Good morning. My name is Sheryl, and I will be your conference operator today. At this time, I would like to welcome everyone to the GrafTech Second Quarter 2019 Financial Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions] Thank you. Meredith Bandy, Vice President of Investor Relations, you may begin.

Thank you, Sheryl and good morning, and welcome to GrafTech’s second quarter conference call. On the call with me today is GrafTech’s Chief Executive Officer, David Rintoul; and Chief Financial Officer, Quinn Coburn. 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, results, performance 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, for which you will find reconciliations in these slides. The slides are posted on our website at www.graftech.com in the Investors 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. I will begin the call with a discussion of our safety performance, second quarter highlights and an industry overview. Quinn Coburn will then cover financials and capital allocation. I will conclude our prepared remarks and then open the call to questions. First, let me begin with safety. Safety is at the core of all we do and is absolutely essential to the success of an organization. Our year-to-date total recordable injury rate has improved to 1.07, a 29% improvement from the prior year. I like to take this opportunity to thank the team for all their hard work to achieve that improvement. At the same time our focus must and will remain on reaching our ultimate goal of zero injuries that means every worker going home safely every day. Turning to Slide 4, GrafTech delivered another solid set of results including second quarter net income of $196 million or a $0.68 per share and adjusted EBITDA from continuing operations of $284 million. Q2 net sales increased by 5% to the prior year driven by higher volumes and price. As expected, Q2 costs were higher than the prior year quarter due to higher third-party needle coke pricing. As many of you know, from falling in our customer steel production and therefore associated graphite electrode demand there has been some sovereign in saleable regions most notably Europe. Spot graphite electrode pricing continues to drift somewhat lower although it still remains at healthy levels. As a reminder, the majority of GrafTech’s volumes are sold on long term contracts which help reduce the volatility of our earnings and preserve margins. We’re able to offer these stable long term contracts, thanks to our vertical integration and to petroleum needle coke, our primary raw material which currently ensure supply.…

Thanks Dave. As Dave mentioned, we're pleased to report another strong quarter of financial performance. Second quarter net sales of $480 million were up from Q2, 2018 on higher sales volume and higher pricing. During the quarter we sold 45,000 metric tons of graphite electrodes, up 7% from prior year period due to the benefits of our de-bottlenecking. Capacity utilization is expected to average approximately 90% for the full year. GrafTech's second quarter average realized price was slightly over $10,000 per metric ton slightly above the prior quarter. We're moving towards more general pricing disclosure for competitive reasons, but we'll continue to provide indications of price in future quarters. Approximately 79% of our second quarter net sales were to customers with long term agreements. Turning to Slide 9 for financial results, second quarter 2019 net income totaled $196 million or $0.68 per diluted share. Q2, 2019 adjusted EBITDA from continuing operations was $284 million compared to the prior year quarter EBITDA results driven by higher sales were offset by higher raw materials cost specifically related to third-party needle coke cost. These higher third-party needle coke costs continue to impact cost of sales. Only one-third of our costs are impacted by third-party needle coke costs and we continue to benefit from vertical integration with our Seadrift facility. We estimate that increased third-party needle coke cost will increase our Q3, 2019 cost of sales by approximately $6 million compared to Q2 of 2019. Second quarter 2019 free cash flow decreased to $188 million due to timing of working capital changes. Q2 shipments were weighted towards the latter part of the quarter resulting in higher accounts receivable for the quarter. Turning to Slide 10, there were no meaningful adjustments to EBITDA in the quarter. I'll quickly walk you through the EBITDA reconciliation. We…

Thanks Quinn. In summary, GrafTech is a leading provider of highly engineered graphite electrode services solution and products to the growing EAF's steel market. We delivered another solid quarter result of Q2, 2019 and we continue to execute our strategy to deliver long-term sustainable value. 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 and strong earnings visibility. That concludes our prepared remarks. We will now open the call up for questions.

Thank you. [Operator Instructions] Your first question comes from the line of David Gagliano from BMO Capital Markets. Your line is now open.

Alright, great, thanks for taking my questions. Just to drill down on a couple of topics real quickly here. First of all, I think you said 79% of sales in the second quarter to contract customers. So I think that implies about 9,500 tons of spot sales. If we do the math on the implied spot price, we're coming up with about 10,000 bucks a ton in the second quarter, but we're making some assumptions to get to that number. But my question is, is that a reasonable estimate for your average spot price for the second quarter?

