GrafTech Reports Second Quarter 2021 Results

Rhea-AI Summary

GrafTech International Ltd. (NYSE: EAF) reported its second quarter 2021 results, showing net income of $28 million or $0.11 per share, impacted by one-time charges of $88 million due to a change in control. Adjusted net income reached $114 million or $0.43 per share, marking a 19% increase year-over-year. Sales volume surged 16% sequentially and 39% year-over-year. Production also rose 22% sequentially. Despite the challenges, CEO David Rintoul expressed optimism for the graphite electrode market, anticipating continued price improvements into 2022.

Positive

• Adjusted net income increased by 19% year-over-year to $114 million.
• Sales volume increased 39% year over year, indicating strong demand.
• Production volume rose 33% year over year, showcasing operational efficiency.
• Cash flow from operations was robust at $86 million.

Negative

• Net income declined to $28 million from $98 million in the previous quarter due to one-time charges.

GrafTech International Ltd. (NYSE: EAF) (GrafTech or the Company) today announced financial results for the quarter ended June 30, 2021.

Second Quarter 2021 Highlights

• Net income of $28 million, or $0.11 per share, including one-time Change in Control¹ charges of $88 million
• Adjusted net income² of $114 million, or $0.43 per share
• Adjusted EBITDA² of $160 million
• Sales volume increased 16% sequentially over first quarter 2021 and 39% year over year
• Production volume increased 22% sequentially over first quarter 2021 and 33% year over year

CEO Comments

President and Chief Executive Officer David Rintoul commented, “During the second quarter, we continued to see improvement in the global steel market, resulting in strong sequential and year over year performance across key metrics for GrafTech. We are pleased to report that our sales and production volumes steadily improved through the quarter. We are encouraged by the industry’s continued recovery for the remainder of the year and the positive expected impact on our business going forward.

“In the quarter, we accelerated our production capabilities to meet increasing customer demand, driven by the growth in the graphite electrode market. Graphite electrode market prices for delivery in the second half of 2021 increased during the second quarter, and we continue to expect to see improvement in our reported non-LTA pricing in the second half of 2021 and into 2022. We believe we are well positioned for success in this improving market.”

Second Quarter 2021 Financial Performance
(dollars in thousands, except per share amounts)											For the Six Months Ended June 30,
		Q2 2021			Q1 2021			Q2 2020			2021			2020
Net sales		$	330,750		$	304,397		$	280,718		$	635,147		$	599,364
Net income		$	28,165		$	98,799			92,776			126,964			215,044
Earnings per share3		$	0.11		$	0.37		$	0.35		$	0.47		$	0.80
Cash flow from operations		$	86,330		$	122,425		$	148,373			208,755		$	287,656
Adjusted net income2		$	114,487		$	99,879		$	96,006			214,366		$	212,235
Adjusted earnings per share2, 3		$	0.43		$	0.37		$	0.36			0.80		$	0.79
Adjusted EBITDA2		$	159,901		$	155,045		$	151,126			314,946		$	330,303
Adjusted free cash flow4		$	135,907		$	108,251		$	137,919		$	244,158		$	263,301

Net income in the second quarter of 2021 was $28 million, or $0.11 per share, with a net income margin of 9%. This includes one-time Change in Control¹ charges (pre-tax) of $88 million, as a result of the ownership of our largest stockholder, Brookfield, moving below 30% of our total shares outstanding. These charges consisted of a long-term incentive compensation (LTIP) cash charge of $73 million, and a non-cash accelerated equity compensation expense for certain awards of approximately $15 million. After adjusting for these charges and other pre-tax quarterly adjustments of $4 million, described in our non-GAAP financial measures below, second quarter adjusted EPS^{2, 3} was $0.43 per share, an increase of $0.07 per share or 19% compared to the prior year period. Adjusted EBITDA² increased $9 million, or 6% year over year, to $160 million and adjusted EBITDA margin⁵ was 48%.

