GrafTech International Ltd. (NYSE:EAF) Q1 2024 Earnings Call Transcript

GrafTech International Ltd. (NYSE:EAF) Q1 2024 Earnings Call Transcript April 26, 2024

GrafTech International Ltd. beats earnings expectations. Reported EPS is $-0.1, expectations were $-0.18. GrafTech International Ltd. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good morning, ladies and gentlemen and welcome to the GrafTech First Quarter 2024 Earnings Conference Call and Webcast Conference Call. All this time all lines are in listen-only mode. Following the presentation, we will conduct a question-and-answer session. [Operator Instructions] This call is being recorded on Friday, April 26, 2024. I would now like to turn the conference over to Mike Dillon. Please go ahead.

Mike Dillon: Thank you, Constantine. Good morning, and welcome to GrafTech International’s First Quarter 2024 Earnings Call. On with me today are Tim Flanagan, 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. As you are likely aware, GrafTech is currently involved in a proxy contest related to its upcoming Annual Meeting. The purpose of today’s call is to discuss our earnings outlook and other business updates.

As such we will not be commenting on nor taking questions on the proxy contest during this call. If stockholders have questions on the proxy contest that you would like to discuss with management, please reach out to me after this call. Turning to the next slide. As a reminder, some of the matters discussed on this call may include forward-looking statements regarding, among other things, performance, 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. 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 will now turn the call over to Tim.

Tim Flanagan: Good morning everyone. And thank you for joining this morning’s call. In the first quarter, GrafTech delivered on our outlook and on the initiative discussed on our last earnings call. That said, we are not satisfied nor will we ever be satisfied with breakeven EBITDA performance and negative free cash flow. This is a pivotal time for GrafTech with many challenges still in front of us. Yet, we’re up to the challenge and remain excited about the path we are on and the opportunities lie ahead. We are confident that GrafTech can return to the position of generating great value for its shareholders. And on a personal note, I am honored and excited to have the opportunity to lead the company and the talented team.

As I move into this role on a permanent basis, let me highlight three of the key reasons I’m optimistic about the future of GrafTech. First, we’re confident about our ability to meet needs of our customers now and into the future. We continue to proactively engage with our customers, reinforcing the importance of our relationship with them and a shared view that this is a mutual partnership. In addition, we are investing in our customer value proposition to further differentiate GrafTech from our competitors. Our initiative to expand our product offerings by adding 800 millimeter supersized electrodes to our portfolio is proceeding well. We’re on track for the initial trials to occur in the third quarter of this year. In addition, we are expanding the breadth of our architect system, building upon our best-in-class technical service capabilities.

And with the majority of our original long-term agreements coming to an end, we are broadening our range of contract terms, which can be tailored to meet the needs of our customers. Lastly, on the commercial front. As it relates to the LTAs, we are pleased to have received the final award in a long-standing and our largest of our LTA arbitrations. In March, the Sole Arbitrator ruled in GrafTech’s favor. Importantly, as we turn the page and move forward, we are focused on strengthening relationships with existing customers, while also fostering new ones with prospective customers. Secondly, we have taken the right actions to improve our cost structure, and we’re successfully executing these plans. We are safely and thoughtfully winding-down the production activities at St. Marys, and are on track to conclude the work by the end of the second quarter.

In addition, we have completed the activities related to the reduction in our overhead structure. And while actions that impact employees are never easy, these are the right steps for the long-term health of the company and for the collective benefit of our stakeholders. The steps we are taking to manage working capital levels are evident in the further reduction of inventory during the first quarter. Overall, we are on track to achieve the stated benefits from these initiatives, including the anticipated $25 million of annualized cost savings comprised of $15 million reduction in our fixed manufacturing costs and $10 million in lower administrative costs. Third, with our cost savings and optimization initiatives having been designed to preserve our ability to capitalize on long-term industry tailwinds, [actively] (ph) pursuing growth opportunities.

