Michael Siegal - Chairman and Chief Executive Officer Richard Marabito - Chief Financial Officer David Wolfort - President Andrew Greiff - Executive Vice President and Chief Operating Officer.

Seth Rosenfeld - Jeffries & Company Tyler Kenyon - KeyBanc Capital Markets Aldo Mazzaferro - Macquarie Research.

Good morning, and welcome to the Olympic Steel 2016 Fourth Quarter Conference Call. As a reminder, today’s conference 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 broadcasts will be archived and available for replay on Olympic Steel’s website.

At this time, I’d like to introduce your host for 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 for joining us to discuss Olympic Steel’s 2016 fourth quarter and full-year results.

On the call with me this morning are Olympic Steel’s President, David Wolfort; Chief Financial Officer, Rick Marabito; President of our Chicago Tube and Iron Business, Don McNeeley; and Executive Vice President and Chief Operating Officer, Andrew Greiff.

It seems like a long time ago at this point, but as the fourth quarter began with metal prices declining and depressed shipping activity, both of which impacted results for the period. However, during the November election, sentiment in the steel industry quickly turned to increasing optimism.

Metal prices started moving higher in the November and price increases accelerated through year-end. December was a very strong month for Olympic Steel. The rebound in pricing was due to supply side dynamics combined with political optimism towards the business community after the very negative environment around the presidential campaign.

Continued enforcement of fair trade policies and potential infrastructure investments, corporate tax reform and job creation will directly benefit Olympic Steel and many of the markets we serve. Compared with 2015, both our carbon and Specialty Metals Products segment generated better operating results in the fourth quarter and full-year periods.

The Tubular and Pipe Products segment reported better operating results for the year, as we recorded impairment charges in 2015. During 2016, we announced management succession plans. In December, we announced Ray Walker’s retirement as President of our Carbon Flat Rolled Group. March will be his final month at Olympic Steel.

Ray Walker played a significant role in growing our businesses over the past 30 years, and we would like to thank Ray for his many contributions to the company. We wish him a long and well-deserved retirement. John Mooney will succeed Ray as President of our Carbon Flat Rolled business group.

John has been with Olympic Steel since 1989, has been working alongside with Ray and to ensure a smooth transition. Prior to his promotion, John served as Vice President of our Eastern Region. Also, late last year, announced Andy Markowitz has taken the leadership helm at our Specially Metals business group.

Andy filled the President’s role, which was vacated by Andrew Greiff, as he was promoted in August to Executive Vice President and Chief Operating Officer of the company. Prior to his promotion, Andy Markowitz served as Vice President of Sales and Marketing for our Specialty Metals Group.

Our succession planning approach afforded us the ability to remote from within, allowing our continued experienced leadership in each of our business segments. Developing talent has always been a part of our corporate culture. We believe providing career advancement opportunities for our employees helps us retain the best people in the industry.

Entering 2017, our outlook is quite optimistic. Demand has improved in most industries we serve. Spot sales has been particularly strong, as inventories remain lean in the supply chain and distributors restock in anticipation of historically stronger spring shipments.

Stable raw material prices and lower levels of imported steel continued to support higher market prices in the first quarter. Also of note, last month we announced the Board of Directors declared a regular cash dividend of $0.02 per share. The dividend is payable on March 15, 2017 to holders of record, yesterday, March 1.

With that, I’ll turn the call over to Rick for our quarterly financial review..

Thank you, Michael, and good morning, everyone. As Michael indicated, we ended 2016 with positive financial momentum. We reached record annual market share in 2016, made sustainable reductions to our expense base, and as we entered 2017, we have a very strong balance sheet.

Our inventory turnover was strong in 2016, and our low-cost flexible debt agreement positions us well as we enter a strengthening marketplace in 2017. As a backdrop to my financial review, total service center shipments declined industry-wide again in the fourth quarter.

According to the MSCI Metals Activity Report, the streak of year-over-year declines in per day shipping volume reached 23 months in December, and service center shipments in 2016 were 6.2% below 2015’s volume. In that declining environment, Olympic Steel again gained market share, as our shipments year-over-year were flat.

