Earnings Call: Q2 2021

Aug 6, 2021

Ladies and gentlemen, thank you for standing by, and welcome to the GrafTech Second Quarter 2021 Earnings Conference Call and Webcast. At this time, all participants are in a listen only mode. After the speakers' remarks, there will be a question and answer Please be advised that today's call is being recorded. Thank you. I would now like to hand the conference over to Wendy Hudson, Vice President of Investor Relations, please go ahead. Good morning, and welcome to GrafTech International's Q2 2021 conference call. On with me today is Dave Rintoul, GrafTech's Chief Executive Officer Quinn Coburn, Chief Financial Officer and Jeremy Halford, Senior Vice President, Operations and Development. Dave will begin with a review of our safety performance, current industry conditions and our demand and production levels. Jeremy will discuss operational matters and give an update on our ESG initiatives. Quinn will cover financial details and Dave will close with final remarks and open the call to questions. 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, performance, trends 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, and these slides include the relevant non GAAP reconciliation. You can find these slides in the Investor Relations section of our website at www.grasstech.com. A replay of the call will also be available on our website. I'll now turn the call over to Dave. Thank you, Wendy. Good morning, everyone, and thank you for joining our Q2 earnings call. I hope you, your families and your colleagues are all well. We begin as we always do with safety. Our year to date total recordable injury rate is 0.43 through the end of the second quarter, Indicating our continued focus on the safety of each and every team member, health and safety excellence is a core value of GrafTech. As you can see from this chart, we have made meaningful improvement over the last few years and our ultimate goal is 0 injuries with every Our team continues to be diligent and thorough in our COVID-nineteen controls and protocols. I am proud of the GrafTech team and thank each of you for your continued focus and vigilance. Now turning to Slide 4. Industry conditions remain positive across key indicators. We continue to see improvement at both pricing and capacity utilization rates in the global steel markets during the Q2. Steel industry pricing continues to increase with most types of steel at or near all time highs. U. S. Hot rolled core values are currently over $18.75 per tonne, up $3.75 over an additional 25% since we reported Q1 2021 earnings. The global steel manufacturing utilization rate outside of China was 75% in the 2nd quarter compared to 73% in the Q1 of this year and 56% in the Q2 of 2020. In the U. S, the steel industry utilization rate improved to 80% in the 2nd quarter from 77% in the Q1 of this year and continues to move upward. Global steel production outside of China was approximately 221,000,000 tons in the Q2 of 2021 compared to approximately 216,000,000 tons in the Q1 according to the World Steel Association. The continued improvement in the global steel industry utilization rates, along With the normalization of steel producer inventories of graphite electrodes is driving increased demand for graphite electrodes across geographies. As a result of the increased demand, we are seeing a steady improvement in graphite electrode pricing after bottling in the Q1 of this year. We are also seeing rising market prices for petroleum needle coke. The strong graphite electrode demand And rising prices continue to provide us with confidence in our outlook for higher realized non LTA prices in the second half of twenty twenty one and our expectation of continued improvement into 2022. As I mentioned, we are experiencing strong demand for our products and our commercial team remains focused on providing superior services and solutions to our valued customers in this improving environment. We have not changed our estimates for graphite liquid sales and volumes under our LTAs. Now turning to Slide 6. We are pleased with the sequential and year over year improvement we delivered in our 2nd quarter production Sales volumes. In response to strong demand for our graphite electrodes, we produced 44,000 metric tons of electrodes in the Q2, up 22% compared to the Q1 and 33% compared to the Q2 of 2020. Sales volumes of graphite electrodes rose 243,000 metric tons in the Q2, up 16% compared to the Q1 and 39% compared to the Q2 of last year. Our 2nd quarter shipments were comprised of 27,000 metric tons of graphite electrodes under our LTAs at an average approximate price of $9,500 per tonne and 16,000 metric tons of non LTA sales at an average approximate price of $4,100 per metric ton. As a reminder, The pricing we recognize in sales and income lag negotiated prices. Thus, the 2nd quarter's $4,100 per tonne Average of non LTA pricing represents price negotiations that actually took place in late 2020 in early 2021. Net sales in the 2nd quarter increased 18% compared to the Q2 of 2020 to $331,000,000 I'll now turn the call over to Jeremy to discuss operating items and our ESG progress over the past quarter. Jeremy? Thanks, Dave. During 2021, we've been enhancing our capabilities across for manufacturing footprint. For example, we're investing in a pin production line at our St. Mary's, Pennsylvania facility that will be online in the Q3. This diversifies our pin capability and provides production flexibility. Also, with