GrafTech International Ltd.

Ladies and gentlemen, thank you for standing by and welcome to the Graf Tech fourth quarter 2020 earnings conference call and webcast. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during this session, you will need to press star 1 in your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star 0. I would now like to turn the call over to Wendy Watson, Vice President Investor Relations. Please go ahead.

Good morning and welcome to our fourth quarter and full year 2020 conference call. On with me today is Dave Rintoul, Graf Tech's Chief Executive Officer, and Quinn Coburn, our Chief Financial Officer. We are conducting the call from different locations today, so please bear with us if you experience minor delays or mixed audio quality. 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.

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I know, and this is another one of those images where it's like overly ambitious.

Sponsor me, Bing.

We didn't plan for this in the rules, so we're just gonna have to switch. Oh my God, the anticipation. Who's it gonna be? All right, you guys, final three. How we feeling? We nervous, excited, freaking out?

Okay.

Yeah? A little bit of everything? All of the above, all right. Well, first of all, congratulations to the three of you. There's no small feat standing here right now as the final three. So I'm very excited for you guys and let's see what ends up happening here. The challenges are tougher in the final round and the bar will without a doubt be higher on the judging. There is more to lose this close to victory, and I am again excited for all of you. Today's challenge will be gels. Again, I keep saying the same thing, the devil will be in the details. So you have to balance risk and reward here. You have to push yourself, have to stand out, but you have to nail the shot. So slow down, learn from the mistakes of the past, and you will have 10 minutes to set up and create your shot. How you choose to use your time, again, is up to you, but as you know, one of you will be eliminated today. For equipment, we have cameras and lenses from Canon, and all lighting is provided by Westcott. You have access to the FJ80, 200, 400s, with pretty much any color gel that you're looking for, so you're not gonna burn out of color, let's put it that way. Once your 10 minutes is up, you must hand over your memory card and return to the waiting room where you will not be able to view or edit your images until everyone has completed the task. But as you know the drill, before we get started, each of you will select a card to determine who goes first. Good luck.

Number one, baby.

Oh, Bethany's going first.

I kind of wanted one.

You want to switch? That was my jam.

I'll offer it to you just this one time. Will you allow?

You can switch. I didn't know this was going to be a thing. We didn't plan for this in the rules, so we're just going to have to switch. Leroy, why don't you switch with yourself? Yeah. There you go. Congrats, you're third. Right hand don't know what the left hand is doing.

I want to use a lot of different colors, kind of really make it pop. She's wearing a sparkly green dress, so I want to get those sparkles really going. Just try to... Do something real cool. I'm going to put two, I'm going to put a blue and a teal light behind her. It's kind of like kickers, illuminate the back of her rim light. I'm going to put a purple gel in the front to kind of put some purple in the shadows and then a beauty dish as the key light to light her face and kind of get the rest of it in shadows and see what happens.

Where do you want the bear holes?

Okay, they're going to go... This will be the key. You'll be looking at this light mostly. I'm gonna roll, turn your body away from it, and you're gonna turn up to it. These are gonna be on Charlie. Which one's A and B, sir? A, B, Charlie. I'll get the lighting set up, and then I'll have you air install. I want you behind her, but in front of the lights, okay? Put your arms down for me. Pull them in. I'm kind of close. I'm close up now, so I'm going to do some more hands. I want to see some more of the hair a little bit, I think.

Sprayer.

Faster. Higher. Set your chin up just slightly. Open that mouth again. Beautiful. The fingers on your face, kind of relaxing it, slow it down a little bit.

Back down.

It was right where you had it on your cheek. Yeah, put too much in the back of your hand, the sides of your hand.

Holy smokes. Get it? Holy smokes.

Can I get a drink of my fingers? I'm dying. How do I think it did? I think it did pretty good. I'm real happy. Pop some colored kickers behind her. Rim light, you know, I've got a soft purple light on the front of her just to fill in a little bit of the shadows with color and then I've got a beauty dish at the front to really kind of carve out her face and see her details and features. Bunch of smoke in the background so the light can play in it. I think it looks really good. I'm excited.

All right, so I'm excited to see what she did. As a final image, I kind of peeked over the camera. We burned six minutes getting set up. So it was quite the elaborate lighting setup, but I think we pulled it off and hopefully she nailed the shot. We'll see. All right, challenge number two. Bethany, we ready?

I'm ready.

Okay, let's go. What's that? I don't know. Okay.

We're gonna do the Canon R5 with the Canon 15-35 lens. I love a wide angle and the 15-35 is one of my favorites. what I'm thinking is using the distortion of the wide lens to kind of give you like a really distorted, almost broken doll look in front of your motorcycle. Like you're broken down in front of your motorcycle kind of thing. We're going to do a couple where you look really fierce, really badass. And then I want to do some that are more storytelling and we'll see which one we like better. Okay. I can do that. Okay. You ready? Sounds good. and then we're going to lower it. Can you squat in that dress? I want toe in because I want to actually come this way. I want to see what it looks like. Both of those legs are going to go behind.

Firing into camera.

