Good morning. My name is Lindsay, and I will be your conference operator today. At this time, I would like to welcome everyone to the GrafTech International Second Quarter Conference Call. [Operator Instructions] I will now turn the call over to Meredith Bandy, Vice President of Investor Relations and Communications. Meredith, you may begin your conference.

All right. Thank you, Lindsay, and good morning, and welcome to GrafTech International's Second Quarter Conference Call. On the call with me today is GrafTech's Chief Executive Officer, Dave Rintoul; and Chief Financial Officer, Quinn Coburn. Turning to our first slide. As a reminder, some of the matters we discuss on today's call may include forward-looking statements. Please note the cautionary language about our forward-looking statements shown here. To the extent that we discuss any non-GAAP financial measures, you will also find reconciliations on these slides. These slides will be posted on our website at www.graftech.com, in the Investor Relations section. For your reference, a replay of the call will also be available on our website. And now, I'm pleased to turn the call over to Dave.

Thank you, Meredith, and good morning, everyone. Before we start, I'd like to take a moment to introduce Meredith Bandy, our new VP of Investor Relations. I know many of you already know Meredith from her prior experience in investor relations and equity research. She will be working closely with many of you in the months ahead. Safety is a core value at GrafTech where we are employing the spirit of continuous improvement, and we recognize that our work continues. Our ultimate goal is 0 injuries and every worker to go home safely every day. I'd like to pay a special shout to our friends at Seadrift. Our team at Seadrift has now gone over 4 years without a recordable injury. Thank you for your dedication and hard work. We've taken several noteworthy safety initiatives underway, which will assist in driving towards 0 injuries and taking a playbook from Seadrift. These initiatives include a significant focus on leading safety indicators. We're also implementing proactive initiatives to facilitate continuous improvement with the help of every GrafTech team member. Proceeding now to some of the other business news. I'm pleased to share that recently GrafTech received 2 awards for steel excellence from American Metal Market. The first for Best Process Innovation and the second for Consumables Provider of the Year. The AMM awards for steel excellence recognized world-class innovation and excellence in steel and steel-related industries. GrafTech's mission is to provide the best product performance, services and solutions while maintaining a competitive cost structure. Our state-of-the-art architect software is one example of providing such services and solutions. Architect brings GrafTech closer to our customers, helps ensure our customer satisfaction with the quality of our products and maximizes the value proposition of our ultrahigh performance electrodes, often our customers, who depend upon GrafTech's…

Thanks, Dave. We're pleased to report another strong quarter of financial performance. Second quarter revenues of 456 million were more than triple the prior year quarter. As you can see, production and sales volume increased along with higher pricing. GrafTech's second quarter average realized price was $9,933 per metric ton. As a reminder, the average realized price reflects a combination of long-term contract pricing, carryover of lower-priced short-term contracts from last year and some spot volumes. Due to timing of our long-term contracts, there were fewer tons available to sell on the spot market in Q2 than Q1. And as previously disclosed, most of our sales are now contracted for the balance of 2018. However, we do expect to have some additional spot tons available late this year as the debottlenecking projects, Dave discussed, are completed. Turning to slide 6. Higher revenues translated into sharply higher earnings and cash flows in the quarter. Second quarter net income improved to $201 million, or $0.67 per diluted share compared to a loss in the prior year quarter. During the second quarter of 2018, cash flow from operations increased to 237 million. Q2 free cash flow was a 222 million. Adjusted EBITDA from continuing operations climbed to 292 million for the quarter compared to 12 million in the prior year. Now let's turn to slide 7 for more on adjusted EBITDA. For the first half of 2018, our adjusted EBITDA was 602 million. We began with 424 million of net income from continuing operations, add back 32 million of depreciation and amortization, add back 66 million net interest expense and 73 million of tax-related costs, including our GAAP income tax expense and a related party tax receivable agreement. Let me elaborate a bit on the taxes. As you know, at the time of…

Thanks, Quinn. Demand for our electrodes remains strong and is above the levels that we are currently able to supply. Average spot pricing for ultrahigh power, or UHP graphite electrodes, remains in the range of $15,000 to $20,000 per ton. The spot market for electrodes is small and thinly traded, so there were - there is a lot of volatility in these numbers. We estimate that spot pricing for ultrahigh power electrodes, GrafTech's primary product, will remain tight. The cost of third-party needle coke continues to increase in 2018. The increased price on this portion of our needle coke requirements will begin to flow through cost of goods sold in the fourth quarter. We expect the production cost of our own needle coke to remain relatively stable due to hedges we have placed for decant oil, the primary raw material for petroleum needle coke. We're happy with the progress of our debottlenecking initiatives, and, as Quinn mentioned, this will generate some additional spot graphite electrode volumes in the fourth quarter. GrafTech is a leading supplier of mission-critical consumables to the growing EAF steel market. Even at elevated prices, graphite electrodes make up just a small portion of the cost to produce a ton of steel. Ongoing operational improvements and vertical integration give GrafTech economies of scale and a competitive cost structure. This, in turn, enables us to offer secure long-term contracts to our customers with strong earnings visibility for our shareholders, while maintaining upside from spot pricing and volume growth. We have the right strategy in place and the right team to execute that strategy. Now that concludes our prepared remarks. We'll now open up the call for questions.

[Operator Instructions] Our first question comes from the line of David Gagliano with BMO Capital Markets.

Just given the order books are full, I'm just curious have you started selling actually spot volumes for the fourth quarter delivery? And I saw those spot prices you are receiving consistent with that range of $15,000 to $20,000 that you provided in the slides?