increased demand for our graphite electrodes, We continue to be very focused on further improving efficiencies in our manufacturing facilities and staffing appropriately to meet the demand. Turning to Slide 7. We continue to make good progress with our ESG efforts along several paths. Notably, in the Q2, we completed a full materiality assessment with the assistance of external experts to identify and prioritize the key ESG issues for our business and our stakeholders. The process allowed us to objectively determine the ESG topics that will drive our sustainability strategy, reporting and actions moving forward. The assessment included peer and industry benchmarking, a robust series of interviews with internal and external stakeholders and a full validation of the assessment by our executive team. Slide 7 shows the current key material topics to GrafTech's business and stakeholders, including climate and energy, innovation, material sourcing and product quality. From here, we plan to set the goals that will drive our performance relative to each of the material topics. Also, we plan to publish our 2nd annual sustainability report during the Q3. We hope you will find it useful and Formative and welcome your feedback as we continue on our ESG journey. Now let me turn it over to Quinn to discuss our Q2 financial results on Slide 8. Okay. Thanks, Jeremy. We're very pleased with our 2nd quarter financial performance. We earned net income of $28,000,000 or $0.11 of GAAP earnings per share, which included the impact of a one time pretax change in control charge of $88,000,000 that was triggered when the ownership of our largest stockholder Brookfield fell below 30% of our total shares outstanding. This charge is comprised of a $15,000,000 non cash expense related to the acceleration of certain previously granted equity awards and a $73,000,000 cash charge triggered under our long term incentive compensation plan. Of the $73,000,000 cash charge, dollars 61,000,000 was paid in the 2nd quarter. The remaining $12,000,000 relates to employee and employer payroll taxes and will be paid in the Q3. Excluding these change in control items and other typical quarterly adjustments, Our adjusted EPS was $0.43 and adjusted EBITDA was $160,000,000 Our cash flow also continued to be strong in the Q2. We generated $86,000,000 of operating cash flow and $74,000,000 of free cash flow. These amounts included the $61,000,000 cash payment triggered by the change in control. Excluding this payment, our adjusted We continued to achieve strong free cash flow conversion with 85% of 2nd quarter's adjusted EBITDA converted to adjusted free cash flow. Now turning to Slide 9. We continued to strengthen our capital structure in the Q2 with a $50,000,000 reduction in our term loan that matures in 2025. Through the end of the second quarter, our total year to date debt reduction is 200,000,000 And our total debt to adjusted EBITDA improved to 1.9x. Notably, over the past 2 years, We have reduced our long term debt to approximately $800,000,000 from approximately $2,000,000,000 in the Q2 of 2019 to approximately $1,200,000,000 in the Q2 of 2021. At the end of the second quarter, Our total liquidity was approximately $360,000,000 consisting of $114,000,000 of cash and $246,000,000 available under our revolving credit facility. Now turning to Slide 10. We're very pleased with the strong earnings and cash flow we delivered in the first half of the year. We expect the significant cash flow generation to continue through the balance of 2021. As we have previously reported, we plan to use the majority of that cash flow to further reduce debt. Our continued focus on a strong capital structure provides us with significant financial, operational and strategic flexibility as we position the company to capitalize on improvements in the market. We are maintaining our full year 2021 capital expenditure outlook of $55,000,000 to $5,000,000 We will use these funds to support our high quality, low cost global operating assets and to target high return operational improvements. Now I'll hand it back to Dave on Slide 11. Thanks, Quinn. I will wrap up with some comments on our favorable positioning in the market. GrafTech is one of the largest producers Ultra high power graphite electrodes in the world. Graphite electrodes are a mission critical component to the EAF Steel Industry, And there is no substitute for our product. We have an enviable customer base comprised of the lowest cost producers of steel We're some of the largest recyclers in the world producing steel with 75% less carbon emissions compared to traditional integrated steel producers. And the EAF Steel Industry is committed to taking our leadership in sustainable steel production even further, innovating to increase efficiency, reduce Greenhouse gas emissions and reinforced material reuse and recycling. As we look forward, we are committed to helping our industry further advance these sustainability From its leading position, we expect the EAF and steel industry growth to continue to outpace global GDP Over the long term, positioning our products for solid long term growth. The recovery and strength of the steel industry is having a positive impact upon demand and pricing in our business, And we expect to increasingly benefit from these favorable trends in the second half of this year and into 2022. We have a sustainable and long term competitive advantage from our low cost structure and vertical integration into our