Fourth Quarter Results and 2024 Outlook Reflect
Persistent Softness in the Commercial Environment
GrafTech Announces Cost Rationalization and
Footprint Optimization Plan
GrafTech International Ltd. (NYSE: EAF) ("GrafTech" or the
"Company") today announced financial results for the quarter and
year ended December 31, 2023.
Fourth Quarter 2023 Highlights
- Net loss of $217 million, or $0.85 per share(1)
- Includes a goodwill impairment charge of $171 million and a
lower of cost or market ("LCM") inventory valuation adjustment of
$12 million
- Adjusted EBITDA(2) of negative $22 million, including the LCM
inventory valuation adjustment
- Sales volume of 24 thousand metric tons ("MT")
- Production volume of 24 thousand MT
- Net cash provided by operating activities of $9 million
- Adjusted free cash flow(2) of $4 million
Full Year 2023 Highlights
- Net loss of $255 million, or $0.99 per share(1)
- Adjusted EBITDA(2) of $20 million
- Sales volume of 92 thousand MT
- Production volume of 88 thousand MT
- Net cash provided by operating activities of $77 million
- Adjusted free cash flow(2) of $50 million
CEO Comments
"2023 was a challenging year for our business, marked by soft
industry demand, the residual impact of the temporary suspension of
our operations in Mexico that occurred in late 2022, and
significantly higher costs," said Timothy Flanagan, Interim Chief
Executive Officer and President. “Against this backdrop, results
fell short of our expectations. Yet we continue to be encouraged by
the resiliency of our team and remain proud of their efforts to
manage what is within our control. Specifically, our initiatives to
manage working capital led to a more than $100 million reduction in
inventory levels in 2023, resulting in positive free cash flow for
the year. Further, our disciplined efforts to reduce costs drove a
nearly 10% decline in our period costs for 2023. While doing so, we
continued to make targeted investments to improve our commercial
capabilities and product offerings."
"As we enter 2024, we are experiencing ongoing softness in the
commercial environment, with graphite electrode demand weak and
pricing continuing to be pressured," said Mr. Flanagan. "In
response, we are adding to the steps taken in 2023 by taking a
number of further actions to reduce costs and optimize our
manufacturing footprint. These include indefinitely suspending the
majority of our production processes at our St. Marys facility,
reducing the Company's overhead expenses and reducing graphite
electrode production at our remaining facilities as needed in
response to weak market conditions. As we execute these
initiatives, we remain confident in our ability to meet our
customers' needs while preserving the ability to capitalize on
long-term growth opportunities."
Cost Rationalization and Footprint Optimization Plan
In response to persistent softness in the commercial
environment, the Company today announced a set of initiatives
designed to reduce our cost structure and optimize our
manufacturing footprint while, at the same time, preserving our
ability to deliver excellent customer service and to capitalize on
long-term growth opportunities for our Company. Key elements
include the following:
- Indefinitely suspending production activities at our St. Marys,
Pennsylvania facility, with the exception of graphite electrode and
pin machining, as well as indefinitely idling certain assets within
our remaining graphite electrode manufacturing footprint.
- Reducing the Company's overhead structure and expenses.
- Operating our remaining graphite electrode production
facilities at reduced levels, as needed, to align production with
our view on market demand.
These initiatives, most notably the indefinite suspension of
production at St. Marys and the reduction in Company overhead, are
expected to result in annualized cost savings of approximately $25
million once fully implemented, excluding the impact of one-time
costs. Of the anticipated cost savings, approximately $15 million
are expected to be realized in cost of goods sold with the
remainder in selling and administrative expenses. One-time costs
are expected to be approximately $5 million, of which the majority
are cash-related.
As of December 31, 2023, our stated graphite electrode
production capacity was approximately 202 thousand MT(3)(4). As a
result of indefinitely idling certain assets, beginning in 2024,
our stated production capacity will be approximately 178 thousand
MT(3)(4), a reduction of 12%.
