Jeff Bradley - Chief Executive Officer Joe Ragan - Chief Financial Officer

Luke Folta - Jefferies Ian Corydon - B. Riley & Company Ian Zaffino - Oppenheimer Michael Gambardella - JPMorgan Paul Forward - Stifel Phil Gibbs - KeyBanc Capital Markets

Good day, everyone and welcome to the Globe Specialty Metals Second Quarter Fiscal Year 2015 Earnings Results Conference Call. This call is being recorded. With us today from the company is Jeff Bradley, Chief Executive Officer and Joe Ragan, Chief Financial Officer. At this time, I’d like to turn the call over to Mr. Ragan. Please go ahead, sir.

Good morning, and thank you for joining the Globe Specialty Metals second quarter of fiscal year 2015 conference call. I am going to read a brief statement and then hand it over to our CEO, Jeff Bradley. Statements made by management during this conference call that are forward-looking statements are based on current expectations. Risk factors that could cause actual results to differ materially from these forward-looking statements can be found in Globe’s most recent SEC filings and the exhibits to those filings, which are available on our webpage www.glbsm.com. In addition, this discussion includes EBITDA, adjusted EBITDA, adjusted net income and adjusted diluted earnings per share, which are non-GAAP measures. Reconciliations of these non-GAAP measures maybe found in our most recent SEC filings. Now for Jeff Bradley, Globe Specialty Metals’ CEO.

Good morning, everyone. Thank you for joining us on the call this morning. As I mentioned on the last call, 2015 was shaping up to be a very good year and I am pleased to report that our profitability and margins in this quarter continued to improve over last year and last quarter. Adjusted EBITDA was $37.4 million and adjusted EBITDA margin of 18.9% were both up year-over-year and quarter-over-quarter. As a result of the growing demand in our key end-markets, we approached the end of the year in a near sold-out position. We increased our silicon metal production by converting ferrosilicon capacity to the more profitable silicon metal and we completed the proprietary conversion process before the end of December and entered 2015 with more than 20,000 metric tons of additional annual production capacity. Now, let me take you through outlook for the year. Our customers that produce silicon is the largest end market for silicon metal are reporting that demand is robust and the outlook for 2015 is very good. The silicon’s business is a GDP plus business and this year will be no exception. The second largest end-market for silicon metal is aluminum both primary and secondary and the vast majority ends up in autos. U.S. auto sales continue to show strength. According to USA TODAY and other automotive services, January domestic auto sales were up 13.7% from January 2014 and 20% more pickups in SUVs were sold over last January. This seems to be a result of lower fuel prices driving sales of larger vehicles and we love the large vehicles, because they contain more of our products. Total North American light vehicle, which includes cars, vans, SUVs and pickup trucks, aluminum consumption, a good portion of which contains silicon metal is forecast to increase by 28% in 2015 over 2012 and consumption this year will surpass all records set in previous decades by a billion pounds. Additionally, our silicon alloy business which goes into ductile iron cast parts used in many automotive applications has also benefit from the increasing auto production and the higher sales of larger vehicles. So, 2015 is looking like another very strong year for the auto industry and in turn for us. Solar, another key end-market for silicon metal continues to show double-digit growth rates around the world. IHS, a leading solar firm is estimating global solar installations to grow 16% to 25% over last year from 46 gigawatts to 53 gigawatts to 57 gigawatts in 2015. This equates to approximately 450,000 metric tons of silicon metal demand this year just in the solar segment. This year’s outlook for our silicon alloys business is also very good. A very large percentage of our sales goes into special and high purity grades and like our silicon metal business, this business is also shaping up very well for this year. While we did intentionally reduce shipments of silicon alloys in the last quarter by converting silicon alloy and capacity to silicon metal, we have begun to ship from our South African facility to fill the gap. The first furnace at our South African plant started up in October and the second furnace started up in January. Although we established local business in South Africa, a majority of the output will be exported. Our Alden coal business performed well in the quarter and we continue to add permits and reserves to our already large reserve base. Our fume business is performing well, but as expected we saw lower shipment levels in the quarter as compared to the previous quarter due to seasonal construction slowdowns. And finally, our Board of Directors on February 3 authorized an increase in the dividend, the annual dividend to $0.32 per share payable quarterly and as a result a quarterly dividend of $0.08 per share will be payable on March 12, 2015 to shareholders of record at the close of business on February 26, 2015. Joe?

