TimkenSteel Corporation

Good morning and welcome to the Timken Steel's second quarter 2021 earnings conference call. I would now like to turn the conference over to your host.

Thanks and good morning. Welcome to Timken Steel's second quarter 2021 conference call. I'm Jennifer Beeman, Senior Manager of Communications and Investor Relations for Timken Steel. Joining me today is Mike Williams, President and Chief Executive Officer Chris Westbrooks, Executive Vice President and Chief Financial Officer, and Kevin Rakitic, 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 Timken Steel 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. 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 is 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 shutdowns, 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 recognize 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've continued the positive momentum. Not only has the team been 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 as our automotive shipments decreased by 10% sequentially. We estimate that the disruption negatively impacted our automotive shipments by approximately 16,000 tons in the quarter. At this time, we expect third quarter automotive shipments to continue to be negatively impacted by periodic customer operating schedule changes. However, with many of the OEMs signaling a strong second half of the year, we believe the supply chain will continue to stabilize throughout the rest of this year and into 2022. Before moving to our industrial market update, I want to congratulate the team at our facility in Eaton, Ohio, for being awarded the 2020 General Motors Supplier Quality Excellence Award. As a reminder, this facility supports the manufacturing of 10-speed ring gear blanks and 8-speed pinion blanks that ship directly into GM transmission plants. This is the fourth time we've been awarded this honor. As a Tier 1 supplier to GM, Timken Steel is evaluated on business performance metrics, such as supply chain effectiveness, launch delivery, total enterprise cost, as well as cultural priorities, including transparency, communication, responsiveness, and total enterprise approach. This award originates from the GM quality team, and we know that to be successful, quality must be supported by all of our functional teams. My sincere congratulations to the teams. As I mentioned earlier, our industrial markets continue to perform well in the second quarter. Sequentially, we saw a 33% increase in our shipments, and we believe strong industrial demand is sustainable into the second half of 2021. Most industrial categories we serve, such as distribution, defense, agriculture, mining, general industrial, and bearings all increased sequentially. Turning to energy, the short-term demand remains historically low. With improving industry statistics, though, our shipments into this market increased sequentially by 58% as we experienced some demand recovery to support inventory replenishment needs. Operationally, we are adjusting to operating with one melt shop. And I am pleased with the team's effort to make this much needed transition. Not only are we laser focused on optimizing our product mix and continued cost control, but we are making good progress on initiatives to drive manufacturing excellence at Tempkin Steel. To kickstart some of our efforts, Andrew Bissett has joined us in May as Vice President of Engineering, Manufacturing Excellence and Reliability. Reporting directly to me, Andrew is responsible for implementing our manufacturing excellence philosophy, processes, and best practices centered around company-wide maintenance, effectiveness, and efficiencies. He will help create a cost-effective and sustainable way to ensure the reliability of our equipment, our asset lifecycle, and optimize our investments. Andrew and I have worked together for many years in the past, and we have been successful in delivering on similar strategic priorities. On the commercial side, we've begun mapping out a path to commercial excellence in an effort to improve our margin profile, optimize our product portfolio, and best leverage growing markets. More to come on that in the future. Last week, we completed the sale of the Timken Steel Shanghai subsidiary to Dido Steel for approximately $7 million in cash. My congratulations to all of our teams for getting this across the finish line, and particularly to our team in China and at corporate for their hard work and dedication throughout this process. We wish them well and look forward to continuing our partnership working with Dido in the future. And lastly, many of you know that on Monday, we begin our discussions with the United Steelworkers regarding the current labor agreement that is set to expire on September 27th. The current agreement covers approximately 1,180 bargaining employees in our Canton facilities. As always, our goal is to reach a fair and equitable agreement that supports the company's vision and provides job security for our employees. With that, I'd like to turn the call over to Chris.