I already spoke to some of the actions we are taking to reinforce customer confidence in our graphite electrode business. As a result, we believe we are well-positioned to benefit as the global steel market inevitably rebounds. Longer-term, as decarbonization efforts drive a further shift to electric arc furnace steelmaking, this will be supportive of increased graphite electrode demand, and we are poised to capitalize on the anticipated growth. Beyond graphite electrodes, we remain proactive in pursuing opportunities in the battery anode space. We continue to engage with a number of third-parties on initiatives, which would leverage GrafTech’s unique capabilities related to both needle coke and graphitization. Against this backdrop, we have not lost sight of where I started my comments.

We are still facing many challenges as the industry remains in a cyclical downturn. While there is much work to be done, we are confident in emerging from this period as a stronger GrafTech. Let me now turn it over to Jeremy to provide more color on the current state of the industry and our commercial performance.

Jeremy Halford: Thank you, Tim and good morning, everyone. Before I provide an industry update, I will start with a brief comment on our safety performance, which is a core value at GrafTech. We are pleased to have ongoing momentum with a first quarter recordable incident rate that showed further improvement over our solid performance in 2023. And I’d like to commend all of our team members for their efforts. While encouraged by this performance, we will not be satisfied until we achieve our ultimate goal of zero-injuries. Let me now turn to the next slide to discuss the commercial environment. As you know we operate in a cyclical industry and currently find ourselves in a challenging part of the cycle. The macro environment continues to be impacted by economic uncertainty and geopolitical conflict, which has contributed to the constrained global steel industry.

Looking at the numbers, using data published by the World Steel Association earlier this week. On a global basis, steel production outside of China was approximately 213 million tons in the first quarter of 2024. This represents a nearly 4% year-over-year increase with approximately [three-quarters] (ph) of the growth attributable to Turkey and India. As it relates to Turkey, with the first quarter 2023 production having been significantly impacted by the earthquake that occurred in February of last year. This year-over-year growth represents a recovery to historic first quarter norms. Commensurate with the global increase in steel production, the global steel capacity utilization rate outside of China ticked up slightly to 68%. Looking at some of our key commercial regions.

For North America, steel production was down 2% in the first quarter on a year-over-year basis, reflecting a slight reversal of recent trends in what has been a relatively stable steel market. Steel output in the EU declined 1% as the market remains relatively stagnant, reflecting a weak construction sector and high interest rates that continue to weigh on demand. Further, steel output in the EU remains well below historic production and utilization rates for that region. These dynamics within the global steel industry have, in turn resulted in persistent challenges in the commercial environment for graphite electrodes. Specifically, industry-wide demand for graphite electrodes has remained weak, with challenging pricing dynamics persisting in most regions.

To expand further, the graphite electrode industry continues to suffer from low-capacity utilization. While our competitors in the graphite electrode industry have also acknowledge near-term industry-wide headwinds, we were the first and thus far only industry participant to announce definitive actions to reduce capacity. Conversely, despite the weak demand environment, we continue to see a healthy level of electrodes export — ported from certain countries, including India and China into non-tariff protected regions, such as the Middle East. These are typically lower priced electrodes with prices declined further of late. As we have spoken to in the past, these export dynamics, we see a knock-on pricing effect in tariff-protected countries, such as within the EU, as Tier 1 competitors have continued to lower prices in these regions to support volume.

We’re also seeing this dynamic play out in the US, with prices softening of weight, all of which represent challenges we must manage in the near term. With that background, let’s turn to the next slide for more details on our results. Our production volume in the first quarter of 2024 was 26,000 metric tons. Our sales volume was 24,000 metric tons, a year-over-year increase of 43% and in-line with our stated outlook for the first quarter. As a reminder, sales volume for the first quarter of 2023 was significantly impacted by the temporary suspension of our operations in Monterrey, Mexico that occurred in late 2022. Shipments for the first quarter of 2024 included 20,000 metric tons of non-LDA sales at a weighted average realized price of approximately $4,400 per metric ton, and approximately 4,000 metric tons sold under our LTAs, at a weighted average realized price of $8,700 per metric ton.