Firing into camera. Red gel a little closer to the camera. Eyes at the light. Let's change it up a little bit. I'm going to have you sit on the ground. I want it like a broken doll, but I want your hands going into the motorcycle. No fan yet. We'll build.

Get on that toe. Bring this other foot around. Roll that shoulder back. Thank you. Eyes to the light. All right, we're going in close.

All right, lean in towards me. Can you lean into me really nice and close?

Five, four, three, two, one, time.

Yeah, so I'm trying really hard to stick with the concept, but move within the concept. And I think we did a great job here of balancing the poses, the angles we were getting, along with the gels. So we had a little bit of a struggle with the gel at first, but once we got that red gel balanced, I think it's gonna tell a really cool story and I think it's gonna have a really cool shot.

Are you ready? What music were you listening to? I saw you listening. Was it Eye of the Tiger? No. I felt like it should be. It's Gyro. We got the 280s and you want this on a 200. Okay, perfect.

Okay, so for my first shot, we're going to use our beautiful model in her emerald green dress and we're going to put her against a dark background and we're going to do some light trails. Then we're going to gel her dress with a purple gel just to give it that complimentary color and go from there. Now we're gonna do our second shot. We have time, it's the Hail Mary. We're gonna throw RGB with the multicolored shadows falling off on the car while she leans on it. All right, so this is gonna be a really ambitious shot, but I'm really, really, really ready to take the challenge. I didn't get here by accident. And this game is one pixel by pixel, not by inch. Let's go.

Do you want these separated?

No, they can all be on the same.

But this is different.

No, they're all going to be the same. So they're all going to be the same power? All the same power, all the same. Okay. I'm going to have you in a very dynamic pose. Can I get an apple box, too? I'm going to take your first frame, five-star.

And then turn your body a little bit away from the light, and then turn your face back to my light.

Yeah, just like that. One, two, three. Now blue? Yeah. Front or back? Just behind. Yeah, right here. Yeah, that's pretty. Yep. Gorgeous, gorgeous. Kind of looking towards your shoulder a little bit. Yeah. Blobby eye, blobby eye. Come back to my TV. Yep, bring your nose that way. Yeah, right there. Not looking at your shoulder. How much time we got, boss? Six minutes left. Six minutes left? Yep. Test shot two.

Yeah, your name. Looks good. This is your Hail Mary. Two and a half minutes. Let's nail it.

and turn it back a little bit to me. Tighten up your hair, it's getting, it's getting, yeah. Oh, those earrings are beautiful. Do you like your ear sticking out? Okay, one minute. Yeah, let's do that, one minute. Thank you, sir.

Five, four, three, two, one. One time.

So me and Mariah just finished 10 minutes of excruciating pain. And I feel like we got some really good shots. It was fun. I had a good time. I went through the Hail Mary at the end, and I think it paid off. Hopefully, Sencata's an end zone waiting with two hands to catch it. Hey, buddy. How do you feel? I feel good. Good. Good? Hell yeah.

All right, so we're in the final three, and just some, I guess, thoughts about each of the competitors. Each one of them brings a different expertise, if you will, to the game for sure. You look at someone like Bethany, she's out of her element. She's not necessarily a portrait photographer. That's not her area of expertise, but she's incredibly creative. in using gels and using lighting and seeing. She has good vision as well. Then you jump over to Jess. Jess is also an incredible photographer in her own right. She's really good at conceptualizing photo shoots. And then Leroy. is a student of photography so you don't see this on camera but he's in there drawing things out putting diagrams together so that he can get out of his head on the paper you know what he's envisioning and then he gets out here and you see him kind of drift off into his own world but in his head things are moving at a really good pace when we're watching him it looks like he's moving in slow motion but creatively speaking he's got a lot of great ideas and as a two challenge winner he definitely can bring the heat. So I'm excited to see what all these guys brought to their final images. All right. Boys and girls, how we think we did? All right.

All right. Yeah? Yeah.

You went with your hail and air. Each of you did something actually completely different. So I am excited to see the final images and what you finally come up with. All right. You know the drill. Here we go. I'll drop them into your hands. You've got 30 minutes to pick and edit your final images. Good luck to all three of you. Thank you. All right, here we go. Time, time, time, time, time. Look at you, Leroy. I'm ready first. I like it. Girls, how we doing? Should I just pull the memory card out and see what happens? No, it's not on there yet.

It doesn't recognize the memory card.

Judge the ghost image.

Just what would you imagine I would take?

It's interpretive.

Yeah, it's abstract. It's the most creative you could be. I'm pushing your creative limits.

Are you girls excited?

Yes, I am.

This was a really good challenge. It was gels. And those were the only parameters we gave them. So they had free reign of the entire building. And I thought it was a bit challenging for them because the set lights were on. We didn't turn them off for them. So they had to really be able to darken the image to be able to get the gels to even show up. All right.

All right. Let's go.

Let's do it. All right. Here we go. First image.

Well, well, well. Wow. This is pretty nice. Yeah. That's an intuition background?

No, that's done in post-production.

