Good morning, everyone, and welcome to United States Steel Corporation's Second Quarter 2019 Earnings Conference Call and Webcast. As a reminder, today's call is being recorded. I'll now hand the call over to Kevin Lewis, General Manager of Investor Relations. Please go ahead.

Thank you and good morning. We appreciate your continued interest in U.S. Steel and welcome you to our second quarter earnings call. On the call with me this morning will be U.S. Steel President and CEO, Dave Burritt; and Executive Vice President and CFO, Kevin Bradley.

Thank you, Kevin. Good morning, everyone, and thank you for your interest in U.S. Steel. The market has been challenging over the past few months, but we have made a lot of progress since our last call. We are executing better, so today we will focus our discussion on execution. We are playing offense, and we are stronger, more competitive. We are turning strategy into action and creating value for stockholders, customers, employees and the stakeholders that depend upon our success. We believe execution of our strategic investments quarter-by-quarter, year-by-year is the key to our success. This is hard work, but I grow more confident in our future each day. Here are today's highlights: We delivered $278 million of adjusted EBITDA in the second quarter. In the Flat-Rolled segment, we delivered for our customers and overcame significant weather-related logistics challenges at the end of the quarter. We also announced adjustments to our blast furnace footprint. Our supply is more balanced, and we are better positioned to serve customers and optimize value. There will be a lagging effect on pricing in the third quarter, but we are beginning to see signs of a rebound. Market challenges continue in Europe and we don't see that dynamic changing soon. We made the decision to also adjust our blast furnace footprint in Europe in response to the continued market weakness. Our European business remains a through-cycle strength and we are investing in it. In Tubular, spending was up as we expected for our Lone Star number one mill restart and continued progress on our electric arc furnace construction.

Thanks, Dave. Good morning, everyone. We thought it would be helpful to give some additional insight on the financing alternatives we're considering for these projects. The funding scenario shown on slide 12 provides an example of how this should play out. Starting from the bottom, we expect to fund roughly $300 million with environmental revenue bonds. The majority of this capital is associated with the Fairfield, Alabama EAF installation. We are anticipating a 30-year term on this capital at an attractive coupon. The next source also approximately $300 million is from vendor-supported financing. This is primarily for the equipment portion of the Mon Valley project. The structure of this financing allows us to draw down as needed to match cash requirements and avoid negative carry. We can also term the structure out for up to eight years from the completion of the project. Then we have our European revolver to draw on. This facility is extremely efficient with a variable rate of EURIBOR plus 1.7% and a 0% floor. Our dynamo line construction will have first access to this capital. For the next source, we are planning to upsize our U.S. ABL and partially draw on the facility. This is also an attractive source of capital that we will utilize while maintaining strong enterprise liquidity. As the chart indicates, we can also opportunistically access the high-yield market as an additional source of financing. We have a lot of flexibility on timing as the majority of these investments is spread out over the next two and a half years. The blended rate on these five funding options would be approximately 6% based on today's index with variable-rate components. Before I turn it back to Dave, let's recap some of Q2 highlights on slide 13 and I'll also provide some context on Q3. We ended the quarter with total adjusted EBITDA of $278 million, a stronger close to the quarter than we anticipated. Our Flat-Rolled segment results were higher than the first quarter due in part to the seasonal impact of higher third-party pellet sales; higher strong shipment volumes on the commercial side; and lower scrap and natural gas prices on the costs side. This was partially offset by lower average selling prices as the spot market declined $70 per net ton in the quarter. We were able to overcome some weather-related shipping issues mentioned in our guidance press release to deliver better-than-expected results. Our team did an impressive job to arrange alternative shipping options and meet customer needs. Operationally, we performed well, running our assets effectively while taking increased outages as part of our planned asset revitalization work. Currently, we are seeing a pickup in order entry rates. However, the third quarter flat-rolled selling prices will be negatively impacted as roughly 60% of our book of business is impacted by the significant drop in market prices we experienced in Q2. The European market continues to be challenged heading into the seasonally weak third quarter. The dynamic between steel selling prices and raw material costs remains disjointed. Weakened market demand, coupled with continued high levels of imports are pressuring steel selling prices. Meanwhile, supply constraints keep iron ore prices at elevated levels. Given the seasonal slowdown combined with these market headwinds we believe Q3 results will be below the second quarter for Europe. Our Tubular segment experienced commercial challenges and investment-related spending offset by lower substrate costs. We restarted our number one welded pipe mill in June and the construction on our EAF continues as planned. With that, I'll turn it back to Dave.