Thanks, Jeff. We go to our first slide. Adjusted EBITDA was $37.4 million for the second quarter increasing 43% from the prior year and increased 8% from the prior quarter on an adjusted basis. Adjusted EBITDA percentage was 18.9%, up by 4.2% or 420 basis points or an increase of 29% from the prior year and up 2.1% or 210 basis points from the prior quarter. Adjusted diluted earnings per share attributable to GSM for the second quarter were $0.21, up 62% from the prior year and up 11% sequentially. During the second quarter, sales were up 11% year-over-year and down 4% sequentially. Next slide, now I would like to review the impact of the recent conversion of production capacity and ramp up of production in South Africa. During the second quarter, we converted 40,000 metric tons of silicon alloy production capacity to 24,000 metric tons of silicon metal production capacity. This change in mix contributed to our improved EBITDA margins for the quarter, but did create lower sales volumes for silicon alloys. The ramp up of our South African facility is on track. We are selling product outside of Africa and therefore experiencing longer lead times to those customers. Overall, the shift in sales mix and transfer of production to South Africa has increased profitability, but had an impact on working capital. Next slide, as I mentioned on the last slide, we had margin expansion in the quarter due to our improved sales mix. The elements in our mix are identified below with $3 million of longer lead time for our sales from South Africa and seasonal impacts from our byproducts and coal revenue lines. We had some increase in inventory and working capital related to South Africa and North America. We expect a large amount of this increase to reverse during the first half of the calendar year. Next slide, sales increased 11% year-over-year and decreased 4% sequentially. While gross margin percent increased 350 basis points year-over-year and increased 210 basis points sequentially representing an EBITDA margin dollar increase of 43% year-over-year and 8% compared to the prior quarter. Adjusted net income improved 50% year-over-year and 7% when compared to the first quarter illustrating the strong overall operating performance of the company during the quarter. Next slide, the largest special items that occurred during the quarter were related to a divestiture indemnification payment and the Siltech start-up activities. Approximately $4.7 million was paid and accrued for divestiture indemnification expenses and approximately $1.2 million was spent as we continue ramping up the South Africa plant, which is on track for optimal production by the middle of calendar 2015. The results of the start-up of Siltech and the other adjustments noted on the slide, was an adjusted EBITDA for the quarter of $37.4 million, up 8% sequentially for the quarter. Next slide, on a reported basis, results were lower than the first quarter of 2015 due to the sales volumes related to seasonality and the conversion from ferrosilicon to silicon metal during the quarter. When compared to the prior year, sales were improved. However, net income was lower due to the bargain purchase gains from the purchase of Siltech that was recorded in the second quarter of last year. Next slide, during the quarter we had improved pricing and mix which drove the increase in EBITDA, which was offset by slightly higher compensation expense ending the quarter with an adjusted EBITDA of $37.4 million. Next slide, net debt was slightly higher quarter-over-quarter based on some one-time payments and seasonally higher inventory balances. However, we are projecting strong cash generation for the balance of the fiscal year. We would now like to open the call to questions.

Thank you. [Operator Instructions] Our first question comes from the line of Luke Folta of Jefferies. Your line is now open.

Good morning guys.

Good morning, Luke.

Good morning, Luke.

Alright. Just some of the usual questions around this time of the year regarding your contracts, if you can provide any color on fixed versus variable and just sort of the magnitude of what you saw an increase in terms of fixed price contracts into ‘15?

Sure Luke. We have booked about a third of our silicon metal business against the indexes for this year and the balance is at firm prices in spot. As we have already done in the past, we are not going to disclose the pricing we secured for the firm business other than to say we feel very good about our book of business for this year, and based on the demand we are seeing, we are really bullish about our end markets and the pricing for the balance of the year.

Okay. But if we look at where index prices were towards the latter half of the fourth quarter of ‘14 versus ’13, would that give us a descent sense of what the magnitude could look like?

Yes.

Okay. And then you said majority of the book is sold out for this year, that’s – I am assuming that’s something like 80%, 90% something like that?

Well, again we are not going to give the number but it – I am just going to keep that majority, okay.

Okay, that’s fine. Alright. And then on Siltech, you have got 45,000 ton of capacity there, you started shipping, both furnaces are online, when should we think about is I guess when are you targeting to have that facility at full capacity?