key raw material petroleum vehicle. Our graphite electrodes are highly engineered and require extensive process knowledge to manufacture. The services and solutions that GrafTech provides help position both our customers and our company for a better future. Our commitment to balance sheet strength and our proven track record of high quality earnings and significant cash flow generation gives us flexibility to successfully manage through industry cycles. With the commitment of our people and our significant competitive advantages, We continue to strongly believe GrafTech is well positioned to deliver results today and over the long term. This concludes our prepared remarks and we'll now open up the call for questions. Thank you. Your first question comes from the line of Arun Viswanathan with RBC Capital Markets. Great. Thanks for taking my question. Hope you guys are well. So I guess, first off, just wanted to ask about pricing here. You noted, obviously, Very robust hot rolled prices, well over 1800. We're reading that we possibly could even get to 2,000 next month. But if you look at the production and sales volumes For GrafTech, volume was up 39% in the last year and net sales are up 18%. So that would imply that pricing Is negative. I guess, what's it going to take for graphite electrode pricing here to start to Turnaround, I know that there is typically a lag from the steel markets, but it seems like conditions are pretty tight. You've mentioned very strong demand. What is the outlook for pricing? And when pricing does start to turn positive, Do you expect an environment where we could potentially test the highs that we saw in 2017, 2018? Or is it going to be more measured? Thanks. Hello, Arun. Thanks for your question. I think the best way to think about this is to remember setting the base here that As we progressed into the Q1 of this year, we at that time, I think, shared with everybody that there was inventory On the ground, there was a bit of an inventory hangover that had to be worked through, which by the end of the Q1, we had done that, Stated that and shared with people that we felt that the pricing mechanisms in the industry had bottomed out Early in that quarter. Our experience has been exactly that. We absolutely The 3rd and 4th quarter pricing to be higher than what we experienced in the 1st or second quarter. The only reason you see that small decline is that some of the products that were delivered in the second quarter were negotiated in January when we were at the bottom. So they influenced that average weighted price. And please also recognize that the mixture between LTAs, we sold more non LTA business in the second quarter. So that has an impact of lowering the average weighted price because of the impact of the mix between The number of tons of LTA and then the increased number of tons of spot, and that's all good. It's referencing the fact that the market has been improving. So please be rest assured that the comments we've made earlier will come to fruition in the second half of the year. Our reported pricing and realized pricing of non LPA pricing will absolutely be higher in the second half of the year. And we think that the supply and demand relationships that are evolving this year will Lead to continued improvement as we move into 2022. I actually can't be more positive about that We're not as we always, we don't provide guidance, so I can't go there. But we are quite happy about The way the market is unfolding. And just to thanks for that. I guess just to follow on here. So Looks like your spot prices are kind of in that, as we noted, dollars 4,100 range, but that was based off of earlier discussions. So have you seen momentum on the spot side? Have you seen willingness amongst to potentially move into the long term area or We're on this to pay a little bit more for spot business. And just to again, just to clarify, so it looks like your LTAs are in the $10,000 Would you consider what's the strategy here? Are you more interested in getting more of your customers onto some of those LTA volumes or are you interested in broadening up the spot book given what you just said as far as that you're very optimistic On the upward momentum and pricing. Thanks. So just to reiterate, The OTA numbers that we're reporting are more like in the $9,500 range, just set that Okay. Well, to answer your question directly on where we're heading, recognize that most of the LPAs that we're talking about today don't Mature until the end of next year. So our perspective, it's premature to begin Discussions about something that won't come to fruition until the end of 2020 It would be more natural for us and our expectation is that as we get into late August, September next year, so 12 months from now, 13 months from now, there will be more discussions about The portfolio of products that we can bring to our customers, of which one of those products is absolutely LTAs. And our expectation and belief is that there'll be some customers that will want to do that and we'll do the Same thing as we did in 2017, it will be 3, 4, 5 year arrangements. And we'll And you're actually right, you've commented something. We wouldn't normally go there until that time next year, but we're in a rising Right now, I think both us and our customers will want to see, well, where does life take us over the next 12 months and what makes sense. And we've got hundreds of customers. So they'll all have their own view on What best fits their future. So