Results and Near-term Outlook Reflect
Persistent Softness in the Commercial Environment
GrafTech International Ltd. (NYSE: EAF) ("GrafTech" or the
"Company") today announced unaudited financial results for the
quarter and nine months ended September 30, 2023.
Third Quarter 2023 Highlights
- Net loss of $23 million, or $0.09 per share(1)
- Adjusted EBITDA(2) of $1 million
- Sales volume of 24 thousand metric tons ("MT")
- Production volume of 23 thousand MT
- Net cash provided by operating activities of $51 million
- Adjusted free cash flow of $43 million(2)
CEO Comments
"Third quarter results fell short of our expectations, primarily
as a result of lower industry demand," said Marcel Kessler, Chief
Executive Officer and President. “While we are not satisfied with
this financial performance, I remain proud of our team's efforts as
they continue to work diligently to navigate the current market
conditions. This includes our disciplined approach to managing
costs and working capital levels, such as proactively reducing our
production volume to align with our demand outlook. These efforts
are evident in the strong cash flow generated in the quarter."
"At the same time, we continue to make targeted investments to
further improve our operational flexibility, commercial
capabilities and product offerings," said Mr. Kessler. "These
initiatives support our ability to provide a compelling value
proposition to our customers, with a comprehensive offering of
products, service and technical support to meet their needs. While
we will remain focused on managing through the current challenges,
we are confident that the actions we are taking will further
improve our strategic positioning and support GrafTech's ability to
capitalize on industry tailwinds to deliver long-term growth."
Third Quarter 2023 Financial
Performance
(dollars in thousands, except per share
amounts)
Nine Months Ended
September 30,
Q3 2023
Q2 2023
Q3 2022
2023
2022
Net sales
$
158,992
$
185,561
$
303,840
$
483,355
$
1,033,731
Net (loss) income
$
(22,621
)
$
(7,851
)
$
93,451
$
(37,841
)
$
332,631
(Loss) earnings per share(1)
$
(0.09
)
$
(0.03
)
$
0.36
$
(0.15
)
$
1.28
Net cash provided by (used in) operating
activities
$
51,495
$
(9,024
)
$
68,166
$
67,269
$
274,605
Adjusted net (loss) income(2)
$
(20,866
)
$
(5,768
)
$
93,883
$
(32,183
)
$
334,905
Adjusted (loss) earnings per
share(1)(2)
$
(0.08
)
$
(0.02
)
$
0.37
$
(0.13
)
$
1.29
Adjusted EBITDA(2)
$
919
$
26,022
$
128,567
$
42,056
$
456,363
Adjusted free cash flow(2)
$
42,997
$
281
$
57,428
$
46,435
$
233,529
Net sales for the third quarter of 2023 were $159 million, a
decrease of 48% compared to $304 million in the third quarter of
2022. The decline reflected industry-wide softness in demand for
graphite electrodes, a shift in the mix of our business from volume
derived from our take-or-pay agreements that had initial terms of
three-to-five years ("LTA") to volume derived from short-term
agreements and spot sales ("non-LTA"), and a decrease in the
weighted-average realized price for both non-LTA and LTA
volume.
Net loss for the third quarter of 2023 was $23 million, or $0.09
per share, for a net loss margin of 14%. This compares to net
income of $93 million, or $0.36 per share, in the third quarter of
2022. Adjusted EBITDA(2) was $1 million in the third quarter of
2023, compared to $129 million in the third quarter of 2022, with
the decline reflecting lower sales volume, higher costs on a per MT
basis, the shift in the mix of our business from LTA volume to
non-LTA volume and lower weighted-average realized prices. Adjusted
EBITDA margin(3) was 1% for the third quarter of 2023.
In the third quarter of 2023, net cash provided by operating
activities was $51 million and adjusted free cash flow(2) was $43
million. The cash flow performance reflected our ongoing focus on
managing working capital levels, including a reduction in
inventories during the third quarter of 2023.
