Market trends improved throughout the first
quarter
GrafTech International Ltd. (NYSE: EAF) (GrafTech or the
Company) today announced financial results for the quarter ended
March 31, 2021.
First Quarter 2021 Highlights
- Reported net income of $99 million, or $0.37 per share, and net
income margin of 32%
- Adjusted EBITDA1 of $155 million, for a 51% margin2
- Generated cash flow from operating activities of $122
million
- Reduced debt by $150 million and lowered interest rate on our
Term Loan by 100 basis points
- Sales volume of 37 thousand metric tons (MT) increased 9%
compared to the first quarter of 2020
- Production volume of 36 thousand MT increased 9% compared to
the first quarter of 2020
CEO Comments
President and Chief Executive Officer David Rintoul commented,
“We are pleased with our first quarter results as we achieved
improvement in key production and sales volume metrics, while
further strengthening our balance sheet by reducing our long term
debt and lowering our interest rate. Once again, our team remained
focused on executing our strategy, delivering results, and
positioning the company as market conditions improve.
“We are encouraged by developments in the current market for
graphite electrodes as we are seeing increased demand for our
products, which is beginning to have a positive influence on spot
prices. We expect to see improvement in our reported non-LTA
pricing in the second half of 2021. We believe GrafTech is well
positioned for success given the long term growth opportunity
associated with the benefits of electric arc furnace steel
production.”
First Quarter 2021 Financial Performance
(dollars in thousands, except per share amounts)
Q1 2021
Q4 2020
Q1 2020
Net sales
$
304,397
$
338,010
$
318,646
Net income
$
98,799
$
125,096
$
122,268
Earnings per share3
$
0.37
$
0.47
$
0.45
Adjusted EBITDA1
$
155,045
$
175,538
$
179,178
Cash flow from operations
$
122,425
$
146,981
$
139,283
Free cash flow4
$
108,251
$
141,594
$
125,382
- 51% adjusted EBITDA2 margin in the first quarter
- 70% of adjusted EBITDA converted to free cash flow5 in the
first quarter
Operational and Commercial Update
GrafTech continues to focus on strong execution. Our plants
achieved a 95% on-time delivery rate in the first quarter, and we
are currently increasing production with the improving demand for
graphite electrodes.
Key operating metrics
(in thousands, except
percentages)
Q1 2021
Q4 2020
Q1 2020
Sales volume (MT)6
37
37
34
Production volume (MT)7
36
36
33
Production capacity excluding St. Marys
(MT)8, 9
51
52
51
Capacity utilization excluding St. Marys8,
10
71
%
69
%
65
%
Total production capacity (MT)9, 11
58
59
58
Total capacity utilization10, 11
62
%
61
%
57
%
GrafTech reported solid results in the first quarter of 2021,
with sales volumes of 37 thousand MT, consisting of long term
agreement (LTA) volumes of 26 thousand MT at an average approximate
price of $9,500 per MT and non-LTA volumes of 11 thousand MT at an
average approximate price of $4,200 per MT.
The estimated shipments of graphite electrodes for the final two
years of the initial term under our LTAs and for the years 2023
through 2024 remain unchanged from our prior estimate as
follows:
2021
2022
2023 through 2024
Estimated LTA volume (in thousands of
MT)
98-108
95-105
35-45
Estimated LTA revenue (in millions)
$925-$1,025
$910-$1,010
$350-$45012
Global steel market capacity utilization
rates have continued to improve sequentially:
Q1 2021
Q4 2020
Q1 2020
Global (ex-China) capacity utilization
rate13
73%
72%
71%
U.S. steel market capacity utilization
rate14
77%
72%
79%
With the improved market demand, we expect sales volumes to
increase through the balance of the year.
Capital Structure and Capital Allocation
As of March 31, 2021, GrafTech had cash and cash equivalents of
$96 million and total debt of approximately $1.3 billion.
Our 2021 capital expenditure range expectations are unchanged,
between $55 and $65 million, and we continue to expect our primary
use of cash to be debt repayment.
Conference Call Information
In conjunction with this earnings release, you are invited to
listen to our earnings call being held on May 5, 2021 at 10:00 a.m.