I expect that we'll have a, as we've had in the past, a mixture of both LTA and non LTA business. And sorry, one last one, if I may. Just want to get your thoughts on Needle coke, there's obviously been strong demand on the EV battery side as well. So Do you think the needle coke market is tightening up as well and you see that as likely inflation Coming in that market as well. And is there any opportunity for GrafTech to participate Businesses that are outside of electrode manufacturing, is that something that is an opportunity for you at all Are you in concert right even? Thanks. Arun, you hit the nail right on the head there. There's Our belief would be, yes, the growing improvement in the graphite electrode market as well as the Moving towards EV and you saw the announcement here in the United States that the President has signed in order that All I've seen is by 2,030, have the vehicles sold by the automotive industry, need to be non carbon emitting, which implies EV. So those pressures are all good from our perspective because it will and should have the Effect of putting some pressure on the needle coke market And I'll remind you that we're 2 thirds independent on needle coke. This is an absolutely positive development for GrafTech. Increasing prices on needle coke, we are quite fine with, Largely because as you would know, translates into pressure for our competitors to increase Graphite electrode prices, which we're quite fine with, and then it increases our margins Across particularly across the 2 thirds that we're self sufficient on. To that end, In terms of branching out into other needle coke applications, our experience has been is that we like our space and the margins we make on our Needle cope in our core product and believe that that's the optimal place for us to Provide the best returns to our shareholders. Great. Thanks. Your next question comes from the line of David Gagliano with BMO Capital Markets. Hi, good morning. Thank you for taking my questions. So I wanted to drill down a little bit and just try and get a little more detail, if possible, please. First of all, 3rd quarter, You've talked quite a bit about improving pricing. You talked about how contracts or prices were negotiated back in late 2020, early 2021 for the Q2. So obviously, know the price of 3rd quarter. Can you just tell us what the price is going to be for the spot volumes that are committed for the 3rd quarter? That's my first question. And then the second question, Which is related, if you can talk about volumes themselves and how we should expect those volumes to compare to the 2nd quarter And as we move into the Q4 as well, if you can talk about the volume expectations. That's my first set of questions. Thanks. Thanks, Dave. You're absolutely right. Given that the dynamics of that, You're spot on. We know today what our 3rd quarter numbers are going to be and A reasonable portion even of the Q4. And we've always tried to be on this call In our interface with all of you, transparent, but very clear in terms of guidance, etcetera, that we're not I'm going to provide it, but that's one of the reasons why when you hear me say we are very clear and Happy about where we think the second half will be in terms of pricing. It's not because we're Estimating it, we know that. And because of that confidence and the knowledge of it, we can say quite Confidently that we are pleased with where the second half of the year is going to be With pricing as well as the developments we start to see for the New Year And not just in terms of what we've done, but the improved behavior of some of our competitors in that respect. Okay. Well, I appreciate first of all, if you could just also give me a sense on the volumes, but just to Come back on the pricing commentary. Again, I appreciate the fact that your confidence and I'm not trying to confident, I'm not trying to question the confidence. I'm just really trying to help investors get a sense Your order of magnitude of improvement in pricing, which is very important to frame valuation and share price. So from a visibility perspective, It's important, I think, to at least give a sense as to where you think prices are going in terms of order of magnitude. For example, dollars 4,100 a ton. Should we assume over $5,000 a ton for the second half of this year for the Q3 and into the Q4? Is that a reasonable assumption or just At least help give us a framework in order of magnitude would be very helpful. And then if you could also again comment on volume expectations On an hourly basis or relative to the Q2? Thanks. Sure. Well, let me give you the last one first. On the volume side, We had a pretty sizable increase in our volume in the second quarter and running at a Pretty high utilization rate. And so as we move into the second half of the year, I should point out and we normally do this every year in Q3. We have A short repair schedule every year in the Q3, repair outage In our European facility, so that's no secret. And then fully that's only 10 days or so long, 10, 12 days long, 10 in one time, 12 in another. And then we go back into the 4th quarter, you know, petals of metal. So I think you'll see this at these higher volumes for the balance of the year and that good utilization rates In our facility, I would point out that we are seeing increased demand for larger sized electrodes It will take a little bit more processing time. And I think that's as the world is evolving to more, I'll call it Green EAF. That's