Expanding on our weighted average price for non-LTA sales. This represented a 27% year-over-year decline and a sequential decline from the fourth quarter of 2023 of approximately 8%, reflecting the pricing dynamics I referenced earlier. Net sales in the first quarter of 2024 decreased 2% compared to the first quarter of 2023. The decline in pricing, along with the ongoing shift in the mix of our business from LTA to non-LTA volume, led to the slight year-over-year decline in net sales as these factors were mostly offset by the higher sales volume. Looking forward, for the reasons already mentioned, we expect that industry-wide demand for graphite electrodes in the near-term will remain weak and pricing pressures will persist in most regions.

In response, we remain selective in the commercial opportunities we’re choosing to pursue with a focus on competing responsibly. We expect our sales volume in the second quarter of 2024 to be broadly in-line with the sales volume for the first quarter. Further, we continue to expect a modest year-over-year improvement in sales volume for the full year. Let me now turn it over to Catherine to cover the rest of our financial details.

Catherine Delgado: Thank you, Jeremy and good morning. For the first quarter of 2024 we had a net loss of $31 million or $0.12 per share. Adjusted EBITDA was essentially breakeven in the first quarter compared to adjusted EBITDA of $15 million in the first quarter of 2023. The decline reflected lower weighted average pricing and the continued shift in the mix of our business toward non-LTA volume. These factors were however, partially offset by year-over-year reduction in cash costs on a per metric ton basis, as well as with the benefit of higher sales volume. As Jeremy previously provided color on most of these drivers, let me expand on the topic of costs. As shown in the reconciliation provided in our earnings call materials posted on our website, our first quarter 2024 cash COGS per metric ton declined 18% on a year-over-year basis.

On a sequential basis, it declined 16% from the fourth quarter of 2023. Contributing to the sequential decline was a $5 million benefit or approximately $200 per metric ton, reflecting the portion of the lower cost to market inventory write-down recorded in the fourth quarter of 2023, which is now related to the inventory sold in the first quarter of this year. Beyond this, the majority of the sequential cost improvement reflected two key drivers. Let me provide some color on each one. First, as we mentioned in our fourth quarter call, we are addressing all elements of our cost structure. Our efforts related to variable costs are yielding benefits this quarter. Specifically, our technical team continues to work on engineering cost out of our manufacturing processes without compromising quality or performance.

Additionally, we are aggressively working with our existing supplier base and qualifying new suppliers, as we enhance our procurement practices related to certain key input costs. We’re pleased to see these benefits beginning to flow through our variable costs. Second, we had a quarter-over-quarter reduction in the level of fixed costs being recognized on an accelerated basis due to low production levels. As a reminder, these are costs recognized in the current period that would have been inventoried if we were operating at normal production levels. In the first quarter, as utilization rates at both our graphite electrode and [indiscernible] facilities increased sequentially. We recognized approximately $6 million of such costs compared to approximately $10 million in the fourth quarter of 2023.

Then while not materially benefiting the first quarter cash cost performance, our initiatives to reduce fixed costs are on track to generate cost savings, as we proceed through the year. reflecting the progress we are making on our cost structure as it relates to the full year, we now anticipate a mid-teen percentage point decline in our cash COGS per metric ton for 2024 compared to the full year cash COGS per metric ton for 2023. This compares to our original guidance provided on the fourth quarter call of a year-over-year low teen percentage point decline. Turning now to cash flow. For the first quarter of 2024, cash from operating activities was essentially breakeven as the net loss was offset by, among other factors, a further reduction in working capital, most notably inventory.