Eastern Time. The webcast and accompanying slide presentation will
be available at www.GrafTech.com, in the Investors section. The
earnings call dial-in number is +1 (866) 521-4909 toll-free in the
U.S. and Canada or +1 (647) 427-2311 for overseas calls, conference
ID: 3248097. A replay of the Conference Call will be available
until August 5, 2021 by dialing +1 (800) 585-8367 toll-free in the
U.S. and Canada or +1 (416) 621-4642 for overseas calls, conference
ID: 3248097. A replay of the webcast will also be available on our
website until August 5, 2021, at www.GrafTech.com, in the Investors
section. GrafTech also makes its complete financial reports that
have been filed with the Securities and Exchange Commission (SEC)
and other information available at www.GrafTech.com. The
information in our website is not part of this release or any
report we file or furnish to the SEC.
About GrafTech
GrafTech International Ltd. is a leading manufacturer of
high-quality graphite electrode products essential to the
production of electric arc furnace steel and other ferrous and
non-ferrous metals. The Company has a competitive portfolio of low
cost graphite electrode manufacturing facilities, including three
of the highest capacity facilities in the world. We are the only
large-scale graphite electrode producer that is substantially
vertically integrated into petroleum needle coke, our primary raw
material for graphite electrode manufacturing. This unique position
provides competitive advantages in product quality and cost.
________________________
1 A non-GAAP financial measure, see below
for more information and a reconciliation of EBITDA and adjusted
EBITDA to net income, the most directly comparable financial
measure calculated and presented in accordance with GAAP.
2 Adjusted EBITDA margin is calculated as
adjusted EBITDA divided by net sales (Q1 2021 adjusted EBITDA of
$155 million/Q1 2021 net sales of $304 million).
3 Earnings per share represents diluted
earnings per share.
4 A non-GAAP financial measure, see below
for more information and a reconciliation of free cash flow to cash
flow from operating activities, the most directly comparable
financial measure calculated and presented in accordance with
GAAP.
5 Free cash flow conversion is calculated
as free cash flow divided by adjusted EBITDA (Q1 2021 free cash
flow of $108 million/Q1 2021 adjusted EBITDA of $155 million).
6 Sales volume reflects only graphite
electrodes manufactured by GrafTech.
7 Production volume reflects graphite
electrodes we produced during the period.
8 In the first quarter of 2018, our St.
Marys facility began graphitizing a limited number of electrodes
sourced from our Monterrey, Mexico facility.
9 Production capacity reflects expected
maximum production volume during the period under normal operating
conditions, standard product mix and expected maintenance outage.
Actual production may vary.
10 Capacity utilization reflects
production volume as a percentage of production capacity.
11 Includes graphite electrode facilities
in Calais, France; Monterrey, Mexico; Pamplona, Spain; and St.
Marys, Pennsylvania.
12 Includes expected termination fees from
a few customers that have failed to meet certain obligations under
their long term agreements.
13 Source: World Steel Association and
Metal Expert.
14 Source: American Iron and Steel
Institute.