probably not a surprise because these furnaces tend to The larger furnaces, you think through the new furnaces that are coming online in the United States, all of them are larger furnaces With larger graphite electrode sizes. So it's not a surprise as the world is improving And demand is improving and there's more EIS going towards flat roll applications that require larger furnaces That have and the larger furnaces by default have larger electrodes. So I think all of this is good. Part of the As you think about it post COVID, an expected development as we move through the next 12 On the pricing side, just to do a bit of a gut check here. Using your numbers will constitute a 20% increase in price in 1 quarter. That's a pretty big jump. So I recognize that the steel guys have moved heaven and earth and that some Successful and price increases that none of us ever imagined, okay? I'm not Well, I'm quite optimistic about where our performance on pricing is going. I think 20% jumps a quarter are a little bit asking a little bit much. So I think We're going to do darn good, but I'm trying to help calibrate you somewhat without getting too far over my skis. Hopefully, that's helpful. Yes, even that is helpful. Thank you very much for that calibration. And then just last question from me. You mentioned obviously higher volume yield comp prices. Maybe perhaps you can talk about order of magnitude on cost increases for the non self sourced Petroleum and Needle Coke as we move through the second half of the year as well. Sure. Dave, this is Gwen. Yes, we've talked about the new coke prices, we expect them to increase over time. They have The last numbers we gave was kind of a range of $1300 to $1800 and we were at the higher end of that range. We continue to see pressure on those prices and continue to see an upward trajectory and we expect to continue to see that into the first quarter first half of next year. So absolutely we're seeing upward pressure on this needle coke prices And we'll know more when the contract when the period to contract for the first half of next year comes around. Okay. That's it for me. Thanks. Your next Question comes from the line of Curt Woodworth with Credit Suisse. Thanks. Good morning, Dave and Quinn. Good morning. Hey, Curt. In the past, you have referenced some data points with respect to needle coke pricing. I think maybe it's been import data. Is there any color you can provide on where you see needle coke today for our models? So it's interesting, we're Having discussions about beginning to have discussions about next year, but nothing is completely firmed up yet. I think on the last call, Quentin, correct me if I'm wrong, we talked about 1500 ish. Yes, we talked about the high end of the range of our range, which is $13,000,000 to $1800,000,000 and we were in the high end of that range. Yes. And that was on the last call. We made a few purchases Earlier this year, Jeremy, you might want to talk about that a little bit? Yes, thanks. Kurt, we've All of our commitments for this year have already been sourced, and so pricing on those were set a while ago. So we don't have Direct feedback in terms of pricing that we're seeing in the market. We will say that we are seeing tightness. We know The winter storm that affected us earlier in the year, we think that, that may have had some impact on the industry in total. But all of this is really kind of pointing us in the direction of tightening supply. And so As we look to the future, as Flynn said, being at the high end of the range, last time we made some purchases, I don't see anything that's driving that will drive that down. Okay. And then back to the pricing discussion, I appreciate you don't give guidance. So when you published the 10 ks, you did provide guidance of, I think, $4,100 for the first half of this year, back in February. So there is some precedent on And I think people really struggle with the effectiveness and transparency of this market. So I think it would be helpful to think about giving more specific guidance as it pertains to non LPA in the Q3, but I accept It is what it is at this point. And the one of the questions I have is, clearly, pricing is going up for needle coke and electrodes. So to some degree, it's What matters is it the spread between the 2? Because theoretically, the code could be going up fast and the electrodes, which hypothetically is negative. So I'm just curious, can you kind of talk to how you see relative scarcity value between electrode versus coke? Would you expect your The spread to widen into the back half of this year, your non LPA? Yes. So look, Let me try again on the pricing to give everyone As much as we can without crossing over this guidance line. I said to Dave earlier that 20% increase in a quarter would be Pretty awesome number that any industry would probably get. And we're It's not likely that we're in that genre, but I will tell you I can go so far as to tell you we've crossed over the double digit So that should narrow it for you a little bit. And I'm sorry, that's as far as I think we can go without Yes, getting too far over our skis on pricing for the second half. Yes, that's helpful. In terms of that spread, again, we are in I've been at a unique position because we have so much of our own needle coke that We're in no danger of net net of having our spread jeopardized by needle coke this year. And as Jeremy referenced earlier, we're just not far enough along into 2022 Either graphite, lipo