GrafTech International(EAF)2021-11-05 18:09Financial Data and Key Metrics Changes - Net income for Q3 2021 totaled $120 million, or $0.45 per GAAP earnings per share, with adjusted EBITDA of $172 million, reflecting a $19 million increase compared to Q3 2020 and an adjusted EBITDA margin of 50% [19][20] - Operating cash flow was strong at $134 million, with adjusted free cash flow of $125 million, achieving a 73% conversion rate of adjusted EBITDA to adjusted free cash flow [20][21] - Total debt was reduced by $100 million in Q3, with a year-to-date reduction of $300 million, resulting in a total debt to adjusted EBITDA ratio of 1.7 times [21][22] Business Line Data and Key Metrics Changes - Sales volumes of graphite electrodes reached 43,000 metric tons in Q3 2021, up 30% compared to Q3 2020, with shipments comprising 28,000 metric tons under long-term agreements (LTAs) at an average price of approximately $9,500 per metric ton and 15,000 metric tons of non-LTA sales at an average price of approximately $4,600 per metric ton [12][19] - Non-LTA prices increased by 12% in Q3 compared to Q2, with expectations for an additional increase of 7% to 9% in Q4 [10][12] Market Data and Key Metrics Changes - The global steel manufacturing utilization rate outside of China was 74% in Q3 2021, consistent with 75% in Q2 and a 15% improvement compared to Q3 2020 [6] - US steel industry utilization rates improved to 85% in Q3 from 82% in Q2 2021, compared to 65% in the prior year quarter [6] Company Strategy and Development Direction - The company is focused on enhancing its capital allocation strategy, which includes returning capital to shareholders while investing in business and reducing debt [24][26] - GrafTech aims to leverage its competitive advantages, including a low-cost structure and vertical integration into key raw materials, to position itself for long-term growth [27] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the ability to manage through inflationary pressures and global supply chain challenges, while anticipating significantly higher graphite electrode prices in 2022 [7][8][25] - The company expects strong demand for graphite electrodes to continue, driven by the recovery in the steel industry and the growth of electric arc furnaces [25][27] Other Important Information - The company announced a new $150 million open market stock repurchase program, bringing the total authorized repurchase amount to $163 million [22][23] - A succession plan for the CFO was discussed, with Tim Flanagan set to replace Quinn Coburn, who will retire next year [4] Q&A Session Summary Question: Near-term pricing and volume pricing details - The CFO clarified that 75% of non-LTA business in Q3 was based on prior negotiations, leading to a larger percentage increase in pricing than reported [30][31] Question: Cost expectations for Q4 - The CFO indicated that total cost increases in Q4 are expected to be similar to previous quarters, around 1.5% to 2% [36] Question: Commercial strategy for next year - Management discussed the mix of annual, semi-annual, and quarterly agreements in the order book for next year, emphasizing the reset in pricing due to improved market conditions [40][42] Question: Needle coke availability and pricing - Management acknowledged tightness in the needle coke market and expected upward pressure on prices due to increased demand from various sectors, including EV production [46][59] Question: Contracting environment and customer expectations - Management noted that discussions regarding existing LTAs would likely not occur until late 2022, as customers are hedged and waiting to see market conditions [50][52]