Further, during 2024, we will continue to operate these
facilities at reduced levels, as needed, to align production with
our view on electrode demand. In addition to being a key component
of the incremental actions we are taking in response to weak market
conditions, this will also support our efforts to further reduce
our inventory levels and manage capital expenditures in 2024.
Specific to capital expenditures, for 2024 we anticipate spending
to be in the range of $35 million to $40 million. This compares to
capital expenditures of $54 million for the year ended December 31,
2023.
Fourth Quarter and Full Year 2023
Financial Performance
(dollars in thousands, except per share
amounts)
Year Ended
December 31,
Q4 2023
Q3 2023
Q4 2022
2023
2022
Net sales
$
137,145
$
158,992
$
247,519
$
620,500
$
1,281,250
Net (loss) income
$
(217,409
)
$
(22,621
)
$
50,331
$
(255,250
)
$
382,962
(Loss) earnings per share(1)
$
(0.85
)
$
(0.09
)
$
0.20
$
(0.99
)
$
1.48
Net cash provided by operating
activities
$
9,292
$
51,495
$
50,023
$
76,561
$
324,628
Adjusted net (loss) income(2)
$
(68,569
)
$
(20,866
)
$
44,761
$
(100,752
)
$
379,666
Adjusted (loss) earnings per
share(1)(2)
$
(0.27
)
$
(0.08
)
$
0.17
$
(0.39
)
$
1.47
Adjusted EBITDA(2)
$
(21,572
)
$
919
$
80,101
$
20,484
$
536,464
Adjusted free cash flow(2)
$
3,539
$
42,997
$
25,800
$
49,974
$
259,329
Net sales for the fourth quarter of 2023 were $137 million, a
decrease of 45% compared to $248 million in the fourth quarter of
2022. The decline reflected 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"), industry-wide
softness in demand for graphite electrodes and a decrease in the
weighted-average realized price for both non-LTA and LTA
volume.
Net loss for the fourth quarter of 2023 was $217 million, or
$0.85 per share. This compares to net income of $50 million, or
$0.20 per share, in the fourth quarter of 2022. Results for the
fourth quarter of 2023 included a goodwill impairment charge of
$171 million and a LCM inventory valuation adjustment of $12
million.
Adjusted EBITDA(2) was a negative $22 million in the fourth
quarter of 2023, compared to adjusted EBITDA of $80 million in the
fourth quarter of 2022. The decline reflected a shift in the mix of
our business from LTA volume to non-LTA volume, lower
weighted-average realized prices, the impact of the LCM inventory
valuation adjustment recorded in the fourth quarter of 2023, lower
sales volume and higher costs on a per MT basis.
In the fourth quarter of 2023, net cash provided by operating
activities was $9 million and adjusted free cash flow(2) was $4
million. The cash flow performance reflected our ongoing focus on
managing working capital levels, including a reduction in
inventories during the fourth quarter of 2023.
For the year ended December 31, 2023, net sales decreased 52%
compared to the prior year, primarily reflecting lower sales volume
driven by the residual impact of the temporary suspension of our
operations in Monterrey, Mexico in late 2022 and industry-wide
softness in graphite electrode demand. A shift in the mix of our
business from LTA volume to non-LTA volume and lower
weighted-average realized prices also contributed to the decline in
net sales.
Net loss for 2023 was $255 million, or $0.99 per share. This
compares to net income of $383 million, or $1.48 per share, in the
prior year. Results for 2023 included a goodwill impairment charge
of $171 million and a LCM inventory valuation adjustment of $12
million. Adjusted EBITDA(2) for 2023 was $20 million, compared to
adjusted EBITDA of $536 million in the prior year, with the decline
primarily 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, lower weighted-average realized prices and the
impact of the LCM inventory valuation adjustment recorded in
2023.
Net cash provided by operating activities for 2023 was $77
million and adjusted free cash flow(2) was $50 million. The cash
flow performance reflected our ongoing focus on managing working
capital levels, including a significant reduction in inventories
during 2023.