Cash flow from operations was $86 million in the second quarter, free cash flow⁴ was $74 million and adjusted free cash flow⁴ was $136 million. 85% of adjusted EBITDA converted to adjusted free cash flow⁶ in the second quarter.

Operational and Commercial Update
Key operating metrics											For the Six Months Ended June 30,
(in thousands, except percentages)		Q2 2021			Q1 2021			Q2 2020			2021			2020
Sales volume (MT) 7		43			37			31			80			65
Production volume (MT) 8		44			36			33			80			66
Production capacity excluding St. Marys (MT) 9, 10		51			51			51			102			102
Capacity utilization excluding St. Marys 9, 11		86	%		71	%		65	%		78	%		65	%
Total production capacity (MT) 10, 12		58			58			58			116			116
Total capacity utilization 10, 11		76	%		62	%		57	%		69	%		57	%

GrafTech reported strong sales volumes of 43 thousand MT in the second quarter of 2021, consisting of long-term agreement (LTA) volumes of 27 thousand MT, at an average approximate price of $9,500 per MT, and non-LTA volumes of 16 thousand MT, at an average approximate price of $4,100 per MT. Sales volumes increased 16% and 39% compared to the first quarter of 2021 and second quarter of 2020, respectively.

As previously reported, spot prices negotiated during the first quarter of 2021 reached a low and have steadily improved since that time. Accordingly, non-LTA prices for our graphite electrodes to be delivered and realized in income in the second half of 2021 are improving. We expect this improvement in non-LTA pricing to continue into 2022.

Production volume of 44 thousand MT in the second quarter of 2021 represented an increase of 22% and 33% compared to the first quarter of 2021 and the second quarter of 2020, respectively.

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-$45013

Global steel market capacity utilization rates have continued to improve sequentially:
		Q2 2021		Q1 2021		Q2 2020
Global (ex-China) steel market capacity utilization rate14		75%		73%		56%
U.S. steel market capacity utilization rate15		80%		77%		56%

Capital Structure and Capital Allocation

As of June 30, 2021, GrafTech had cash and cash equivalents of $114 million and total debt of approximately $1.2 billion. We continue to make progress in reducing our long-term debt, repaying $50 million in the second quarter, for a total debt repayment of $200 million in the first half of 2021. We continue to expect our primary use of cash for the balance of this year to be debt repayment.

Our full year 2021 capital expenditure range expectations are unchanged, between $55 and $65 million.

Conference Call Information

In connection with this earnings release, you are invited to listen to our earnings call being held on August 6, 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: 2891618. A replay of the conference call will be available until November 4, 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: 2891618. A replay of the webcast will also be available on our website until November 4, 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 on 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, 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, a key raw material for graphite electrode manufacturing. This unique position provides us with competitive advantages in product quality and cost.

________________________

1 In the second quarter of 2021, we incurred one-time Change in Control charges of $88 million (pre-tax), as a result of the ownership of our largest stockholder, Brookfield, moving below 30% of our total shares outstanding. These charges consisted of an LTIP cash charge of $73 million, and non-cash accelerated equity compensation expense for certain awards of approximately $15 million.

2 A non-GAAP financial measure, see below for more information and a reconciliation of EBITDA, adjusted EBITDA, adjusted net income, and adjusted EPS, to net income, the most directly comparable financial measure calculated and presented in accordance with GAAP.

3 Earnings per share represents diluted earnings per share. Adjusted earnings per share represents diluted adjusted earnings per share.

4 A non-GAAP financial measure, see below for more information and a reconciliation of adjusted free cash flow and free cash flow to cash flow from operating activities, the most directly comparable financial measure calculated and presented in accordance with GAAP.

5 Adjusted EBITDA margin is calculated as adjusted EBITDA divided by net sales (Q2 2021 adjusted EBITDA of $160 million/Q2 2021 net sales of $331 million).

