Ladies and gentlemen, thank you for standing-by and welcome to the GrafTech’s Third Quarter 2020 Earnings Conference Call and Webcast. At this time all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator instructions] Thank you. I would now like to hand the conference over to your speaker today Wendy Watson. Please go ahead.

Good morning, and welcome to GrafTech International's third quarter 2020 conference call. On the call with me today is Dave Rintoul, GrafTech's Chief Executive Officer and Quinn Coburn, our Chief Financial Officer. Turning to our first slide, as a reminder some of the matters discussed on this call may include forward-looking statements regarding, among other things, results, performance, trends and strategies. These statements are based on current expectations and are subject to risks and uncertainties. Factors that could cause actual results to differ materially from those indicated by forward-looking statements are shown here. We will also discuss certain non-GAAP financial measures. In these slides include the relevant non-GAAP reconciliations. You can find these slides in the Investors Relation section of our website at www.graftech.com. A replay of the call will also be available on our website. I’ll now turn the call over to Dave.

Thank you, Wendy. Good morning, everyone, and thank you for joining our third quarter call. I hope you, your families and your colleagues are healthy and well. We'll begin, as we always do, with safety, which has become even more important during the pandemic. Excellence and health and safety is a core value of GrafTech and a key priority. Our year-to-date total recordable injury rate at the end of Q3 was 0.57, a 40% decrease from 2019. Thank you to the GrafTech team for your continued diligence and hard work in this area. However, the only correct number is 0 with every employee going home safely every day. Health and Safety is fundamental to our belief that a safe plant is a foundation for the success on the balance of our business metrics. Turning to Slide 4, we continue to proactively manage through the COVID-19 pandemic. Our executive lead COVID-19 response team continues to meet three times per week to monitor developments and make responsive changes to our safe work playbook to facilitate team member and customer safety. Our plants have been diligent throughout the COVID-19 pandemic and thorough in their controls and associated audits. Our team members continue to adhere to exacting protocols and cleaning, PPE, social distancing and other measures designed for safe operation of our facilities. Regular team member communication and education is critical and ongoing. During these challenging times, we are also focused on providing the highest level of service to our customers and maintaining an on time delivery rate of 98% in the third quarter. Turning to Slide 5, we're very pleased to have launched our inaugural sustainability report in September. We are committed to advancing our ESG efforts and continue to monitor progress on our environmental initiatives. As we focus globally, on being good…

Thanks Dave. Third quarter 2020 net sales were $280 7 million, a sequential improvement of just over 2% from the second quarter and down 32% from the third quarter of 2019. During the quarter we produced 32,000 metric tons of graphite electrodes in line with the last two quarters. Our capacity utilization was 67% which we have 33,000 metric tons in the third quarter for a total of 98,000 metric tons year-to-date. Our LTA is accounted for 27,000 metric tons of third quarter deliveries bringing our year-to-date LTA deliveries to 82,000 metric tons. Now turning to Slide 9, third quarter 2020 net income was $94 million or $0.35 per diluted share, year-to-date earnings per diluted share are $1.15. Third quarter adjusted EBITDA was $153 million and third quarter free cash flow was $123 million. Year-to-date free cash flow is $386 million. As you'll see on Slide 10, we have used the majority of our 2020 free cash flow to repay debt. As we noted earlier in the year, we will make a [Indiscernible] and tax payment of approximately $50 million in the fourth quarter. This payment was deferred from the first quarter due to COVID-19 related relief. Now to Slide 10, during the third quarter, we continued to execute on our financial commitment to reduce debt and maintain our balance sheet flexibility. We reduced our debt by approximately $150 million in the third quarter and an additional $60 million in October, bringing our 2020 debt reduction through October to $313 million. We continue to be disciplined with our capital expenditures consistent with managing the business through the conditions created by the pandemic, expecting full year spend of approximately $35 million and near 50% reduction year-on-year. We are also closely managing our working capital, including aligning inventory levels with customer demand and controlling our costs. At the end of the third quarter, our total liquidity was approximately $406 million, consisting of $159 million of cash and $247 million available under our revolving credit facility. Our strong liquidity position and continued debt reduction provides us with significant financial flexibility, we expect to continue to use the majority of free cash flow to further reduce debt and maintain balance sheet liquidity. Now I'll hand it back to Dave on Slide 11.