negotiations or needle calls, I don't expect that to be problematic candidly. Okay. And then just one last one. Obviously, your utilization rates have gone up a lot. The steel industry has, I assume a lot of your electric peers have as well. Do you have a sense for where the global utilization rate is today in the electric market. And are you seeing any change in kind of competitive behavior from China? Thank you. Yes, I think that everybody is running pretty hard. I To share with you, I won't say who it is, but just this morning, I had my A weekly session with the commercial team and we've got a couple of requests, one from a Pretty substantial customer that is asking for some help because One of our competitors is having a tough time staying with them, and we already supply them. So we're They're going to move heaven and earth to give them a hand here. So to me that's good news. Not that I wish, I don't know any of our competitors just tells me that everybody is running pretty hard and that there's not a lot of room Thank you for any issues or difficulties. In terms of the Chinese, I think we see the Chinese Domestic market moving forward. So I would expect they're always slow to React to these kind of things, but I think we will see that as we see it in their home market. And we certainly see our broader Competitors, their behavior is changing in the marketplace. There's no question in our mind about that. Great. Thanks very much. That's all I. Your next question comes from the line of Alex Hacking with Citi. Hi, good morning, Quinn and Dave. Not to beat a dead horse on the pricing, but have prices been effectively going up steadily Since January, we're in August now. Has this sort of been a steady increase going up every week, every month? And any sign of that upper pricing momentum stalling out yet? Thanks. Yes, I think it's fair to say that. I wouldn't go so far as to say it's been perfectly linear. I would suggest that Late, it's probably at a higher rate of change than it was back in March April, but yes, I think as soon as we got that inventory number In line at the end of the Q1, we saw pretty much an ongoing improvement And it's picking up a bit of ahead of steam. Okay. Thanks. I was going to ask about the inventory. Your view is inventory today is fully normalized? Yes. It was pretty much Fully normalized at the end of the Q1. Okay, thanks. And then just one final one, an accounting question, maybe I'm being Tom here. But the $88,000,000 of change of control costs, how much of that was in COGS and how much was in SG and A? If I look at SG and A of $76,000,000 it seems like $55,000,000 would be in SG and A and the rest in COGS. But if If you could specify, that will be helpful for our model. Thanks. Yes, sure, Alex. You're right on. It's 55.5 In SG and A and $32,500,000 in COGS. Perfect. Thank you so much. You bet. Your next question comes from the line of David Gagliano with BMO Capital Markets. Hi. Thanks for taking my follow-up. I just wanted to ask about other Cost pressures aside from the New York, can you just comment on, again, some sort of framework around other input cost pressures, if there are any, and Yes. Sure, Dave. It's Quinn. So we talked a little bit about this last quarter. One of the things I mentioned was And we were seeing increases in freight. That's no surprise. Freight costs have increased, I think, globally for Everyone, it shouldn't be anything. So we did see headwinds with regards to freight cost in the quarter. That was probably the biggest single headwind with regards to cost. To a lesser extent, Some headwind on other raw materials. And then of course with the higher volume, we are using more third party needle coke. So those were all Cost headwinds. On the other hand, we were able to benefit from the higher volume in that we had a lower fixed Cost per metric ton, we could spread our fixed costs out over more volume and that helped Offset some of the headwinds that I just mentioned. So all in all, our cash costs for the quarter were about 1.5% Higher than Q1. We felt good about our ability to maintain those and we'll continue to See headwinds going forward certainly with freight that tends to be a bit of a wildcard. Certainly with higher usage of third party needle coke, We'll do our best to continue to offset those higher costs and those headwinds in the coming quarters. Okay, that's helpful. Thank you. So order of magnitude in terms of reasonable assumption moving forward outside of the total unit growth line, it's sort of a 1% to 2 Quarter over quarter cost increase on per unit basis a reasonable expectation for each of the last few quarters or is it going to stabilize in your view? Yes. Like I said, freight is a bit of a wildcard, but based on what we know, it's not it's probably not an unreasonable assumption with the caveat that Yes, freight really is a wildcard. We're seeing some unusual increases there. But again, we're working very hard to manage those. Okay, great. Thanks very much. Thank you. I would now like to turn the call back over to Mr. David Rental for closing remarks. Thank you, Hillary, and thanks to all that participated for your questions and interest. I'd like to take this opportunity to wish everyone on the call health and safety in the coming months. We thank you for your interest in GrafTech International and we look forward to speaking with you in the next quarter. Thank you very much and have a nice day. This concludes today's conference call. You may now disconnect.