Oh, wow. Okay.

So they took it that extra step and beautiful light fall off gradient. I thought they did a really good job with this. And, you know, Mariana had on, you know, this green sequins dress, you know, really good makeup. So they had to, I think they had to balance gels and color well to make the image look good and balanced, not just throw in color for the sake of color.

I like the fact that they used the gel to highlight, not just necessarily put it on her.

That's right.

Yeah, they used it as edge lighting. Yeah, and I love that. And it just makes it for a great effect for... I just think it's beautiful.

And for this image, I actually like the way it's hitting the earrings. Normally, I would find that as a distraction, right? And here, I felt like that's actually shaping her face, intentional or not.

It's giving her a jawline, too. Is that blown?

Yeah, we can zoom in on that. It's actually not blown at all. I was going to push back if it was, though, because it'd be like, all right, well, it's a specular highlight. We'll give it to them, but no. Full detail there. Yeah, I like the eye work. Retouching is nice. Retouching is very nice, pleasing.

Not over my eyes. Good eye direction, too. Yeah, yeah.

So, all right, that's image number one. Man, we have to beat this now. They're stepping up their game. So this is kind of interesting as well. At first, I wasn't quite sure how I felt about this image, but as you start looking into it, they used red, green, blue.

Yeah, you can see it here. I see it.

And you start seeing how they filled in the shadows and highlights with red, green, blue on that. I thought that was interesting. I don't know if it's technically sound or not.

Right.

But it was definitely interesting to see.

The part that kills me is the nose. When I ever see a double nose shadow, it's always such a no-no, usually for the sake of two lights coming in and getting across double nose shadow, but...

I know, and this is another one of those images where it's, like, overly ambitious on the technical side, right? I love the idea of, like, three colors, but now as we start looking at the image closer, bad shadows across the nose.

So we've got good ambition, but this one's... And then, again, basic things, separation from the background, she's just falling right into that card.

Yeah, yeah.

Yeah.

All right.

Okay. Hmm. I think this is a better use of gels. It's more cinematic. It tells a story. Like we've got red, blue, you know, it should be chased by the cops.

Yeah. Well, and that was actually her, the inspiration for the shot.

Yeah.

She was like, you've been pulled over by the police. Like that was part of the inspiration. And I think she even said, you know, you did it. So that was like how they got Mariana into it.

Things that kill me is the total pull with the head.

Yeah. In fairness, motorcycle couldn't be moved. So I do agree. Normally, I would want to penalize for the... sign coming out of the top of their head and I do I like this sign in the frame because it's like oh you're speeding right so it's like kind of there but I just want it like there yeah right oh yeah I guess she could have she could have moved and gotten that out of the top of her head for sure it's right under here It's right, she's sitting on that foot. Yeah, so you don't see that heel, which would be right there. So you got some problems with this image as well. Good use of light and gels to really, in this case, we're using light and gels, I don't know if you agree, to set the tone.

Yes.

Because you went right to it. You're like, looks like she's being pulled over by the police. Okay, well then mission accomplished by the creator.

Well, then I love knowing that was the artist's intention.

Yeah.

Because she fulfilled her intention. Yeah, yeah. From a creative standpoint, I think this is great. On a technical standpoint, there's some things that are still missing here. Now I want to just make sure that we adhere to the challenge here. And it's just about the use of gels.

Use of gels, for sure. Well, all right. We've got our work cut out for us here. yeah for me this is pretty hard i think it's kind of clear which one i mean you know which one you want to go yes which is the worst right yeah okay don't say it okay you know which is your worst whose journey ends don't point to it just get it in your head so i can ask you okay you know yep you know All right. You want to just point?

Do you know? I know. Okay. Okay, let's point.

We're just going to point on three?

One, two, and three.

All right. Well, that's unanimous. So, unfortunately, their journey will end, and now we have to decide who's the winner of this challenge. All right. You have your image for the winner?

I think so. Challenge winner.

Challenge winner.

Challenge for shells.

That's right. You know who you want as the challenge winner? I really don't know. You don't know? I thought you were there.

I was there. I don't know what happened. I would go either way.

You got a point. We're going to do the points.

Okay. I'll just follow the points. All right. I'll go ahead and pick one.

You ready?

Yes.

All right. This is for the winner of challenge number six. Okay. All right. Here we go. One, two, three. All right, unanimous again. So we feel confident we have a winner?

Yeah, that is based on the challenge.

I think they did a really good job. I think it's a beautiful image, one we can all be proud of for sure. Let's send it to print. Creators, today was absolutely nerve-wracking for me to watch you. Just know I'm rooting for all of you. Today's challenge was gels, no other rules. What I found interesting though was watching how you had plenty of time, but the level of difficulty really did burn time on the clock. Every one of you worked hard to stand out. However, as you know, one of you, unfortunately, will be going home today. Our judges today are fellow Canon Explorers of Light, Vanessa Joy and Loretta Houston. Vanessa is a wedding and portrait photographer based in Austin, Texas, and Loretta is a fashion editorial and commercial photographer based in L.A. When your image is shown, please step forward so that we can critique the image you created today. Bethany Allen, step forward. Vanessa, why don't you start on this particular image? You had a lot of good feedback on it.