Operational and Commercial Update
Key operating metrics
Nine Months Ended
September 30,
(in thousands, except
percentages)
Q3 2023
Q2 2023
Q3 2022
2023
2022
Sales volume (MT)
24.2
26.4
35.7
67.5
121.3
Production volume (MT)(4)
22.7
25.2
37.7
63.7
127.7
Total production capacity (MT)(5)(6)
55.0
58.0
55.0
171.0
171.0
Total capacity utilization(6)(7)
41
%
43
%
69
%
37
%
75
%
Production capacity excluding St. Marys
(MT)(5)(8)
48.0
51.0
48.0
150.0
150.0
Capacity utilization excluding St.
Marys(7)(8)
47
%
49
%
79
%
42
%
85
%
Sales volume for the third quarter of 2023 was 24.2 thousand MT,
consisting of 7.7 thousand MT of LTA volume and 16.5 thousand MT of
non-LTA volume, and decreased 32% compared to the third quarter of
2022.
For the third quarter of 2023, the weighted-average realized
price for our LTA volume was $8,650 per MT. For our non-LTA volume,
the weighted-average realized price for graphite electrodes
delivered and recognized in revenue in the third quarter of 2023
was approximately $5,400 per MT, compared to a weighted-average
realized price of approximately $6,000 per MT in the third quarter
of 2022, with the decline reflecting the soft commercial
environment.
Production volume was 22.7 thousand MT in the third quarter of
2023, a decrease of 40% compared to the third quarter of 2022, as
we proactively reduced our production volume to align with our
evolving demand outlook and to manage our working capital
levels.
The table of estimated shipments of graphite electrodes under
existing LTAs has been updated as follows, reflecting our current
expectations for the full years of 2023 and 2024:
2023
2024
Estimated LTA volume (in thousands of
MT)
28 - 29
13 - 16
Estimated LTA revenue (in millions)
$245 - $255
$100 - $135(9)
Capital Structure and Capital Allocation
As of September 30, 2023, we had liquidity of $285 million,
consisting of $112 million of availability under our revolving
credit facility and cash and cash equivalents of $173 million. As
of September 30, 2023, we had gross debt(10) of $950 million and
net debt(11) of approximately $777 million. The Company's current
capital allocation approach is focused on maintaining sufficient
liquidity as we navigate the persistent softness in the commercial
environment. In addition, we are making targeted investments to
further improve our operational flexibility and support long-term
growth. We continue to anticipate our full-year capital
expenditures will be in the range of $55 million to $60 million in
2023.
Outlook
We expect demand for graphite electrodes in the near term will
remain weak, reflecting persistent softness in the commercial
environment as steel industry production remains constrained by
global economic uncertainty. As a result, sales volume in the
fourth quarter of 2023 is expected to decline modestly compared to
sales volume in the third quarter of 2023.
We expect our cash cost of goods sold per MT in the fourth
quarter of 2023 will be below the level recognized in the third
quarter of 2023, but will be higher compared to the fourth quarter
of 2022. As a result, for the full year of 2023, we continue to
expect a significant year-over-year increase in our cash cost of
goods sold per MT as (1) fixed costs are recognized over a smaller
volume base, (2) excess fixed costs that would have otherwise been
inventoried are recognized when incurred due to reduced production
levels and (3) reflecting the full-year impact of higher raw
material costs that increased throughout 2022. We continue to
closely manage our operating costs and capital expenditures, as
well as our working capital levels.
Looking ahead, we remain confident in our ability to overcome
near-term challenges and are optimistic about the long-term outlook
for our business. We anticipate the steel industry’s accelerating
efforts to decarbonize will lead to increased adoption of the
electric arc furnace method of steelmaking, driving long-term
demand growth for graphite electrodes. We also anticipate the
demand for petroleum needle coke, the key raw material we use to
produce graphite electrodes, to accelerate driven by its
utilization in producing synthetic graphite for use in lithium-ion
batteries for the growing electric vehicle market. We believe that
the actions we are taking, supported by a distinct set of
capabilities, including our substantial vertical integration into
petroleum needle coke via our Seadrift facility, will optimally
position GrafTech to benefit from these sustainable industry
tailwinds.