Special note regarding forward-looking statements
This news release and related discussions may contain
forward-looking statements that reflect our current views with
respect to, among other things, future events and financial
performance. You can identify these forward-looking statements by
the use of forward-looking words such as “will,” “may,” “plan,”
“estimate,” “project,” “believe,” “anticipate,” “expect,”
“foresee,” “intend,” “should,” “would,” “could,” “target,” “goal,”
“continue to,” “positioned to,” “are confident”, or the negative
versions of those words or other comparable words. Any
forward-looking statements contained in this release are based upon
our historical performance and on our current plans, estimates and
expectations considering information currently available to us. The
inclusion of this forward-looking information should not be
regarded as a representation by us that the future plans,
estimates, or expectations contemplated by us will be achieved. Our
expectations and targets are not predictions of actual performance
and historically our performance has deviated, often significantly,
from our expectations and targets. These forward-looking statements
are subject to various risks and uncertainties and assumptions
relating to our operations, financial results, financial condition,
business, prospects, growth strategy and liquidity. Accordingly,
there are or will be important factors that could cause our actual
results to differ materially from those indicated in these
statements. We believe that these factors include, but are not
limited to: the ultimate impact that the COVID-19 pandemic has on
our business, results of operations, financial condition and cash
flows; the cyclical nature of our business and the selling prices
of our products may lead to periods of reduced profitability and
net losses in the future; the possibility that we may be unable to
implement our business strategies, including our ability to secure
and maintain longer-term customer contracts, in an effective
manner; the risks and uncertainties associated with litigation,
arbitration, and like disputes, including the current stockholder
litigation and disputes related to contractual commitments; the
possibility that global graphite electrode overcapacity may
adversely affect graphite electrode prices; pricing for graphite
electrodes has historically been cyclical and the price of graphite
electrodes may continue to decline in the future; the sensitivity
of our business and operating results to economic conditions and
the possibility others may not be able to fulfill their obligations
to us in a timely fashion or at all; our dependence on the global
steel industry generally and the electric arc furnace steel
industry in particular; the competitiveness of the graphite
electrode industry; our dependence on the supply of petroleum
needle coke; our dependence on supplies of raw materials (in
addition to petroleum needle coke) and energy; the possibility that
our manufacturing operations are subject to hazards; changes in, or
more stringent enforcement of, health, safety and environmental
regulations applicable to our manufacturing operations and
facilities; the legal, compliance, economic, social and political
risks associated with our substantial operations in multiple
countries; the possibility that fluctuation of foreign currency
exchange rates could materially harm our financial results; the
possibility that our results of operations could deteriorate if our
manufacturing operations were substantially disrupted for an
extended period, including as a result of equipment failure,
climate change, regulatory issues, natural disasters, public health
crises, such as the COVID-19 pandemic, political crises or other
catastrophic events; our dependence on third parties for certain
construction, maintenance, engineering, transportation, warehousing
and logistics services; the possibility that we are unable to
recruit or retain key management and plant operating personnel or
successfully negotiate with the representatives of our employees,
including labor unions; the possibility that we may divest or
acquire businesses, which could require significant management
attention or disrupt our business; the sensitivity of goodwill on
our balance sheet to changes in the market; the possibility that we
are subject to information technology systems failures,
cybersecurity attacks, network disruptions and breaches of data
security; our dependence on protecting our intellectual property;
the possibility that third parties may claim that our products or
processes infringe their intellectual property rights; the
possibility that significant changes in our jurisdictional earnings
mix or in the tax laws of those jurisdictions could adversely
affect our business; the possibility that our indebtedness could
limit our financial and operating activities or that our cash flows
may not be sufficient to service our indebtedness; the possibility
that restrictive covenants in our financing agreements could
restrict or limit our operations; the fact that borrowings under
certain of our existing financing agreements subject us to interest
rate risk; the possibility of a lowering or withdrawal of the
ratings assigned to our debt; the possibility that disruptions in
the capital and credit markets could adversely affect our results
of operations, cash flows and financial condition, or those of our
customers and suppliers; the possibility that highly concentrated
ownership of our common stock may prevent minority stockholders
from influencing significant corporate decisions; the possibility
that we may not pay cash dividends on our common stock in the
future; the fact that certain of our stockholders have the right to
engage or invest in the same or similar businesses as us; the
possibility that the market price of our common stock could be
negatively affected by sales of substantial amounts of our common
stock in the public markets, including by Brookfield Asset
Management Inc. and its affiliates; the fact that certain
provisions of our Amended and Restated Certificate of Incorporation
and our Amended and Restated By-Laws could hinder, delay or prevent
a change of control; the fact that the Court of Chancery of the
State of Delaware will be the exclusive forum for substantially all
disputes between us and our stockholders; and the loss of our
status as a “controlled company” within the meaning of the New York
Stock Exchange corporate governance standards, which will result in
us no longer qualifying for exemptions from certain corporate
governance requirements.