Operational and Commercial
Update
Key Operating Metrics
Year Ended
December 31,
(in thousands, except
percentages)
Q4 2023
Q3 2023
Q4 2022
2023
2022
Sales volume (MT)
24.1
24.2
27.8
91.6
149.1
Production volume (MT)(5)
24.4
22.7
29.4
88.1
157.1
Total production capacity (MT)(3)(6)
59.0
55.0
59.0
230.0
230.0
Total capacity utilization(6)(7)
41
%
41
%
50
%
38
%
68
%
Production capacity excluding St. Marys
(MT)(3)(4)
52.0
48.0
52.0
202.0
202.0
Capacity utilization excluding St.
Marys(4)(7)
47
%
47
%
57
%
44
%
78
%
Sales volume for the fourth quarter of 2023 was 24.1 thousand
MT, a decrease of 13% compared to the fourth quarter of 2022,
consisting of 4.8 thousand MT of LTA volume and 19.3 thousand MT of
non-LTA volume.
For the fourth quarter of 2023, the weighted-average realized
price for our LTA volume was approximately $8,500 per MT. For our
non-LTA volume, the weighted-average realized price for graphite
electrodes delivered and recognized in revenue in the fourth
quarter of 2023 was approximately $4,800 per MT, a decrease of more
than 20% compared to the fourth quarter of 2022, with the decline
reflecting the soft commercial environment.
Production volume for the fourth quarter of 2023 was 24.4
thousand MT, a decrease of 17% compared to the fourth quarter of
2022, as we proactively reduced our production volume to align with
our evolving demand outlook and to manage our working capital
levels.
For the year ended December 31, 2023, sales volume decreased 39%
and production volume decreased 44% compared to the prior year.
The table of estimated shipments of graphite electrodes under
existing LTAs is as follows, reflecting our current expectations
for the full year 2024:
2024
Estimated LTA volume (in thousands of
MT)
13 - 16
Estimated LTA revenue (in millions)
$100 - $135(8)
Capital Structure and Liquidity
As of December 31, 2023, we had liquidity of $289 million,
consisting of $112 million of availability under our revolving
credit facility and cash and cash equivalents of $177 million. As
of December 31, 2023, we had gross debt(9) of $950 million and net
debt(10) of approximately $773 million. We continue to have
adequate liquidity in 2024 to navigate the persistent softness in
the commercial environment.
Outlook
As we enter 2024, 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. However, we anticipate
a modest year-over-year improvement in our sales volume for 2024,
most notably in the first quarter of 2024, as the first quarter of
2023 was significantly impacted by the temporary suspension of our
Monterrey, Mexico facility.
Reflecting industry-wide softness in graphite electrode demand,
challenging pricing dynamics have persisted in most regions. As a
result, we are being selective in the commercial opportunities we
choose to pursue. In addition, we are taking the previously
described actions to further reduce our cost structure and optimize
our manufacturing footprint. These actions, combined with the
benefit of reduced market pricing for certain raw materials and
energy, as well as the anticipated improvement in our sales and
production volume levels, are expected to result in a significant
year-over-year decline in our cash cost of goods sold per MT.
Longer term, we remain confident that 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 near-term actions we are taking, supported by an
industry-leading position and our sustainable competitive
advantages, including our substantial vertical integration into
petroleum needle coke via our Seadrift facility, will optimally
position GrafTech to benefit from that long-term growth.
Conference Call Information
In connection with this earnings release, you are invited to
listen to our earnings conference call being held on February 14,
2024 at 10:00 a.m. (EST). The webcast and accompanying slide
presentation will be available on our investor relations website
at: http://ir.graftech.com. The conference call dial-in number is
+1 (888) 886-7786 toll-free in North America or +1 (416) 764-8658
for overseas calls, conference ID: 86313582. 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, with some 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)
Production capacity reflects expected
maximum production volume during the period depending on product
mix and expected maintenance outage. Actual production may
vary.
(4)
Includes graphite electrode facilities in
Calais, France; Monterrey, Mexico; and Pamplona, Spain.
