Cabot Corp (CBT) 2018 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Q3 2018 Cabot Earnings Conference Call.

(Operator Instructions) Also as a reminder, this conference call is being recorded.

I'd now like to turn the call over to your host to the Vice President, Treasurer and Investor Relations, Mr. Steve Delahunt.

Sir, please go ahead.

Good afternoon, and welcome to the Cabot Corporation earnings teleconference.

With me today are Sean Keohane, CEO and President; and Erica McLaughlin, Senior Vice President and CFO.

Last night, we released results for our third quarter of fiscal year 2018, copies of which are posted in the Investor Relations section of our website.

The slide deck that accompanies this call is also available on the Investor Relations portion of our website and will be available in conjunction with the replay of the call.

During this conference call, we will make forward-looking statements about our expected future operational and financial performance.

Each forward-looking statement is subject to risks and uncertainties that could cause actual results to differ materially from those projected in such statements.

Additional information regarding these factors appears under the heading Forward-Looking Statements in the press release we issued last night and in our last annual report on Form 10-K that is filed with the Securities and Exchange Commission and available on the company's website.

In order to provide greater transparency regarding our operating performance, we refer to certain non-GAAP financial measures that involve adjustments to GAAP results.

Any non-GAAP financial measures presented should not be considered to be an alternative to financial measures required by GAAP.

Any non-GAAP financial measures referenced on this call are reconciled to the most directly comparable GAAP financial measure in a table at the end of our earnings release issued last night and available in the Investors section of our website.

I will now turn the call over to Sean, who will discuss the key highlights of the company's performance.

Erica will review the business segments and corporate financial details.

And following this, Sean will provide closing comments and open the floor to questions.

Sean?

Thank you, Steve, and good afternoon, ladies and gentlemen.

I'm very pleased with our operating results in the quarter as segment EBIT was up 28% on a year-over-year basis to $127 million and adjusted earnings per share was up 28% to $1.06 per share.

These results reflect our market leadership positions and reinforce the power of our Advancing the Core strategy.

In terms of highlights in the quarter, our strong commercial execution resulted in robust volume growth and margin expansion in our 2 largest segments.

We grew carbon black volumes in excess of the industry due to our advantaged investments in capacity debottlenecks and operational improvements across the asset portfolio.

Rising raw material costs were a headwind in the quarter.

But we successfully navigated through these challenges due to our operational flexibility within the manufacturing network and the successful realization of price increases in Reinforcement Materials and Performance Chemicals segments.

We remain committed to our capital allocation framework, which balances growth investments in our core businesses with cash return to our shareholders.

During the quarter, we continued to progress our key growth investments with the startup of a new line in specialty compounds and numerous debottlenecks across the carbon black system.

We also remain on track with our fumed silica plants in China and the United States, both of which will ensure the long-term growth of this high-return product line.

In addition, we announced additional advantaged investments in our global carbon black network, including an expansion in Indonesia.

During the quarter, we increased the dividend by 5% and returned $64 million to shareholders through dividends and share repurchases.

Our commitment to our capital allocation framework remains unwavering as evidenced by the return of $119 million through dividends and share repurchases year-to-date.

We remain confident with the cash-generating power of Cabot.

And as such, we recently announced an increase in our share repurchase authorization of $10 million with the expectation that we will repurchase $400 million of shares over the next 3 years.

I will now turn it over to Erica to discuss the financial results of the quarter in more detail.

Erica?

Thanks, Sean.

I will discuss the segment results, beginning with Reinforcement Materials.

During the third quarter of 2018, EBIT for Reinforcement Materials increased by $23 million or 45% as compared to the third quarter of 2017.

The increasing EBIT was principally due to our strong commercial execution, which led to 6% higher volumes year-on-year with increases in all geographic regions.

This above-market growth was led by an 8% increase in Asia as we continued to leverage our advantaged positions in China and Southeast Asia.