Yes. Good morning and your mathematics are within a reasonable margin of error.

Thanks for that. And then, my other question, this is the second consecutive quarter where production came in ahead of sales. So I have a two-part question. Number one, can you just talk us through why that's happening and number two, should we expect that to reverse in the upcoming quarters? Thanks.

Yes. So David, one of the things we noted in our comments is that we expect our full year pass to utilization to be approximately 90%. And so, I think in the second half obviously we haven't given guidance on sales, but you can kind of see what our expected production is in the second half using that number.

Thanks. But my question was -- I appreciate that. That's helpful actually, but the question really was about the difference between production and sales in the second quarter and in the first quarter, why is that happening? And then, the second question is, you gave us a good sense just now on the utilization rates obviously on the production side. Should we expect inventories to come down in the second half of the year?

Sure. So first half of the year, clearly we produced about 5,000 tons more than we made. Demand was slightly less than we anticipated in the first half of the year. Obviously, our objective here would be to align our production in the second half with our sales that would be clearly the objective. We would not be intending to overproduce on an ongoing basis.

I think there will be some product mix issues that come into play in the second half that will also assist with some of that rebalancing, but Quinn's comments are correct relative to efforts to make sure that our inventory numbers don't climb.

That's helpful, thanks very much.

Your next question comes from line of Alex Hacking from Citi Research. Your line is now open.

Yes, good morning. So I guess the first question was just around the utilization guidance. You mentioned 90%, I think previously you had talked about mid-90s for the year if I remember correct, so would we be fair in assuming that you're sort of balancing out sales with where you see demand and pulling back production a little bit similar to what we've seen some of the electrode produces in Japan do? Thanks.

Yes. Alex, I think that's a fair representation.

Thanks. And then, I guess just looking at the market, one of the things that the Japanese producers talked about was that there was too much inventory out there right now especially in Asia. Is that something that you're also potentially seeing in U.S. and Europe? Is it a little bit too much inventory through the supply chain? Thanks.

So I think as to my earlier comments, there are pockets of the steel manufacturing economy that have performed well so far this year. There are other pockets in different geographic locations that had a bit more difficulty. And so, I think it's fair to say in some of those areas that have struggled. It's a bit of inventory and I think that's thanks to if you think back to last year in 2018, and there was somewhat of a gross undersupply into the market and things were so tight that people bought whatever they could. And so, if one ton of electrode during the 2018 was good, if they could get their hands on two that was even better. So there was some inventory build, I think throughout the system and in some of the areas where the economy has gone sideways a bit that build is a little larger. So I think as the manufacturing sector globally continues to move along, we'll see some of that inventory work through. But, as I said yes, there are in some areas inventory builds.

Thank you.

Your next question comes from the line of Michael Gambardella from JP Morgan. Your line is now open.

Good morning and congratulations on the quarter.

Good morning.

Your second quarter EBITDA margins around 59% equivalent with the first quarter as well. If you look at where the stock is trading based on just the first half annualized, you're looking at something, somewhere around 4.5x, 5x PE and you have a very defensible position in terms of your cash flow in terms of the integration with Seadrift and also your contract business. With all that obviously the stock is very cheap in my opinion, but how do you balance the capital allocation given the relatively small float in the stock? Obviously, the share repurchase comes out of the shares are very cheap, but how do you balance that with the size of a float?

Yes. It's great question Mike. Previously, we did not repurchase shares on the open market in order to maintain a healthy public float and good liquidity in the stock. But, recent prices given our cash flow yield as you note, we do think that the share repurchase is a very attractive use of our free cash flow and we're willing to trade off some liquidity for the benefits of the share repurchased and the accretion from the share repurchase.

Is there a possibility of going private again?

Goodness gracious. Not that we're aware of that's all we can say to that question.

Alright, thanks a lot guys.

Thanks Mike.

And your next question comes from the line of Arun Viswanathan from RBC Capital Markets. Your line is now open.

Thanks, good morning. My first question I guess is along the same lines maybe you can just give us your thoughts on the level of capital return and your optimal level there. By our math, looks like you'd be generating fair amount of free cash flow this year probably north of $800 million. So, how would you allocate that and is there any desire to potentially do a special dividend or even greater buybacks?

