. Thanks, John. Looking at that year-to-date rate around 27% is where we'd be targeting for the end of the year. The things that are driving the rate higher are some of these nondeductible costs that we experienced earlier in the year. So as we get into next year, I think it should moderate absent those nondeductible items.

Lastly, regarding capital allocation, you've been actively buying back shares. Do you plan to continue this in the fourth quarter? Also, could you discuss your excess cash and future plans, especially with the possibility of pursuing more aggressive M&A?

So we put in the queue in the month of October, we bought back around 94,000 shares, I believe, about $2 million of buybacks in the month of October. And we're just putting a new plan in place now that'll go out through our next filing date. So I'm not going to speak specifically to that. But more to come as we reported in February, but we're definitely thinking about the future, adequately managing our cash as we approach year-end, managing working capital like we always do and being prudent in all those areas.

Thank you all for joining us today, and that concludes our call.

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