6 Free cash flow conversion is calculated as free cash flow divided by adjusted EBITDA (Q2 2021 free cash flow of $74 million/Q2 2021 adjusted EBITDA of $160 million). Adjusted free cash flow conversion is calculated as adjusted free cash flow divided by adjusted EBITDA (Q2 2021 adjusted free cash flow of $136 million/Q2 2021 adjusted EBITDA of $160 million).

7 Sales volume reflects only graphite electrodes manufactured by GrafTech.

8 Production volume reflects graphite electrodes we produced during the period.

9 In the first quarter of 2018, our St. Marys, Pennsylvania facility began graphitizing a limited number of electrodes sourced from our Monterrey, Mexico facility.

10 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.

11 Capacity utilization reflects production volume as a percentage of production capacity.

12 Includes graphite electrode facilities in Calais, France; Monterrey, Mexico; Pamplona, Spain; and St. Marys, Pennsylvania.

13 Includes expected termination fees from a few customers that have failed to meet certain obligations under their LTAs.

14 Source: World Steel Association and Metal Expert.

15 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 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 connection with our 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, adjusted net income, adjusted EPS, free cash flow, adjusted free cash flow, free cash flow conversion and adjusted 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 assets and liabilities in our foreign subsidiaries where the functional currency is the U.S. dollar, related party Tax Receivable Agreement adjustments, stock-based compensation, non-cash fixed asset write-offs and Change in Control¹ charges that were triggered as a result of the ownership of our largest stockholder falling below 30% of our total outstanding shares. 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 assets and 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 adjustments;
• adjusted EBITDA does not reflect stock-based compensation or the non-cash write-off of fixed assets;
• adjusted EBITDA does not reflect the Change in Control¹ charges; 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 income, a non-GAAP financial measure, as net income or loss and excluding the items used to calculate adjusted EBITDA, less the tax effect of those adjustments. We define adjusted EPS, a non-GAAP financial measure, as adjusted net income divided by the weighted average of diluted common shares outstanding during the period. We believe adjusted net income and adjusted EPS are useful to present to investors because we believe that they assist investors’ understanding of the underlying operational profitability of the Company.

Free cash flow and adjusted free cash flow, non-GAAP financial measures, are metrics 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 define adjusted free cash flow as free cash flow adjusted by the Change in Control¹ charges that were triggered as a result of the ownership of our largest stockholder falling below 30% of our total outstanding shares. We believe these free cash flow metrics are useful to present to investors because we believe that they facilitate comparison of the Company’s performance with its competitors. Free cash flow conversion and adjusted free cash flow conversion are also non-GAAP financial measures 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 and adjusted free cash flow conversion as adjusted free cash flow divided by adjusted EBITDA.