Thanks Quinn. The inherent manufacturing flexibility of electric arc furnace steel producing facilities with the ability to idle and restart operations quickly and cost effectively as a significant advantage over traditional integrated steelmaking. This advantage was evident over the past several months as a steel industry addressed pandemic related challenges. And this flexibility will help drive growth for the EAF industry, including the need for high quality graphite electrodes over the long-term. GrafTech is one of the largest electrode manufacturers in the world, operating three of the largest global facilities. Graphite electrodes are a mission critical component to the EAF industry. The electrodes that we manufacture are highly engineered and require extensive process knowledge to produce. The services and solutions the GrafTech provides help position both our customers and ourselves for a better future. We have a sustainable and long-term competitive advantage from our low cost structure and vertical integration into our key raw material petroleum needle coke. In our global footprint provides us flexibility should any operating environments become challenged due to a second wave of a pandemic. Our balance sheet and proven track record of cash flow generation gives us the strength to manage through industry cycles. With commitment to our people and our significant competitive advantages, we continue to strongly believe GrafTech is well positioned today and over the long-term. That concludes our prepared remarks. We will now open up the call for questions.

[Operator Instructions] Your first question comes from Curt Woodworth from Credit Suisse. Your line is open.

Yes Hi. Good morning.

Good morning Curt.

Dave when we look at the new updated LTA guidance. It seems like if I add up all the tons and includes the 2023, you're really not too far off from your baseline level the company initially established yet you have had clearly some of those tons permanently go off. So I'm just wondering Is that a function of -- part of the LTA renegotiation process where you actually add additional tons on the contracts on the backend to help preserve the kind of this NAV argument that you have been trying to pursue.

Thanks for your question, Curt. Yes, it's an effort to find a place with some of the customers that are having some challenging times to come up with a win-win arrangement where we provide some assistance in the near-term. And in exchange for that we get consideration in some of the years. So we think we're accomplishing that. And I think over the last several weeks, we've closed a number of these arrangements with people. And I can see there's a few more -- more and more to come. But I think it does that it preserves what the customers are looking for in terms of some of the near-term challenges today and helps us preserve the value for our shareholders.

And some of the outcomes you just talked about, would that be accretive to your LTA book or is it just simply pushing maybe a 2021 LTA, the 2023?

I think it's accretive Quinn.

Yes. One other thing to keep in mind, Curt is previously -- we had a few contracts that were fixed share contracts, that could vary in volume. And previously we'd indicated that that was, could be up or down 5,000 tons per year. And in our previous disclosures, we had stated those in the midpoint, in this disclosure, we've been taking a little more conservative view and put those at the low end of what those could be. So that's 10,000 tons. So taking that into account, you can see that we're actually, overall once adjusted for that a little bit higher than the previous numbers.

Yes, that's what I thought. And then, with respect to the comments that the spot price trended down in the quarter, you were able to obtain higher non-LTA value in a given the spot where you see it today, can you give any guidance on kind of what range of pricing you're seeing in the market? And, and given where needle coke has come down to -- would you say that the spot sales would be profitable at this point?

Sure. That's a difficult question, I'm sure as you know, at this point in time and that we've been careful about disclosing of what we thought in the past, careful about disclosing what we thought spot pricing was because early in our experiences, as a publicly traded company found that worked against us relative to our competitors using that data. But I also recognize your challenges and your colleague’s challenges and viewing the company. So we'll do our best here to try and provide as much color around that subject as possible. So having said that, one of the things that have happened is absolutely, spot pricing has lowered today from what it was in Q2, and Q3 has been a downward trend to be clear. However, at the same time, the disparity or the distribution and standard deviation, if you will, pricing around the world has grown. So there's somewhat of a disconnect from region to region to region, about what those numbers were. So if I gave you an average price today, of where we thought it would be, it would not be, candidly wouldn't be terribly useful for you because it would be different price in the U.S. and a different price in the EU and a different price in the Middle East and yet another one again in Japan and Korea, etcetera. If the distribution of the change disparity from region-to-region has grown as the price has come down. Now, the best way that I think we can help you think about that, is that if you look at the information that is publicly available and that is the export import numbers on needle coke, you would find that that number, recently has a range as well, but it's anywhere from a few trades, not many, but a few as low as 1,300. And more is about the 1,800 level. So I think in the past, we've given a lot of information about how to take those kind of numbers and translate back into cost structures. And so, if you have a graphite electrode, so for our counsel would be given that for the reasons I've stated previously that we're not going to come right out and tell you what we think prices are on graphite electrodes, I think you can use that needle coke number. And think about that in context of the incremental cost that people are facing now on electrodes and knowing that that's probably pretty close to the bottom range, won't be practicable. I hope that's helpful.

Yes, very, thank you. Now, I understand there's a lot of regional variation. So that is fair. And then just last question with respect to the U.S. market, there's 8 million tons to 9 million tons of new electric arc capacity coming online in the next call it 12 months. Can you talk at all about, do you think that is going to move the needle coke with respect to price? Have you been able to when any business with that new capacity? Thank you?