Conference Call Information
In connection with this earnings release, you are invited to
listen to our earnings call being held on November 3, 2023 at 10:00
a.m. (EDT). The webcast and accompanying slide presentation will be
available on our investor relations website at:
http://ir.graftech.com. The earnings call dial-in number is +1
(888) 886-7786 toll-free in North America or +1 (416) 764-8658 for
overseas calls, conference ID: 66467310. Archived replays of the
conference call and webcast will be made available on our investor
relations website at: http://ir.graftech.com. 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 on our website is
not part of this release or any report we file with 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, ultra-high power 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 key raw material for graphite electrode manufacturing.
This unique position provides us with competitive advantages in
product quality and cost.
________________________
(1)
(Loss) earnings per share represents
diluted (loss) earnings per share. Adjusted (loss) earnings per
share represents diluted adjusted (loss) earnings per share.
(2)
A non-GAAP financial measure, see below
for more information and reconciliations to the most directly
comparable financial measures calculated and presented in
accordance with accounting principles generally accepted in the
United States of America ("GAAP").
(3)
A non-GAAP financial measure, adjusted
EBITDA margin is calculated as adjusted EBITDA divided by net sales
(Q3 2023 adjusted EBITDA of $1 million/Q3 2023 net sales of $159
million).
(4)
Production volume reflects graphite
electrodes we produced during the period.
(5)
Production capacity reflects expected
maximum production volume during the period depending on product
mix and expected maintenance outage. Actual production may
vary.
(6)
Includes graphite electrode facilities in
Calais, France; Monterrey, Mexico; Pamplona, Spain; and St. Marys,
Pennsylvania.
(7)
Capacity utilization reflects production
volume as a percentage of production capacity.
(8)
Our St. Marys, Pennsylvania facility
graphitizes a limited number of electrodes and pins sourced from
our Monterrey, Mexico facility. The remaining production processes
at St. Marys were restarted in the second quarter of 2023, with
activities expected to ramp up over time to support future
demand.
(9)
Includes expected termination fees from a
few customers that have failed to meet certain obligations under
their LTAs.
(10)
Gross debt reflects the notional value of
our outstanding debt and excludes unamortized debt discount and
issuance costs.
(11)
A non-GAAP financial measure, net debt is
calculated as gross debt minus cash and cash equivalents (September
30, 2023 gross debt of $950 million less September 30, 2023 cash
and cash equivalents of $173 million).
Cautionary Note Regarding Forward-Looking Statements
This press release and related discussions may contain
forward-looking statements within the meaning of the safe harbor
provisions of the U.S. Private Securities Litigation Reform Act of
1995. Forward-looking statements reflect our current views with
respect to, among other things, financial projections, plans and
objectives of management for future operations, and future economic
performance. Examples of forward-looking statements include, among
others, statements we make regarding future estimated volume,
pricing and revenue, anticipated levels of capital expenditures,
the suspension of our dividend, including the frequency and amount
of any dividend we may pay, and guidance relating to earnings per
share and adjusted EBITDA. 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 press 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: our dependence on the global steel
industry generally and the electric arc furnace steel industry in
particular; the cyclical nature of our business and the selling
prices of our products, which may decline in the future, may lead
to periods of reduced profitability and net losses; the sensitivity
of our business and operating results to economic conditions,
including any recession, and the possibility others may not be able
to fulfill their obligations to us in a timely fashion or at all;
the possibility that we may be unable to implement our business
strategies in an effective manner; the possibility that global
graphite electrode overcapacity may adversely affect graphite
electrode prices; the competitiveness of the graphite electrode
industry; our dependence on the supply of raw materials, including
decant oil and petroleum needle coke, and disruptions in supply
chains for these materials; our reliance on one facility in
Monterrey, Mexico for the manufacturing of connecting pins; the
availability and cost of electric power and natural gas,
particularly in Europe; our manufacturing operations are subject to
hazards; 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; the risks and uncertainties associated with
litigation, arbitration, and like disputes, including disputes