In evaluating EBITDA, adjusted EBITDA, adjusted EBITDA margin, adjusted net income, adjusted EPS, free cash flow, adjusted free cash flow, free cash flow conversion and adjusted 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, other than the Change in Control¹ charges. Our presentations of EBITDA, adjusted EBITDA, adjusted EBITDA margin, adjusted net income, adjusted EPS, free cash flow, adjusted free cash flow, free cash flow conversion and adjusted 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, adjusted net income, adjusted EPS, free cash flow, adjusted free cash flow, free cash flow conversion and adjusted free cash flow conversion alongside other financial performance measures, including our net income (loss), EPS 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 June 30, 2021				As of December 31, 2020
ASSETS
Current assets:
Cash and cash equivalents		$	114,131			$	145,442
Accounts and notes receivable, net of allowance for doubtful accounts of $8,177 as of June 30, 2021 and $8,243 as of December 31, 2020			173,409				182,647
Inventories			257,338				265,964
Prepaid expenses and other current assets			59,462				35,114
Total current assets			604,340				629,167
Property, plant and equipment			800,973				784,902
Less: accumulated depreciation			299,212				278,685
Net property, plant and equipment			501,761				506,217
Deferred income taxes			32,495				32,551
Goodwill			171,117				171,117
Other assets			87,427				93,660
Total assets		$	1,397,140			$	1,432,712
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable		$	89,192			$	70,989
Short-term debt			129				131
Accrued income and other taxes			38,480				48,720
Other accrued liabilities			83,706				56,501
Related party payable - tax receivable agreement			3,922				21,752
Total current liabilities			215,429				198,093
Long-term debt			1,224,897				1,420,000
Other long-term obligations			72,975				81,478
Deferred income taxes			45,223				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, 267,880,752 shares issued and outstanding as of June 30, 2021 and 267,188,547 as of December 31, 2020			2,679				2,672
Additional paid-in capital			773,552				758,354
Accumulated other comprehensive loss			(391	)			(19,641	)
Accumulated deficit			(952,400	)			(1,070,770	)
Total stockholders’ deficit			(176,560	)			(329,385	)
Total liabilities and stockholders’ equity		$	1,397,140			$	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 June 30,								For the Six Months Ended June 30,
		2021				2020				2021				2020
CONSOLIDATED STATEMENTS OF OPERATIONS
Net sales		$	330,750			$	280,718			$	635,147			$	599,364
Cost of sales			201,867				130,600				348,263				269,517
Gross profit			128,883				150,118				286,884				329,847
Research and development			1,018				710				1,987				1,422
Selling and administrative expenses			75,783				16,001				95,936				30,933
Operating profit			52,082				133,407				188,961				297,492
Other expense (income), net			357				311				3				(3,003	)
Related party Tax Receivable Agreement expense (benefit)			—				—				47				(3,346	)
Interest expense			15,994				20,880				38,161				46,552
Interest income			(199	)			(348	)			(236	)			(1,489	)
Income before provision for income taxes			35,930				112,564				150,986				258,778
Provision for income taxes			7,765				19,788				24,022				43,734
Net income		$	28,165			$	92,776			$	126,964			$	215,044
Basic income per common share:
Net income per share		$	0.11			$	0.35			$	0.47			$	0.80
Weighted average common shares outstanding			267,560,712				267,249,580				267,440,501				268,233,233
Diluted income per common share:
Income per share		$	0.11			$	0.35			$	0.47			$	0.80
Weighted average common shares outstanding			267,807,944				267,260,395				267,765,378				268,243,997

GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in thousands) Unaudited
		For the Three Months Ended June 30,								For the Six Months Ended June 30,
		2021				2020				2021				2020
Cash flow from operating activities:
Net income		$	28,165			$	92,776			$	126,964			$	215,044
Adjustments to reconcile net income to cash provided by operations:
Depreciation and amortization			16,292				14,549				32,831				28,833
Related party Tax Receivable Agreement expense (benefit)			—				—				47				(3,346	)
Deferred income tax provision			(1,355	)			7,642				(4,195	)			13,990
Stock- based compensation			15,266				718				16,031				1,124
Interest expense			1,890				1,587				7,199				3,181
Other charges, net			1,770				(40	)			3,354				(1,284	)
Net change in working capital*			25,247				34,216				50,434				61,943
Change in related-party Tax Receivable Agreement			—				—				(21,799	)			(27,857	)
Change in long-term assets and liabilities			(945	)			(3,075	)			(2,111	)			(3,972	)
Net cash provided by operating activities			86,330				148,373				208,755				287,656
Cash flow from investing activities:
Capital expenditures			(11,878	)			(10,454	)			(26,052	)			(24,355	)
Proceeds from the sale of assets			68				3				219				65
Net cash used in investing activities			(11,810	)			(10,451	)			(25,833	)			(24,290	)
Cash flow from financing activities:
Debt issuance and modification costs			(113	)			—				(3,084	)			—
Repurchase of common stock - non-related party			—				—				—				(30,099	)
Payment of tax withholdings related to net share settlement of equity awards			(3,801	)			(25	)			(4,074	)			(71	)
Principal repayments on long-term debt			(50,000	)			(100,028	)			(200,000	)			(100,028	)
Dividends paid to non-related party			(2,024	)			(679	)			(3,418	)			(6,605	)
Dividends paid to related party			(650	)			(1,993	)			(1,927	)			(18,926	)
Other			(1,262	)			—				(2,109	)			—
Net cash used in financing activities			(57,850	)			(102,725	)			(214,612	)			(155,729	)
Net change in cash and cash equivalents			16,670				35,197				(31,690	)			107,637
Effect of exchange rate changes on cash and cash equivalents			1,015				350				379				(916	)
Cash and cash equivalents at beginning of period			96,446				152,109				145,442				80,935
Cash and cash equivalents at end of period		$	114,131			$	187,656			$	114,131			$	187,656
* Net change in working capital due to changes in the following components:
Accounts and notes receivable, net		$	25,948			$	17,970			$	9,305			$	58,713
Inventories			(3,825	)			14,312				7,823				(2,924	)
Prepaid expenses and other current assets			(10,561	)			(1,279	)			(12,071	)			6,132
Income taxes payable			607				10,857				(17,761	)			25,095
Accounts payable and accruals			18,415				(7,631	)			62,748				(25,019	)
Interest payable			(5,337	)			(13	)			390				(54	)
Net change in working capital		$	25,247			$	34,216			$	50,434			$	61,943