Reflecting our first quarter capital expenditures adjusted cash flow was negative $11 million. We continue to anticipate our full year 2024 capital expenditures will be in the range of $35 million to $40 million. Now moving to the next slide. We ended the first quarter with a liquidity position of $275 million, consisting of $165 million of cash and $110 million available under our revolving credit facility. This reflects the financial covenants that limit borrowing availability under our revolver in certain circumstances. More importantly, we do not anticipate the need to borrow against the revolver in 2024. And further, we know that we have no debt maturities until the end of 2028. Let me turn the call back over to Tim for some final comments on our outlook.

Tim Flanagan: Thanks Catherine. Let me reiterate my earlier comment that there are many reasons for optimism about the long-term prospects for our company. As we look to the near term, we recognize that a significant amount of global economic uncertainty remains, as an overhead on steel demand, and therefore graphite electrode demand. While it’s prudent to remain cautious on near-term industry trends, we can’t lose sight of the fact that all cyclical downturns eventually come to an end. Earlier this month, the World Steel Association published their updated short-term forecast on global steel demand. The forecast calls for low to mid-single-digit percentage increases in steel demand in both 2024 and 2025, for nearly all of our key regions, including the EU, the US and Middle East.

As I mentioned earlier, we are well-positioned to benefit as the global steel market recovers. We believe we provide a compelling value proposition to our customers and we can compete on more than just price. Our value proposition includes strategically positioned manufacturing footprint that provides operational flexibility and reach to key steelmaking regions. Being the only large-scale graphite electrode producer that is substantially vertically integrated into petroleum needle coke, best-in-class customer technical services and solutions and a focus on continually expanding our commercial and product offerings. Longer term, as I noted earlier, decarbonization efforts are driving a transition in steel with electric arc furnaces continuing to increase share of total steel production.

The ongoing transition towards EAF steelmaking, is expected to drive demand growth for graphite electrodes over the longer term. Overall, considering planned EAF capacity additions based on steel producer announcements, along with production increases at existing EAF plants, we estimate that this will translate to global graphite electrode demand outside of China growing at a 3% to 4% CAGR over the next five years. As the strategic actions we are taking to reduce costs have been designed to preserve our ability to capitalize on long-term industry tailwinds, we view GrafTech as being well positioned to benefit from this trend. Further, anticipated demand growth for petroleum needle coke, the key raw material we use to produce graphite electrodes will also present a tailwind for our business given our substantial vertical integration.

To expand on this point, needle coke demand is expected to accelerate driven by its use to produce synthetic graphite for the anode portion of lithium-ion batteries using the electric vehicle market. Growing demand for needle coke should result in elevated needle coke pricing. And given the high historical correlation between petroleum needle coke pricing and graphite electrode pricing, this trend should translate to higher market pricing for electrodes. Additionally, we continue to see potential long-term value creation opportunities by directly participating in the development of Western supply chain for the EV battery market. With our needle coke and graphitization capabilities, we possess key assets, resources and know-how that uniquely position GrafTech to participate in this industry.

We remain excited about the development of the supply chain and our associated prospects. In closing, we’re working through the challenges we face but have many reasons for optimism as we look ahead. We continue to believe GrafTech will successfully manage through the near-term challenges and remain an industry-leading supplier of mission-critical products to the EAF industry. Longer-term, we possess a distinct set of assets, capabilities and competitive advantages to capitalize on growth opportunities. As we think about the company’s key stakeholders, we’re instilling a renewed focus on a customer-first mantra, as meeting the needs of our customers must be central to everything we do. At the same time, we must ensure the safety and professional growth of our more than 1,200 employees, our most valuable asset.

We must act responsible as stewards in our local communities, protecting our environment and investing in community programs. If we do right by our customers, our employees and the communities in which we operate, we are confident we can deliver long-term value for our shareholders. This concludes our prepared remarks. We’ll now open up the call for questions.

Operator: Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions] Your first question comes from the line of Curt Woodworth from UBS. Please go ahead.

