Michael Siegal - Chairman and Chief Executive Officer Rick Marabito - Chief Financial Officer David Wolfort - President and Chief Operating Officer.

Luke Folta - Jeffries & Company Philip Gibbs - KeyBanc Capital Markets.

Good morning and welcome to the Olympic Steel Fourth Quarter 2014 Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded.

Some statements made on today’s call will be predictive and are intended to be made as forward-looking within the Safe Harbor protections of the Private Securities Litigation Reform Act of 1995 and may not reflect actual results.

The company does not undertake to update such statements, changes in assumptions or changes in other factors affecting such forward-looking statements.

Important assumptions, risks, uncertainties and other factors that could cause actual results to differ materially are set forth in the company’s reports on forms 10-K and 10-Q and press releases filed with the Securities and Exchange Commission. Today’s live broadcast will be archived and available for replay on Olympic Steel’s website.

At this time, I’d like to introduce to your host today's call, Olympic Steel’s Chairman and Chief Executive Officer, Michael Siegal. Please go ahead, Mr. Siegal..

Thank you, operator. Good morning and thank you all for joining us to discuss our 2014 fourth quarter and full-year results. Dave Wolfort, President, Chief Operating Officer; Rick Marabito, Chief Financial Officer; and Don McNeeley, President of our Chicago Tube and Iron business are also with me on the call this morning. So let’s begin.

Customer demand was strong throughout 2014 and contributed to a record net sales in both the fourth quarter and full-year, a 14% growth in annual tonnage sold more than triple the MSCI industry average of 4.2% during the year.

As we grew our market share and increased our capacity utilization, net sales in the quarter grew 12.5% to an all-time fourth quarter high of $327 million compared to $290 million in last year’s fourth quarter. Full-year net sales reached $1.4 billion and also set a new company record rising $173 million or 14% compared with last year.

Both of our reporting segments generated higher net sales during the year. Revenue in the flat product segment increased 16% and our tubular and pipe segment sales were up 3% over the last year.

We believe strategically in periods of declining prices that retaining customer value in order to offset margin pressures allows us to be positioned as the critical supplier when price volatility reverses. Our experience shows that buying loss business back significantly is shall we say lot more costly than retaining volume in these types of markets.

As you all aware, a number of factors outside of our control cause middle prices to deteriorate in the second half of the year and constrained our profitability. Some of these factors include slower growth around the world particularly in China, Brazil and Europe and appreciated in U.S. dollar which caused foreign steel producers flood the U.S.

with new record inputs and continued to do so as we begin 2015. Steel making input prices for most dollar denominated commodities including our renewal coal and oil also fall substantially in the second half of 2014 thereby putting additional downward pressure on metal pricing.

The deterioration in metal pricing coincided with our annual testing for intangible asset impairment and resulted in a write down of 59% or 23.8 million of goodwill on our financial statements. This is a non-cash charge that was recorded in the fourth quarter in 2014.

I would like to remind everyone that Olympic Steel does not have any material exposure to the oil and gas industry, fluctuation and capital expenditures in the energy and petroleum market do not have a material impact on our sales volumes. Our tubular and pipe products are sold primarily to customers in the industrial and agricultural sectors.

We also sell highly engineered products such as rectangular mechanical and structural tubing; hydraulic and stainless tubing; boiler tubing; and fabricate pressure valves and fittings.

While declining rig counts and drilling activity have not impacted our results, we have been challenged by less capital spending on infrastructure and reduce demand in the mining and the military and the agricultural sectors. Our strategy has always been focused on sustainable success and profitable growth at every stage of the industrial cycle.

Many of the investments made and actions taken in the recent years were to mitigate the impact of commodity price fluctuations on our business by diversifying our product portfolio and expanding our geographic region. The strategic penetration into the stainless steel and aluminum market is one of example of this.

Olympic Steel currently serves approximately 5% of the U.S. stainless steel service center market, up almost 700% from six years ago. Rick will highlight our fans [ph] to report our specialty metals business which consist of stainless sheet and Olympic stainless steel aluminum as a separate segment in 2015.

Even with the more diversified product portfolio, we are not insulated from global market fluctuations. Waiting for the market to improve is never an option. Therefore we are diligently taking steps to enhance working capital, cash flow and operating efficiencies.

During the fourth in spite of negative market settlement, we reduced inventory by more than $18 million and paid down $25 million in debt. We expect further reduction in both inventory and debt in the first half of 2015. Last month, we initiated a comprehensive profit improvement program to low our operation cost and enhance margins.