These factors should not be construed as exhaustive and should
be read in conjunction with the other cautionary statements,
including the Risk Factors sections included in our most recent
Annual Report on Form 10-K and other filings with the SEC. The
forward-looking statements made in this press release relate only
to events as of the date on which the statements are made. We do
not undertake any obligation to publicly update or review any
forward-looking statement, except as required by law, whether as a
result of new information, future developments or otherwise.
Non-GAAP financial measures
In addition to providing results that are determined in
accordance with GAAP, we have provided certain financial measures
that are not in accordance with GAAP. EBITDA, adjusted EBITDA,
adjusted EBITDA margin, free cash flow and free cash flow
conversion are non-GAAP financial measures.
We define EBITDA, a non-GAAP financial measure, as net income or
loss plus interest expense, minus interest income, plus income
taxes and depreciation and amortization. We define adjusted EBITDA
as EBITDA plus any pension and other post-employment benefit
("OPEB") plan expenses, initial and follow-on public offering and
related expenses, non-cash gains or losses from foreign currency
remeasurement of non-operating liabilities in our foreign
subsidiaries where the functional currency is the U.S. dollar,
related party Tax Receivable Agreement expense, stock-based
compensation and non-cash fixed asset write-offs. Adjusted EBITDA
is the primary metric used by our management and our board of
directors to establish budgets and operational goals for managing
our business and evaluating our performance.
We monitor adjusted EBITDA as a supplement to our GAAP measures,
and believe it is useful to present to investors, because we
believe that it facilitates evaluation of our period-to-period
operating performance by eliminating items that are not operational
in nature, allowing comparison of our recurring core business
operating results over multiple periods unaffected by differences
in capital structure, capital investment cycles and fixed asset
base. Adjusted EBITDA margin is also a non-GAAP financial measure
used by our management and our board of directors as supplemental
information to assess the Company’s operational performance and is
calculated as adjusted EBITDA divided by net sales. In addition, we
believe adjusted EBITDA, adjusted EBITDA margin and similar
measures are widely used by investors, securities analysts, ratings
agencies, and other parties in evaluating companies in our industry
as a measure of financial performance and debt-service
capabilities. We also monitor the ratio of total debt to trailing
twelve month adjusted EBITDA, because we believe it is a useful and
widely used way to assess our leverage.
Our use of adjusted EBITDA has limitations as an analytical
tool, and you should not consider it in isolation or as a
substitute for analysis of our results as reported under GAAP. Some
of these limitations are:
- adjusted EBITDA does not reflect changes in, or cash
requirements for, our working capital needs;
- adjusted EBITDA does not reflect our cash expenditures for
capital equipment or other contractual commitments, including any
capital expenditure requirements to augment or replace our capital
assets;
- adjusted EBITDA does not reflect the interest expense or the
cash requirements necessary to service interest or principal
payments on our indebtedness;
- adjusted EBITDA does not reflect tax payments that may
represent a reduction in cash available to us;
- adjusted EBITDA does not reflect expenses relating to our
pension and OPEB plans;
- adjusted EBITDA does not reflect the non-cash gains or losses
from foreign currency remeasurement of non-operating liabilities in
our foreign subsidiaries where the functional currency is the U.S.
dollar;
- adjusted EBITDA does not reflect initial and follow-on public
offering and related expenses;
- adjusted EBITDA does not reflect related party Tax Receivable
Agreement expense;
- adjusted EBITDA does not reflect stock-based compensation or
the non-cash write-off of fixed assets; and
- other companies, including companies in our industry, may
calculate EBITDA, adjusted EBITDA and adjusted EBITDA margin
differently, which reduces its usefulness as a comparative
measure.
Free cash flow, a non-GAAP financial measure, is a metric used
by our management and our board of directors to analyze cash flows
generated from operations. We define free cash flow as net cash
provided by operating activities less capital expenditures. We
believe free cash flow is useful to present to investors because we
believe that it facilitates comparison of the Company’s performance
with its competitors. Free cash flow conversion is also a non-GAAP
financial measure used by our management and our board of directors
as supplemental information to evaluate the Company’s ability to
convert earnings from our operational performance to cash. We
calculate free cash flow conversion as free cash flow divided by
adjusted EBITDA.