On the last call I said we would be at full capacity by the end of the first half. I think Joe mentioned it in the comments he had this morning as well. The end of the first half is June, but I would see it before June. As we said the second furnace is now operating and we started shipping product both in country and out of country. So I am going to stick with end of the first half, but it’s going to be earlier than end of the first half.

Okay. And I am assuming you have a pretty good sense of what the cost structure looks like now, when we think about margins in that business, if we use the Argentinean business as sort of a comp, is that you think something of a good proxy?

The Argentinean business is a different business. We have a lot of specialty alloys coming out of Argentina calcium, silicon and foundry alloys and cored-wire. So, it is a different business.

Okay, alright. And then what exactly is the divestiture indemnification payment?

Well, we had some acquisition activity in 2009 that had indemnifications and we made payments related to those indemnifications.

Okay. Which acquisition was that?

It was a divestiture – I am sorry divestiture activity in Brazil.

Okay, gentlemen. Thank you very much.

Thank you. Our next question comes from the line of Ian Corydon of B. Riley & Company. Your line is now open.

Thank you. Excuse me, just curious when were the furnace conversions completed?

I am not going to give you the exact date because we just don’t share that Ian, but they were converted in the let’s call it the second half of the quarter.

Okay. And then the stated 120,000 tons of silicon metal capacity from the press release that excludes the Dow Corning joint venture tons, is that right?

Yes, it does.

Okay. And then, the ferrosilicon you are making in South Africa, where are you selling that?

We are selling it in South Africa and we are also exporting it.

Are you saying where are you exporting it to?

We are exporting to the U.S., originally we said we would be exporting to Europe and Asia and we ultimately expect to export to Europe and Asia.

Okay. And do you still expect to be able to get to selling more specialty grades versus commodity grades?

Ultimately, but it is going to take time.

Okay, great. The higher coal inventory, is there a reason for that?

There is some seasonality built in there. We actually ship more coal in the last quarter to go through the winter, up North to Canada specifically. In addition to we are sending coal to South Africa, so that requires higher inventory level just because of the shipment schedule.

Great. And do you have an update for what you expect for CapEx this fiscal year?

Guiding to $45 million – $50 million, $45 million Ian, $45 million-ish….

Yes, Ian it was a little bit bigger or larger as you know last year with the – last calendar year with the CapEx related to Siltech. So it will still be a little bit higher because that will be included in this fiscal year, so closer to $50 million, but $45 million is our target for maintenance CapEx.

Okay. Thank you.

Thank you. Our next question comes from the line of Ian Zaffino of Oppenheimer. Your line is now open.

Hi, thanks.

Good morning.

Hi, Jeff. You said a third is index and then you said firm price were spot, I am confused, it’s just you have a third in index and then what’s firm and then what would be related to spot?

Yes. So the index business is ultimately spot business. It resets every quarter or resets every month depending on the contract. And then as we have done in the past we always leave tonnage available for pure spot business. We get a phone call from a customer that needs additional tons that would be the pure non-indexed spot business. And then we have got firm price business for the year. We have got the customer base that wants a firm price for the entire year. So we have a third at indexed, a third which is indexed off of the monthly spot number, we have the balance at firm price. And I would say a third – it’ about a third. The balance at firm price and spot and the majority of the balance would be firm price.

Okay, yes. So probably it would be…

And we always leave it a little bit open for pure spot business.

Sure, yes. So it would be like, I am making it up but half firm a third index and balance spot and has been like that. Okay, that’s great. And in your negotiations, how did it go as far as because I know that you guys typically like to have things float with prices, I think you are bullish on the pricing, you wanted to float and you don’t really want to lock into firm pricing, give us an idea of what the discussions were like, how hard were you pushing for indexes and spot versus how hard was your customer pushing for firm prices and just sort of the dynamics of the negotiations if you could? Thanks.

Sure we said on the last call that we came into – we were coming into the end of the year with a large percentage of the order book filled. So our discussions were very good, the markets were strong. If you look at pricing year-over-year fourth quarter of calendar 2014 versus fourth quarter of calendar 2013, silicon metal pricing was up about $0.20 plus a pound. And that’s a result of the strong demand that we saw in all of the markets. So it just worked out that the order book ended up at about a third tied to index and a third tide to firm prices. But as I said, we feel very good about the order book and we are bullish about the balance of the year.

