Ladies and Gentlemen, thank you for standing by and welcome to the Q3, 2019 GrafTech International Earnings Conference call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions] I would now like to handover the conference over to your speaker today, Meredith Bandy, Vice President of Investor Relations, please go ahead.

Thank you, Kenzie, good morning, and welcome to GrafTech’s third quarter 2019 conference call. On the call with me today is Chief Executive Officer, David Rintoul; and Chief Financial Officer, Quinn Coburn. Turning to our First slide, as a reminder, some of the matters we discussed on this call may include forward-looking statements regarding results, performance and strategies among other things. 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 the non-GAAP financial measures for which you'll 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 this call will also be available on our website. Now I'm pleased to turn the call over to Dave.

Thank you, Meredith. Good morning everyone and thank you for joining us today. GrafTech is well positioned to benefit from the long-term growth of electric arc furnace EAF steelmaking. With low cost vertically integrated production and a long-term contracting strategy GrafTech continues to generate meaningful free cash flow. We are committed to deploying that cash for shareholder returns and balance sheet improvement. Turning to slide 4, let's begin as we normally do with safety. Health and safety excellence is a core value of GrafTech and considered a fundamental requirement of our organization's success. Our year-to-date total recordable injury rate has improved to 1.03 and more than 30% improvement from the prior year. I like to thank all of our team for this achievement. At the same time each and every one of us must remain vigilant so that we can reach our ultimate goal of zero harm that means everyone goes home safely every day. A safe plant is an effective plant and we strive to be both at all of our locations. On Slide 5, GrafTech delivered solid quarterly results despite challenging conditions in a number of the markets in which we operate. Overbuying late last year and early this year coupled with reduced steel production in some regions has resulted in excess electrode inventory that customers are working through. Steel is a cyclical business and we are seeing that play out in the market today. We expect graphite electrode inventory destocking to continue to the first half of 2020. Inventories should decline and conditions improve as we move into the second half of 2020. Short-term steel manufacturing difficulties will work themselves out. Longer-term EAF steelmaking continues to take market share as evidenced by the new electric arc furnace rebuilds and builds excuse me, we're seeing in the United…

Thanks Dave. As Dave highlighted, third quarter financial results remained relatively solid despite some softening of economic conditions. Third quarter 2019 net sales of $421 million were down 7% from 2018 on lower sales volumes. During the quarter, we produced and sold 40,000 metric tons of graphite electrodes. As usual, third quarter production volumes reflect planned annual maintenance outages. This year we were able to leverage that downtime to manage production to be more in line with recent sales volumes while maintaining cost performance. We now expect full year production capacity utilization to average approximately 85% as we match production to customer demand and supply chain conditions specifically the inventory overhang that Dave spoke to earlier. We expect demands to rebound later next year as customers work through inventories. Q3 weighted average pricing was a bit higher than the prior period. As expected, Q3 spot pricing was down relative to Q2, approximately 79% of our third quarter revenues were to customers with long-term agreements. Turning to slide 9 for financial results, third quarter 2019 net income totaled $176 million or $0.61 per diluted share. Q3 2019 adjusted EBITDA was $245 million down from prior year period due to lower sales volumes and higher raw materials cost specifically related to third-party petroleum needle coke cost. Lower Q4 third-party petroleum needle coke pricing is expected to translate to lower cost of sales in the second half of next year. Third quarter 2019 free cash flow of $211 million increased from Q2 as favorable working capital changes partially offset lower operational results. As you may recall, last quarter shipments were weighted towards the latter part of the quarter, which resulted in higher accounts receivable as of June 30. In Q3 that working capital change was largely reversed. Turning to slide 10, in the…

Thanks Quinn. The steel market will no doubt have its shares of ups and downs with the long-term outlook for EAF steel making growth remain strong. Electric arc furnaces continue to take market share from integrated producers. Globally electric arc furnaces make up almost 29% including China of steel production and that share is expected to continue to grow overtime. Electric arc furnaces are advantage relative to integrated mills. There is a flexible cost structure, lower capital intensity and better environmental performance. In addition GrafTech's vertical integration into petroleum needle coke offers a sustainable, long-term competitive advantage. Increased demand for needle coke for electric vehicle batteries has contributed to elevated needle coke pricing. The low cost vertically integrated production in the long-term contracting strategy, we expect to continue to generate meaningful free cash flow. As Quinn discussed, we are committed to deploying that cash for shareholder returns and balance sheet improvement. This concludes our prepared remarks. We will now open the call up for questions.