(5)
Production volume reflects graphite
electrodes we produced during the period.
(6)
Includes graphite electrode facilities in
Calais, France; Monterrey, Mexico; Pamplona, Spain; and St. Marys,
Pennsylvania. During the periods presented in this table, our St.
Marys, Pennsylvania facility graphitized and machined a limited
number of electrodes and pins sourced from our Monterrey, Mexico
facility. The remaining production processes at St. Marys were
restarted beginning in the second quarter of 2023. In the first
quarter of 2024, in response to persistent softness in the
commercial environment, we announced an indefinite suspension of
production activities at St. Marys, with the exception of graphite
electrode and pin machining.
(7)
Capacity utilization reflects production
volume as a percentage of production capacity.
(8)
Includes expected termination fees from a
few customers that have failed to meet certain obligations under
their LTAs.
(9)
Gross debt reflects the notional value of
our outstanding debt and excludes unamortized debt discount and
issuance costs.
(10)
A non-GAAP financial measure, net debt is
calculated as gross debt minus cash and cash equivalents (December
31, 2023 gross debt of $950 million less December 31, 2023 cash and
cash equivalents of $177 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 and
cost of goods sold, anticipated reduction in our costs resulting
from our cost rationalization initiatives and one-time costs of
implementation, and guidance relating to adjusted EBITDA and free
cash flow. 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 continue to decline in the
future, and may lead to periods of reduced profitability and net
losses or adversely impact liquidity; 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 primary 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 further
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 a global 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 long-lived
assets 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 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; recent increases in benchmark interest rates and the
fact that any future borrowings may subject us to interest rate
risk; the possibility that disruptions in or our ability to access
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;
changes in, or more stringent enforcement of, health, safety and
environmental regulations applicable to our manufacturing
operations and facilities; 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 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, non-cash fixed asset write-offs, related
party payable - Tax Receivable Agreement adjustments and goodwill
impairment charges. 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. In addition, we believe adjusted EBITDA 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 the non‑cash write‑off of
fixed assets;
- adjusted EBITDA does not reflect related party payable - Tax
Receivable Agreement adjustments;
- adjusted EBITDA does not reflect goodwill impairment charges;
and
- other companies, including companies in our industry, may
calculate EBITDA and adjusted EBITDA 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 Corporation and its affiliates
(together, "Brookfield") 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 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 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 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
CONSOLIDATED BALANCE
SHEETS
(Dollars in thousands, except per
share data)
(Unaudited)
December 31, 2023
December 31, 2022
ASSETS
Current assets:
Cash and cash equivalents
$
176,878
$
134,641
