10-Q: GrafTech International Reports Widened Losses Amidst Pricing Pressures and Increased Interest Costs

GrafTech International Ltd. reported a significant increase in net losses for the second quarter and first half of 2025, driven by lower realized prices and higher interest expenses, despite an increase in sales and production volumes.

Summary

• Net sales decreased by 4% to $131.8 million for the three months ended June 30, 2025, compared to $137.3 million in the same period of 2024.
• Net sales decreased by 11% to $243.7 million for the six months ended June 30, 2025, compared to $273.9 million in the same period of 2024.
• Net loss significantly widened to $86.9 million for the second quarter of 2025, a 489% increase from a $14.8 million loss in Q2 2024.
• Net loss for the first six months of 2025 was $126.2 million, a 177% increase from a $45.6 million loss in H1 2024.
• Basic loss per common share was $0.34 for Q2 2025 and $0.49 for H1 2025.
• Sales volume increased by 12% to 28.6 thousand metric tons (MT) in Q2 2025 compared to Q2 2024, and by 7.5% to 53.3 thousand MT for H1 2025 compared to H1 2024.
• Weighted-average realized price was approximately $4,200 per MT in Q2 2025, a 12% decrease year-over-year, but a 2% sequential increase from Q1 2025.
• Production volume increased by 10% to 29.4 thousand MT in Q2 2025 and by 9.7% to 57.9 thousand MT for H1 2025.
• Capacity utilization was 65% in Q2 2025 and 64% for H1 2025.
• Interest expense surged by 63% to $25.4 million in Q2 2025 and by 77% to $55.3 million in H1 2025, primarily due to new debt facilities.
• A full valuation allowance of $34.2 million for U.S. and $8.4 million for Switzerland deferred tax assets was recorded in Q2 2025, leading to a significant income tax expense of $51.2 million in Q2 2025.
• Liquidity stood at $366.5 million as of June 30, 2025, comprising $158.5 million in cash, $108.0 million in Revolving Credit Facility availability, and $100.0 million in Delayed Draw Term Loan availability.
• Total long-term debt was approximately $1.1 billion as of June 30, 2025.
• Cash cost of goods sold per MT decreased to $3,754 in Q2 2025 from $4,315 in Q2 2024, and to $3,707 in H1 2025 from $4,451 in H1 2024.

Sentiment

Score: 3

Explanation: The company reported significantly widened net losses and a substantial increase in operating loss, indicating severe financial distress. While sales and production volumes increased, and cost reduction efforts are underway, the pricing environment remains challenging, and the company faces significant debt, ongoing legal proceedings, and a NYSE listing compliance issue. The overall financial performance is very weak, despite some positive operational trends and long-term industry tailwinds.

Positives

• Sales volume increased by 12% in Q2 2025 and 7.5% in H1 2025 compared to the prior year periods, indicating market share regain efforts.
• Production volume increased by 10% in Q2 2025 and 9.7% in H1 2025, leading to higher capacity utilization (65% in Q2 2025).
• Weighted-average realized price showed a sequential increase of 2% in Q2 2025 compared to Q1 2025, partially mitigating year-over-year declines.
• Cost of goods sold decreased by 2% in Q2 2025 and 10% in H1 2025, reflecting ongoing cost structure reduction initiatives.
• Cash cost of goods sold per MT declined significantly, exceeding previous guidance, indicating strong execution of cost enhancement initiatives.
• The company remains in compliance with all debt covenants as of June 30, 2025.
• Management expects a favorable net impact of working capital on full-year cash flow performance for 2025.
• Long-term outlook for graphite electrode demand is positive due to the steel industry's decarbonization efforts and increased adoption of EAF steelmaking.
• Demand for petroleum needle coke is anticipated to accelerate due to its use in lithium-ion batteries for the growing electric vehicle market.