I did. First thing I said when I looked at this image was how cinematic it was. It told a story. She'd be pulled over by the cops. You got the red and blue. And then Sal's like, yeah, that's exactly what she was thinking. So really hurt fashion wise. So even better, like great job having a story in your head and then bringing it to life.

It's not all rosy. There's still some technical issues in this image, and you've got to push yourself. Got one more round left. You've got to push yourself. She's missing her right foot, okay? And so those are the kind of details where they do matter. And there's other issues with this from a lighting perspective as well that you caught, Loretta.

For me, I love the pose of, well, the pose itself, especially with the extension of the leg, but we're just missing that one foot. So you just really need to pay attention to details here. And then also with the lighting, I mean, for the gels, I think you could have just used more, what's the word, sal?

Damn it, I need to come up with a good word. More.

Creativity?

Creativity? No.

More execution? No. More.

There's not enough. There's not enough.

It's not enough gels going on.

It's not setting the mood enough, I think.

Yeah, there you go.

Why? Because of the blue one, right? The blue one, we were talking about that. It kind of, it almost went white, and then it created a hot spot.

So that hot spot, I would say probably should have either been removed or while you were working, I think you could have gotten more use to Loretta's point out of that light by moving it off to the side, right? So there's no color wash other than on the floor. We could have really washed the bike and her back shoulder a little bit more with that. And I don't know if you covered this already, but the sign coming out of the top of her head, That's a miss because while the bike could not move, you can always move your perspective, right? You could have just shift to the right and gotten that sign. And the sign plays. I think we all agreed, right? Police pulled over, right? We got the message. So from a level of creativity, you did really, really well. But again, the details, details, details. We've got to pay attention on that.

And I know where this was shot, so I'm amazed by this shot, how you actually had her pose with this motorcycle. So kudos on that. Just pay attention to the details always.

Bethany, congratulations. Your journey continues. All right, Leroy, Jess, step forward. All right, guys, this is tough. Unfortunately, one of you is not going to be continuing forward. And this was a really tough decision for us as a panel to look at these images. They were both incredible images. But like I said, we've got a decision to make. And so we're going to dive right into this. Vanessa, I know you had some very critical feedback on this image.

I did a few different things. Her skin tone was off to me. She was kind of going more towards magenta smurf than like a natural skin tone. And with gels, we know we can color anything, whatever we want. So I was concerned about that. In addition to, I wanted to see maybe a little less of the leg or a little more. I don't know which one it is, but it was cropped in a way that maybe it was interesting, but a little bit off.

And in fairness, just to counter that, others we've hammered on cutting at the joint. So she did not cut at the joint.

She did not cut at the joint. That is true.

Now, Loretta, you had different perspective on the same piece of feedback Vanessa had. Right.

I actually like the blue highlights that you have that kind of just puts her or separates her from the background. Also, I'm a fan for color on the skin. So my, you know, for fashion photography, we break those rules and this is one I break all the time. So I love this image.

Jess, again, I'm going to hammer you on a little bit of the details here. So creativity, right? All of you, again, did a great job on elevating your game, but it starts falling apart when we really start digging into this. So, for example, in between her arm and her hip, there's hair left there. I think that should have been removed, especially because you went in and put in a new background. So you'd already spent some time masking her out. That hair does not make the image stronger, right? I know we could have the argument and debate here that, well, you want to show that she's got long hair, but we're not really showing it. It's just kind of peeking out. And I think when you... So you agree with that? Okay. So I think as you went in there and you're adding that background, which, great job, right? You elevated the image. You're starting to leave some of that other stuff look sloppy on an otherwise really strong image. All right? Next image. Leroy... Who wants to start?

I have to start all of them, so you guys get a turn.

Loretta, you start. Damn it. All right. Leroy, one of the things I will tell you that really, really irked me about this image is, and I know this was your Hail Mary image, and one of the things that really irked me was that we chopped her arms off. I mean, she looks like her arms are completely chopped off, and you had control over that. We could have pulled back a little, and so that, to me, is a huge no-no on the image.

I love the use of gels, and that was a challenge. So looking at the shadows and the different colors in the shadows, looking at the hair and highlighting the hair in that way was definitely really creative and fun to look at and made us analyze it a bit more.

The red, green, blue I thought was really well done.

What problem I had with this image is that you see the shadow on the nose and the color on the nose. You really need to pay attention to detail. Like I said on your last competition, yes, it's magazine worthy, but it still had a lot of technical difficulties in there. You really need to think it over before you shoot, okay?