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

Hi, thanks for taking my questions. It's when I ask some of the -- I guess standard questions that we will be asking on these calls related to the current mortgage conditions. First of all, just if you could comment where you see spot pricing now and then also somewhat related there was a 3,000 ton drop and you alluded to it in the prepared remarks for 2020 to 2022 contracts. I think was 3,000 a year. What specifically prompted that decline, was it an actual bankruptcy or a renegotiation and are there other contracts that are in a similar situation?

Good morning Dave. Thanks for your questions. I will start with the first one on spot pricing. I think as everybody is aware, we don't normally provide certainly forward guidance on spot pricing and as I referenced, the steel market are certainly cyclical and as such it's influencing our industry and that then translates into certainly an impact in a declining way currently on a spot market. Given that we're in the midst of negotiations on Q1 and 2020 business overall, I'm not inclined to give specific numbers today and influence those negotiations. However, as I said, suffice it to say that we do service a cyclical market and as such we're seeing some of those effects to be sure. On the 3,000 tons, we made that adjustment because we have had a couple of bankruptcies. It's not represented or intended to imply anything about renegotiation or difficulties in other contracts that is specifically areas where there's been a financial situation that led us to believe that the liquidity of the customer question may be problematic and we thought it was appropriate to make the reduction in the slide, so that everyone could be to be aware of that than what we're seeing.

That's helpful, thank you. So not to put words in your mouth, but in terms of expectations for additional changes to that contract book at this point, we should not expect those changes? I am putting words in your mouth, I guess.

Well, look Dave your crystal ball might on this plan actually be better than mine in terms of, are there any other steel makers in the globe that are going to go bankrupt. I'm certainly for both their sake and our sake, I'm hoping that's not the case.

No, I was actually more asking about the other topic that comes up quite a bit in terms of, I guess more directly, are you having customers approach you to renegotiate those existing contracts that are in place?

So our approach to customers that inquire about, we're flexible in our approach to that as long as the outcome of their needs are such that GrafTech and our shareholders are whole at the end of the day with the way the initial contract stood. So there haven't been any significant changes heretofore to speak to. But I would be -- we would be remiss if we were not as good business people partying with our customers to be open to things that might be of value to them that still allow us to be in a situation where the value of the LTA is in fact kept intact. So that's our position on that subject.

Thanks very much.

Your next question comes from the line of Alexander Hacking with Citi. Your line is open.

Hi, thanks for the question. So just to follow up on those last comments. Am I correct in assuming that what you're saying there is that you are willing to potentially cut prices on existing LTAs as long as customers are willing to extend those out? So in that sense, the customers getting of potentially a lower [Indiscernible] price, but you guys are locking in more volume into the future? Would that be an example of the kind of flexibility that you were talking about?

Alex, not quite. I was very deliberate in saying that the outcome of those discussions would have to be that the value of the existing LTA is kept intact so that would mean if you look at the net present value of the LTA at this point in time whatever changes we want to make would have to preserve obviously in the interest of our shareholders that NPV. So it's not quite as simple as your example might suggest.

Could you give an example of what you're talking about being more specific I guess or you don't want to give it?

Well, I don't think on this call that I want to put out into in the marketplace suggestions on such modifications. I think it's an individual one-on-one, we had discussions with certain customers and at the end of the day some of them decided to think through and others that said, no we'll just leave the LTA in place. There are a number of combinations and permutations that can allow us to assist a customer in a near-term request to preserve the net present value of the LTA. So I don't think it's conducive or good business for us to try and align on this call the combinations and permutations that exist in that. It's really a customer-by-customer preference and personal what matters to one customer might not matter to another in terms of how they might view that. So I don't expect that there will be a great number of those things transpire, but as good business people we are always willing to work with our customers to find an optimal solution that works for both parties.