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Q&A Session

Curt Woodworth: I was wondering if you could help us understand maybe some of the relative profitability differences between what you see in your EU operations relative the facility in Mexico. I mean our understanding is that pricing is significantly below North America and Europe? And can you comment on if there is any discussion around potentially taking more permanent capacity actions in Europe to accelerate fixed cost reduction and potentially baseload other facilities? And then just with respect to pricing in Europe and incremental competition from China, has there been any further capacity rationalization you’ve seen in Europe? And have there been any discussions on potential more trade actions or things that Europe could do to try to safeguard the profitability of local suppliers in Europe?

Tim Flanagan: Thanks, Curt, and I appreciate that question. And if I miss a piece of it, please let me know because there is a lot there. I think, first and foremost, let’s start with kind of the EU and the current state of the market there. As Jeremy noted, right, the EU remains stagnant from an overall steel demand. I think we’re down probably 15% from the high — back in 2021. And while there’s some anticipated demand growth here this year, into 2025 based on the latest world steel projections, it’s still a relatively muted environment, and that obviously has an impact on pricing and electric demand as well. In terms of capacity in Europe right now. I’m not going to speak to anything that anybody else is doing. Back in Q1, we took the steps that we felt were the right steps to align our production capacity to how we see demand evolving over the short-term, mid-term and longer-term, and we’ll continue to rationalize our production accordingly, back in fourth quarter conference call, we talked about the actions in St. Marys in particular but then — as it relates to the EU, we will be taking normalized summer outages in Europe, again, to match our production with the demand forecast.

As we think about our overall production network, we think about it globally, right? We don’t necessarily say the EU versus Monterrey or vice versa. So right now, certainly, there are markets that are more challenged in other markets from a pricing perspective, but we’ll continue to remain focused on what we can control, which is the efforts on the cost front, as well as operating our plants, as efficiently as we can in the interim and then pricing down the road will take care of itself.

Curt Woodworth: Okay. And then as a follow-up just on the cost guidance for down mid-teens, it would seem to imply that you’d be roughly where you are this quarter. And I know in 1Q, you also had a roughly $10 million benefit from byproduct credit. Can you just elaborate on how you see byproducts benefits this year? And then in terms of the arbitration settlement, can you kind of quantify what the benefit to the business would be for that?

Tim Flanagan: Yes. So let me start with the cost, and then we’ll go to the arbitration. On the cost side, you mentioned the byproduct credit. That actually gets backed out of our cash COGS per ton. So roughly $9 million. So that doesn’t factor into the cost numbers that we’re otherwise putting out as we look. So Catherine, anything you want to add on the cost side?

Catherine Delgado: Yes. So just as I indicated, we do expect now — our estimates say that we will have a cost decrease in the mid-teen percentage point versus last year. And essentially this is due in part to our overachievement on cost in the first quarter, and I talked to that overachievement in my prepared remarks We also continue to expect the benefit of the initiatives to rationalize our fixed cost structure. As we indicated in our February earnings call, and so we expect that our costs would show the impact of the decline in fixed cost. We talked about the $15 million annualized benefit to our fixed cost, which will be fully implemented by the end of the second quarter. And then with the modest year-over-year improvement that we expect in our sales and production volume in 2024 that will also benefit our cash COGS per metric ton.

So this was to add a bit of color on the mid-teens percentage point decline expected on cash COGS for the full year as compared to last year.

Tim Flanagan: And then with respect to the arbitration, right, as I noted in my prepared remarks, the final award was issued. All of the claims against GrafTech were dismissed, and we were awarded reimbursement of legal fees and expenses. We expect that to be about $9 million once that gets settled. But I mean, I think the important thing is in arbitration is really a means of resolving a contractual dispute, and we’ve maintained commercial relationships through this process. And really, I think we are happy to have this behind us so that we can focus all of our efforts on the commercial relationship going forward.

Curt Woodworth: Great. Thank you very much.

Operator: Your next question comes from the line of Bill Peterson from JPMorgan. Please go ahead.