As you guys know, there's only one image here. One of you, your journey's continuing. The other, this is the end of the road, all right? Congratulations. Jess. Jess, you did an incredible job on this image. I mean, creativity was off the charts. The way you lit her from the side with the use of gels, it was really, really creative. And so, seriously, congratulations on your first challenge win. This is your first challenge win, yeah? Congratulations on your first challenge win. Your journey continues. Congratulations. Leroy, what a journey it's been, my friend. I got to tell you, man, you're... Your process, the way you see the world, is really incredible. Do not give up on that. You've got to keep pushing and keep challenging. I think, I hope, when you walk away from this, the takeaway is details, details, details. You have these incredible ideas and concepts and visions, quite frankly, 10 times better than the way I see the world, but you're falling flat on the details, and I think that's really what bit you on this particular challenge.

You grew. I've seen you grow, and it's amazing. You became more creative. You really thought about the process. You just really needed to really hammer down on your technical skills. That's what's going to move you forward into the industry and level you up, okay? So just keep that in mind. Still keep going, though.

And can I just comment on sort of having to do with photography is your personality is phenomenal. And that'll make you a successful photographer above anyone else that does pay attention to details in so many ways. We all voted you like a Mr. Congeniality of the show.

Well, there you go. Congratulations on that. Leroy, unfortunately, your journey will not continue. Good luck, my friend.

This week, I lost to some really great girls, so there's nothing to be sad about, but it hurts when you want something so bad, and it just doesn't part your way. But you just got to keep pushing and never give up. So it's a game of pixels, man. It's not a game of inches.

Being one of the last people here of color was an amazing thing to do. It's not often that you see us competing at the top level in the creative field. And I'm super excited that I had this opportunity. And I don't take it for granted. You know, color aside, creativity is creativity. And I brought my A game. Felt a little short today, but I'll be back. And when I come back, I'm coming back swinging.

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. The results we discussed today are based on our unaudited results for the year ended December 31, 2020. We will also discuss certain non-GAAP financial measures And these slides include the relevant non-GAAP reconciliations. You can find these slides in the investor relations 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 fourth quarter and year-end 2020 call. I hope you, your families, and your colleagues are healthy and well. We will begin, as we always do, with safety. Our 2020 full-year total recordable injury rate is 0.51, a 46% increase, or decrease, excuse me, improvement from 2019. Continuing our improvement trend over the last three years, health and safety excellence is a core value at Graphtec and demonstrates our keen focus on continuous improvement across our organization. I am very proud of the diligence and hard work by our global team in the safety area, as well as their response to the challenges created by the pandemic over the past year. Our plants have been diligent and thorough in their COVID-19 controls and associated audits. Our team members continue to adhere to exacting protocols and we continue to proactively manage our response to the pandemic. I want to personally thank the Graf Tech team for your efforts in 2020. As we enter 2021, we must remain vigilant to reach our ultimate goal of every employee going home safely every day. Health and safety are fundamental to our belief that a safe plant is an efficient plant. As a global team, we are proud of our culture of continuous improvement and the strong safety metrics we reported in 2020. That spirit of continuous improvement comes into other areas, including our 97% on-time delivery appointments in the fourth quarter of our focus on efficiency,

And the highest level of customer service.

Moving to slide four. As those of you who follow our company know, health and safety is not the only place where we begin our conversation each quarter, but is a cornerstone of our focus on ESG efforts globally. Quinn and I and our senior executives participate in our ESG steering committee. The steering committee oversees our sustainability strategy, which compromises or comprises rather of employee health and safety, community relations, material sourcing and efficiency, energy management, greenhouse gas emissions, air quality, water and wastewater management, and waste management. The strategy encompasses activities as varied as our community involvement in Outreed and Monterey, Mexico, our capture of energy generated at our Seadrift Coke facility to create additional sources of electricity for the area, and our emission reduction efforts that include the installation of control technology and equipment on all of our sites. Our goals are centered on improving our environmental footprint across our operations. We are working hard to be good corporate citizens in the communities where we operate, and every day our business decisions and actions are guided by our code of conduct and ethics. We look forward to continuing our ESG dialogue with you and publishing our second annual sustainability report later this year. Now turning to slide five. Late in 2020, we began seeing measured recovery in global steel markets, including improvement in steel pricing and capacity utilization rates. Fourth quarter global steel production outside of China improved to 211 million tons from 191 million tons in the third quarter, according to the World Steel Association. Global steel manufacturing utilization rates out of China improved in the fourth quarter to 72% from over just 60% in the third quarter. Steel industry fundamentals continue to improve with pricing for most types of steel at or near all-time highs. USA hot roll core values are currently at approximately $11.60 to $11.80 $80 per ton, and we're up over 75% in the fourth quarter. Black seed billow prices were approximately 540 to 560 per metric ton, and we're up over 30% in the fourth quarter. We expect continued steel industry strength to positively impact the graphite electrode market later in 2021. As you know, our industry lags demand recovery in the steel industry due to our position in the steel producer supply chain. As the steel industry's capacity utilization improves, we first see increasing demand for graphite electrodes, which is then followed by higher pricing for our products. Each of these movements in the graphite electrode supply chain is at a lag to the steel producer's increasing demand. In the fourth quarter, our average price from LTA sales of graphite electrodes was approximately $9,600 per metric ton. And our average price for non-LTA sales was approximately $4,900 per metric ton. Turning to slide six, our commercial team worked hard throughout 2020 to service our customers and to develop mutually beneficial solutions to challenges they faced during the year, including volume commitments. Going forward, we remain focused on providing superior services and solutions to our valued customers. The estimates we announced last November for expected graphite electrode sales volumes under our LTAs have not changed. In 2021, we estimate our LTA sales volumes will be in the range of 98,000 to 108,000 metric tons. 2022 will be in the range of 95,000 to 105,000 metric tons. And for the years 2023 through 2024, we estimate LTA sales volumes of 35,000 to 45,000 metric tons. I'll now turn the call over to Quinn on slide seven to discuss our fourth quarter and full year 2020 financial results. Quinn?