In 2016, we achieved a record market share in all of the product groups that we sell in carbon flat-rolled and plate products, in carbon pipe and tube products, and in both stainless steel and aluminum sheet and coil products. The success can be attributed to our commitment to customer performance and our increased sales force representation.

You may have noticed a change in the press release financial tables that we issued this morning. In order to provide better transparency at the segment level, we are now tons sold data for our two flat products segment.

Tons sold is a less meaningful metric in our Pipe and Tube Products segments, therefore, we have never reported sales volume for that segment. The earnings release segment tables also now include gross profit details for all three segments.

This information has always been included in our SEC filings, but we wanted to provide the data at the time of the earnings release as well. Our volume increased for both carbon and specialty metals flat products in the fourth quarter.

Most of the increase occurred in the back-half of the quarter, which is normally a seasonally slow period due to the holidays. Full-year sales volume in Carbon Flat Products segment ended the year down 1% compared to 2015. This was offset by a 14% increase in specialty metals volume, which when combined resulted in the flat sales volume between years.

In the fourth quarter, net sales improved by 7.3% to $254.9 million, as we experienced higher volumes in carbon and specialty flat products, as well as higher prices in our Carbon Flat Products segment when compared with the final quarter of 2015.

Despite the rise in sales late in the year, net sales for the 2016 full-year declined 10.2% to $1.1 billion from $1.2 billion in 2015. The sales decline was solely due to lower average selling prices, which were down 10.2% in 2016 versus 2015.

Consolidated gross margin in the for fourth quarter was 20.2% of sales at slightly below last year’s fourth quarter gross margin of 20.7%. For the full-year, gross margin expanded from 19.8% of sales in 2015 to 22.3% in 2016. We generated $1.7 million more gross margin dollars in 2016, despite the 10% decline in revenues between years.

We recorded $800,000 of LIFO income in the fourth quarter and $1.5 million of annual LIFO income in 2016. This was less than the LIFO income last year of $1.5 million in the fourth quarter and $3.3 million for the full-year in 2015.

Year-over-year operating expenses were down $1.9 million in the fourth quarter and $7 million, or 3% lower for the year, excluding the impairment charge in 2015. As I commented earlier, we have made sustainable expense reductions in our business over the past two years. Our 2016 fourth quarter operating loss narrowed to $2.7 million.

That’s compared with $7.2 million operating loss in 2015. Full-year 2016 operating income improved to $5.7 million compared with operating loss of $27.8 million in 2015 and that includes the $25 million of non-cash impairment charges. After adjusting for those 2015 charges, our operating income still more than doubled in 2016.

Due to an increase in working capital for inventory purchases during the fourth quarter, our interest expense increased by $100,000 in the quarter to $1.4 million. For the full-year, interest expense was $5.3 million, down from $5.7 million in 2015. The decreases were due to lower average debt balances in 2016.

Our effective borrowing rate was 2.4% in 2016, that compares with 2.1% in 2015 and that increase was due to higher LIBOR interest rates in the current year. As we mentioned on our last call, our 2016 effective tax rate is abnormally high and really not a meaningful measure, or a future indicator.

You may recall, we booked the state income tax valuation reserve in the second quarter of 2016. That combined with the effect of nondeductible expenses on low pre-tax income skewed the effective tax rate in 2016. We expect our 2017 income tax rate to approximate 38% to 40% of pre-tax earnings.

For the fourth quarter, we recorded a net loss of $2.1 million, that’s $0.19 per share that compares with a net loss of $5 million, or $0.45 per share in the fourth quarter of 2015.

For the full-year, we earned a pre-tax profit of $0.4 million, but we reported a net loss of $1.1 million, or $0.10 per share, and that was due to the tax items I just reviewed. This is an improvement from a net loss of $26.8 million, or $2.39 per share in 2015 and again that 2015 number is inclusive of the impairment charges.

So now let’s turn to the balance sheet. Our balance sheet remains in great shape. Accounts receivable at year-end totaled $102 million. That’s $9 million higher than at the end of 2015 and it sequentially down by $9 million from September quarter-end. The quality of our receivables remain sound.