Okay. And then on the M&A front, I guess it seems like these European assets are on sale with the weak euro and is that encouraging you to doing things or you are seeing things more attractive or is activity picking up there? So, any color there would be helpful too?

As we always say, we are very engaged. Alan is very – Alan is driving all the M&A activity and he continues to be engaged.

Alright, thank you very much, Jeff.

Sure.

Thank you. Our next question comes from Michael Gambardella of JPMorgan. Your line is now open.

Good morning. How are you?

Good morning, Michael.

Good morning.

Great. Just have a brief question on European business and we heard a lot about slowing economic news out of Europe and what has been the impact on your business and what have you observed on that?

Mike, we haven’t seen a major impact. We go back to our silicon business, the U.S. is a net importer of silicon and we export very little if no silicon metal at all to Europe. So really has had no impact on our silicon metal business and as we shared during the call we have got a majority of the business booked for this year. Our silicon alloy business is pretty much the same story most of it and close to all of it is sold in the United States.

Okay, thank you.

Sure.

Thank you. Our next question comes from the line of Paul Forward of Stifel. Your line is now open.

Good morning.

Good morning, Paul.

I wanted to ask about the other revenue line I think you had said that there was some seasonal weakness and construction activity that normally that would create this kind of weak seasonal quarter. I want to ask though with the reduced drilling activity and other energy issues like lower coal prices, lower coal demand, can you talk about as the seasonality in construction activity comes back might we not – might there be some headwinds in reaching the kind of revenue rates that you had seen in the last couple of quarters prior to this latest quarter in that other revenue line?

Yes, that is mainly related to our fume business and the issue is the cold weather not so much shipping by rail, but just the cold weather. And we have – and it’s specifically related to the concrete business and as you get up north and things are frozen, it’s tough to pour concrete and it’s tough to ship fume, because it freezes up. So, it’s seasonal. We saw it last year this time and we will get through it and as it warms up and it will go back to normal.

Okay. So, just the – I mean, there is a little bit of that, that goes into drilling, so you wouldn’t say that that’s a concern then?

No, I mean it’s specifically related to the concrete business.

Sure. Also I guess can you talk a little bit about power contracts, I guess just directionally over the past year, U.S. and elsewhere, can you talk about where on any new power contracts you might have signed over the past year or few months, how is the pricing relative to where it had been in the past?

We look at the United States longer term. If you are a power intensive business, the U.S. is going to be the best place to operate. We don’t see large increases coming in power. In fact, we see just the opposite. We do not disclose our power rates at each of our plants, but I can report that as we look out ahead, the U.S. is going to be a great place to operate.

Okay. And maybe along those same lines, you have had a few months in South Africa now, can you talk about the – are you experiencing any reliability issues with power there or things going as expected?

Things going as expected. Power prices in South Africa are higher and we will continue to work on that.

Okay. Thanks very much.

Sure.

Thank you. [Operator Instructions] Our next question comes from the line of Phil Gibbs of KeyBanc Capital Markets. Your line is now open.

Hey, good morning. Jeff, Joe?

Good morning.

Hi.

As Paul has – I think Paul pretty much hit upon my question. I was just curious as to how the recent malaise in energy prices and nat gas and coal would impact you on the energy side moving forward if you expect to see better momentum there, but it sounds like that’s up in the air a little bit right now, but potentially a slight positive?

Yes, I think longer term it’s going to be a positive, but let me also just address the oil price and the drop in fuel prices, I think I alluded to it in my comments, we are seeing stronger sales of trucks and SUVs and larger vehicles and that just bodes so well for us. You have got more silicons, you have got more aluminum, you have got more steel and it just bodes very, very well for our business.

Terrific. And sorry, if I am beating a dead horse here, Jeff, just for my clarity, it sounds like you have got a third on index a bit more than a third on firm, and then the remainder spot is that the good way to think about it?

Yes, I would say it’s more than a bit more firm. So, we have a third indexed, two-thirds would be firm and true spot, but most of the two-thirds would be firm.

Okay. Thank you for the clarification.

Sure.

Thank you. [Operator Instructions] And I am showing no further questions at this time.

Okay, thank you very much everybody. We really appreciate the interest. We look forward to this year and look forward to the next call with everyone. Thank you again. Bye-bye.

Ladies and gentleman, thank you for participating in today’s conference. That does conclude today’s program. You may all disconnect. Have a great day everyone.