Bill Peterson: Yeah, hi. Thanks for taking the questions. Maybe piggybacking on the cost improvements. If we were just even, I guess, flat line the cost improvements in the first quarter, it would seem to kind of indicate a high teens, maybe closer to 17% year-on-year cost decline. So I’m trying to understand, is that right? And I guess, are there — is this mid-teens? Is that kind of the way you think about it? Or is there further upside there? Just trying to get a better sense of how to think about the cost down from here as we look ahead?

Tim Flanagan: Yeah, Bill. Thanks for the question. Certainly, we feel confident in the mid-teen number that we’re putting out there. There is some variability of our cost structure as we move through the year as we think about the summer outages that I referenced earlier that will take in Europe some of the pricing dynamics with our power contracts, they’re not flat over the course of the year. So that’s why I would say that the mid-teens is a good number given those considerations.

Catherine Delgado: Yes. I will add to that, that the recognition of the lower cost of market write-down in the fourth quarter of 2023. As you heard earlier, benefited the first quarter cost of sales by about $5 million or $200 per metric ton. So we see a higher impact of that write-down in the first half of the year than in the second half of the year.

Bill Peterson: Okay, thanks for that color. Maybe kind of turning into the US, not asking for pricing per se, but I think you mentioned that the market spend, you’re seeing weakness there, too. But if we think about the U.S. market, the utilization trends have been relatively better, maybe stable, maybe even upper bias, depending on how you look at it over the last few months. with some new capacity coming online, too that should help as well. But trying to understand how you reconcile the weaker price environment, again given the utilization trends are — have been relatively steady year with some add a benefit of capacity coming online?

Tim Flanagan: Yes. I would describe the US, market from a demand perspective is stable, right? You see it in the statistics, both in terms of production and utilization rate. But the fact is — is when you’ve got weakness in the other markets around the world, everybody pushes towards the strongest market, which has historically been the US, and we are seeing increased competition in the US now that maybe people had outlets in other parts of the world differently. So it is not certainly a weak demand environment by any means, but we’re seeing more competition in the US than what we’ve historically seen.

Bill Peterson: Okay, thanks. I will pass it on.

Operator: Your next question comes from the line of Arun Viswanathan from RBC. Please go ahead.

Arun Viswanathan: Great. Thanks for taking my questions. Good morning, hope you well. So yes, I guess, first off, just carrying further on that last question. I guess there is a heightened level of competitive activity in US electrode markets, and you alluded to maybe some of the weaker regions domestically exporting some of those volumes maybe out of China and India. So I guess implicit in that comment also is an acknowledgment that those Chinese electrodes are now at equal competitive levels. Maybe could you just comment on maybe the quality of the product that’s coming out of China to your knowledge I mean in the past, we had always kind of assumed that those electrodes were smaller in diameter, they would break and there was maybe a little bit of an inherent yield there.

But it sounds like now the customers are okay using those electrodes and so that would kind of implied that some of this share has been structurally displaced. Is that a fair characterization? Or how do you expect to see a decline in this competitive activity or at least win back that share?

Tim Flanagan: Yes. So I don’t think, that is a fair characterization because I don’t think we are implying that the Chinese are the driver of the increased competition, right? I would still suggest and I still think we strongly believe that there is a market differentiation in terms of what we provide, not only in the quality of the electrodes that we produce but also the other elements of our value proposition versus the Chinese competitors and think that longer-term that we compete on more than just price with the Chinese. Right now, if you look across the globe, it is a challenging market just about everywhere where competition is pretty fierce. But we will continue to focus on those things that we can control. And again operating our plants as efficiently as possible, continuing to improve our overall cost position and move from there.

But again longer-term, and our views around quality and where demand goes, haven’t changed and then we think that the market will recover.

Arun Viswanathan: Great. Thanks. And then another question along those lines. Just given your utilization rates, where would you — I guess you see those kind of trending over the next several quarters? Do you see — because I think some of your competitors — some of the Indian competitors are operating in the 80% rate or above? And I know that — that could be — some of those volumes could be exported and not necessarily reflective of actual demand levels. But do you see a path for your own utilization rates to get back to 80% or so, and obviously functioning in closure of St. Marys? How do you see those evolving? And the reason I’m asking is because to me, it seems like that’s probably the most important lever to getting your cost per ton down and your profitability back up would be higher utilization. So maybe you can just comment on that. Thanks.