Days sales outstanding in 2016 averaged 37.5 days and that’s an improvement from 38.4 days in 2015. As David will describe in a moment, we planfully increased our inventory by $23 million in the fourth quarter to $254 million, which was a 47 – which was $47 million higher than at the end of 2015.

Entering a rise in shipping and pricing environment in 2017, the elevated inventory level positions us quite well. Inventory turns improved to 4.7 times as an average for 2016, that’s an improvement from 4.2 turns in 2015, and we did achieve five inventory turns periodically throughout 2016. Total debt at the end of 2016 was $166 million.

That’s an increase of $18 million from the beginning of the year and up $1 million during the fourth quarter. As of year-end December 31, availability from our asset-based lending agreement was $94 million, that was up from $86 million at the end of September, and our debt to total capital remains strong ending the year below 40%.

Capital expenditures approximated $7 million in 2016 and that was comparable to 2015. We increased our capital spending budget for 2017, and we anticipate investments closer to our annual depreciation level, which was $17.6 million in 2016.

At the end of 2016, shareholders’ equity was $253 million, or $23.11 per share and our tangible book value per share was $20.93 per share. We plan to file our Form 10-K later today and that will provide additional details on our operating results for the fourth quarter and the year. So now I will turn the call over to David for his operating review..

Thank you, Rick. As Michael touched on, the fourth quarter started out slow with reduced shipping volume and steel prices continuing to decline. This followed a challenging third quarter. Our hot-rolled coil prices slid 18% and plate products were particularly weak.

As we discussed during the – our last call in October, the market did not experience the typical seasonal back to work bounce following the summer slowdown. On top of that, there was a continued uncertainty surrounding the presidential election and more economic concern, which manifested in a buyers’ strike for the first month of the fourth quarter.

Overall, the final quarter of 2016 capped off another uneven year for our industry with the first two quarters up and the second two quarters down. We saw that in 2015 and saw it in 2016. We believe, we’ll see much better in 2017. That being said, our commercial and operating teams rose to the challenge.

As Michael commented, we achieved market share gains in each of our primary product categories, all while in a declining volume environment. This reflects our objective of growing our commercial sales team by consistently developing and training people internally, as well as attracting seasoned and experienced talent from the outside.

These business development initiatives and investments have helped us set up new – set new company records for market share in carbon flat-rolled and plate products. We also reached a record high in our share of carbon pipe and tube market, which is the direct result of the hard work being done by Don McNeeley and his team at Chicago Tube & Iron.

Our first quarter 2017 performance will continue to profoundly demonstrate the success of these strategy.

Also, the Specialty Metals segment, which Michael commented on earlier, under the strong 8.5-year leadership of Andrew Greiff has been our fastest-growing segment over the past few years, and now represents more than 5.5% of the stainless steel sheet and coil markets and nearly 2% of the aluminum sheet and coil markets.

Both of these are new highs for Olympic Steel. Further success is projected with Andy Markowitz’s promotion to President of specialty Metals. Complementing these top line efforts, we continue to drive costs lower, as Rick commented.

In 2016, operating costs have been steadily decreasing since we initiated our profit improvement program in early 2015, while expanding our sales team. Overall, we are proud of all that was achieved during the challenging year of 2016. Following the election, there was a radical about-face in buyers’ attitudes, and in 2016, we finished on a high note.

In fact, our December earmarked a fresh start to 2017. According to CRU index, hot-rolled coil prices hit the low of $469 per ton in early November, and since then prices have been moving steadily higher. By the middle of November, hot-rolled coil prices have moved up $39 per ton and then added another $91 per ton by the end of December.

Entering 2017, prices continued higher in January and throughout February. While it is still early, shipping volumes throughout our organization are signaling substantial growth. Service center shipments increased 4% year-over-year in January of 2017, which is the first year-over-year increase in two years.

Shipments in January rose 30% sequentially from December, which also represents a larger than normal bounce following the holiday. As Rick commented, we deployed capital during the fourth quarter to increase inventory. This prepared us to appropriately respond to customers in a rising demand environment and to address growing spot market activity.