NON-GAAP RECONCILIATION (Dollars in thousands)
The following table reconciles our non-GAAP key financial measures to the most directly comparable GAAP measures:
Reconciliation to Adjusted net income
												For the Six Months Ended June 30,
		Q2 2021			Q1 2021				Q2 2020			2021			2020
Net income		$	28,165		$	98,799			$	92,776		$	126,964		$	215,044
Adjustments, pre-tax:
Pension and OPEB plan expenses (1)			430			431				541			861			1,083
Initial and follow-on public offering and related expenses (2)			241			422				—			663			4
Non-cash gains and losses on foreign currency remeasurement (3)			2,255			(348	)			2,222			1,907			(1,239	)
Stock-based compensation (4)			550			768				717			1,318			1,127
Non-cash fixed asset write-off (5)			313			—				—			313			—
Related party Tax Receivable Agreement adjustment (6)			—			47				—			47			(3,346	)
Change in control LTIP award (7)			73,384			—				—			73,384			—
Change in control stock-based compensation acceleration (7)			14,713			—				—			14,713			—
Total non-GAAP adjustments pre-tax			91,886			1,320				3,480			93,206			(2,371	)
Income tax impact on non-GAAP adjustments			5,564			239				251			5,803			438
Adjusted net income		$	114,487		$	99,880			$	96,005		$	214,367		$	212,235

(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.
(7)			In the second quarter of 2021, we incurred Change in Control charges as a result of the ownership of our largest stockholder, Brookfield, moving below 30% of our total shares outstanding.

NON-GAAP RECONCILIATION (Dollars in thousands)
The following table reconciles our non-GAAP key financial measures to the most directly comparable GAAP measures:
Reconciliation to Adjusted EPS
											For the Six Months Ended June 30,
		Q2 2021			Q1 2021			Q2 2020			2021			2020
EPS		$	0.11		$	0.37		$	0.35		$	0.47		$	0.80
Adjustments per share:
Pension and OPEB plan expenses (1)			—			—			—			—			—
Initial and follow-on public offering and related expenses (2)			—			—			—			—			—
Non-cash gains and losses on foreign currency remeasurement (3)			0.01			—			0.01			0.01			—
Stock-based compensation (4)			—			—			—			0.01			—
Non-cash fixed asset write-off (5)			—			—			—			—			—
Related party Tax Receivable Agreement adjustment (6)			—			—			—			—			(0.01	)
Change in control LTIP award (7)			0.27			—			—			0.27			—
Change in control stock-based compensation acceleration (7)			0.06			—			—			0.06			—
Total non-GAAP adjustments pre-tax per share			0.34			—			0.01			0.35			(0.01	)
Income tax impact on non-GAAP adjustments per share			0.02			—			—			0.02			—
Adjusted EPS		$	0.43		$	0.37		$	0.36		$	0.80		$	0.79

(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.
(7)			In the second quarter of 2021, we incurred Change in Control charges as a result of the ownership of our largest shareholder, Brookfield, moving below 30% of our total shares outstanding.