So good question, David. We are working through a program right now to begin to sell the volume that we believe we'll have available in the fourth quarter. So we've not transacted the business at time of this call, but we certainly expect in short order that will take place.

And - okay, I'll leave with that. And then just my follow-up question. On the capital allocation commentary, obviously, you mentioned, I believe, mentioned special dividends and/or buybacks. What's the reasonable assumption for the timing of the beginning of that process?

Yes. The timing of that will really be determined by our Board of Directors. The timing, the amount, the methodology is all at the discretion of the Board of Directors.

Is it reasonable to expect something before year end '18 or...

Yes. I think that would be a reasonable expectation that the board would motion us to proceed in that fashion. Absolutely.

Our next question comes from the line of Michael Gambardella with JPMorgan.

Just wanted to ask - just to make sure, there were no spot sales in the second quarter, right?

They are very marginal, very few. There was a few, but most of the second quarter and we will see some of pretty much the same theme as we move forward in the near term, comprised of our long-term agreement business. And as our debottlenecking efforts come to fruition, as we proceed through the year and primarily into the fourth quarter then that's what will drive our abilities to begin to leverage some of the spot opportunities.

And then marginal amount of spot sales you had in the second quarter. Did the price realizations fall into that $15,000 to $20,000 range?

Yes, it did.

And then just on the needle coke side. Is there any opportunity whatsoever of getting [indiscernible]?

Okay. You were breaking up there a little bit, Mike. But I think I've understood the question of around Seadrift and getting more needle coke from them. Similar to our graphite electrode plants, we have a continuous improvement methodology and effort going on at Seadrift. We have particular project that we expect to come to fruition in early '19 that will provide some additional capacity out of our facility at Seadrift. So yes, we're working on that. But probably to be fair, I would view that as incremental increases, not large percentage increases, however.

Okay. And then final question. What are you hearing most recently coming out of China on capacity additions on needle coke and/or graphite electrode?

Sure. There was - I think, it was a conference, I believe, a couple of days ago that concluded in Mongolia, where I think some of that was a subject of that - those discussions. And I think, as you might - as you would well know, some of the information we get is less than clear, perhaps opaque might be a good adjective. But having said that, we think that the Chinese industry is attempting to grow with their electric arc furnace industry. The information that we have is that the EAF industry is growing in China, and we spoke about that before. And that makes sense for both economic and environmental reasons for them to do so, and that they need to develop to support their own domestic industry for their plants capable of producing UHP electrodes. So given that the ex-China market is essentially short on supply to an extent, there is no doubt that the Chinese are working towards increasing their capacity, if for no other reason than to stay with the EAF construction that is taking place.

[Operator Instructions] Our next question comes from the line of Alex Hacking with Citi.

So as you look into 2019, I think you've got about two-thirds of your volume contracted there. Is the strategy still that you would like to be close to 100% contracted by the end of this year? Or would you - are you considering leaving some volume open for the spot market given where spot market pricing currently is?

So just to ensure that we're clear, our strategy is one in which approximately two-thirds of our capacity will be allotted to what we term as LTAs, long-term agreements, that have 3- to 5-year terms. As we shared during the S-1 and IPO roadshow, approximately 15% of our contracts - those LTAs are 3-year agreements and 85% of them are 5 years, and that's the direction we're heading with the LTAs is 5-year length of time. Not to be confused with, I think, a statement that we've made in the past about how much of our capacity is spoken for. And as we stand here today or sit here today for the balance of the year between the LTAs and other obligations both spot and otherwise, we're bordering up in the 96%, 97% spoken for. So those I want to make sure that we're clear on the difference between those numbers.

Okay. So just to clarify as I remember about two-thirds of your volume for next year was already priced under those long-term agreements and one-third was not priced, has that changed?

No, that's correct. The reason - I'm sorry, I was going to just to explain. The reason why you find us with a higher degree of capacity spoken for through the current year is that during the implementation of the commercial strategy last - late last year, transitioning to these LTAs, there were few obligations that had been made in advance of that tied up some capacity through 2018.

Okay. So sorry, if I'm not being clear here, but I guess, my question is, the remaining one-third of volume for the 2019 that hasn't been priced yet? Like, what's the strategy there? Do you intend to have a price for all that set by the end of this year? Or are you happy to go into next year with basically exposed to the spot market pricing?

The intention of that one-third is to leverage the spot market. And as I think you have used these words in the past to supercharge our revenue with some of the spot business. So we are fully anticipating to take advantage of the spot market with that volume that's available to us.

Okay. And then just one follow-up if it's okay. How - on the timing of St. Marys. Based on the best information that you have right now in terms of availability of needle coke, when do you think that you could potentially - I guess, when do you anticipate commercially starting commercially shipping out of St. Marys next year?

So, Alex, I very much appreciate your question in the spirit of our policy of not providing guidance. I'm going to decline from answering your question directly other than to say as I've indicated in our prepared remarks, we're optimistic that we'll procure the needle coke. But it will take to facilitate sometime during '19 to execute such a plan, but we're not prepared at this point in time to nail it down any further than that.

This concludes our question-and-answer session. I will now hand the call back over to Mr. Rintoul for closing comments.

Thank you to all of you who participated in our call today. In conclusion, we are well positioned to leverage our competitive advantages and execute our strategy in a structurally improved industry. We continue to maximize the value of our vertical integration and low-cost production to provide excellent products, solutions and support to our customers and higher returns to our shareholders. Our goal is to provide the best-performing electrodes while delivering world-class services and solutions. Again, thank you for joining our call, and we look forward to speaking with you next quarter.

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