• Sales Volume Growth: Increased 9% year over year in Q3 2024; up 13% year-to-date from the prior year.
• Cash COGS Reduction: Achieved a 28% year over year decrease in cash COGS per metric ton in Q3 2024.
• Free Cash Flow: Generated $20 million in free cash flow during Q3 2024.
• Net Loss: Reported a net loss of $36 million or 14 per share for Q3 2024.
• Adjusted EBITDA: Negative $6 million for Q3 2024, compared to $1 million in Q3 2023.
• Sales Volume: 26,000 metric tons in Q3 2024, with 23,000 metric tons non-LTA sales at $4,100 per metric ton and 3,000 metric tons LTA sales at $7,700 per metric ton.
• Net Sales Decline: Decreased 18% compared to Q3 2023.
• Liquidity: Total liquidity of approximately $254 million at the end of Q3 2024.
• New Financing: Entered into a $275 million delayed draw term loan, with $175 million to be drawn at closing.
• Debt Maturity Extension: Existing $950 million senior notes extended by one year to December 2029.
• Revolving Credit Facility: New $225 million facility maturing in November 2028, replacing the previous $330 million facility.

• Warning! GuruFocus has detected 6 Warning Signs with EAF.

Release Date: November 12, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• GrafTech International Ltd (NYSE:EAF) reported a significant increase in sales volume, up 9% year over year and 13% on a year-to-date basis, despite a challenging demand environment.
• The company successfully generated $20 million in free cash flow during the third quarter, demonstrating strong cash flow performance.
• GrafTech International Ltd (NYSE:EAF) achieved a 28% year-over-year decrease in cash COGS per metric ton, exceeding expectations and leading to an updated full-year guidance for cost improvements.
• The company announced a new financing transaction to improve liquidity and extend debt maturities, providing strategic flexibility for future growth opportunities.
• GrafTech International Ltd (NYSE:EAF) is making progress in regaining lost market share and has entered into new strategic multiyear electrode sales agreements, reflecting customer confidence in their products and services.

Negative Points

• The company reported a net loss of $36 million for the third quarter, with adjusted EBITDA at negative $6 million, reflecting lower pricing and a shift towards non-LTA volumes.
• The global steel industry remains constrained by economic uncertainty and geopolitical conflict, leading to a weak demand environment for graphite electrodes.
• GrafTech International Ltd (NYSE:EAF) experienced a 24% year-over-year decline in weighted average price for non-LTA sales, contributing to an 18% decrease in net sales compared to the third quarter of 2023.
• The company's production volume was down to 19,000 metric tons, resulting in a capacity utilization rate of 46%, impacted by planned maintenance shutdowns at European facilities.
• The graphite electrode industry continues to face low capacity utilization and weak pricing dynamics, with ongoing competitive pressures from increased electrode exports from countries like India and China.

Q & A Highlights

Q: How does the recent spot pricing decline for graphite electrodes compare to needle coke pricing, and what are the expectations for future pricing? A: Spot pricing for graphite electrodes has declined steadily, ending the quarter at about $4,150 per metric ton. Needle coke prices have remained relatively stable, ranging from $1,000 to $1,300 depending on grade and jurisdiction. While the electrode market remains challenging, a rebound in pricing is anticipated due to expected demand increases for needle coke and graphite electrodes. The current pricing levels are not sustainable, and actions such as supply reductions or pricing adjustments are necessary for market health. - Timothy Flanagan, CEO

Q: What are the expectations for cost reductions and sales growth in the coming quarters? A: GrafTech has made significant progress in controlling costs, with a 28% year-over-year reduction in cash COGS per metric ton. The company expects further cost reductions in 2025, driven by increased volumes and fixed cost leverage. Sales volume is expected to grow in the low double digits next year, supported by market recovery, new product offerings, and regained market share. - Rory O'Donnell, CFO

Q: How is the company approaching the potential impact of changes in government policies on the battery market? A: GrafTech remains optimistic about its ability to leverage its assets in the needle coke market, regardless of potential changes in government policies. The company is focused on maintaining a domestic supply chain for electric vehicle batteries, which is seen as a good business practice. The demand for needle coke as a precursor for anode materials in EV batteries is expected to grow, supporting GrafTech's strategic positioning. - Timothy Flanagan, CEO and Jeremy Halford, COO

Q: What is the company's strategy regarding production and inventory management? A: GrafTech has strategically managed production and inventory levels, aligning them with sales to optimize costs and maintain equipment. The company plans to keep production and sales aligned through the rest of the year and expects to rebuild inventory in 2025 to support anticipated growth. The focus remains on achieving the greatest return on assets while managing costs effectively. - Jeremy Halford, COO

Q: Can you provide details on the new financing transaction and its impact on GrafTech's financial position? A: GrafTech has secured a $275 million delayed draw term loan and extended the maturity of its existing debt, significantly enhancing liquidity and operational flexibility. The transaction removes liquidity concerns, allowing the company to focus on cost control and customer engagement. The new capital structure includes customary covenants, with no surprises that would prevent accessing the additional draw. - Rory O'Donnell, CFO

For the complete transcript of the earnings call, please refer to the full earnings call transcript.