Thank you, Kevin. Before we turn to Q&A, let me take a moment to recap this morning's presentation on slide 14. First and foremost, we are focused on what we control and are pleased with the execution in the quarter. We delivered second quarter adjusted EBITDA above our own expectations and continued to make progress on the execution of our strategy, but there are challenges. We will keep the business nimble. We will continue to demonstrate discipline in matching our supply with our order book, and we will continue our focus on cash and maintaining the financial flexibility we need to execute our long-term strategy. Cash is king and we don't forget that. We'll stay liquid. Kevin, let's move to Q&A.

Thank you, Dave. Operator, can you please queue the line for questions?

Hi. Good morning guys. Yeah, a few questions from me. Maybe just starting with working capital for the quarter $140 million just wondering whether you could comment on the rest of the year the outlook for working capital? Thanks.

Yeah. So we were happy – this is Kevin Bradley. We were happy with the progress we made in Q2 eating into the negative working capital impact from Q1. We typically consume capital in Q1. That's a seasonal thing. What we're looking to do is over the remainder of the year make up the rest of that and turn positive working capital. We've got a lot of work to do, but for the full year, we think we can make up the rest of that deficit and have a positive number by year-end.

Okay. Thanks. And then just in terms of the idling that you started in the quarter just wondering whether you could comment on the cost to idle versus the operational savings you expect? Thanks.

Yeah. Chris, this is Kevin Lewis. We probably won't get into the details on the idling costs that we incur, but what I will say and to broadly leave some context this is certainly an enterprise decision. So we certainly are taking in consideration the idling costs, but we believe that the benefits more than offset that. So we'll continue to analyze and evaluate the market. We'll continue to analyze our order book and our footprint and the impacts our decisions have on our profitability this year and we will make the decision most optimal for the business.

All right. Okay. Thanks. And then the last one for me. It's slide 24 in the presentation I'm looking at the $1.6 billion of capital needs where you split up the way that you'll finance the business, just wondering, if you can comment a little bit on expected cash generation over that time. You've obviously allocated all the capital buckets through other means other than actual cash off the business so just wondering your thoughts on what you'll generate. And then also given the capital needs in front of you, just wondering whether you could comment on the $70 million of shares you repurchased in the first half of the year and what -- why that's done when you need the capital for these projects? Thanks.

Okay. I'll take that. We're not going to comment on free cash flow expectations. Clearly we're going to be in investment mode here for the next couple of years. And that's going to put some pressure on free cash flow, but as you guys know the balance sheet is in great position to handle that. But we're not going to forecast EBITDA out over the long-term. You comment on the share repurchase, right? We announced that program $300 million over a two-year period. You can see now through June and the first seven months of the program, we've extinguished about half of that. So we're pleased with our utilization of the share repurchase program. However, as we get into this mode of investment, we're pretty excited about the return prospects obviously. And we're looking at what's going on in the market and within the company. And you can expect us to pace the level of share buybacks that you've been seeing over the last couple of quarters, so you can expect a slowdown in the utilization of the program for a while as we kind of move into full-on high return investment mode.

And the next question comes from the line of Karl Blunden with Goldman Sachs. Please proceed with your question.

Hi, good morning, guys. Thanks for taking the question. Just with regard to the financing for the investments that you've outlined on the slide. It's a very helpful slide and I think it helps us understand the range of sources that you have. I guess two questions related to that. If there are cash flow shortfalls, is the -- does the plus there on the high-yield market imply that that's where it will be made up? And then as you think about timing, looks like the high-yield markets have been by far the most volatile of all these sources of financing so how do you think about market risk with the high-yield market being relatively stable right now potentially prefunding that and leaving the more stable sources for another time?

Thanks, Karl. Appreciate the question yes the high-yield piece being higher. We're pretty pleased with the way our bonds have been trading in an improved fashion certainly not where we want them to be, but the healing has been occurring over the last several weeks as you point out. We're hoping that that continues. Can the high-yield portion be higher? Absolutely. But we've got a $1.5 billion ABL. The amount that we're comfortable drawing down on that could also be higher than what's indicated on that page. So I would say those are probably the two big topple points depending on what's happening with the cash flow, a little more into the ABL or a little bit higher on the high-yield or both.

Got you. Thanks. Then it's probably a small one but the results actually came in quite well relative to your pre announcement. Were there a couple factors there? Or just maybe some information wasn't available at the time of the pre-announcement in terms of the reported EBITDA versus the guide?