Sure Arun. So as we've indicated this quarter in the script, kind of a key metric is that we look to return 50% to 60% of the cash to shareholders and the remainder would be used for debt repayment. With regards to debt repayment, we had $125 million in the first half. We expect to have additional prepayments in the second half. But with regards to the 50% to 60%, we feel good about the share repurchase plan that has been authorized. We've indicated in previous calls that given recent share prices, we favor share repurchase over a special dividend. But, look ultimately that is the Board decision and ultimately that will get decided in the future. But, I guess the key points are 50% to 60% cash return to shareholders and in general given where the stock price is as we favor share repurchases.

And is there any thought on timing you could share with us on how this will be completed?

No, really not. Probably appropriate for me to go into details on specifics on that in terms of timing. There's no mandatory deadline for use or anything like that but otherwise probably not appropriate to go into details on that.

But just given the 50% to 60% target, we should assume I guess that it would be kind of something that you'd want to do annually in this range?

We will see about the future, but in terms of 2019, the 50% to 60% target is what we've committed to for 2019.

And then just a couple fundamental questions if I may. So first off, could you provide an update I guess on needle coke both from a pricing standpoint as well as supply demand appears there's still quite a bit of tightness there. You guys are seeing increases in third-party costs, but how should we think about needle coke pricing trends?

So I think, we spoke earlier here on our position on not negotiate and rather making our needle coke numbers public, because we recognize that was not in the best interest of GrafTech to do so. However, having said that, the demand for needle coke appears to, continue to be fairly solid. I can speak to where we're at in our negotiations for the second half where we have secured adequate volumes for our second half needs. We're still in the midst of finishing up negotiations to complete the second half pricing side of the equation if you will. So those aren't done and as such I can't signal or comment on them. So, we believe that the EV battery market is still alive and well and growing strong, which will assist in keeping the demand for graphite needle coke, excuse me, and a strong demand on that side. I think that the production numbers that we gave as well as some of our competitors are not monumental changes and as such would accept the needle coke market to be stable.

And just given that I mean, do you expect more capacity announcements or would that be necessary in the near future, if we continue to see growth as it has been?

Are you referring to needle coke or graphite electrodes?

Well both, but I guess needle coke first?

Well look, I don't think ex-China were aware of any new needle coke facilities being constructed or even commented on. Inside China as we've spoken in the past, information is a bit opaque, but believe that they're most likely working on some plants although again recognized that we've commented many times on the growth of the electric arc furnace industry in China and it's grown pretty significantly just in the last 24 months and recent announcements would suggest that they're continuing to be on this kind of 20% pace if you will, which when you're making as much steel as they do, 20% is a pretty darn big number. So they're going to need those expansions to continue to stay abreast of their own consumption. But ex-China know I think on the electrode side, the market was significantly under supply through 2018 as the statistics would show and caused some of the very large price increases that were brought through. And we brought on some capacity with our de-bottlenecking, some of our competitors have done similar. So I think most of those that were aware, again ex-China have come to fruition by and large and the markets well served at this point and would expect that to remain the case and as people work through the inventories that they had built because of the 2018 tightness that the stability will prevail.

And then, just last question. Could you describe the contracting environment? Are you still seeing strong acceptance of your longer term contracts and have you been extending those out and rolling those forward as well?

So normally, we think of these long term contracts in terms of new ones and extensions or whatever the case may be, as something that happens calendar year by calendar year. And as such, a lot of that work we would be looking at in the context of this fall and what it might mean for years beyond that. In the current market environment we'll see when we get to September or October where the land lays on that. We have some ideas that make sense for people. I think I've mentioned this in the past that the way we think the big service that the LTAs bring to the market is that they provide security to our customers and there's no reason that we shouldn't continue to provide that service to the marketplace. We're the only ones that can and we think that provides for both us and our customers a way to have a value in what we can bring to the table.

Thanks.

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

Thank you very much and in conclusion GrafTech is well-positioned to leverage our unique competitive position. We will continue to maximize the value of our vertical integration and low-cost production base to provide industry leading services, solutions, and products to our customers. Again, thank you for your interest in GrafTech and we look forward to speaking with you next quarter.

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