related to contractual commitments; our dependence on third parties
for certain construction, maintenance, engineering, transportation,
warehousing and logistics services; the possibility that we are
subject to information technology systems failures, cybersecurity
attacks, network disruptions and breaches of data security; 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
sensitivity of goodwill on our balance sheet to changes in the
market; our dependence on protecting our intellectual property and
the possibility that third parties may claim that our products or
processes infringe their intellectual property rights; the impact
of inflation and our ability to mitigate the effect on our costs;
the impact of macroeconomic and geopolitical events, including
developments arising from the COVID-19 pandemic and the conflict
between Russia and Ukraine, on our business, results of operations,
financial condition and cash flows, and the disruptions and
inefficiencies in our supply chain that may occur as a result of
such events; 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
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 restrictive covenants in our financing agreements could
restrict or limit our operations; recent increases in benchmark
interest rates and the fact that any future borrowings may subject
us to interest rate risk; changes in, or more stringent enforcement
of, health, safety and environmental regulations applicable to our
manufacturing operations and facilities; the possibility that the
market price of our common stock could be negatively affected by
sales of substantial amounts of our common stock, including by
Brookfield Corporation and its affiliates (together, "Brookfield");
the fact that our stockholders have the right to engage or invest
in the same or similar businesses as us; and the possibility that
the cash dividends on our common stock, which are currently
suspended, will remain suspended and we may not pay cash dividends
on our common stock in the future.
These factors should not be construed as exhaustive and should
be read in conjunction with the Risk Factors and other cautionary
statements that are 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. Except as required by
law, we do not undertake any obligation to publicly update or
review any forward-looking statement, whether as a result of new
information, future developments or otherwise.
If one or more of these or other risks or uncertainties
materialize, or if our underlying assumptions prove to be
incorrect, our actual results may vary materially from what we may
have expressed or implied by these forward-looking statements. We
caution that you should not place undue reliance on any of our
forward-looking statements. You should specifically consider the
factors identified in this press release that could cause actual
results to differ before making an investment decision to purchase
our common stock. Furthermore, new risks and uncertainties arise
from time to time, and it is impossible for us to predict those
events or how they may affect us.
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, adjusted net (loss) income, adjusted (loss)
earnings per share, free cash flow, adjusted free cash flow, net
debt and cash cost of goods sold per MT 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,
a non-GAAP financial measure, as EBITDA adjusted by any pension and
other post-employment benefit ("OPEB") plan expenses or benefits,
adjustments for public offerings and related expenses, non‑cash
gains or losses from foreign currency remeasurement of
non‑operating assets and liabilities in our foreign subsidiaries
where the functional currency is the U.S. dollar, stock-based
compensation expense and related party payable - Tax Receivable
Agreement adjustments. 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.
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 or benefits relating
to our pension and OPEB plans;
- adjusted EBITDA does not reflect public offerings and related
expenses;
- adjusted EBITDA does not reflect the non‑cash gains or losses
from foreign currency remeasurement of non‑operating assets and
liabilities in our foreign subsidiaries where the functional
currency is the U.S. dollar;
- adjusted EBITDA does not reflect stock-based compensation
expense;
- adjusted EBITDA does not reflect related party payable - Tax
Receivable Agreement adjustments; 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.
We define adjusted net (loss) income, a non‑GAAP financial
measure, as net (loss) income, excluding the items used to
calculate adjusted EBITDA, less the tax effect of those
adjustments. We define adjusted (loss) earnings per share, a
non‑GAAP financial measure, as adjusted net (loss) income divided
by the weighted average diluted common shares outstanding during
the period. We believe adjusted net (loss) income and adjusted
(loss) earnings per share are useful to present to investors
because we believe that they assist investors’ understanding of the
underlying operational profitability of the Company.
