GrafTech International Ltd.

Good morning, ladies and gentlemen, and welcome to the Gravtech fourth quarter 2023 earnings conference call and webcast. At this time, online is a listen-only mode. Following the presentation, we will conduct a question and answer session. If at any time during this call you require immediate assistance, please press star zero for the operator. This call is being recorded on Wednesday, February 14, 2024. I would now like to turn the conference over to Mr. Mike Dillon, Vice President, Investor Relations and Corporate Communications. Thank you. Please go ahead.

Thank you. Good morning and welcome to GraphDeck International's earnings call for the fourth quarter and full year of 2023. On with me today are Tim Flanagan, Interim Chief Executive Officer, Jeremy Halford, Chief Operating Officer, and Catherine Delgado, Interim Chief Financial Officer. Tim will begin with opening comments. Jeremy will then discuss safety, the commercial environment, sales, and operational matters. Catherine will review our quarterly results and other financial details. And Tim will close with comments on our outlook. We will then open the call to questions. Turning to our next slide, as a reminder, some of the matters discussed in this call may include forward-looking statements regarding, among other things, performance, trends, and strategy. These statements are based on current expectations and are subject to risks and uncertainties. Factors that could cause actual results to differ materially from those indicated by forward-looking statements are shown here. We will also discuss certain non-GAAP financial measures, 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 Tim.

Morning everyone and thank you for joining Graf Tech's fourth quarter earnings call. Let me begin by acknowledging a simple fact. We operate in a cyclical industry and find ourselves in a challenging part of that cycle for our industry and for our business. And our results have fallen short of our expectations. Yet our optimism about the long term prospects of our company remain intact. On this call we will discuss the actions we are taking in response to the cyclical downturn in demand. which include optimizing our footprint and improving our cost structure, as well as the reasons for our long-term positive outlook. With that backdrop, I will start with the macro environment, which continues to be impacted by economic uncertainty and geopolitical conflict. This includes the ongoing impact of above-target inflation combined with a high-interest rate environment. In addition, there are multiple active military conflicts globally, as well as strained geopolitical relations, all of which are contributing to expanding disruptions in commercial trade. These and other factors are having a significant impact on the economic performance and outlook for many regions. For example, in the EU, which is collectively the world's third largest economy and a key region for our business, 2023 represented another year of low industrial production and weak economic conditions, which are expected to continue for the foreseeable future. These factors have contributed to a constrained global steel industry, which has resulted in persistently soft demand for graphite electrodes. Further, graphite electrode prices remain weak and the industry has suffered from low capacity utilization. In his comments, Jeremy will elaborate on both of these dynamics. As weak demand played out in 2023, Graphtec was also pressured by the impact of a temporary suspension at our Mexican operations in late 2022. We also experienced ongoing cost pressures, partially due to low capacity utilization. In response, we took a number of steps to help us navigate the headwinds, focusing on those things within our control. Our actions included proactively reducing our production volume to align with our demand outlook, closely managing our costs, capital expenditures, and working capital levels, and at the same time, making targeted investments to further improve our operational flexibility and product offerings. And the impact in 2023 was significant. Our initiatives to manage working capital led to more than $100 million of inventory reduction over the course of the year, resulting in positive free cash flow for 2023. Further, our efforts to reduce costs nearly drove a 10% decline in our 2023 period costs. However, as we enter 2024, the softness in the commercial environment persists. And in response, we must take additional action. This morning we announced the implementation of a cost rationalization and a footprint optimization plan. This is 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 the long-term growth opportunities. Let me briefly walk through the three key elements of the program. First, we're indefinitely suspending most of the production activities at our St. Mary's facility, as well as indefinitely idling certain assets within our remaining graphite electrode manufacturing footprint. As you know, last year we announced our intentions to restart production at St. Mary's as a primary component of our pin supply risk mitigation strategy. Since then, we've significantly advanced other elements of that strategy. Specifically, we proactively built up our pinstock inventory to exceed historical levels and proved out the capabilities of Pamplona to be a secondary facility for pinstock production, thereby giving us pin production capabilities on two different continents. With the advancement in these areas, we can adapt to the current environment and align cost and production with demand, while remaining confident that our supply chains are well-positioned to meet the needs of our customers in all regions. We are implementing actions that will reduce the company's overhead structure and expenses. This includes a thorough review of all our corporate and support functions globally to ensure we have the right structure and resources moving forward. Third, we will continue to operate our remaining graphite electrode production facilities at reduced levels as needed in response to weak market conditions, thereby aligning our production with our evolving demand outlook. These actions will drive several key outcomes. Specifically, the suspension of production at St. Mary's and the reduction in corporate overhead will drive $25 million in annualized cost savings once fully implemented by the end of the second quarter, excluding the impact of one-time costs, which are estimated to be approximately $5 million. Further, the indefinite idling of certain less efficient assets across our remaining graphite electrode manufacturing footprint will reduce our stated capacity on a go-forward basis from 202,000 metric tons to to 178,000 metric tons, a reduction of 12%. In light of current economic conditions and behaviors of others in the market, we view this as a prudent step. At the same time, it preserves our ability to meet our customers' needs and gives us the flexibility to respond to future upswings in the market. Lastly, these actions will support our efforts to further reduce inventory levels and manage working capital and capital expenditures in 2024. For all the reasons I've noted, we believe these are the right steps for the long-term health of our business. While the focus of much of our discussion today is on near-term headwinds and how we are responding, it's important not to lose sight of the fact that we operate in an industry with substantial long-term tailwinds. These include the expectations that the steel industry decarbonization efforts will continue to drive continued share growth for electric arc furnace method of steel production, thereby driving increased graphite electrode demand. In addition, demand for petroleum needle coke, the key raw material we use to produce graphite electrodes, is expected to accelerate driven by its use to produce synthetic graphite for the anode portion of lithium ion batteries used in the electrical vehicle market. Graphtec possesses a number of unique competitive advantages that support our ability to capitalize on these trends. These include the substantial vertical integration into petroleum needle coke, as well as a distinct set of capabilities, which supports a compelling customer value proposition. For all of these reasons, Graphtec is well positioned to benefit from future growth opportunities and create shareholder value. I'll revisit these topics at the end of our pre-prepared remarks. But first, let me turn the call over to Jeremy, followed by Catherine, as they provide more color around our results and near-term outlook.