Okay. Thanks, Dave. We're pleased with our fourth quarter 2020 financial results and the steady sequential improvement we are seeing across our key metrics. Fourth quarter 2020 net sales were $338 million, a sequential improvement of 18% from third quarter.

Dad, I got to get in there. Okay, thank you. Sorry. Yeah, no problem. Thank you.

That's nice. In the fourth quarter, production and sales volumes of graphite electrodes improved sequentially to 36,000 metric tons of graphite electrodes produced

and 37,000 metric tons of graphite electrodes shipped. Fourth quarter LTA shipments were 31,000 metric tons, and full year LTA shipments were 113,000 metric tons. Our non-LTA sales in the fourth quarter consisted of 6,000 metric tons of electrodes, bringing our full year non-LTA sales to 22,000 metric tons. Now turning to slide eight. Despite the challenges of 2020, we were able to deliver solid results for the year with $1.62 of full-year EPS, $659 million of adjusted EBITDA, and $528 million of free cash flow. Sequential improvements continued in the fourth quarter of 2020 with net income of $125 million up 33% from the third quarter and earnings per diluted share of 47 cents up 34% over third quarter EPS. Fourth quarter adjusted EBITDA of 176 million and fourth quarter free cash flow of 142 million were both up 15% from the third quarter. As you will see on slide nine, We used the majority of our 2020 free cash flow to repay debt. As I mentioned previously, Graf Tech continued its strong track record of free cash flow generation in 2020 with $528 million of free cash flow. Our 2020 capital allocation included $400 million of debt repayment, $31 million of dividend payments, and $30 million for share purchases. Now moving to slide 10. We significantly strengthened our capital structure in 2020 pursuant to our commitment to reduce debt and maintain balance sheet flexibility. Over the course of the year, we reduced our debt by $400 million. In December, we issued a $500 million, 4.625% senior secured notes due in 2028. We used the proceeds to repay a portion of our term loan These transactions effectively extended the maturity of $500 million of our long-term debt by approximately four years, further enhancing our financial flexibility. At the end of 2020, our total liquidity was approximately $392 million, consisting of $145 million of cash and $246 million available under the revolving credit facility. Now on to slide 11. In 2020, we anticipate another year of significant cash flow generation. We expect to use the majority of that cash flow to further reduce debt. Our focus on the balance sheet and maintaining a strong capital structure provides us with significant financial, operational, and strategic flexibility. We also plan to invest in our business, both through maintaining our high-quality, low-cost global operating assets and targeting high return operational improvements. We look to deploy cash into projects designed to reduce operating costs, increase productivity, and develop products that our customers value. We expect full year 2021 capital expenditures in the range of 55 to 65 million. Now I'll turn it back to Dave on slide 12.

Thanks, Gwen. Graphtec is one of the largest producers of ultra-high-powered graphite electrodes in the world, operating three of the largest global facilities. Graphite electrodes are a mission-critical component to the EIF steel industry, and there is no substitute for our product. Our customers are the lowest-cost producers of steel and are some of the largest recyclers in the world, producing steel with 25 percent of the carbon emissions of traditional integrated steel producers. We have a sustainable and long-term competitive advantage from our low-cost structure and vertical integration into a key raw material petroleum neotrope. Our graphite electrodes are highly engineered and require extensive process knowledge to manufacture. The services and solutions that Graphtec provides help position both our customers and us for a better future. Our balance sheet commitment and proven track record of high-quality earnings and significant cash flow generation.

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gives us the strength to manage through the industry cycles. With commitment of our people and our significant competitive advantages, we continue to strongly believe graph tech is well positioned today and over the long term. That concludes our prepared remarks, and we'll now open the call for questions.

Ladies and gentlemen, to ask a question, please press star, then the number one on your telephone keypad. We'll pause for just a moment to compile the Q&A roster. And your first question comes from Arun Viswanathan with RBC Capital Markets. Your line is open.

Great. Thanks for taking my question. Good morning, and congratulations on the performance in 20. I guess, you know, first question is, could you just provide an update maybe – on spot pricing in electrodes and needle coke. Obviously, there's been a nice improvement, as you referenced, in steel pricing and utilization rates. Have you started to see that flow through on the needle coke and electrode side?