Tim Flanagan: Yes, sure. And certainly fixed cost leverage will help improve our cost structures, and we’ve commented on this before, as we look into the future and we return to what we would consider a normal operating rate in kind of mid-cycle sort of conditions. There is a benefit from that, but there still are benefits that will drive out of our cost structure via the variable cost side and actually taking costs out of the system, not just getting better absorption of our fixed costs. With respect to utilization, we were at 58% in the first quarter. I would expect — just given our overall view on the commercial side for the year where we are guiding to a modest increase over last year, and the fact that we’ve more rightsized our inventory that we will continue to see a small uptick in our utilization rates.

But until we start getting back into more mid-cycle like demand conditions right — we are not going to be operating at an 80% level. But we definitely think there’s a path as we look out into the future kind of given all of the mid-term and long-term trends we’ve talked about.

Arun Viswanathan: Great. Thanks. And then one more just on your overall liquidity and financial position. So we have gotten some questions around liquidity levels and your comfort there. So could you just maybe kind of walk us through how you see kind of cash burn over the next couple of quarters? And your liquidity needs and if you need any — the need to raise capital at all? Thanks.

Tim Flanagan: So in terms of liquidity, right? We ended the first quarter with $275 million of total liquidity. $165 million of that is cash and $110 million of that is availability under our revolver. And again, given the structure of our revolver, that remains available to us kind of in any period or cycle. We’ve noted and we’ll say, again that we don’t anticipate borrowing against the revolver in the current year. So we feel comfortable about the liquidity position and where we sit today. And we’ll go from there as the market moves forward.

Arun Viswanathan: Great. And then if I could — just one last one is, would you consider further portfolio moves I know that some of these assets do have significant value that’s potentially not reflected in your market value right now. So what is the path forward to — as you evaluate the portfolio, do you feel comfortable where you are? And maybe you can just comment that in the frame of your further investments into the anode side of the EV battery. Would you need all of these assets to kind of make those investments as well? Or maybe some of the graphitization could be disposed or at least monetized to accelerate that process? Thanks.

Tim Flanagan: Yes. Arun, I think it is a good kind of line of discussion. We look at our business right now as an electrode business. As we look out into the future, this will be an electrode business and a battery anode business because there is a great parallel between our capabilities from the production of needle coke, as well as the ability to grafitize those materials, which are two of the major steps in producing synthetic graphite for anodes. So we think that the combination of assets we have on the ground position us to be a significant player in both the electrode business going forward, our core business, as well as in the development of the Western supply chain for electric vehicles and the related battery materials.

So disposing of additional assets, monetizing for short-term benefit with the detriment of longer-term shareholder value creation, certainly isn’t the way we’re looking at it. We think that we can capitalize on the assets we have and really strengthen our business as we look forward.

Arun Viswanathan: Thanks.

Operator: Your next question comes from the line of Alex Hacking from Citi. Please go ahead.

Alex Hacking: Hi, yes. Thanks. So just a follow up on your last point there. Any update or thoughts around the timing of when you might do something on the EV side? Thank you.

Tim Flanagan: Yes. So no real update. We continue to progress on the permitting process at Seadrift. We just went through the public comment period and that continues to move forward. Again this all really depends on the development of the market and how quickly the OEMs, the battery makers and everybody kind of aligned. I’d say, that we’ve gone from a very fevered pitched mark a year or so or 18 months ago to a very hot market or still really compelling market, but everybody is just now kind of aligning their supply chains ultimately looking forward to kind of production and scale starting in 2026. So no updates beyond that from a timing perspective.