We closed an under achieving facility and reorganized management resources to oversee specific division where performance is expected to improve. We also consolidated certain corporate individual rose and have implemented transportation and purchasing initiatives to boost profits.

As an example, we identified additional shipping lanes currently outsourced to third party freight haulers where we can achieve significant cost savings by using our own fleet. We intend to increase our proprietary trucking fleet by about 15% in 2015 bringing it to over 90 trucks so that we can capture these savings.

And David will expand on other aspects of the overall plan in a minute. I want to state emphatically there is a sense of urgency to execute on this program and the majority of the initiatives are already well underway. At this time, we are not apt to predict the totality of the cost reductions or the margin initiative.

We do anticipate these actions will be apparent in our future results. We are pleased with our growth achievements in 2014, higher volumes in strategic market and in the new facilities, resulted in record net sales and increase market share. Moving forward, we will diligently manage the factors within our control.

We are committed to keeping capital expenditures below depreciation, continuing to reduce inventory and debt and at the same time enhance operating efficiencies and profitability. And now, I’ll turn the call over to Rick for his overview of the financials for the quarter and the year..

Thank you, Michael, and good morning, everyone. As Michael stated, our specialty metals business has historically been part of the flat products reporting segment. Beginning with the first quarter of 2015, we will report specialty metals as a separate segment. Therefore going forward, we will have three reporting segments.

Number one, a flat carbon product segment; number two, a specialty metals segment, which contains stainless steel and aluminum flat products; and number three, our tubular and pipe products segment. Turning to our income statement, year-over-year shipments increased in every quarter during 2014.

As a reminder, we only report ton sold for our flat products segment which currently again includes the specialty metals business. During the fourth quarter, we shipped 286,000 tons of flat products compared with 251,000 tons in the same quarter year.

This was an increase of 14% in the quarter and pushed full year volume of flat products to 1.2 million tons which was also an increase of 14% over the 1.1 million tons we sold in 2013. Toll processing tonnage was up 31% during the year.

Consolidate net sales in the fourth quarter rose 12.5% to a fourth quarter record of $327 million compared with $290 million in last year’s fourth quarter. For the full-year, net sales increased 13.7% to a record $1.4 billion, up from $1.3 billion in 2013.

This higher increase in net sales for both the fourth quarter and full-year was due to the higher shipping volumes in 2014.

On a consolidated basis, average selling prices in 2014 were unchanged from last year as a 2% increase in the flat products average selling prices were offset by a 3% decline in the average selling prices for tubular and pipe products.

Net sales in the flat products segment increased 16% in both the 2014 fourth quarter and full-year period compared with 2013. Tubular and pipe products segments sales increased 3% in the 2014 fourth quarter compared with last year, but increased 3% for the full year period which reflected market share gains as measured by the MSCI.

Gross margin for the fourth quarter was 17.9% down from 20.7% last year.

For the year, 2014 consolidated gross margin was 19.2%, down 170 basis points from 20.9% in 2013, a mix change to a greater proportion of flat product sales relative to tubular and pipe products and higher specialty metals sales combined with competitive pressures in the carbon flat roll market led to the gross margin contraction.

In addition, lower average selling prices for pipe and tube products negatively impacted margins during the year. We’ve recorded $235,000 of LIFO income in the fourth quarter which lowered our full-year LIFO expand the $365,000 in 2014. Last year’s fourth quarter and full-year results included $1.1 million and $3.6 million of LIFO income respective.

This negative LIFO swing between years accounted for approximately 30 basis points of the 170 basis points decline in our full-year gross margin. On a pre-LIFO basis, 2014 margins were 19.2%, down from 20.6% in 2013.

Our 2014 fourth quarter and full-year results were negatively impacted by the $23.8 million non-cash charge to write down a little more than half of the goodwill associated with the tubular and pipe products segment. Pipe and tube results have contributed positively to our consolidated results in each year since inception.

And in 2014, the pipe and tube segment achieved record sales volume market growth was profitable before the impairment charge and generated meaningful cash flows from operations for the organization.

Including the charge, we’ve reported a net loss of $26.9 million or $2.42 per share in the fourth quarter compared to a net loss of $1.4 million or $0.12 per share in the fourth quarter of 2013. The goodwill write-off negatively impacted fourth quarter EPS by $2.14 in 2014.