We define free cash flow, a non-GAAP financial measure, as net
cash provided by operating activities less capital expenditures. We
define adjusted free cash flow, a non-GAAP financial measure, as
free cash flow adjusted by payments made or received from the
settlement of interest rate swap contracts and payments of the
Change in Control charges that were triggered as a result of the
ownership of our largest stockholder falling below 30% of our total
outstanding shares. We use free cash flow and adjusted free cash
flow as critical measures in the evaluation of liquidity in
conjunction with related GAAP amounts. We also use these measures
when considering available cash, including for decision-making
purposes related to dividends and discretionary investments.
Further, these measures help management, the audit committee, and
investors evaluate the Company's ability to generate liquidity from
operating activities. For the purpose of this release, a Change in
Control occurred when Brookfield and any affiliates thereof ceased
to own stock of the Company that constitutes at least thirty
percent (30%) or thirty-five percent (35%), as applicable, of the
total fair market value or total voting power of the stock of the
Company (the "Change in Control").
We define net debt, a non-GAAP financial measure, as gross debt
minus cash and cash equivalents. We believe this is an important
measure as it is more representative of our financial position.
We define cash cost of goods sold per MT, a non-GAAP financial
measure, as cost of goods sold less depreciation and amortization
and less cost of goods sold associated with the portion of our
sales that consists of deliveries of by-products of the
manufacturing processes, with this total divided by our sales
volume measured in MT. We believe this is an important measure as
it is used by our management and Board of Directors to evaluate our
costs on a per MT basis.
In evaluating EBITDA, adjusted EBITDA, adjusted EBITDA margin,
adjusted net (loss) income, adjusted (loss) earnings per share,
free cash flow and adjusted free cash flow, you should be aware
that in the future, we will incur expenses similar to the
adjustments in the reconciliations presented below. Our
presentations of EBITDA, adjusted EBITDA, adjusted EBITDA margin,
adjusted net (loss) income, adjusted (loss) earnings per share,
free cash flow and adjusted free cash flow 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, adjusted net (loss) income, adjusted (loss) earnings
per share, free cash flow and adjusted free cash flow alongside
other measures of financial performance and liquidity, including
our net (loss) income, (loss) earnings per share and cash flow from
operating activities, respectively, and other GAAP measures.
GRAFTECH INTERNATIONAL LTD.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE
SHEETS
(Dollars in thousands, except per
share data)
(Unaudited)
September 30, 2023
December 31, 2022
ASSETS
Current assets:
Cash and cash equivalents
$
172,807
$
134,641
Accounts and notes receivable, net of
allowance for doubtful accounts of
$7,898 as of September 30, 2023 and $8,019
as of December 31, 2022
97,328
145,574
Inventories
378,970
447,741
Prepaid expenses and other current
assets
64,253
87,272
Total current assets
713,358
815,228
Property, plant and equipment
894,262
869,168
Less: accumulated depreciation
383,018
350,022
Net property, plant and equipment
511,244
519,146
Deferred income taxes
23,315
11,960
Goodwill
171,117
171,117
Other assets
64,111
86,727
Total assets
$
1,483,145
$
1,604,178