This also resulted in strategic positioning of low-priced inventory heading into 2017 and bodes well for our financial performance in the first-half of this year. The recent appointments of steel industry veterans to the respective roles of Secretary of Commerce now confirmed, Wilbur Ross and U.S.

Trade Representative, Robert Lighthizer yet to be confirmed are an indication that our industry will be well represented in the new administration and we’re excited that these prospects also. The improved sentiment is also starting to be validated by current economic data. Factory orders improved in four out of five past months.

Philadelphia Fed’s Manufacturing Survey Index registered a 43.3 reading in February, which was well beyond the expectations of 18.0, and it’s up from 23.6 in January. So the sentiment and the bias is moving in the trend line that we like, which is up.

This marked the highest reading for the – for this index since 1984 and the biggest beat relative to expectations since 1998. Steel price appreciation level off in early February, and we’re always cognizant of the fact that price increases are not indefinite.

Although, the six published price increase announcements have for the most part been absorbed by the end of February. Further, we have high expectations for the first-half of 2017, should anticipated economic improvements materialize. With that, I now turn this over to the operator and open up – open this call up for questions. Thank you..

Thank you. [Operator Instruction] And we’ll take our first question from Seth Rosenfeld with Jeffries..

Good morning. Thanks for taking the questions today. I have a couple of questions kicking off on the outlook for demand and volumes and also is moving onto the Specialty Metals business. On the volume side where if you could just give us a bit more detail on your current order intake.

As you mentioned, the most recent MSCI data playing to a very robust pick up in January shipments.

Do you feel like your own customers are beginning to pre-buy in expectation of higher prices, or does reflect kind of real underlying demand at present? And then the second question on Specialty Metals, can you just give us a bit more color on what you’re seeing in the stainless market at present? Obviously, recent import data has seen a notable surge in stainless import over the last couple of months as new entrants replaced China.

Are you seeing these imports in your own business? What impacted your carbon price, there are obviously another round of price hike for stainless earlier this week. Can you give us a sense of how achievable you think that will be? Thank you..

Well, Seth, Dave Wolfort. I’ll take early – I’ll take the first part of the question, which is the easy part. Andrew Greiff, our Chief Operating Officer will take the second part on specialty metals far more in-depth question.

So on the demand side, actually we are seeing a robust demand, both in January and February, as we concluded February here just the other day. Our projected growth very similar to what the MSCI is publishing and we expect to continue to garner more market share.

Therefore, we would be getting a little bit more than the MSCI is reporting and we’re already seeing that demonstrated. We’re seeing that demonstrated, Seth, across the board with our customers. So it’s really just not one customer group, it’s a series of them.

And even some of the – some of those groups like agriculture, which was depressed for so long is now starting to come back. And that’s adding to our volume count, particularly in our Western facilities of Iowa and Minnesota.

So we’re seeing very strong demand and really not one where the customer is trying to outflank the pricing, but real demand for their products.

Andrew?.

Yes, and Seth on the stainless side, you’re correct, we certainly have seen the imports pick up. We will see almost an elimination of Chinese product due to the dumping duties that has been replaced by some of the other Asian countries.

And if you did talk about the price increase led by North American stainless this week is the third increase that we’ve seen since October. There was an October increase, a January increase, and now this April 1st increase. And we do expect that there will be a continued strength in the market..

Okay. Thank you very much..

Thank you.

Operator?.

We’ll go next to Tyler Kenyon with KeyBanc Capital Markets..

Hey. Good morning..

Good morning..

Good morning..

So pretty solid volume performance in the quarter strength on a year-over-year basis and certainly a seasonal trend, which tend to debuck the seasonal norms. David, it sounded like you were indicating that it was more of a reflection of just a core demand coming back as opposed to more or less a restocking event.

But when you look across your end markets, can you just give us a sense for what you’re hearing from your customers at this particular point? And where you may be seeing just the uplift in terms of consumption trends?.

Sure, Tyler. As we look at the quarter, it was really very uneven, and October was an ugly month and December was a wonderful month than we thought a great start to 2017. I would tell you that the core demand is significantly higher and the bias is significantly stronger across the board.