In evaluating EBITDA, adjusted EBITDA, adjusted EBITDA margin,
free cash flow and free cash flow conversion, you should be aware
that in the future, we will incur expenses similar to the
adjustments in the reconciliation presented below. Our
presentations of EBITDA, adjusted EBITDA, adjusted EBITDA margin,
free cash flow and free cash flow conversion should not be
construed as suggesting that our future results will be unaffected
by these expenses or any unusual or non-recurring items. When
evaluating our performance, you should consider EBITDA, adjusted
EBITDA, adjusted EBITDA margin, free cash flow and free cash flow
conversion alongside other financial performance measures,
including our net income (loss) and cash flow from operating
activities, respectively, and other GAAP measures.
GRAFTECH INTERNATIONAL LTD.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE
SHEETS
(Dollars in thousands)
Unaudited
As of March 31, 2021
As of December 31,
2020
ASSETS
Current assets:
Cash and cash equivalents
$
96,446
$
145,442
Accounts and notes receivable, net of
allowance for doubtful accounts of
$9,065 as of March 31, 2021 and $8,243 as
of December 31, 2020
195,930
182,647
Inventories
250,810
265,964
Prepaid expenses and other current
assets
40,544
35,114
Total current assets
583,730
629,167
Property, plant and equipment
786,124
784,902
Less: accumulated depreciation
287,666
278,685
Net property, plant and equipment
498,458
506,217
Deferred income taxes
32,446
32,551
Goodwill
171,117
171,117
Other assets
92,370
93,660
Total assets
$
1,378,121
$
1,432,712
LIABILITIES AND STOCKHOLDERS’
EQUITY
Current liabilities:
Accounts payable
$
82,594
$
70,989
Short-term debt
127
131
Accrued income and other taxes
33,198
48,720
Other accrued liabilities
83,679
56,501
Related party payable - tax receivable
agreement
3,922
21,752
Total current liabilities
203,520
198,093
Long-term debt
1,272,996
1,420,000
Other long-term obligations
77,284
81,478
Deferred income taxes
42,986
43,428
Related party payable - tax receivable
agreement long-term
15,176
19,098
Stockholders’ equity:
Preferred stock, par value $0.01,
300,000,000 shares authorized, none issued
—
—
Common stock, par value $0.01,
3,000,000,000 shares authorized, 267,257,592
shares issued and outstanding as of March
31, 2021 and 267,188,547
as of December 31, 2020
2,673
2,672
Additional paid-in capital
759,055
758,354
Accumulated other comprehensive loss
(20,717
)
(19,641
)
Accumulated deficit
(974,852
)
(1,070,770
)
Total stockholders’ deficit
(233,841
)
(329,385
)
Total liabilities and stockholders’
equity
$
1,378,121
$
1,432,712
GRAFTECH INTERNATIONAL LTD.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS
(Dollars in thousands, except per
share data)
Unaudited
For the Three Months Ended
March 31,
2021
2020
CONSOLIDATED
STATEMENTS OF OPERATIONS
Net sales
$
304,397
$
318,646
Cost of sales
146,396
138,917
Gross profit
158,001
179,729
Research and development
969
712
Selling and administrative expenses
20,153
14,932
Operating profit
136,879
164,085
Other expense
(354
)
(3,314
)
Related party Tax Receivable Agreement
expense (benefit)
47
(3,346
)
Interest expense
22,167
25,672
Interest income
(37
)
(1,141
)
Income before provision for income
taxes
115,056
146,214
Provision for income taxes
16,257
23,946
Net income
$
98,799
$
122,268
Basic income per common share:
Net income per share
$
0.37
$
0.45
Weighted average common shares
outstanding
267,318,860
269,216,820
Diluted income per common share:
Income per share
$
0.37
$
0.45
Weighted average common shares
outstanding
267,465,319
269,236,562
GRAFTECH INTERNATIONAL LTD.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS
(Dollars in thousands)
Unaudited
For the Three Months Ended
March 31,
2021
2020