LIABILITIES AND STOCKHOLDERS’
EQUITY
Current liabilities:
Accounts payable
$
54,935
$
103,156
Long-term debt, current maturities
127
124
Accrued income and other taxes
8,441
40,592
Other accrued liabilities
100,605
89,349
Related party payable - Tax Receivable
Agreement
5,137
4,631
Total current liabilities
169,245
237,852
Long-term debt
924,375
921,803
Other long-term obligations
51,309
50,822
Deferred income taxes
43,554
45,065
Related party payable - Tax Receivable
Agreement long-term
5,784
10,921
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, 256,807,900 and 256,597,342 shares
issued and outstanding as of September 30, 2023 and December 31,
2022, respectively
2,568
2,566
Additional paid-in capital
748,903
745,164
Accumulated other comprehensive loss
(17,612
)
(8,070
)
Accumulated deficit
(444,981
)
(401,945
)
Total stockholders’ equity
288,878
337,715
Total liabilities and stockholders’
equity
$
1,483,145
$
1,604,178
GRAFTECH INTERNATIONAL LTD.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS
(Dollars in thousands, except per
share data)
(Unaudited)
Three Months
Ended September 30,
Nine Months
Ended September 30,
2023
2022
2023
2022
Net sales
$
158,992
$
303,840
$
483,355
$
1,033,731
Cost of goods sold
157,603
170,171
427,464
562,881
Gross profit
1,389
133,669
55,891
470,850
Research and development
1,295
1,014
3,683
2,617
Selling and administrative expenses
18,231
18,578
58,933
57,862
Operating (loss) income
(18,137
)
114,077
(6,725
)
410,371
Other expense (income), net
153
(598
)
1,261
(1,358
)
Interest expense
15,719
6,424
42,432
25,035
Interest income
(1,144
)
(241
)
(1,758
)
(2,197
)
(Loss) income before (benefit) provision
for income taxes
(32,865
)
108,492
(48,660
)
388,891
(Benefit) provision for income taxes
(10,244
)
15,041
(10,819
)
56,260
Net (loss) income
$
(22,621
)
$
93,451
$
(37,841
)
$
332,631
Basic (loss) income per common share:
Net (loss) income per share
$
(0.09
)
$
0.36
$
(0.15
)
$
1.28
Weighted average common shares
outstanding
257,090,113
256,848,575
256,987,778
259,415,295
Diluted (loss) income per common
share:
Net (loss) income per share
$
(0.09
)
$
0.36
$
(0.15
)
$
1.28
Weighted average common shares
outstanding
257,090,113
256,853,454
256,987,778
259,424,885
GRAFTECH INTERNATIONAL LTD.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
Three Months
Ended September 30,
Nine Months
Ended September 30,
2023
2022
2023
2022
Cash flow from operating activities:
Net (loss) income
$
(22,621
)
$
93,451
$
(37,841
)
$
332,631
Adjustments to reconcile net (loss) income
to cash (used in) provided by operations:
Depreciation and amortization
16,954
13,262
43,053
41,708
Deferred income tax (benefit)
provision
(3,873
)
4,659
(10,297
)
11,216
Non-cash stock-based compensation
expense
1,628
628
3,809
1,666
Non-cash interest expense
(1,435
)
571
10,249
(3,103
)
Other adjustments
3,138
(3,181
)
(3,278
)
230
Net change in working capital*
58,433
(39,633
)
64,833
(101,622
)
Change in related party Tax Receivable
Agreement
—
—
(4,631
)
(3,828
)
Change in long-term assets and
liabilities
(729
)
(1,591
)
1,372
(4,293
)
Net cash provided by operating
activities
51,495
68,166
67,269
274,605
Cash flow from investing activities:
Capital expenditures
(8,498
)
(15,933
)
(48,287
)
(45,281
)
Proceeds from the sale of fixed assets
6
22
220
161
Net cash used in investing activities
(8,492
)
(15,911
)
(48,067
)
(45,120
)
Cash flow from financing activities:
Interest rate swap settlements
—
5,195
27,453
3,762
Debt issuance and modification costs
(1,809
)
—
(8,133
)
(2,232
)
Proceeds from the issuance of long-term