I appreciate the color, that's helpful. I guess just a couple of others if it's okay. You mentioned that you expect the destock to continue through 1H next year and then normal business to pick up in the second half. I guess what makes you think that this is going to be another six to seven month process? Is there a certain amount of tonnage that you're looking at that you think there's too much out there?

So I think, as I said, it's a two-fold component one we're looking at the recovery of the broader steel group and thinking that will happen in the new year and as that transpires the inventory that we think is on the ground buys our major accounts anyway as that steel business returns to healthier levels. In the first part of 2020 they'll begin to burn down that inventory and we're estimating that as we get into the second half that the graphite electrode business will return to a more normal state if you will. So there's a combination of trying to estimate the return of the steel industry as well as our estimate on inventories and doing a little math on all of that and believing that the second half, they should have burned through most of this inventory in the first half of the year.

Thanks and then just one more if it's okay. Just on the buyback how are you, I guess, any color on how you're planning to deploy that? I guess I had assumed that you would have been a bit more aggressive this quarter I think you only spent 9 million out of the 100 that was authorized. So any comments there? Thanks.

Yes. Sure Alex, it's Quinn. We continue to believe that in share repurchases are very attractive use of our cash flow. Obviously, we repurchased very opportunistically during the quarter, we believe creating value for our shareholders and we do have the 90 million remaining and we do plan to continue repurchases in future quarters. So that's probably about the level of detail that I can provide.

Thank you.

Thank you.

Your next question comes from the line of Arun Viswanathan. Your line is open.

Great, thanks, good morning. I guess the first question is just a little bit more details on this inventory situation. Can you share maybe a level of days of supply, your customer level or producer level or tons and I guess or maybe even the industry kind of utilization rate that you see right now in the market?

Good morning, Arun. I think what I would answer to that is that we attempt to the best of our ability to keep a handle on inventory and our different customers in different regions in the world and it's a very mixed bag in terms of the degree of inventory across the board with a pretty large standard deviation. So for that reason I'm not, I don't think I'm going to be inclined to say that we're going to provide an exact number where we think inventories had other than to say that we know that people have enough inventory on the ground that we think working through that our current and our expected run rates as we go into 2020 that we expect the first half of next year to see that begin to burn down. And the spot demand reflecting the fact that these players are in the process of burning down inventory as opposed to building inventory.

Yes thanks. And just on the needle coke side, could you provide some color, you thought some increased cost there, how needle coke prices are trending and what your expectations are into next year? Thanks.

Sure. We're careful not to comment on other companies numbers i.e., in this case whether it's B66 or others probably not for us to disclose what they're doing or say what they're doing. However, we will direct you to and I'm sure you've read the same public reports that we have that needle coke pricing hasn't back dropped and that's not something that hasn't in the last couple of weeks become more or less public knowledge and you can read about it in the reports that I've seen in public places seem to have a number about right.

And just lastly on the capital return side. Are you still projecting around 50% to 60% of free cash flow to be deployed into capital return to shareholders? Thanks.

Yes. Absolutely that remains our target with the balance used to repay debt as we mentioned. We do plan to repay debt by the end of the year. Repay additional debt by the end of the year. With regards to the capital return, we don't have any specific timeline or deadlines, but absolutely the 50% to 60% remains our target.

Thanks.

This concludes the Q&A session for today's call. I will now turn the call back to David Rintoul for closing remarks.

Thank you very much. In conclusion GrafTech is a leading provider of highly engineered graphite electrode services solutions and products to the EAF steel market. Our vertical integration is a significant sustainable competitive advantage and our long-term contracts continue to provide profitability and visibility. We have a proven track record of cash flow generation and returning cash to shareholders. Again, thank you for your interest in GrafTech tech and we look forward to speaking with you next quarter.

This concludes today's conference call. Thank you for your participation. You may now disconnect.