Cash flow from operating activities:
Net income
$
98,799
$
122,268
Adjustments to reconcile net income to
cash
provided by operations:
Depreciation and amortization
16,539
14,284
Related party Tax Receivable Agreement
expense (benefit)
47
(3,346
)
Deferred income tax provision
(2,840
)
6,348
Interest expense
5,309
1,594
Other charges, net
2,349
(838
)
Net change in working capital*
25,187
27,727
Change in related-party Tax Receivable
Agreement
(21,799
)
(27,857
)
Change in long-term assets and
liabilities
(1,166
)
(897
)
Net cash provided by operating
activities
122,425
139,283
Cash flow from investing activities:
Capital expenditures
(14,174
)
(13,901
)
Proceeds from the sale of assets
151
62
Net cash used in investing activities
(14,023
)
(13,839
)
Cash flow from financing activities:
Debt issuance and modification costs
(2,971
)
—
Repurchase of common stock - non-related
party
—
(30,099
)
Principal repayments on long-term debt
(150,000
)
—
Dividends paid to non-related party
(1,394
)
(5,926
)
Dividends paid to related party
(1,277
)
(16,933
)
Other
(1,120
)
(46
)
Net cash used in financing activities
(156,762
)
(53,004
)
Net change in cash and cash
equivalents
(48,360
)
72,440
Effect of exchange rate changes on cash
and cash equivalents
(636
)
(1,266
)
Cash and cash equivalents at beginning of
period
145,442
80,935
Cash and cash equivalents at end of
period
$
96,446
$
152,109
* Net change in working capital due to
changes in the following components:
Accounts and notes receivable, net
$
(16,643
)
$
40,743
Inventories
11,648
(17,236
)
Prepaid expenses and other current
assets
(1,510
)
7,411
Income taxes payable
(18,368
)
14,238
Accounts payable and accruals
44,333
(17,388
)
Interest payable
5,727
(41
)
Net change in working capital
$
25,187
$
27,727
NON-GAAP
RECONCILIATION
(Dollars in thousands)
The following table reconciles our
non-GAAP key financial measures to the most directly comparable
GAAP measures:
Q1 2021
Q4 2020
Q1 2020
Net income
$
98,799
$
125,096
$
122,268
Add:
Depreciation and amortization
16,539
17,889
14,284
Interest expense
22,167
29,048
25,672
Interest income
(37
)
(168
)
(1,141
)
Income taxes
16,257
13,833
23,946
EBITDA
$
153,725
$
185,698
$
185,029
Adjustments:
Pension and OPEB plan expenses (1)
431
4,430
542
Initial and follow-on public offering and
related expenses (2)
422
260
4
Non-cash gains and losses on foreign
currency remeasurement (3)
(348
)
1,738
(3,461
)
Stock-based compensation (4)
768
778
410
Non-cash fixed asset write-off (5)
—
378
—
Related party Tax Receivable Agreement
adjustment (6)
47
(17,744
)
(3,346
)
Adjusted EBITDA
$
155,045
$
175,538
$
179,178
(1) Service and interest cost of
our OPEB plans. Also includes a mark-to-market loss (gain) for plan
assets as of December of each year.
(2) Legal, accounting, printing
and registration fees associated with the initial and follow-on
public offering and related expenses.
(3) Non-cash gains and losses
from foreign currency remeasurement of non-operating assets and
liabilities of our non-U.S. subsidiaries where the functional
currency is the U.S. dollar.
(4) Non-cash expense for
stock-based compensation grants.
(5) Non-cash fixed asset
write-off recorded for obsolete assets.
(6) Non-cash expense adjustment
for future payment to our sole pre-IPO stockholder for tax assets
that are expected to be utilized.
Reconciliation to Free Cash
Flow
(in thousands)
Q1 2021
Q4 2020
Q1 2020
Net cash provided by operating
activities
$
122,425
$
146,981
$
139,283
Capital expenditures
(14,174
)
(5,387
)
(13,901
)
Free cash flow
$
108,251
$
141,594
$
125,382
View source
version on businesswire.com: https://www.businesswire.com/news/home/20210505005198/en/
Wendy Watson 216-676-2699
GrafTech (NYSE:EAF)
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