debt, net of original issuance discount
—
—
438,552
—
Principal payments on long-term debt
—
—
(433,708
)
(110,000
)
Repurchase of common stock
—
—
—
(60,000
)
Payments for taxes related to net share
settlement of equity awards
—
—
(129
)
(230
)
Proceeds from exercise of stock
options
—
—
—
225
Dividends paid to non-related party
—
(1,926
)
(3,854
)
(5,843
)
Dividends paid to related party
—
(640
)
(1,280
)
(1,919
)
Principal payments under finance lease
obligations
(10
)
—
(20
)
—
Net cash (used in) provided by financing
activities
(1,819
)
2,629
18,881
(176,237
)
Net change in cash and cash
equivalents
41,184
54,884
38,083
53,248
Effect of exchange rate changes on cash
and cash equivalents
(537
)
(1,325
)
83
(1,368
)
Cash and cash equivalents at beginning of
period
132,160
55,835
134,641
57,514
Cash and cash equivalents at end of
period
$
172,807
$
109,394
$
172,807
$
109,394
* Net change in working capital due to
changes in the following components:
Accounts and notes receivable, net
$
13,287
$
23,348
$
48,007
$
22,229
Inventories
50,526
(41,784
)
69,258
(146,501
)
Prepaid expenses and other current
assets
841
15,718
4,974
1,690
Income taxes payable
(8,960
)
(3,790
)
(31,356
)
(20,226
)
Accounts payable and accruals
(14,250
)
(39,013
)
(43,391
)
35,373
Interest payable
16,989
5,888
17,341
5,813
Net change in working capital
$
58,433
$
(39,633
)
$
64,833
$
(101,622
)
NON-GAAP
RECONCILIATIONS
(Dollars in thousands, except per
share and per MT data)
(Unaudited)
The following tables reconcile our
non-GAAP financial measures to the most directly comparable GAAP
measures:
Reconciliation of Net (Loss) Income to
Adjusted Net (Loss) Income
Nine Months Ended
September 30,
Q3 2023
Q2 2023
Q3 2022
2023
2022
Net (loss) income
$
(22,621
)
$
(7,851
)
$
93,451
$
(37,841
)
$
332,631
Diluted (loss) income per common
share:
Net (loss) income per share
$
(0.09
)
$
(0.03
)
$
0.36
$
(0.15
)
$
1.28
Weighted average shares outstanding
257,090,113
257,003,691
256,853,454
256,987,778
259,424,885
Adjustments, pre-tax:
Pension and OPEB plan expenses(1)
914
899
534
2,731
1,638
Public offerings and related
expenses(2)
—
—
—
—
100
Non-cash (gains) losses on foreign
currency remeasurement(3)
(287
)
273
(532
)
433
(298
)
Stock-based compensation expense(4)
1,628
1,385
628
3,809
1,666
Related party payable - Tax Receivable
Agreement adjustment(5)
—
—
—
16
(180
)
Total non-GAAP adjustments pre-tax
2,255
2,557
630
6,989
2,926
Income tax impact on non-GAAP
adjustments(6)
500
474
198
1,331
652
Adjusted net (loss) income
$
(20,866
)
$
(5,768
)
$
93,883
$
(32,183
)
$
334,905
Reconciliation of (Loss) Earnings Per
Share to Adjusted (Loss) Earnings Per Share
Nine Months Ended
September 30,
Q3 2023
Q2 2023
Q3 2022
2023
2022
(Loss) earnings per share
$
(0.09
)
$
(0.03
)
$
0.36
$
(0.15
)
$
1.28
Adjustments per share:
Pension and OPEB plan expenses(1)
—
—
—
0.01
—
Public offerings and related
expenses(2)
—
—
—
—
—
Non-cash (gains) losses on foreign
currency remeasurement(3)
—
—
—
—
—
Stock-based compensation expense(4)
0.01
0.01
0.01
0.02
0.01
Related party payable - Tax Receivable
Agreement adjustment(5)
—
—
—
—
—
Total non-GAAP adjustments pre-tax per
share
0.01
0.01
0.01
0.03
0.01
Income tax impact on non-GAAP adjustments
per share(6)
—
—
—
0.01
—
Adjusted (loss) earnings per
share
$
(0.08
)
$
(0.02
)
$
0.37
$
(0.13
)
$
1.29
Reconciliation of Net (Loss) Income to
Adjusted EBITDA
Nine Months Ended
September 30,
Q3 2023
Q2 2023
Q3 2022
2023
2022
Net (loss) income
$
(22,621
)
$
(7,851
)
$
93,451
$
(37,841
)
$
332,631
Add:
Depreciation and amortization