Yes, sure, obviously, it's the fundamentals of supply and demand. And so it will certainly help the demand situation. But, what I would say is that just as our market lags as steel production comes off, it also lives on the other side. So as we're seeing strength in the steel market testament to that is $700 ton hot-rolled coil pricing. And rebar has been pretty steady at about 600 bucks. So there's a lot of positive signs certainly in the U.S. steel market and recent earnings releases by some of the mills in a country would add to that settlement. So we're optimistic that it will help and obviously more, facilities coming online will be helpful. Recognize that the increase to just over 70% of utilization is good. But we also have to be realistic and understand that before COVID came along the American steel industry was running in the 80ish percent utilization. So the new facilities will inevitably help. And while I think we're on the way to good progress and optimistic about it, we're still not yet obviously back to pre-COVID in the United States, and I think maybe, certainly Europe is a little further behind that. But generally speaking, no matter whether you look at that, our Black Sea bullet prices or even Asian hot-rolled prices, all of the steel related key metrics are moving in the right direction. So we are optimistic about what that will bring to the demand side of the equation, which will ultimately triple throw into the graphite electrode industry.

Great. Thanks very much, Dave and Quinn.

Your next question comes from Arun Viswanathan from RBC Capital Markets. Your line is open.

Great, thanks, good morning.

Good morning.

Good morning. Just wanted to get back to some of those near-term fundamentals you were discussing so, maybe you could just help us square the kind of different dynamics here on the one end, you do have, it seems like some improvement in steel markets yet, needle coke and maybe electrodes. Your reference spot pricing and electrodes going the other way. So, why is that the case, I guess, maybe you can just tie in some comments on supply and inventory on both needle coke and electrodes? Thanks.

Sure. Well, first of all, recognize that our industry will always lag whatever is transacting in the steel industry. So we'll see the decline a little later. And we'll see the increase a little later. So I don't think it should come as a surprise at all that while the steel industry in the third quarter began to see an uptick, that it hasn't quite made its way into our world yet. I wouldn't have expected it would have just yet. And as long as it continued, we'll eventually see it make it in into our world. In addition to that, and you're quite right, we entered into the pandemic. Now you think about my comments back in our earnings release at the beginning of the year, at that point, we were talking about destocking taking through to into the third quarter of this year. And that was before the pandemic took place. So, as we think about that, now that that destocking is starting to happen again, because the steel industry is picking up, but we had a period of time where not much of anything was happening relative to destocking because of the pandemic. So, as I said in my comments earlier, we expect that destocking to continue through the balance of this year. So you combine the fact that there's always a natural lag in our industry, combined with some of the destocking that had to finish. And that's why you see a situation where I'm still talking about a decline in graphite electrode pricing. So we'll need to get into the New Year, assuming that the steel market continues to move in a positive direction. And then, the recent developments in a COVID world don't disrupt that we hope it doesn't. But we're not saying our…

Thanks for that. So just to be clear, I guess when you started the year, you're expecting maybe three quarters to work through the inventory, maybe with COVID. Maybe that lengthened a little bit. And you're now starting to see some destocking. I guess the other question I had also was just, when you think of the -- what's transpired here and your own production levels, when you started out, I think you had 180,000 tons of capacity, you went through a debottlenecking project and got your capacity close to 200. So, it gets your LTAs you have spoken for the next couple years around the 100,000 ton range. How do you think about all the other capacity that is within GrafTech’s control? I mean, is it best to just leave it idle for now or is there permanent shutdowns that could be contemplated? And if you could offer any thoughts on the industry as well, from a supply demand standpoint, if you see any closings coming as well? Thanks.

So I think it's a good question. The one thing I just want to correct a little bit in the first part of your statement. We talked about destocking taking until the third quarter not three quarters long. So at that point in time, it would have been January through to the end of June. So not nine months in length, but six months in length, because we said it would be pretty much complete once we got to the third quarter. So I don't want to imply that. We think currently we still have another nine months to go. So relative to capacity, I think that it's a good question and somewhat a little early yet to address in so much as, they have to see with the expansion of plants in the United States, and the belief and the knowledge that look the environmental factors in the world are such that the electric arc furnace industry inevitably will grow. Integrated steel production will inevitably decline. So as that increase takes place, there's a place for the graphite electrode industry and long-term growth in it. So what one has to do as we -- when the time comes and we truly exit the pandemic, one has to assess that forward growth curve and as you think about carbon emission situation in Europe and the fact that carbon credits and that trading system is alive and well. And it will influence people on their decisions about how they're going to make steel. And that same methodology and that same thought process is not unique to just them along, we’ve even hear the Chinese now talking about having some kind of thoughts around developing policy on this similar front. So all of these things tell us that the electric arc furnace steelmaking world will expand and grow, so once we exit the pandemic, I think that's the time when we can triangulate and determine, what is the graphite electrode capacity? And how does that shape up against the growth pattern or electric arc furnaces? And what decisions would be appropriate at that point in time, and it’s just a bit too early yet to jump to that conclusion.