NON-GAAP RECONCILIATION (Dollars in thousands)
The following table reconciles our non-GAAP key financial measures to the most directly comparable GAAP measures:
Reconciliation to Adjusted EBITDA
														For the Six Months Ended June 30,
		Q2 2021				Q1 2021				Q2 2020				2021				2020
Net income		$	28,165			$	98,799			$	92,776			$	126,964			$	215,044
Add:
Depreciation and amortization			16,292				16,539				14,549				32,831				28,833
Interest expense			15,994				22,167				20,880				38,161				46,552
Interest income			(199	)			(37	)			(348	)			(236	)			(1,489	)
Income taxes			7,765				16,257				19,788				24,022				43,734
EBITDA		$	68,017			$	153,725			$	147,645			$	221,742			$	332,674
Adjustments:
Pension and OPEB plan expenses (1)			430				431				541				861				1,083
Initial and follow-on public offering and related expenses (2)			241				422				—				663				4
Non-cash gains and losses on foreign currency remeasurement (3)			2,255				(348	)			2,222				1,907				(1,239	)
Stock-based compensation (4)			550				768				717				1,318				1,127
Non-cash fixed asset write-off (5)			313				—				—				313				—
Related party Tax Receivable Agreement adjustment (6)			—				47				—				47				(3,346	)
Change in control LTIP award (7)			73,384				—				—				73,384				—
Change in control stock-based compensation acceleration (7)			14,713				—				—				14,713				—
Adjusted EBITDA		$	159,903			$	155,045			$	151,125			$	314,948			$	330,303

(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.
(7)			In the second quarter of 2021, we incurred Change in Control charges as a result of the ownership of our largest shareholder, Brookfield, moving below 30% of our total shares outstanding.

NON-GAAP RECONCILIATION (Dollars in thousands)
The following table reconciles our non-GAAP key financial measures to the most directly comparable GAAP measures:
Reconciliation to Free Cash Flow and Adjusted Free Cash Flow
														For the Six Months Ended June 30,
(in thousands)		Q2 2021				Q1 2021				Q2 2020				2021				2020
Net cash provided by operating activities		$	86,330			$	122,425			$	148,373			$	208,755			$	287,656
Capital expenditures			(11,878	)			(14,174	)			(10,454	)			(26,052	)			(24,355	)
Free cash flow			74,452				108,251				137,919				182,703				263,301
Change in control payment (1)			61,455				—				—				61,455				—
Adjusted free cash flow		$	135,907			$	108,251			$	137,919			$	244,158			$	263,301

(1)

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 are cash and $15 million are non-cash. $61 million of the cash charges were paid in the second quarter of 2021; the additional $12 million will be paid in the third quarter of 2021, as a result of the timing of related payroll tax payments.

 

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FAQ

What were GrafTech's financial results for Q2 2021?

GrafTech reported a net income of $28 million, or $0.11 per share, for Q2 2021.

How did GrafTech's sales volume change in Q2 2021?

Sales volume increased by 16% sequentially and 39% year-over-year in Q2 2021.

What are GrafTech's expectations for graphite electrode pricing in 2022?

GrafTech anticipates continued improvement in graphite electrode pricing into 2022.

What impact did one-time charges have on GrafTech's earnings in Q2 2021?

One-time charges of $88 million significantly impacted GrafTech's net income for Q2 2021.

How did GrafTech manage its debt in the first half of 2021?

GrafTech repaid $200 million in debt during the first half of 2021.