16,954
15,322
13,262
43,053
41,708
Interest expense
15,719
13,907
6,424
42,432
25,035
Interest income
(1,144
)
(242
)
(241
)
(1,758
)
(2,197
)
Income taxes
(10,244
)
2,329
15,041
(10,819
)
56,260
EBITDA
(1,336
)
23,465
127,937
35,067
453,437
Adjustments:
Pension and OPEB plan expenses(1)
914
899
534
2,731
1,638
Public offerings and related
expenses(2)
—
—
—
—
100
Non-cash (gains) losses on foreign
currency remeasurement(3)
(287
)
273
(532
)
433
(298
)
Stock-based compensation expense(4)
1,628
1,385
628
3,809
1,666
Related party payable - Tax Receivable
Agreement adjustment(5)
—
—
—
16
(180
)
Adjusted EBITDA
$
919
$
26,022
$
128,567
$
42,056
$
456,363
Reconciliation of
Net Cash Provided by (Used in) Operating Activities to Free Cash
Flow and Adjusted Free Cash Flow
Nine Months Ended
September 30,
Q3 2023
Q2 2023
Q3 2022
2023
2022
Net cash provided by (used in)
operating activities
$
51,495
$
(9,024
)
$
68,166
$
67,269
$
274,605
Capital expenditures
(8,498
)
(14,518
)
(15,933
)
(48,287
)
(45,281
)
Free cash flow
42,997
(23,542
)
52,233
18,982
229,324
Interest rate swap settlements(7)(8)
—
23,823
5,195
27,453
3,762
Change in Control payment(9)
—
—
—
—
443
Adjusted free cash flow
$
42,997
$
281
$
57,428
$
46,435
$
233,529
Reconciliation of
Cost of Goods Sold to Cash Cost of Goods Sold per MT
Nine Months Ended
September 30,
Q3 2023
Q2 2023
Q3 2022
2023
2022
Cost of goods sold
$
157,603
$
157,216
$
170,171
$
427,464
$
562,881
Less:
Depreciation and amortization(10)
15,291
13,605
11,566
37,961
36,602
Cost of goods sold - by-products and
other(11)
430
4,958
5,452
13,720
33,895
Cash cost of goods sold
141,882
138,653
153,153
375,783
492,384
Sales volume (in thousands of MT)
24.2
26.4
35.7
67.5
121.3
Cash cost of goods sold per MT
$
5,863
$
5,252
$
4,290
$
5,567
$
4,059
(1)
Net periodic benefit cost for our pension
and OPEB plans.
(2)
Legal, accounting, printing and
registration fees associated with the public offerings and related
expenses.
(3)
Non-cash (gains) 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 expense adjustment for future
payment to our sole pre-IPO stockholder for tax assets that are
expected to be utilized.
(6)
The tax impact on the non-GAAP adjustments
is affected by their tax deductibility and the applicable
jurisdictional tax rates.
(7)
Receipt of cash related to the monthly
settlement of our outstanding interest rate swap contracts.
(8)
The three months ended June 30, 2023 and
the nine months ended September 30, 2023 include cash received from
the termination of our interest rate swap contracts.
(9)
In the second quarter of 2021, we incurred
pre-tax Change in Control charges of $88 million as a result of the
ownership of our largest stockholder, Brookfield, moving below 30%
of our total shares outstanding. Of the $88 million in pre-tax
Change in Control charges, $73 million were cash and $15 million
were non-cash. An aggregate of $72 million of the cash charges have
been paid through the third quarter of 2023 and an additional $1
million will be paid in subsequent quarters, as a result of the
timing of related payroll tax payments.
(10)
Reflects the portion of depreciation and
amortization that is recognized in cost of goods sold.
(11)
Primarily reflects cost of goods sold
associated with the portion of our sales that consists of
deliveries of by-products of the manufacturing processes.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20231102966319/en/
Michael Dillon 216-676-2000 investor.relations@graftech.com
GrafTech (NYSE:EAF)
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