Negatives

• Net sales decreased by 4% in Q2 2025 and 11% in H1 2025, primarily due to a decrease in weighted-average realized price.
• Gross profit declined by 98% in Q2 2025 and turned into a gross loss for H1 2025, indicating severe margin compression.
• Operating loss increased by 443% in Q2 2025 and 36% in H1 2025, reflecting deteriorating operational profitability.
• Net loss significantly widened by 489% in Q2 2025 and 177% in H1 2025, leading to substantial losses per share.
• Interest expense increased by 63% in Q2 2025 and 77% in H1 2025 due to new debt facilities and associated modification costs.
• A full valuation allowance of $42.6 million was recorded against U.S. and Switzerland deferred tax assets in Q2 2025, resulting in a large income tax expense despite a pre-tax loss.
• Liquidity decreased from $464.2 million at December 31, 2024, to $366.5 million at June 30, 2025.
• Net cash used in operating activities increased significantly to $85.4 million in H1 2025 from $37.4 million in H1 2024, primarily due to increased cash used for working capital and inventories.
• The company's common stock does not currently comply with NYSE's minimum share price standard, necessitating a potential reverse stock split.

Risks

• Dependence on the global steel industry, particularly the electric arc furnace (EAF) steel industry.
• Cyclical nature of the business and selling prices of products, which may decline, leading to prolonged periods of reduced profitability and net losses or adversely impacting liquidity.
• Sensitivity of business and operating results to economic conditions, including any recession, and the possibility others may not be able to fulfill their obligations.
• Inability to implement business strategies effectively, including price increases and shifting sales to higher average selling price regions.
• Continued overcapacity of the global graphite electrode industry, potentially further affecting prices.
• Competitiveness of the graphite electrode industry.
• Dependence on the supply of raw materials, including decant oil and petroleum needle coke, and disruptions in supply chains.
• Primary reliance on one facility in Monterrey, Mexico for the manufacturing of connecting pins.
• Cost of electric power and natural gas, particularly in Europe.
• Manufacturing operations are subject to hazards.
• Legal, compliance, economic, social, and political risks associated with substantial operations in multiple countries.
• Fluctuation of foreign currency exchange rates could materially harm financial results.
• Results of operations could further deteriorate if manufacturing operations were substantially disrupted for an extended period due to equipment failure, climate change, regulatory issues, natural disasters, public health crises, political crises, or other catastrophic events.
• Risks and uncertainties associated with litigation, arbitration, and disputes, including contractual commitments.
• Dependence on third parties for certain construction, maintenance, engineering, transportation, warehousing, and logistics services.
• Information technology systems failures, cybersecurity incidents, network disruptions, and breaches of data security, including with respect to third-party suppliers and business partners.
• Inability to recruit or retain key management and plant operating personnel or successfully negotiate with employee representatives, including labor unions.
• Sensitivity of long-lived assets on the balance sheet to changes in the market.
• Dependence on protecting intellectual property and the possibility of third-party infringement claims.
• Impact of inflation and the ability to mitigate its effect on costs.
• Impact of macroeconomic and geopolitical events on business, results of operations, financial condition, and cash flows, and supply chain disruptions.
• Imposition of current, new, or increased custom duties and other tariffs.
• Indebtedness could limit financial and operating activities or cash flows may not be sufficient to service indebtedness.
• Interest rate risk from current or future borrowings.
• Risks and uncertainties associated with the ability to access the capital and credit markets.
• Disruptions in the capital and credit markets could adversely affect customers and suppliers.
• Restrictive covenants in financing agreements could restrict or limit operations.
• Changes in, or more stringent enforcement of, health, safety, and environmental regulations.
• Ability to continue to meet New York Stock Exchange (NYSE) listing standards, particularly the minimum share price requirement.
• Ability to obtain stockholder approval for a reverse stock split and its potential effects on market capitalization, trading price, marketability, and liquidity of common stock.