On a FIFO basis before the impairment charge, our 2014 annual earnings totaled $0.45 a share, almost identical to 2013 earnings of $0.50 a share. The reported net loss for 2014 including the impairment charge was $19.1 million or $1.71 per share compared with net income of 7.6 million or $0.69 per diluted share last year.

Again, the goodwill right-off negatively impacted the annual 2014 EPS by the same $2.14 a share. Excluding the impairment charge, operating expenses increased 7% on a 14% increase during the year. Higher distribution cost associated with inflation in the transportation industry and increased warehouse expenses where the drivers.

As a percentage of sales, operating expenses before the charge improved to 18.2% versus 19.4% in 2013. As Michael highlighted, we are focused on reducing our expenses in 2015 through a plan that includes lowering transportation, personal and labor costs. We do not however expect any restructuring charge in 2015 associated with our plan.

Interest expense was unchanged in the quarter and up 1% for the full-year. The small increase in interest expense in 2014 was due to higher borrowing levels being partially offset by lower interest rates. Our 2014 effective income tax rate was 38.2% excluding the impairment charge which is non-tax deductable. This is down from 40.8% in 2013.

We would expect our 2015 tax rate to be in the similar 38% to 39% range. Turning to the balance sheet, our receivables remained in great shape increasingly 7% compared with last year i.e. 14% sales increase. Consolidated days sales outstanding improved to 38.3 days in 2015, down from 39.1 days at the end of 2013.

I have anticipated, we successfully reduced our flat roll inventory by $20 million during the fourth quarter. Our 2014 average inventory turnover rate declined to 4.1 times compare to 4.3 times last year. In 2015, we intend to drive inventory even lower, while increasing shipment. We have a goal to achieve five inventory turns per year.

Proceeds from the fourth quarter inventory reduction were used to lower outstanding debt. At year-end, total debt stood at $248 million, $25 million lower versus the end of the September third quarter, but $48 million higher compared to the beginning of the year. We expect further decreases in debt during the first half of 2015.

Depreciation expense in 2014 was $19.9 million compared with capital expenditures of $7.8 million. Annual capital expenditures declined sharply from $16.1 million in 2013 and $23.4 million in 2012. We are committed to holding 2015 capital expenditures below depreciation and intend to use free cash flow to further reduce our debt.

Our plan capital spending for 2015 approximates $12 million. Finally, we will file our 2014 Form 10-K later. I’ll now pass the call over to David for his operating review..

Thank you, Rick. On our previous conference calls, we discussed our surging volumes had started to grate U.S. spot prices from the high as experienced in the summer of 2014. Not long after that, the value of the U.S. dollar spiked higher and oil prices along with other globally traded and dollar denominated commodities essentially punched.

As a result, hot rolled coil prices dropped through the second half of the year and continue to fall on the first quarter of 2015, prices published by the CRU and fallen from a 2014 high of 687 a short ton to 508 currently down 26%. We demand what you would probably ask, what are we doing this. And the answer is we are taking action.

We are continuing to lower inventory and expect to redeploy this capital to fortify our balance sheet as Rick outlined earlier. At the same time, we have initiated actions to remove cost and enhance margins. For example, our sales department is now learner with fewer sales managers outside sales representatives and marketing staff members.

This was clearly reflected in declining year-over-year selling expenses for both the 2014 fourth and full-year periods. While executing these cutbacks, we substantially grew our shipping tonnage and recorded record net sales in 2014. This is the type of heighten productivity we endower to drive throughout all areas of the organization.

We recently closed our Jacksonville, Florida sales office and move those sales responsibilities to other existing facilities and as Michael touched on, we also closed our Kansas City operation due to unacceptable performance.

Another critical element of our profit enhancement program is implementing tactical remedies to address unique situations at specific facilities. We made several management changes unlike 2014 that underperforming divisions that have business plans that will improve performance.

These units are being closely monitored and measured against various milestones to ensure real progress. Expanding on Michael’s comments about managing Olympic Steel for the long term, occasionally this means you risk showing up early to the real [ph] party.

Many of you are aware we have been on-boarding parts for a prime OEM manufacturer who recently opened a major facility in the Southeast. We are in doing the start-off cost associated with installing a new structural level cut the length line and other machinery, people and inventory at our Winder, Georgia facility.

Our customers’ original product ramp up schedule has been pushback and while type of the way is not unusual, it exemplifies the growth risk that we assume as an integral part of investing in our customers’ manufacturing startups.