Accounts and notes receivable, net of
allowance for doubtful accounts of $7,708 as of December 31, 2023
and $8,019 as of December 31, 2022
101,387
145,574
Inventories
330,146
447,741
Prepaid expenses and other current
assets
66,382
87,272
Total current assets
674,793
815,228
Property, plant and equipment
920,444
869,168
Less: accumulated depreciation
398,330
350,022
Net property, plant and equipment
522,114
519,146
Deferred income taxes
31,542
11,960
Goodwill
—
171,117
Other assets
60,440
86,727
Total assets
$
1,288,889
$
1,604,178
LIABILITIES AND STOCKHOLDERS’
EQUITY
Current liabilities:
Accounts payable
$
83,268
$
103,156
Long-term debt, current maturities
134
124
Accrued income and other taxes
10,022
40,592
Other accrued liabilities
91,702
89,349
Related party payable - Tax Receivable
Agreement
5,417
4,631
Total current liabilities
190,543
237,852
Long-term debt
925,511
921,803
Other long-term obligations
55,645
50,822
Deferred income taxes
33,206
45,065
Related party payable - Tax Receivable
Agreement long-term
5,737
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, 256,831,870
shares issued and outstanding as of
December 31, 2023 and 256,597,342
as of December 31, 2022
2,568
2,566
Additional paid-in capital
749,527
745,164
Accumulated other comprehensive loss
(11,458
)
(8,070
)
Accumulated deficit
(662,390
)
(401,945
)
Total stockholders’ equity
78,247
337,715
Total liabilities and stockholders’
equity
$
1,288,889
$
1,604,178
GRAFTECH INTERNATIONAL LTD.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF
OPERATIONS
(Dollars in thousands, except per
share data)
(Unaudited)
Three Months Ended
December 31,
Year Ended
December 31,
2023
2022
2023
2022
Net sales
$
137,145
$
247,519
$
620,500
$
1,281,250
Cost of goods sold
144,393
163,492
571,857
726,373
Lower of cost or market inventory
valuation adjustment
12,431
—
12,431
—
Gross (loss) profit
(19,679
)
84,027
36,212
554,877
Research and development
1,837
1,024
5,520
3,641
Selling and administrative expenses
15,079
19,115
74,012
76,977
Goodwill impairment charges
171,117
—
171,117
—
Operating (loss) income
(207,712
)
63,888
(214,437
)
474,259
Other expense (income), net
3,418
(8,789
)
4,679
(10,147
)
Interest expense
15,655
11,533
58,087
36,568
Interest income
(1,681
)
(2,283
)
(3,439
)
(4,480
)
(Loss) income before (benefit) provision
for income taxes
(225,104
)
63,427
(273,764
)
452,318
(Benefit) provision for income taxes
(7,695
)
13,096
(18,514
)
69,356
Net (loss) income
$
(217,409
)
$
50,331
$
(255,250
)
$
382,962
Basic (loss) income per common share:
Net (loss) income per share
$
(0.85
)
$
0.20
$
(0.99
)
$
1.48
Weighted average common shares
outstanding
257,205,583
256,900,707
257,042,843
258,781,843
Diluted (loss) income per common
share:
Net (loss) income per share
$
(0.85
)
$
0.20
$
(0.99
)
$
1.48
Weighted average common shares
outstanding
257,205,583
256,902,385
257,042,843
258,791,228
GRAFTECH INTERNATIONAL LTD.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF
CASH FLOWS
(Dollars in thousands)
(Unaudited)
Three Months Ended
December 31,
Year Ended
December 31,
2023
2022
2023
2022
Cash flow from operating activities:
Net (loss) income
$
(217,409
)
$
50,331
$
(255,250
)
$
382,962
Adjustments to reconcile net (loss) income
to cash
provided by operations:
Depreciation and amortization
13,836
13,788
56,889
55,496
Deferred income tax (benefit)
provision
(17,826
)
5,806
(28,123
)
17,022
Non-cash stock-based compensation
expense
624
645
4,433
2,311
Non-cash interest (benefit) expense
(1,463
)
675
8,786
(2,428
)
Goodwill impairment charges
171,117
—
171,117
—
Lower of cost or market inventory
valuation adjustment
12,431
—
12,431
—
Other adjustments
8,355
(8,253
)
5,077
(8,023
)