So we have some of our large OEM customers projecting out into May with some fairly robust build patterns. We see contributing sources to those large OEMs doing well. We’ve seen some consolidation amongst some of those larger OEMs, but that’s just for the benefit of their manufacturing process.

So really across the board and all of our stores, we are really seeing a much higher demand. Now, that that’s our myopic view, because we’re gaining market share. So in terms of gaining market share things at Olympics Steel look pretty good.

And of course, a large part of that is reigniting our significant sales presence in all of our territories, and we’ve achieved that and we’re seeing the results of that now..

Great. Thank you.

And Rick, how should we be thinking about the gross margin momentum here heading into the first quarter? Just trying to score all the moving pieces between the movements in the spot and contract businesses along with your inventory position at year-end?.

Yes. So couple of things. Number one, we talked about, excuse me, the inventory and we did strategically and planfully, as we said, take up our inventory at year-end. So our inventory, I’ll tell you is very well-positioned to take advantage of both an increasing price and an increasing demand market.

So we’re, as David just told you, we’re fully participating, we have the inventory to do that. Our mix of business is relatively similar, but we are seeing strength in our spot business. And in our spot business on a rising marketplace that that tends to give us a little boost to the gross margin.

I would tell you that on the contract business, our margins look pretty stable, pretty consistent with what they’ve been historically. And so, when you throw that all together, we’re obviously seeing strength in the sales, and we’re seeing strength in the margins, both in terms of total dollars and on a per-ton basis..

Okay, great. Thank you..

[Operator Instructions] We’ll take our next question from Aldo Mazzaferro with Macquarie..

Hey, good morning..

Good morning..

Good morning..

Good morning. I wanted to ask on your – nice job by the way, building the inventory before the end of the year.

I’m wondering how you feel about your inventories now? Are they still going to be rising you think relative to your sales, or do you think you’ve got it kind of where you want it?.

I think we have it where we want it and we have a projection. Aldo, as you would well imagine, insulating ourselves from any higher risk that we might interpret. We really – we hit the crescendo of our inventory early in February. But we didn’t quite reach the top level that we projected we would, because our shipments are so robust.

And so we have a managed plan, as you would expect, and as you’ve known that we do, particularly throughout the first-half of this year with targeted goals And we’ll be – we will continue to be appropriately inventoried to securitize the growth that we really accumulated last year and expect to accumulate in 2017..

Aldo, this is Michael. Our target goals are still between 4.5 and 5 turns. And we have the ability to flex that relatively one on shipments and two on our purchases.

So we would expect if our shipments get up, our inventory will probably be on – in an inventory turn cycle on the lower side of the 4.5 to 5 inventory turns, but we’re maintaining our disciplines relative to business conditions..

Great. And I wonder if you could tell us a little bit about your increase in capital spending roughly $10 million more.

Is there a growth initiative within there?.

Well, I think two things, Aldo. Yes, we are looking at some growth in terms of adding some strategic equipment. As you’ve heard, we’re growing the Specialty Metals business significantly. So we’ve got some spending earmarked for that business in 2017.

And the other is really the last two years, we’ve been at the low end of our range, I’ll call it, in terms of really just spending on all the things we need to do to keep our equipment and facilities in tip top shape and we’ve done that.

So, yes, we typically guide to – we’re between $5 million and $10 million of a maintenance CapEx spending company and the amount above that is for growth initiatives..

Aldo, let me add to that. Over the course of the last five-and-a-half years, six years, we’ve repurposed some facilities to embrace specialty metals. And so we’ve added some equipment. We’ve redeployed some piece of equipment. But from an overall perspective, as Rick said, one of the highlights, at least, internally is our commercial integration.

And so our specialty metals is now integrated into a number of our facilities, as is our Chicago Tube and Iron, which allows Chicago Tube and Iron to reach its customers in a little bit more profound way using Olympic Steel’s footprint.

So some of those capital expenditures have embraced that that commercial integration of Specialty Metals in our business segment, and of course, Chicago Tube and Iron significant business segment for us..

So, Dave, do you have a goal internally in the company as to what percentage of sales you’d like specialty metals to be ultimately?.

I would tell you, our near-term goal, I’ll answer for Andrew and he can….