Sure, Arun. Thanks for your question and your interest in the company. So as I referenced earlier, there is a lag, but we believe that as we've transferred into the first quarter, pricing is bottoming out and volumes have started to pick up. So that's why we're optimistic about 2021. We think as those influence of those prices filter through the year, remembering that today we're negotiating orders that are for late delivery in late Q2 and into Q3, we'll start to see the impact of improved pricing. On needle coke, I think we're starting to see that a similar trend and that with an expectation that as we go through the year, needle coke pricing will increase also. Okay.

And thanks for that. And I guess a couple more. I guess in the past you'd referenced some months of inventory still in the industry on the electrode side. How would you size the inventory position now with your customers? I think in the past you'd referenced something in the six-month range. Is that still where you see things now, or has that kind of also shortened with the improvement in the steel utilization rates?

Sure. You know, one of the reasons you have the lag is because people work down inventory as they're before they start placing new orders, obviously, as they see shifts to be sure that the market is, you know, continuing in that trend. So we are seeing that that inventory has been worked down significantly and approaching as we talk at this time, approaching what we will call a normal Bill Meyers- Amount of inventory. And I think we said on the last call that we expected that would be completed by about the end of this quarter. I think that still is our trajectory. I think the inventory. Bill that had taken places has been worked, worked out nicely.

Okay. Great. And then, um, I guess just looking ahead then, um, you know, you've laid out the LTA volumes that you expect, um, for the next couple of years. What do you expect, uh, as far as, um, you know, maybe some of the merchant and spot volumes, how did those evolve through the year? Um, do you, do you see a scenario where maybe in 22, you'd get back to kind of your 18 levels of, of, um, spot volume sales or how does the spot book evolve for you guys?

So we're optimistic about the spot order book to be sure. I don't think today that we would be brave enough to be trying to predict what 2022 is going to bring, but we're certainly optimistic as we go through this current year and see a sizable increase in the amount of spot business that we do in 2021 compared to what we did in 2020. So I think we're cautiously optimistic about the future. Of course, assuming the continued rebound that we're seeing in the steel industry remains going forward. And at this point in time, we don't see any reason to believe anything different.

Okay, and then just lastly for me, when you think about the uses of cash, I guess, in 21, you know, deleveraging was obviously a focus in 20, but maybe you're in a slightly better position to return capital to shareholders in 21, I guess. Is that the case? And maybe, Quinn, you can just lay out to, you know, kind of how you're seeing priorities for cash use at this point.

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Yeah.

Yep. So as we noted in our comments, I mean, first and foremost, I think we will focus on making the appropriate investments in our business, maintain our high quality assets, continue to invest in high return projects, Anything that would be improve our operations and have a high return and as I mentioned We plan on capex of 55 to 65 million. So that would be the first priority Second priority just from a philosophical standpoint is we do have an emphasis on a strong balance sheet as we have had for the last couple of years and think it's appropriate and in our best interest and in the shareholders' best interest to operate from a position of balance sheet strength. We think that gives us financial operational flexibility and is very appropriate for the industry that we're in. So in 2021, we will continue to focus on balance sheet strength. That will be our number one priority. Our number one priority for cash will be to continue on our reducing our debt level. And as you note, we've returned cash to shareholders in the past. We continue with our dividend. And we have $59 million remaining on our open market share purchase program. So, of course, that will continue to be an option. But as we mentioned, our first priority will be balance sheet strength and debt reduction.

Great. Thanks.

Again, if you'd like to ask a question, please press star and the number one on your telephone keypad. Your next question comes from David Gagliano with CMO Capital Markets. Your line is open.

All right, great. Thanks for taking my questions. I think Arun hit a lot of them, but I just want to follow up on the capital allocation policy. Drill down a bit further on the philosophy there, that last comment, because obviously substantial progress in reducing debt levels in what was obviously a challenging year. And one could argue that the balance sheet will be under levered substantially, especially if you continue to direct the vast majority of the cash that's coming to debt reduction. So is there an optimal level of you know, capital structure, for example, net debt to EBITDA, even on a normalized basis or even on an outright basis, you know, a comfort level of net debt, whereby you would actually start directing more of that cash to the shareholders as well as the, you know, debt reduction initiatives.

Yeah, sure. David, thanks for that. Yeah. So the way I would characterize it is, you know, we do quite a quite a bit of discussion at the management level, at the board level, on an ongoing basis, as you know, as we've discussed before. And with regards to the target debt level, we have been fairly consistent. We have been very consistent in communicating and managing to a leverage level of no more than two to two and a half times. Currently, we're at 2.2 times. And as I said, that target is our maximum range. And we're comfortable operating below that level as well. Just as a note, for most of 2018 and 2019, we operated at a level of around 1.7 to 1.8. So again, we're comfortable operating below that level. I think the key decisions with regards to exactly how much debt we hold will depend on what the future brings in terms of long-term contracts. and also what the business conditions are like in the future. But as we mentioned, our key priority will be to maintain that flexibility through the cycle so we have the financial, operational, and strategic flexibility that we believe is in the best interest for the company and the shareholders to operate with.