Alex Hacking: Thank you. And then I just want to check my math on the LTA pricing. I think it was $8,700 in the quarter. If I look at the full year numbers, it seems like the price should be closer to $8,100. I don’t know if my math there is correct. And is there a reason why the first quarter LTA price looks relatively strong. Thank you.

Tim Flanagan: Yes, Alex, your math is spot on. We guide you to the $8,100 for the full year. There’s a mix issue, right? Not all the LTA contracts are priced the same. If you remember, given the fact that these are now winding-down and coming to end of life, there are certain contracts that are still under their original terms or other contracts that have been blended and extended. So you’ve got a little bit of a variety of pricing constructs that are in the tail-end of these contracts. So the $8,700 was the number for Q1 and $8,100 is still a good data point based on the math that we provided for the full year.

Alex Hacking: Okay. Thanks. And then just one final one. Would you characterize the steel industry as destocking electrodes at the moment or inventory levels there fairly stable. And I guess what I’m getting at is this current electrode demand reflect current steel production? Or is it lagging? Thank you.

Tim Flanagan: Yes. Let me let Jeremy answer that one.

Jeremy Halford: Yes. So our comments on this are always kind of broad brush, right? But in general we’ve said in the past that the steel industry tends to — it tends to hold about three months’ worth of electrode inventory. And really, we’re seeing trends similar to what we saw in Q4. In North America, we continue to see steelmakers holding somewhere in the neighborhood of about four months’ worth of electrode inventory reflecting their confidence in the ongoing strength of the domestic industry, whereas in Europe, we are seeing an industry that’s not as strong. And as a result some of our customers are a little bit more hand to mouth. And so we are seeing them run a lot tighter from an inventory perspective, carrying about two months’ worth of inventory. And so not that changed from what we saw in the fourth quarter at the moment.

Tim Flanagan: Yes. So we are about two quarters to three quarters now, I think, of similar dynamics, both in Europe and in the US. So I think buying patterns are really reflective of demand at this point in time.

Alex Hacking: Okay. But there isn’t — I guess there isn’t a destock, right? Like different regions have different levels, but those levels?

Tim Flanagan: Right. And those levels have stayed relatively constant over the last couple of quarters. So nobody is buying excess and nobody is selling or destocking, as you said.

Alex Hacking: Okay. So in order to get better electrode demand, we need better steel production activity?

Tim Flanagan: That’s right.

Alex Hacking: That’s it. Thank you very much.

Operator: Your next question comes from the line of Matt Vittorioso from Jefferies. Please go ahead.

Matthew Vittorioso: Yeah, good morning. Thanks for taking my question. I guess just on capacity, you mentioned in your comments that you guys are kind of the only participant that’s taken any meaningful action on capacity. I mean what do you think needs to happen there? Why does nobody else want to curtail capacity to help support the price? I mean typically, when a commodity goes into the basement here like electrode pricing has — you’ll get some kind of supply response that we just haven’t seen the cycle at least so far. So any comments on that would be helpful.

Tim Flanagan: Yes, Matt, I think it would be unfair of me commenting on what the mindset or what other people are doing or the decisions they are making. We took the actions, we took to not only improve our cost structure, but do what we thought was appropriate, given kind of our outlook on demand here in the short and mid-term. Beyond that, I don’t think everybody can continue to run at utilization rates in the 50% to 60% range for a long time, but how they respond, I can’t speculate.

Matthew Vittorioso: Well. I guess that’s my question maybe just said another way. Is there some cost advantage that your competitors have that allow them to continue to throw supply into this market? Or is it your expectation that at some point — that supply response will come?

Tim Flanagan: Yes. I mean if you look at broadly speaking against our Tier 1 competitors, they operate in the same geographic regions that we do and are subject to the same labor and power and supply costs that we would otherwise find ourselves. So in the current environment, I think we are all in a similar cost position. I think as demand picks up in our vertical integration with Seadrift, I think that gives us a little bit of advantage. But I don’t think, there is a meaningful advantage that they have over us from a cost perspective right now.