Yeah, there were a few things that impacted but the anchor tenet in the beat versus our guidance was we were looking at the flooding situation that was happening and our ability to get shipments out to key customers. The team as I mentioned in my opening remarks did a pretty good job of toggling between different shipping alternatives and getting much more out than we expected in those last couple of weeks to some pretty important customers. So it was actually increased shipping at pretty good DCMs that drove a good percentage of that upside versus the guide.

We -- frankly we were impressed with the team. The legit six teams at our plants and at corporate work so well together that they exceeded all of our expectations. And we're delighted that they're able to get that volume out the door when we didn't think it was possible.

And our next question comes from the line of Dave Gagliano with BMO. Please proceed with your question.

Okay, thanks. So just to keep along the same line of questioning on the financing side. It -- and I think you may have covered it off, but just to address it a little more directly. It looks like in our numbers we have about a $2.5 billion cash burn between now and 2022. We've got some -- somewhat optimistic price assumptions embedded in those numbers. So, obviously, you mentioned the debt side and the potential debt size as well. Is equity also being considered as an alternative?

We're -- in the end we'll consider all alternatives. We're not seeing that as a necessary option for us through this investment period. We're in really good shape coming into this. We came into 2019 with probably the best balance sheet we've had in 10 years. We've managed our maturity profile extremely well, so we're sitting in a really good position as we start this investment period. Clearly we're going to be prudent. We're going to be disciplined in how we approach this. We're going to be acutely aware what's happening within our business and across the industry to make sure that we never put this company in harm's way, but I got to say we're -- we've got a lot of confidence here in our ability to execute on this funding approach. And we've got time on our side. We are aware of the market risks and we're going to manage those appropriately, but we're feeling really good in our ability to execute this without equity.

And let me just add to that. I do think we've done a commendable job on cash over the last few years. And we have a balance sheet where we don't have a significant debt due until 2025. And meanwhile, we have a very disciplined process for managing cash and actually rewarding people up and down the company based upon cash conversion cycle times. So people can feel the pulse of cash in their pocketbook. And so, frankly this is a weekly process. And it gets cascaded through the organization from our CFO and supply chain leaders, so that everybody from top of the company and through the operational side of the business understands that cash is king. And I think that's reflected in how we've been able to demonstrate a superior cash conversion cycle time over the last few years.

Okay. That's helpful. Thank you. And then just as a follow-up, switching gears to the near term. Thank you for the near-term market color as well. In terms of other drivers in the second half, can you just give us a little color on things like outage costs? I think there were about -- in total across the company about $50 million or something like that across the three segments. What should we assume for outage costs in the third quarter and fourth quarter and any other major pluses or minuses?

Yes. David, this is Kevin Lewis. So I think the second quarter was clearly a really important quarter for us related to planned outages and asset revitalization work. As we look at third quarter, we don't see any outages to that magnitude in the third quarter, so I would expect outage costs to be an opportunity in the third quarter and for the rest of the year. So I think most of the work is behind us. Second quarter is really an important quarter for us and we execute extremely well.

And our next question comes from the line of Timna Tanners with Bank of America Merrill Lynch. Please proceed with your question.

Hey good morning. Happy Friday. I wanted to follow up on the cash questions. The cash position was the lowest that I saw and since Q4 of 2013. Is there a minimum level that you'd manage for? Or can you talk to that a little bit just from the balance sheet? And then, if I could also, I wanted to hear a little bit more about the Clairton situation given there is another filing. You put out a release. We haven't really heard from you on that topic. Is this behind us now the -- has the -- and will the payment suffice all of the concerns from the air quality management district? Are there other potential liabilities related to that?

Timna, I'll start with the cash. We're looking to maintain a minimum cash balance of $0.5 billion through the investment period as well as a minimum of ABL access of $1 billion. And as of now, we're also looking to retain our secured financing capacity and right now that sits at about $1.2 billion. So we're -- that's kind of how we're looking at liquidity and secured capacity through the investment period as of now.

Okay. Thanks. Regarding Clairton?

This is another of these multipart questions. So the second part of your question, I believe was related to Clairton. On June 17, we had this very small electrical disruption that impacted the desulfurization process. We had full restoration of the desulfurization process within the day without any exceed incidents recorded by the ambient air monitors that day. So basically even on the worst day, we were in compliance. There was no material financial impact from this intraday event and that facility is running exceptionally well. Of course, we do have pending litigation and we don't comment on any litigation.

And the next question comes from the line of Matt Fields with Bank of America Merrill Lynch. Please proceed with your question.