In addition, we expanded our margins in Asia and improved the pricing and product mix in our global customer agreements as compared to the prior year.

Looking ahead to the fourth quarter, Reinforcement Materials will continue its robust performance, supported by our leadership position and continued commercial execution.

We expect to maintain the strong margins and volumes that were delivered in the third quarter.

But we also expect to incur some higher costs associated with the timing of maintenance-related activities to ensure continued delivery of reliable supply to support our customers in a tight market.

Now turning to Performance Chemicals.

EBIT increased by $10 million or 22% compared to the third quarter of fiscal 2017 due to our strong commercial execution, delivering both volume growth and pricing realization.

Higher volumes were driven by a 17% increase in Specialty Carbons and Formulations with above-market growth across all product lines.

The increase in volumes include strong organic growth, benefits from new applications and our recent Tech Blend acquisition.

Looking ahead to the fourth quarter, we expect solid performance in the segment to continue.

We anticipate healthy volume levels in the next quarter, and we expect to maintain our strong margin profile through further price increases that have been announced to counter rising raw material costs.

However, 2 of our fumed silica partners have scheduled maintenance turnarounds in the fourth quarter.

This is expected to result in lower volumes and higher cost for our business as we generally schedule maintenance activities to align with our partners.

Now moving to Purification Solutions.

In the third quarter of fiscal 2018, EBIT decreased by $4 million compared to the third quarter of fiscal 2017.

As we discussed last quarter, we are experiencing both lower volumes and margins from continued competitive intensity in the North America mercury removal applications.

To partially offset these impacts, we implemented restructuring actions earlier in the year that have resulted in lower fixed costs.

Looking ahead to the fourth quarter, we expect to see sequential improvement from higher seasonal volumes and lower fixed costs.

As Sean mentioned last quarter, we do not feel this is a long-term core business for Cabot.

And we continue to explore strategic alternatives for this business.

For our Specialty Fluids segment, third quarter fiscal 2018 EBIT decreased slightly by $1 million as compared to the third quarter of fiscal 2017 due to the mix of projects we had this quarter as compared to last year.

However, as we had been expecting, this quarter's results included the startup of new project activity from recent commercial success in the Middle East and Africa.

We expect drilling activity for the fourth quarter to continue to ramp up from recently awarded oil and gas projects in the Middle East and Africa, resulting in a stronger second half of fiscal 2018.

I will now turn to corporate items.

We ended the quarter with a cash balance of $131 million and our liquidity position remains strong at $828 million.

During the third quarter of fiscal 2018, cash flows from operating activities were $62 million, which included an increase in net working capital of $58 million, largely due to the impact of higher feedstock prices.

As feedstock prices continue to rise and we pass these costs on to customers through higher revenue, our working capital increases from higher balances in accounts receivables and inventory.

As raw material costs moderate, this impact would not continue.

Over time, net working capital often fluctuates up and down, which is why we exclude it from our discretionary free cash flow metric.

Our discretionary free cash flow in the quarter was $81 million, which excludes the $58 million increase in the net working capital and is reduced by $39 million of sustaining and compliance capital expenditures.

Total capital expenditures for the third quarter of fiscal 2018 were $58 million and are expected to be approximately $250 million for the full year.

Our capital spending for the year includes growth investments for capacity expansions in our fumed silica business and carbon black debottleneck projects.

Aligned with our capital allocation framework, we also returned cash to shareholders through $21 million in dividends and $43 million for share repurchases.

Our operating tax rate was 21% for the third quarter, which also represents our current forecast for the year.

We recorded a tax benefit of $4 million in our third quarter that included a $24 million net benefit from certain and discrete tax items, primarily related to the discrete tax benefit arising from a change in the valuation allowance.

I will now turn the call back over to Sean to discuss the outlook for the company.

Sean?

Thanks, Erica.

Looking forward, I feel very good about our position and the opportunities that lie ahead of us.