This plant’s production is now accelerating and we are shipping approximately 500 parts a day from our Winder facility to this particular customer. Provided our customers achieve other production schedule in 2015, our Winder facility will provide a much greater contribution to consolidated results.

The point is we have distinct of initiatives at individual facilities that will collectively have a significant positive impact on our financial results in 2015. As we enter 2015, we are committed to continual improvement, better execution and lowering our costs. Operator, let’s open the call for questions..

Yes, thank you. We will now begin the question-and-answer session. [Operator Instructions] And the first question comes from Luke Folta with Jeffries..

Hi good morning, guys..

Good morning..

Quick question on just the steel price impact as we look into the first quarter and the first half of the year, as there has been obviously a meaningful step down and it clearly sounds like you are doing everything you can to reduce inventories and kind of works as fast you can but increasing churns and that.

But when we think about how it flows though, is there any - I mean can you give us any sense of what sort of magnitude we could be thinking in terms of just the inventory headwinds and I guess also around the timing of it, is it something that you think is like a just one big hit the first quarter or is it something that could kind of stretch out into the second quarter as well?.

Well look, I’ll take a shot at that as it pertains to us and only us need was to say. And always we took a look at our inventory position as we entered into third quarter; we’ve recognized that the marketplace was drifting self. We know anticipation that it was drifting as hard as it fell, but we described that earlier.

So we took a very tactical approach and began walking our inventory down in the third quarter and in fourth quarter and we’ll continue that through the first half as Mike has described earlier. Obviously some of that is going to be monetizing what we think the inventory level should be and then reducing debt from that perspective..

And then Luke, this is Rick. What I’d add is not to pick on the words he used but we’re not seeing a onetime big hit in the first quarter, obviously with the price is dropping in the way they are, we and everybody else is under margin pressure in the first quarter. The second part of your question talked about timing first quarter into second quarter.

Obviously as we sit here in February, prices are still drawback, right. And so I think until the market really finds the bottom, we’re going to be in a marketplace where the steel you bought is going to be more expensive than and you sell and what the prices today.

So I would tell you I think as an industry, we’re going to see the margin pressure continuing to the second quarter, we sit here at the end of February and steel prices are still going down..

Right, thanks.

And then - but I guess if - I just thinking about the timing of the - the timing which is going to take for inventory replacement costs - inventories cost because of the replacement costs, assuming prices just stay flat, is that - that’s a 2Q event you think?.

No, you know - yeah, well first of all we’ll come here when bottoms out and then I can probably give you a better answer. So if we believe - really, really, I mean you are asking a hypothetical question about the future and I have no idea when, what the bottom number is and I have no idea when the bottom number occurs.

So as we look at those factors, what we’re seeing, you started up the question in right way, as David indicated, we started accelerating our sales relative to our purchases.

We’re seeing significant inventory reduction, it happens every day now and we got blender products and steel is a little bit we just kind of offset the carbon scenario to some degree although they got their own price pressures.

But I would say as you are looking at sort of this material factor, we are seeing it, I mean it’s an everyday occurring relative to our ability to lower the full level of inventory and replace the existing as fast as we can.

I think that’s why we talk about - having the volume growth that we have certainly accelerates and mitigates what the - you’re expecting of that was..

Okay, that helps. And on tubular in the fourth quarter, we don’t have to gross margin versus SG&A breakout.

Can you just talk about what happened with the margins sequentially, this is the function of pricing situation or we get destock in the year-end of for more of a shipment dynamic or both?.

What I would tell you on the pipe and tube segment, certainly we saw as I talked about the average selling prices, we saw more average selling price impact on that segment versus the flat segment, so we saw our prices actually go down sale wise year-over-year. Margins had few adjust out for LIFO, they were pretty consistent year-to-year.

We do, if you look at our earnings release look, you can calculated the gross margins, you just have to take the - I know it’s not a line item struck there, that’s kind of the SEC rule, but we do give our sales and we do give our cost of sales. And if you bear with me, we’re obviously filing our 10-K later today, but let me look one second.

Do you have that number in hand?.

I think I have it..

So as you look at the pipe and tube, in 2014, we were at 28.9% gross profit and last year, we were at 30.6% of gross profit..

That’s on a FIFO base?.

Yeah, that’s on a FIFO - no, that’s on a LIFO basis then you got to adjust out. So we had $365,000 dollars of LIFO expense in 2016 and we had 3.572 million of LIFO income, so ones you adjust that out that’s where I said you get pretty comparable..

