EAF

GRAFTECH INTERNATIONAL LTD. - 10-Q Summary (Q1 2026)

Business Context and Reporting Period

This report covers the quarterly period ended March 31, 2026. GrafTech International Ltd. is a leading manufacturer of high-quality graphite electrodes essential for electric arc furnace (EAF) steel production and petroleum needle coke. The company operates as a single reportable segment, "Industrial Materials," and is vertically integrated, producing its key raw material, petroleum needle coke.

Key Financial Metrics

Note: All share data reflects a 1-for-10 reverse stock split effective August 29, 2025.

Material Changes vs. Prior Period

• Revenue Growth: Net sales increased 12% year-over-year, driven by a 14% increase in sales volume (28.1 thousand MT vs. 24.7 thousand MT), partially offset by a 5% decrease in weighted-average realized price ($3,900/MT).
• Profitability Pressure: Gross loss widened significantly to $(15.0) million from $(1.7) million due to higher costs of goods sold (up 22%) and a larger "lower of cost or market" inventory valuation adjustment ($5.3 million vs. $2.8 million).
• One-Time Gain: The company recognized a $12.3 million pre-tax gain on the sale of landfill assets associated with previously divested operations, which significantly reduced the reported net loss compared to the operating loss.
• Interest Expense: Interest expense decreased 19% to $24.2 million, primarily due to the absence of $5.4 million in debt modification costs incurred in Q1 2025.
• Cash Flow: Net cash used in operating activities improved to $(14.9) million from $(32.2) million, largely due to reduced cash usage for working capital and inventory.

Guidance, Outlook, and Risks

• Volume Outlook: Management expects a 5–10% year-over-year increase in graphite electrode sales volume for 2026, with over 85% of anticipated volume already committed.
• Pricing Strategy: The company is implementing price increases of $600 to $1,200 per metric ton on uncommitted volume to restore sustainable pricing amidst competitive pressures.
• Cost Outlook: A low single-digit percentage-point decline in cash cost of goods sold per MT is expected for 2026 compared to 2025.
• Capital Expenditures: Full-year 2026 capital expenditures are expected to be approximately $35 million.
• Liquidity: Total liquidity as of March 31, 2026, stands at $328.7 million, including cash and available credit facilities. However, access to the full 2018 Revolving Credit Facility is currently restricted due to financial covenant compliance based on operating performance.
• Legal Contingencies: Significant pending litigation in Brazil regarding wage provisions (Clause IV) and a $31.2 million income tax assessment (including interest/penalties) remain unresolved. Management intends to vigorously defend these positions.

Investor Verification Checklist

• Covenant Compliance: Verify the specific financial covenants restricting access to the $108.5 million Revolving Credit Facility and the timeline for potential restoration of full availability.
• Inventory Valuation: Assess the sustainability of the $5.3 million "lower of cost or market" inventory write-down and its impact on future margins.
• Brazil Litigation: Monitor the status of the Brazil Clause IV wage litigation and the $31.2 million tax audit, as potential losses could be material.
• Debt Structure: Review the terms of the "New Notes" due 2029 and the "First Lien Term Loans," specifically regarding prepayment premiums and maturity dates.
• Pricing Execution: Track the successful implementation of the announced $600–$1,200/MT price increases on uncommitted volume to determine if gross margins can improve.