Thanks. And then lastly, if I could just on the cash side, again, when you contemplate these dynamics, how do you feel that the priorities of cash use will be from here? I know deleveraging is still important. But yes, maybe you can just reiterate how you're thinking about using that cash given these dynamics? Thanks.

Yes. Thanks Arun, its Quinn. First thing I would say is, as we said before, this is a topic that we review on an ongoing basis with Management and the Board of Directors. And as you noted, Arun, in our comments, and in the earnings release, we indicated that in the near-term we expect to continue to use the majority of our cash flow to reduce debt. We always want to be in a position of balance sheet strength and think that's very good for the shareholder. So that will be our plan. Now obviously, we will continue to evaluate all the options, as you all know, we have $59 million available in our share repurchase program. And we'll continue to examine that and that would continue to be an option. But as noted in the near-term, the priority will be debt reduction.

Thanks.

[Operator Instructions] Your next question comes from Alex Hacking from Citi. Your line is open.

Yes, good morning, and thanks for the time. So, I apologize, my phone cut out a little bit earlier. Did you say that spot needle coke I know you don't buy it, but you estimated was around $1,800 a ton?

Yes, what we said if you look in the export import data that's publicly available. If you do the research, you'll find that there are a few trades that were as low as 13. Most of them were in the $1,800 range.

I mean, am I correct that that represents a fairly substantial decline from where we were sort of three months ago when they were more in the 2,000 to 2,500 range?

Yes, I mean, if you want a class -- yes, I mean, I think you're -- the range you provide -- few months back as I think it might be more like four or five months back, but you're in the right gender.

Thanks. Just checking, I'm a little surprised, just given how that steel market is stronger. But that's extremely helpful. Thank you. And then --

But don't forget Alex, everything in our world lags the steel guy. So what you're seeing now is think back to where the steel guys were like in March, April, May, when things were really bad. Everybody was declaring force measure etcetera, etcetera. So, all of our industry and needle coke guys -- and the needle coke guys even like further because they like us a little bit.

Yes. Point taken, thank you. And then, I guess, you talked a little bit before about Chinese supply. I mean, how do you assess competition from China at the moment? I mean, I think in the past, you've spoken about maybe two or three Chinese manufacturers of electrodes could sort to produce western UHP quality electrodes and potentially export those, like has your view there changed at all, I guess, just a broad question, how do you assess, Chinese graphite electrode capabilities at the moment? Thanks.

Sure, thanks, Alex. We've actually spent quite a bit of effort in the last number of months, trying to a certain debt for ourselves, obviously, for our own business purposes. And we still believe that there are small, there are a handful of larger suppliers that are making their way into the UHP space and developing, I would say, Tier 2 level type electrodes. Not quite up to the standards of ourselves in the Japanese, but respectable in that way. There are a lot of smaller operations that aren't there. And you have to understand the Chinese steel industry a little bit to understand why they don't have the same need because they're for the most part, a lot of their electric arc furnaces as you know are brand new. Most of them are fed with hot metal or many of them, so probably should qualify that and say many with a launder system. And many are fed with scrapped through a preheat conveyor system. That application is much less demanding than I'll call it, the traditional EAF that's bucket charged, like most of the operations in this country would be. So many of those smaller operations may not have the need to be able to serve -- they'll be able to serve as their own domestic applications. So while we believe the Chinese are continuing to grow and we want to be careful to be respectful of that, and be transparent about that, and they're growing in advance of their electric arc furnace trajectory, and we still believe that the objective that the Chinese government said of having 20% EAF furnace production by 2025 is still alive and well. That would mean so if you think about the 1 billion ton number I’ve talked about earlier, that there would be 200,000 tons of EAF steel production in China by 2025.

200 million.

200 million. Sorry, thanks, Quinn. 200 million. So, when you think about that in the context of the United States, where we have 70, arguably 70 million and 80 million tons of EAF capacity, China will have almost three times the EAF production in five years that we currently have in this country. It's a mammoth change. So they will need a big graphite electrode industry to be able to service that and they are in fact, working on building that. Once again as we exit the pandemic, and we get some clear vision on where the economy is going to be in supply and demand. We'll know more about maybe what's been happening in China during the pandemic around some of these facilities, we do know that there's many of them, as I said, that are smaller. And most likely geared towards domestic supply that's what we know at this point, I would be careful in saying that it is an opaque area of the world to try and dig, exacting information out. That's what we believe and what we think we know at this point. And we will continue to work on that trying to get it clearer and clearer for our own purposes as well.

Thanks, this is very helpful. Thanks again for the question.

There are no further questions at this time. I turn the call back over to Dave Rintoul.

Thank you very much. We appreciate everybody's focus and attention to our call today. Thank you for joining us. I'd like to take this opportunity to wish everyone on the call health and safety in the coming months. Once again, thank you for joining us. And we look forward to speaking with you in the next quarter. Take care and have a good day.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.