Okay, alright and then on the cost cut, the profit enhancements initiative, then I - give a targets or magnitude what you expect will happen there ultimately, but are you willing to give us sense of what the cost impact of the facility closures that you’ve already done would be?.

So obviously we didn’t highlight anything in terms of the actual cost to shut them down. We did have some of that running through the income statement. The actually closure cost was not significant and material that was least.

Those - the two facilities we talked about on a year-to-year basis should have I think it was about 800,000 to $1 million combined favorable impact..

Okay.

And last one on demand, I mean clearly there is destocking that’s going on and yourself as well, it seems some of that, can you give us some sense of on the OEM side of the business, what the trends are there, since I got some of the bigger end market changes?.

Well, Luke, I can, I mean as we detailed we’re not involved in the oil and gas business other than on a periphery with some tanks and things along those lines but I think that’s enormously impact of. And the answer is our customers are stronger, our customers are stronger, it’s a competitive environment.

Our tons grew because we asked more business and a number of our OEMs obviously contributed to that as they have seen their business continue to grow. So we saw last year was really growth for the sake of growth in a real recovery in expending economy.

So the first time since really the recession in a protracted recovery, we really saw a full-year of an expanding economy and look - of our customers contributing to that, somewhere down needless to say agriculture and so forth, but offset by recovering markets in construction and so forth. So overall, our customers are reasonably busy today..

Okay, year-to-day 1Q and I mean we’re seeing up demand year-on-year, I know it’s inventory effect, it’s probably hard to tell but?.

Yeah, there is really more margin pressure than as well volumes..

Thanks a lot..

Thank you. [Operator Instructions] And the next question comes from Phil Gibbs of KeyBanc Capital..

Good morning..

Good morning..

Can you talk a little bit about your transportation initiatives maybe elaborate a little bit more on that and help us to understand the dynamics of call higher trucking rates balanced with lower fuel and some of these things that you are doing internally to mitigate the impacts?.

Well, there is a lit bit and I will take about driver shortage. Obviously the big trucking companies have difficult time retaining and recruiting new truck drivers.

Obviously when we have your own truck drivers, you can compensate them easier and retain them, but there is a shortage, so the outside trucking companies are trying to basically charge more for their believes value net truck versus other locations that they can note, that’s number one.

Number two, obviously when you own your truck having lower fuel cost is better for you. And so the outside guy has a rate, that’s the rate, the rate is the rate. In your own fleet you can manage the structural cost a little bit better to.

We identified specific claims that were competitive, right, so you create the claim back and forth to wherever that customer is or wherever that supplier is as you start to identify specific claims, you can start driving across down and so down is just sort down and over the analysis of where we have regard to trucking from our specific locations.

And so we think rather than using outside carriers to that location here is the rate charges, we know that is and based upon the fleet that we have today 65 or 70 trucks plus I mean we can tell you that running that truck is pretty substantial savings internally..

Okay, I appreciate that.

And then maybe provide us an update on your ERP, I know you had - you’ve been doing that for a couple of years now, maybe an update on the timing of some of those costs may runoff and you may start seeing some of the benefits because I know it’s been a long haul for you?.

Yes, so it’s Rick. So we are nearly completion. We have new systems, I would tell you about 80% of our location. Some of the costs because we’ve been instead of doing the all at ones scenario, we’ve been implementing at a location by location scenario.

We’re already starting to see some of those costs from prior years rolling off through decreased depreciation. So I would tell you the costs in IT are declining. We would anticipate our cost year-over-year on IT to go down.

And we’ve been - I should not leave it on, the implementation at the locations that do have new systems, obviously all been done successfully..

Okay and then why such a big drop in payables in Q4?.

There will be nothing specific, I think just timing. My think probably coinciding with the timing and the actions we took in terms of reducing inventory..

Okay. I may have a couple more but I think that’s good for now, I appreciate it..

Thank you, Phil..

Thank you. And as there are no more questions to present, I would like to turn the call back over to Mr. Siegal for any closing comments..

Yeah, thank you operation and thanks everybody for being on the call. Thanks for joining us and your continued interest in Olympic Steel and we look forward to sharing our continued progress when we report our first quarter result this spring. So everybody stay warm out there. Bye-bye..

Thank you. The conference is now concluded. Thank you for attending today’s presentation. You may now disconnect. Have a nice day..