Net change in working capital*
42,729
2,047
107,562
(99,575
)
Change in related-party Tax Receivable
Agreement
233
—
(4,398
)
(3,828
)
Change in long-term assets and
liabilities
(3,335
)
(15,016
)
(1,963
)
(19,309
)
Net cash provided by operating
activities
9,292
50,023
76,561
324,628
Cash flow from investing activities:
Capital expenditures
(5,753
)
(26,884
)
(54,040
)
(72,165
)
Proceeds from the sale of assets
—
34
220
195
Net cash used in investing activities
(5,753
)
(26,850
)
(53,820
)
(71,970
)
Cash flow from financing activities:
Interest rate swap settlements
—
2,661
27,453
6,423
Debt issuance and modification costs
(19
)
—
(8,152
)
(2,232
)
Proceeds from the issuance of long-term
debt, net of original issuance discount
—
—
438,552
—
Principal payments on long-term debt
(133
)
(124
)
(433,841
)
(110,124
)
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
—
(1,927
)
(3,854
)
(7,770
)
Dividends paid to related party
—
(640
)
(1,280
)
(2,559
)
Principal payments under finance lease
obligations
(16
)
—
(36
)
—
Net cash (used in) provided by financing
activities
(168
)
(30
)
18,713
(176,267
)
Net change in cash and cash
equivalents
3,371
23,143
41,454
76,391
Effect of exchange rate changes on cash
and cash equivalents
700
2,104
783
736
Cash and cash equivalents at beginning of
period
172,807
109,394
134,641
57,514
Cash and cash equivalents at end of
period
$
176,878
$
134,641
$
176,878
$
134,641
* Net change in working capital due to
changes in the following components:
Accounts and notes receivable, net
$
(2,327
)
$
38,278
$
45,680
$
60,507
Inventories
38,538
(7,078
)
107,796
(153,579
)
Prepaid expenses and other current
assets
(1,622
)
(1,097
)
3,352
593
Income taxes payable
4,158
5,197
(27,198
)
(15,029
)
Accounts payable and accruals
19,515
(27,625
)
(23,876
)
7,748
Interest payable
(15,533
)
(5,628
)
1,808
185
Net change in working capital
$
42,729
$
2,047
$
107,562
$
(99,575
)
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
Year Ended December
31,
Q4 2023
Q3 2023
Q4 2022
2023
2022
Net (loss) income
$
(217,409
)
$
(22,621
)
$
50,331
$
(255,250
)
$
382,962
Diluted (loss)
income per common share:
Net (loss) income per share
$
(0.85
)
$
(0.09
)
$
0.20
$
(0.99
)
$
1.48
Weighted average shares outstanding
257,205,583
257,090,113
256,902,385
257,042,843
258,791,228
Adjustments, pre-tax:
Pension and OPEB plan expenses
(benefits)(1)
3,578
914
(8,993
)
6,309
(7,355
)
Public offerings and related
expenses(2)
—
—
—
—
100
Non-cash losses (gains) on foreign
currency remeasurement(3)
170
(287
)
819
603
521
Stock-based compensation expense(4)
624
1,628
645
4,433
2,311
Non-cash fixed asset write-off(5)
—
—
1,068
—
1,068
Related party payable - Tax Receivable
Agreement adjustment(6)
233
—
97
249
(83
)
Goodwill impairment charges(7)
171,117
—
—
171,117
—
Total non-GAAP adjustments pre-tax
175,722
2,255
(6,364
)
182,711
(3,438
)
Income tax impact on non-GAAP
adjustments(8)
26,882
500
(794
)
28,213
(142
)
Adjusted net (loss) income
$
(68,569
)
$
(20,866
)
$
44,761
$
(100,752
)
$
379,666
Reconciliation of
(Loss) Earnings Per Share to Adjusted (Loss) Earnings Per
Share
Year Ended December
31,
Q4 2023
Q3 2023
Q4 2022
2023
2022
(Loss) Earnings per share
$
(0.85
)
$
(0.09
)
$
0.20
$
(0.99
)
$
1.48
Adjustments per share:
Pension and OPEB plan expenses
(benefits)(1)
0.01
—
(0.04
)
0.02
(0.03
)
Public offerings and related
expenses(2)
—
—
—
—
—
Non-cash losses (gains) on foreign
currency remeasurement(3)
—
—
—
—
—
Stock-based compensation expense(4)
—
0.01
—
0.02
0.01
Non-cash fixed asset write-off(5)
—
—
0.01
—
0.01
Related party payable - Tax Receivable
Agreement adjustment(6)
—
—
—
—
—
Goodwill impairment charges(7)
0.67
—
—
0.67
—
Total non-GAAP adjustments pre-tax per