Hey, everyone. Thanks for all the clarity on the funding and financing questions. I want to -- don't want to beat a dead horse, but I'm going there too. The slide on page 24 that shows the investments by year is very helpful, but I was hoping to get like a more holistic picture of your cash needs for that time period. I know there's still about $1 billion left on the asset revitalization program between 2019 and 2020, $200 million that you're going to have to spend at Clairton as part of the agreement with the health department; and then sustaining CapEx which would be about $875 million per year based on slide 21 before the investments are done. So, can we get maybe a breakdown of your sort of total CapEx and investment needs for those 2019, 2020 and 2021 buckets?

Yes, I don't think, we're going to give that Matt. We're not going to forecast out all the specifics of CapEx and cash flow. Obviously, it'll depend on what the market brings us in terms of pricing and then EBITDA potential, so we're going to stay away from that for now.

Is the general kind of amounts that I mentioned sort of about right if -- they might be up or down at any given year, but are those the right way the sort of aggregate buckets the right way to think about it?

I think your outline is fair. Obviously we're going to continue with our revitalization as planned and complete the strategic projects. So, the mathematical walk I think is directionally correct.

I think an important point here with all these things is we need to be nimble. We need to adapt. And we're going to make sure that we manage the cash needs to ensure that we execute these strategic projects and secure this long-term future. It's really important that we continue to focus on cash and I think we've demonstrated that we can manage this well. And frankly, we're going to spend some money for a time in order to get the kinds of returns that our stockholders deserve.

Okay. Great. Thank you. And if I can ask a follow-up. In Europe, you mentioned that 3Q will be kind of below 2Q. Are you getting hit on carbon pricing in that market? Are you sort of getting a step down in free carbon credits? Is that leading to part of that?

Yeah. I think that's fair. Certainly, carbon costs CO2 credits have become more expensive and were certainly a headwind in the second quarter and expected to continue throughout the rest of the year. Certainly, the raw materials dynamics that are occurring in Europe and the dislocation on steel prices is another headwind given the kind of the import -- the high levels of imports that continue to occur. So, multiple moving pieces. Carbon is definitely one of them in addition to the kind of the steel pricing levels as well as the continued raw material challenges.

And the next question comes from the line of John Tumazos from John Tumazos Very Independent Research. Please proceed with your question.

Thank you for taking my questions. Concerning the tubular melt shop you're building, do you have an electrode contract and supply lined up first? Do you intend to be selling slabs with melt capacity, I guess 1.6 million tons more than the seamless mill capacity? And third what grades of scrap would you or pig iron would you be buying for a seamless production as opposed to carbon slab third-party sales? And excuse me. Just for the other analysts: Clairton is where the stars of the Deer Hunter movie in 1977 were from or won the Pennsylvania state championship four years in a row. Tyler Boyd of the Bengals went to Clairton high school in Pitt. Clairton is an over-the-counter pharmaceutical. Excuse me.

Okay, well...

Wow, there's a lot in all of that and John thanks for the history lesson too. I'll just turn it to Kevin here in just a minute. I was actually there a couple weeks ago and I can tell you the execution on the electric arc furnace is going very well. I can tell you the group down there is incredibly energized. Again, we're focusing on on-time, on-budget and delivering the value that we must deliver here. Kevin as far as the other question, you'd take those, or that's another like three or four questions at once; makes it a little tough.

Yeah, sure. Yeah, no, no. So I think on the procurement side I think the team is well positioned to make sure that we have all procurement items lined up and ready to go. The project management team continues to be on track so I think we're in good shape there. From a slabs perspective, as we've talked about before we're really not looking to -- for a slab production as a way to justify this investment. So it's not currently in the business case. We're currently focused solely on the -- on rounds production construction of the EAF as well as enhancements to the rounds caster. So the in-sourcing of rounds continues to be the anchor tenet in the business case and that's how we see us using and leveraging that asset on a go-forward basis.

And our next question comes from the line of Nick Jarmoszuk with Stifel. Please proceed with the question.

Hi. Good morning. Back to the capital raise questions. So with the five debt buckets that you presented on slide 12, how do you think about which are the first dollars coming in? And which would be the last dollars you'd be raising? Kevin Bradley : Yeah, I think the environmental bonds given the EAF project is underway is probably something we would do in the early stages. And I would also -- as we move forward on the Mon Valley, I think we'll be looking at the vendor-supported financing as well. The ABL upsizing could happen pretty much at any time, so I'd say those are probably the three on the front end. But again, the high yields component we're just looking to be opportunistic. That will be a chunk of it, but we've got some time. We think the healing in that market has been positive, but we'd like a little bit more before we commit to something on that tranche.