Okay, understandable. I think, though, if one did the basic math on, kind of run rate cash generation and applied that to the out years. If graph tech shifted to a sort of a, even a 50, 50, you know, capital allocation approach, similar to one, the one in 2019, you would be, you know, effectively below one and a half times leverage on a normalized EBITDA of 500 million. So I think that's right. So I'm curious if, you know, Is that normalized EBITDA assumption too high, or is there something else that we should be thinking about here?

No, Dave, I think it's just, I think you're spot on. I think we could drop down below, again, the two times and be comfortable with that. And as I noted, we continue on an ongoing basis to discuss at the management and board levels, and we'll continue to assess. And when the the right time is to shift to return more cash to shareholders, you know, then we'll make that shift at the appropriate time. Absolutely.

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Okay, that's perfect. Thanks. And then just one last one for me. Short term, can you just give us a little more color on your, given that we're five weeks into the first quarter, on your volume expectations for the first quarter? That's it for me.

So thanks, David. I think as we came out of the fourth quarter, which was a good quarter for us, we saw some, you know, late LTA improvement as people were trying to clean up some obligations, which we were appreciative of. And as we move into the new year, uh, you know, we start the cycle, uh, again, I think we'll see an increase in, uh, uh, some of the spot business and some, we have a few LTAs, uh, that were three years that drop off. And I think we've given some, some guidance on that. So, um, I think the, uh, we see steady improvement, I think quarter over a quarter for the year. Um, and are optimistic about where the year will take us. Usually the first quarter is a bit of an adjustment, as people are trying to show where they're going to be. So I don't think Q1 won't have an increase from where we left off in the fourth quarter, but we'll grow from there, I think, quarter over quarter in the second, third, and fourth quarter.

That's great. Thank you very much.

Your next question comes from Alex. Hacking with Citi, your line is open.

Yeah, good morning, Dave and Quinn. Thanks for taking my question. Most of them were already asked, but I do have a couple. Firstly, you talked about the priority being reinvesting in the business. You know, CapEx, you know, remains relatively low, and obviously you have excess capital. in St. Mary's, are there capital projects that you could see yourself doing at some point in the future that would, you know, raise CapEx materially, you know, I don't know, above 100 million or something like that? Or is this kind of CapEx level what really we would be looking at for the foreseeable future? Thanks.

Alex, I think this is a sustainable level of CapEx. you know, with the best vision we have today in the market that we're servicing. We certainly, I can tell you, we don't have any visions of anything that would take us to a number that's over 100, as you suggest. But we do remain flexible in terms of if there was an opportunity that came up. So that's the way we view it in terms of the ongoing business. I think that's a sustainable value. But, you know, we're the... we would remain flexible to opportunities that, you know, might come along in the future that we're not aware of at that time of this call. Quinn, anything to add?

No, that's absolutely right. I think we, in 2018, 2019, we operated sort of at the, call it 55 to 65 million level of CapEx. And we view that as a good level of CapEx for us. As we demonstrated this year, we can reduce as needed But this is a good level, allows us to, again, reinvest, continue to keep our assets in very good shape, and continue to maintain our low-cost position in the marketplace.

Thanks so much. And then the second question, and I'm asking this question at least 12 months too early, but philosophically, you know, do you see yourselves wanting to sign long-term contracts again? You know, is as we approach the end of, you know, in 2022, when the original, you know, five-year contracts are going to start rolling off, do you see yourself wanting to get into the business of long-term contracts again? And do you see your customers wanting to do it? Or is it just simply a matter of price and effect? Like at some price, your customers would do it. At some price, you would do it and have to see if those two price ranges overlap. Thanks.

Sure, Alex. Look, I think one of the things that we're particularly proud of, and I think that provides Graphtec a leg up, is we do offer a variety of ways in which to do business with us. And because of our vertical integration, we're the only one that's capable of providing the longer-term contracts in a sustainable way. So, We expect to continue as we move forward to offer our customers the opportunity to do longer term arrangements, you know, and shorter term, you know, one year, two year type agreements in what we call short term, and then even spot. So I think, and we have some interesting ideas that we've worked on with a few customers around, you know, some degree of indexing, if you will. So, These are all things that we think we bring to the table that are good for our customer base. In terms of the LTA specifically, we will continue to provide that availability. I think we'll have more insight into that as we get into 2022, of course. But I think that's an instrument that still has a valid place. And I referenced this before that it's a little bit like hedging. And people hedge their natural gas and electricity and those kind of things all the time. So we'll certainly be offering that tool to our customers. And as you said, it's a matter of what price it will be at that point in time in the market. So I think these are tools that others can offer that we think provide an advantage to our customers.

Okay, thanks so much. And congrats on all your success last year, particularly on the safety side and generating cash and improving the balance sheet. Thanks. Thanks, Alex.

And there are no further questions coming up at this time. I will turn the call back over to David Untel for closing remarks.

Thank you, Denise. I'd like to take this opportunity to wish everyone on this call health and safety in the coming months. Thank you for your interest in graph tech, and we look forward to speaking with you at the next quarter. Take care and have a good day. Thank you.

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This concludes today's conference call. You may now disconnect.