Future Outlook

Management expects graphite electrode demand to remain relatively flat in most regions in the near term, with modest growth anticipated in the United States steel production, driving higher demand in that key region. The company aims for an approximate 10% year-over-year increase in sales volume for 2025, focusing on regaining market share and shifting sales to regions with higher average selling prices, particularly the U.S. Despite challenging pricing dynamics, the company intends to increase prices by 15% on uncommitted 2025 volume. A 7-9% year-over-year decline in cash cost of goods sold per MT is now expected for 2025, exceeding previous guidance. Adjusted EBITDA for the second half of 2025 is anticipated to be near breakeven. Full-year 2025 capital expenditures are expected to be approximately $40 million, with a favorable net impact of working capital on cash flow. Longer term, the company is confident that steel industry decarbonization will drive increased adoption of EAF steelmaking, leading to long-term demand growth for graphite electrodes, and anticipates accelerated demand for petroleum needle coke due to its use in lithium-ion batteries for electric vehicles.

Management Comments

• "Our expectation remains to balance our production and sales volume levels on a full-year basis."
• "Our expectation remains achieving an approximate 10% year-over-year increase in our sales volume for 2025 on a full-year basis, as we continue to regain market share."
• "Challenging pricing dynamics have persisted in most regions and the pricing environment remains unsustainably low."
• "We continue to execute actions to accelerate our path to normalized levels of profitability and support our ability to invest in our business."
• "We now expect a 7-9% year-over-year decline in our cash cost of goods sold per MT for 2025 on a full-year basis, exceeding our previous guidance of a mid-single digit percentage point decline compared to 2024."
• "We believe we are well-positioned to minimize the potential impacts imposed by current trade policies, reflecting our integrated and global production network that provides us manufacturing flexibility along with proactive measures we have taken across our supply chain."
• "We anticipate second half 2025 adjusted EBITDA to be near breakeven."
• "We will continue to closely manage our working capital levels and capital expenditures."
• "For 2025, we continue to expect the net impact of working capital will be favorable to our full year cash flow performance."
• "We also continue to anticipate our full year 2025 capital expenditures will be approximately $40 million."
• "Longer term, we remain confident that the steel industry's efforts to decarbonize will lead to increased adoption of the electric arc furnace method of steelmaking, driving long-term demand growth for graphite electrodes."
• "We also anticipate the demand for petroleum needle coke, the key raw material we use to produce graphite electrodes, to accelerate driven by its utilization in producing synthetic graphite for use in lithium-ion batteries for the growing electric vehicle market."
• "We believe that the near-term actions we are taking, supported by an industry-leading position and our sustainable competitive advantages, including our substantial vertical integration into petroleum needle coke via our Seadrift facility, will optimally position GrafTech to benefit from that long-term growth."

Industry Context

GrafTech operates within the global graphite electrode industry, which is highly dependent on the electric arc furnace (EAF) steel industry. The company highlights the environmental and economic advantages of EAF steel production, positioning both industries for long-term growth driven by global decarbonization efforts. Additionally, the company notes the accelerating demand for petroleum needle coke, a key raw material, due to its increasing utilization in synthetic graphite for lithium-ion batteries, particularly for the growing electric vehicle market. This dual demand driver for its core material provides a strategic advantage. However, the industry faces persistent competitive pressures and overcapacity, leading to unsustainably low pricing in most regions, which GrafTech is attempting to counter by shifting sales to stronger markets like the United States and implementing price increases.

Comparison to Industry Standards

• The filing does not provide specific comparable companies, projects, or results to benchmark against industry standards.

Legal Proceedings

• Brazil Clause IV Litigation: Ongoing litigation in Brazil by employees seeking additional wage amounts and interest from 1989 and 1990. Brazilian Supreme Court ruled in favor of the employees union on September 26, 2019. A related action filed on October 1, 2015, by current and former employees against GrafTech's Brazilian subsidiary is ongoing, with GrafTech Brazil having received favorable appellate court decisions, but employees have filed further appeals. The company is unable to assess potential loss as claims do not specify damages.
• Securities and Derivative Litigation: A class action complaint was filed on January 25, 2024, alleging material misrepresentations or omissions related to the temporary suspension of the Monterrey, Mexico facility in September 2022. The University of Puerto Rico Retirement System was appointed lead plaintiff on May 15, 2024, and an amended complaint was filed on October 7, 2024. Defendants have moved to dismiss. Separately, three derivative actions were filed starting June 9, 2025, alleging breaches of fiduciary duty and mismanagement based on similar facts. The company states it is too early to determine if these matters would have a material adverse effect.
• Brazil Income Tax Audit: On October 23, 2024, GrafTech Brasil Participaes Ltda. received an income tax assessment notice from the Brazilian IRS totaling approximately $32.6 million (including $19.4 million of interest and penalties) for the period from 2019 to 2020. The assessment disallowed an investment tax incentive and the use of a VAT benefit. The company believes the assessment is incorrect and intends to vigorously defend its position.