share
0.68
0.01
(0.03
)
0.71
(0.01
)
Income tax impact on non-GAAP adjustments
per share(8)
0.10
—
—
0.11
—
Adjusted (loss) earnings per
share
$
(0.27
)
$
(0.08
)
$
0.17
$
(0.39
)
$
1.47
Reconciliation of
Net (Loss) Income to EBITDA and Adjusted EBITDA
Year Ended
December 31,
Q4 2023
Q3 2023
Q4 2022
2023
2022
Net (loss) income
$
(217,409
)
$
(22,621
)
$
50,331
$
(255,250
)
$
382,962
Add:
Depreciation and amortization
13,836
16,954
13,788
56,889
55,496
Interest expense
15,655
15,719
11,533
58,087
36,568
Interest income
(1,681
)
(1,144
)
(2,283
)
(3,439
)
(4,480
)
Income taxes
(7,695
)
(10,244
)
13,096
(18,514
)
69,356
EBITDA
(197,294
)
(1,336
)
86,465
(162,227
)
539,902
Adjustments:
Pension and OPEB plan expenses
(benefits)(1)
3,578
914
(8,993
)
6,309
(7,355
)
Public offerings and related
expenses(2)
—
—
—
—
100
Non-cash losses (gains) on foreign
currency remeasurement(3)
170
(287
)
819
603
521
Stock-based compensation expense(4)
624
1,628
645
4,433
2,311
Non-cash fixed asset write-off(5)
—
—
1,068
—
1,068
Related party payable - Tax Receivable
Agreement adjustment(6)
233
—
97
249
(83
)
Goodwill impairment charges(7)
171,117
—
—
171,117
—
Adjusted EBITDA
$
(21,572
)
$
919
$
80,101
$
20,484
$
536,464
Reconciliation of
Net Cash Provided by Operating Activities to Free Cash Flow and
Adjusted Free Cash Flow
Year Ended December
31,
Q4 2023
Q3 2023
Q4 2022
2023
2022
Net cash provided by operating
activities
$
9,292
$
51,495
$
50,023
$
76,561
$
324,628
Capital expenditures
(5,753
)
(8,498
)
(26,884
)
(54,040
)
(72,165
)
Free cash flow
3,539
42,997
23,139
22,521
252,463
Interest rate swap settlements(9)(10)
—
—
2,661
27,453
6,423
Change in Control payment(11)
—
—
—
—
443
Adjusted free cash flow
$
3,539
$
42,997
$
25,800
$
49,974
$
259,329
Reconciliation of
Cost of Goods Sold to Cash Cost of Goods Sold per MT
Year Ended December
31,
Q4 2023
Q3 2023
Q4 2022
2023
2022
Cost of goods sold
$
144,393
$
157,603
$
163,492
$
571,857
$
726,373
Less:
Depreciation and amortization(12)
12,163
15,291
12,078
50,124
48,680
Cost of goods sold - by-products and
other(13)
780
430
7,716
14,500
41,611
Cash cost of goods sold
131,450
141,882
143,698
507,233
636,082
Sales volume (in thousands of MT)
24.1
24.2
27.8
91.6
149.1
Cash cost of goods sold per MT
$
5,454
$
5,863
$
5,169
$
5,537
$
4,266
(1)
Net periodic benefit cost (credit) for our
pension and OPEB plans, including a mark-to-market (gain) loss,
representing actuarial gains and losses that result from the
remeasurement of plan assets and obligations due to changes in
assumptions or experience. We recognize the actuarial gains and
losses in connection with the annual remeasurement in earnings in
the fourth quarter of each year.
(2)
Legal, accounting, printing and
registration fees associated with public offerings and related
expenses.
(3)
Non-cash losses (gains) 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)
Non-cash goodwill impairment charges.
(8)
The tax impact on the non-GAAP adjustments
is affected by their tax deductibility and the applicable
jurisdictional tax rates.
(9)
Receipt of cash related to the monthly
settlement of our outstanding interest rate swap contracts.
(10)
The year ended December 31, 2023 includes
cash received from the termination of our interest rate swap
contracts.
(11)
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 fourth 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.
(12)
Reflects the portion of depreciation and
amortization that is recognized in cost of goods sold.
(13)
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/20240212381431/en/
Michael Dillon 216-676-2000 investor.relations@graftech.com
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