Now if I interpret your answer to one of the earlier questions correctly, it sounds like you would only issue unsecured debt because you want to keep the $1.2 billion of secured issuance always available. Is that accurate?

Yeah. That's our preference. We're not ruling out secured, but we'd like to keep that secured capacity. And we see that as an important part of our risk mitigation so we'd like to keep as much of that $1.2 billion available as possible, but not ruling out secured debt as an option to fund this.

To be really clear on this, we think we have the -- we know we have the type of flexibility that -- to run this business well with these strategic investments, but we will pace things appropriately. If we can move faster because the business is healthier, we'll move faster. If we need to pull back a little bit, we'll do that as well. We're going to adapt and be nimble to whatever comes our way, because we've got to get these things done. And so far, I'm really encouraged with the execution capability that the team is showing on the projects. So, we have a flexible balance sheet, much more than in the past, so we're going to get it done.

Okay. And then last question on the idled blast furnaces. How long would you keep those on maintenance before you would look to make a final decision as to whether you would permanently decommission them?

With all these things, we always start with the customer right? We have to understand what the customer needs are, what's the order book. And we want to make sure that we're able to sell the value and create the value for our stockholders, so -- and again this is at the appropriate pace, at the appropriate time, and we'll make sure that we manage that well.

Well, let's assume that we stay in this sort of $600 HRC environment. I can't imagine that you would bring them back online. So if we stay in the $600 zip code, would you go two years, three years before you make a final decision? And ultimately, I think that will be a positive for the market, because then there is not going to be this ongoing threat of having two blast furnaces coming back online and flooding the market.

I would say what we're looking for and what really influences our decision making is sustainable improvements and market conditions that have a positive impact on our order book. So, we will continue to assess the market, the sustainability of improvements, and as Dave mentioned, we always make decision that's in the best interest of the enterprise and one that allows us to service our customers with the highest levels.

And our next question comes from the line of Paretosh Misra of Berenberg. Please proceed with your question.

Thank you. Thank you for taking my question. Can you talk about what are you seeing in the U.S. domestic market? I mean there have been three price increase announced. What's been the customer response? What -- how are the customer inventories? And any other color on different end markets, which markets are strong which are weak? Thank you.

Yeah, sure. So, I think it's clear to everybody, certainly if you look at index prices that we reached a bottom in late June. Four weeks of consecutive price increases for CRU is certainly a positive indication. Our business is still going to be impacting the third quarter, as Kevin mentioned in his prepared remarks, given the flow-through on our adjustable contracts. So, we probably still have a little bit of that market downturn in 2Q, yet to feel, but indications are positive. Lead times have extended to over five weeks. That is certainly an encouraging sign. Market chatter on scrap price is certainly positive and suggests that the positive momentum is enduring. And market demand is generally strong. So, like I said, we have positive indications of continued positive momentum, but we will have a little bit of a flow-through through the Flat-Rolled business here into 3Q. So, hopefully that answers the question.

Yeah. Thank you. And just as a follow-up on Tubular, how should we think about costs in Q3? Is -- lower steel prices will that be a tailwind next quarter or...

Yeah, no. I think when we look at the Tubular business we generally describe that business as relatively stable. Certainly what you're seeing from an end market perspective is, demand has been a little bit soft, but rig efficiency has certainly been better. So, steel demand not terrible. Imports remain in pretty high levels of demand, which is kind of having some pricing pressure. But we're going to continue obviously with the execution of the EAF construction, which will have some cost impacts in the quarter on a go-forward basis, but the Tubular business is looking pretty stable as we look ahead.

And Mr. Lewis, I'll turn the call back over to you for your closing remarks.

All right. Thank you. With that, I will hand you over to Dave to conclude today's call.

Thanks everyone for your interest in U.S. Steel. Before we sign off, I want to reinforce a few key messages. We are making this business stronger and more competitive. We are turning our strategy into action by executing to drive capability and cost improvements through investments in technology, to differentiate in the most strategic markets supported by an asset base that can offer the market with thick and thin-gauge products and everything in-between; become the best of both integrated and mini mill technology; leverage the competitive advantages of an integrated steel mill producer while investing in state-of-the-art sustainable steel technology. Finally, to our employees, I know I speak for the entire leadership team when I say thank you. Thank you for your hard work. Thank you for your commitment to safety, and thank you for your focus on protecting our shared environment. We have made great progress and our future is bright. Now, we'll get back to work.

Thank you. That does conclude the conference today. We thank you for your participation, and ask that you please disconnect your lines. Have a great day.