Related Party Transactions

• The Tax Receivable Agreement provides Brookfield, the sole stockholder prior to the IPO, the right to receive future payments from GrafTech for 85% of the cash savings in U.S. federal income tax and Swiss tax realized from the utilization of pre-IPO tax assets. The remaining $3.8 million Tax Receivable Agreement liability was written off in Q2 2025 due to a full valuation allowance against U.S. deferred tax assets.

Stakeholder Impact

• Shareholders: Face significant net losses, increased debt burden, and potential dilution if equity is issued. The suspension of dividends and the risk of NYSE delisting due to low share price are negative impacts. A reverse stock split is being pursued to maintain NYSE listing, which carries its own risks regarding market perception and trading liquidity.
• Employees: Affected by cost rationalization and footprint optimization plans, which led to reduced employee-related expenses. Stock-based compensation awards are part of employee remuneration.
• Customers: Subject to the company's intention to increase prices by 15% on uncommitted 2025 volume, potentially impacting their costs. The company aims to shift sales to regions with higher average selling prices, which could affect customer mix.
• Creditors: The company has a substantial debt load of approximately $1.1 billion, but reports compliance with all debt covenants. The company's ability to service its debt is a key concern given the significant net losses and cash used in operations. The company intends to draw down additional debt facilities.

Next Steps

• Continue to execute initiatives to optimize the order book and actively shift the geographic mix of sales volume to regions with higher average selling prices, particularly the United States.
• Implement announced 15% price increase on 2025 volume not yet committed.
• Continue strong execution of initiatives to enhance cost structure, aiming for a 7-9% year-over-year decline in cash cost of goods sold per MT for 2025.
• Closely manage working capital levels and capital expenditures, with full year 2025 capital expenditures anticipated to be approximately $40 million.
• Intend to draw the full $100 million available under the Delayed Draw First Lien Term Loan Facility prior to its expiration in July 2026.
• Vigorously defend position in the Brazil Clause IV legal proceedings and the Brazil Income Tax Audit.
• Continue to defend against the securities and derivative litigation.
• Seek stockholder approval for a reverse stock split at the upcoming Special Meeting of Stockholders expected to be held August 14, 2025, to address NYSE listing compliance.

Key Dates

Recommendation

GrafTech International is in a challenging financial position, marked by substantial net losses, increased interest expenses, and a significant accumulated deficit. The company's stock is also at risk of delisting from the NYSE due to its low share price, necessitating a reverse stock split. While there are some positive operational trends, such as increased sales and production volumes, and successful cost reduction initiatives, the overall financial performance is weak. The long-term outlook for the EAF steel industry and petroleum needle coke demand is favorable, offering potential for future recovery. However, the immediate risks from persistent pricing pressures, high debt, and ongoing legal proceedings are considerable. For a seasoned investor, a 'Hold' recommendation is appropriate, suggesting to monitor the effectiveness of cost-cutting measures, the outcome of the reverse stock split, and any signs of sustained improvement in pricing and profitability before making further investment decisions. A 'Sell' might be considered for those with low risk tolerance given the current financial distress.

Keywords

Graphite Electrodes, Electric Arc Furnace, EAF Steel, Petroleum Needle Coke, Industrial Materials, SEC Filing, Quarterly Report, Financial Results, Net Loss, Revenue, Debt, Liquidity, Stock Split, NYSE Listing, Litigation, Supply Chain, Cost Management, Decarbonization, Electric Vehicles