[Multiple Speakers].

We actually, Aldo, with a successful transition of Andrew Greiff to Andy Markowitz as President. And Andy spent – Andy Markowitz has spent his whole career in the specialty metals. And we clearly – it be hard to tell you when that will occur. But we really don’t see any barrier to doubling our participation.

And beyond forecasting the doubling that, we’ll wait till we get close to the doubling of that and then we’ll forecast a little bit more. And that does not come at the expense of CT&I and that does not come at the expense of the carbon business, which continues to grow.

We just have a much more fluid outlook, and our service has been terrific to customers and they’ve been embracing us.

Andrew, you want to comment a little bit more?.

No, David, I agree with your assessment at the level that we’re at there’s certainly no reason why we would not be doubling it. And I think we have all of the right people and the right tools in place in order to do it..

Great..

And Michael, let’s just do it. That’s a good thing..

Yes..

[Multiple Speakers] yes, it’s not a specific – yes, it’s just not a specific targeted goal. I’m just saying, Aldo, it’s just not a specific targeted goal. I mean, we’re about growth – we’re a growth company. If the growth moves faster on stainless, we expect to grow on carbon. If stainless becomes a bigger overall part of the overall mix, that’s fine.

It’s not a targeted goal. We have a targeted growth goals for the whole corporation and some guys move faster and some guys move slower, that’s all..

Right. You’ve got time for one more question on the market, if….

Absolutely..

If you look at – the way I look at – the market has got a certainly a meaningful share of imports in the market. But it seems to me the pricing aggressiveness of those imports is nowhere near what it used to be and everything is kind of stable at price. But the U.S. Mills continue to run at a low rate and the imports continue to have that share.

Do you see anything changing on the margin where either imports become more aggressive, or domestic mill become more aggressive to try to take back that share, or do you think we just kind of stay at this kind of everyone at odds and out of the market kind of a soft and steady as she goes?.

Well, everybody does what’s in their own best interest, I would say that. I would certainly we have some cautionary concerns about the back-half of the year, because nobody can tell you what the overall demand is. So steel mills today seem to be liking the position of where they’re at. They have great confidence.

As David indicated in his remarks that the government is going to be helpful, both in business growth and a discipline around the import supply. There’s always been price disparity. There’s also a need in the United States for certain level of imports.

But I would tell you is, Aldo, we just are concerned about our disciplines and again, if we – if the demand picks up, everybody is going to be happy..

Aldo, let me just add that I think the steel industry has really suffered particularly past the recession and the protracted recovery. It’s been a neglected industry particularly as it gets to government, government relations, so forth and so on. This is a significant change here.

I don’t think that the imports, I don’t think anybody wants to be the subject of a tweet, let me put it to you that way.

And I think that the steel industry as a whole and metals as a whole is on the – is front and center on the dashboard today, particularly with Wilbur Ross’s recent confirmation, great pick for Secretary of Commerce, and of course, we’ve all collectively known, Mr. Ross from his days of acquiring LTV, Bethlehem, Acme, again pick a number of them.

And then recently having been on the Board of ArcelorMittal, which he just resigned. Robert – Bob Lighthizer has been a friend of ours for a longer period of time. He’s been around the Cleveland area. We’ve known him for a very long period of time. He was from our perspective a significant legal council from Skadden Arps, for U.S.

Steel, he did a very good job for them, when U.S. Steel was led by Tom Marshall. And the combination of those two, as I mentioned earlier, I think profoundly changed and shift that that emphasis to promoting steel as opposed to neglecting steel. So I think that we’re in a really, really good shape.

And if our President performs, as he says he will, and I think we’re in very good position today..

All right. Thank you for your comments. I appreciate it..

Sure..

That concludes today’s question-and-answer session. At this time, I’d like to turn the conference back to Mr. Michael Siegel for any additional remarks..

Yes, if anybody is still out there, we really thank you for joining us this morning and for your interest in Olympic Steel. And we look forward to sharing our first quarter results with you this spring and hope everybody has a great day. So thank you all. Bye-bye..

This does conclude today’s conference. Thank you for your participation. You may now disconnect..