We remain in an environment where utilization rates are high globally across both Reinforcement Materials and Performance Chemicals.

Demand is strong and the ability for the industry to add new capacity remains challenging.

As we talked about at our Investor Day in May, I expect Cabot to capitalize on these market fundamentals due to our advantaged leadership position and the demonstrated value we bring to our customers.

Early indications for 2019 calendar year tire customer agreements are positive with an industry environment that is supportive.

And we are making good progress with some deals already completed.

This is a bit earlier in the year than usual to complete these agreements and reflects the strong business fundamentals and the customers' belief in and preference for Cabot's value proposition.

We will likely have more to say about contract negotiations next quarter.

Our previously announced capacity expansions are on track for our fumed silica and carbon black investments.

We have completed carbon black debottleneck projects, which have increased our effective annual capacity by over 60,000 metric tons thus far.

Given this advantaged and measured capacity increase, we have the ability to support the growth plans of our existing customers as well as to secure volumes of new high-margin business.

We are pleased with the commercial success of pricing realization in Performance Chemicals.

On a year-to-date basis, we have successfully increased pricing broadly across specialty carbons and the benefit is reflected in our results.

Over the past 2 years, feedstock prices have been rising just about every quarter.

And we've been implementing price increases to offset this headwind.

We continue to watch trends in the feedstock markets, which have continued to rise.

And as a result, we announced a further price increase for specialty carbons last week to take effect on September 1. We will continue to adjust prices where necessary to offset any headwinds.

In terms of feedstock, I wanted to briefly mention the potential impact of MARPOL.

For those not familiar with this, I will spend a little time on the background.

The International Maritime Organization has introduced a regulation, which is related to the type of marine fuels that can be used for the shipping industry, which goes into effect on January 1, 2020.

The outcome of the MARPOL regulation, as it is called, is that it reduces the amount of sulfur that can be emitted from marine transportation, causing shippers to either use lower sulfur fuels or put scrubbers on their ships to reduce the emissions of higher sulfur fuels.

The fuels that have historically been used in the shipping industry have been higher sulfur fuels.

While carbon black is made from a variety of feedstocks around the world, including some low sulfur fuels, carbon black manufacturers also utilize certain of the high sulfur fuels that have been used by ocean shippers.

Thus, this regulation will likely have an impact on the price and availability of certain types of carbon black feedstocks.

While the specific impacts are still being studied by the industry and vary based on the solution, it is largely expected that demand for lower sulfur fuel oils will increase while demand for higher sulfur fuel oils will decrease.

Since the carbon black industry uses a variety of feedstocks, we do not anticipate an issue with availability of feedstocks for production.

However, we expect there could be different regional impacts on prices of feedstocks, depending on how the shipping industry and refiners respond to the new regulation.

These impacts are still being analyzed.

Keeping with the spirit of our commercial agreements, which are designed to pass on the feedstock cost movements to our customers, we are building mechanisms into our customer agreements, such as a deliberate cost adjustment factor.

This deliberate cost adjustment is designed to pass through the feedstock cost.

And it would be triggered if our actual cost should become disconnected from the feedstock indices that we use.

This mechanism in our customer contracts ensures we recover any incremental cost that could occur and enhances our flexibility for using the various feedstocks to accommodate changing market conditions.

Finally, I'd like to address another item that is seen a lot in the news these days, which is the set of tariffs being implemented by the U.S. and China.

At this point, we see limited direct exposure to any of the U.S. or China tariffs that have been implemented or proposed, which highlights another benefit of our geographic alignment with our major customers.

For context, our year-to-date exports between U.S. and China are less than 2% of our total sales.

Now I'd like to conclude by moving on to our financial performance outlook for the remainder of the year.

We are very pleased with our operating results to date and our trajectory for the fourth quarter and fiscal year.

This is causing us to raise the floor and narrow our previous guidance range, which is now $4 to $4.20 per share for the fiscal year.

If we look at each segment, due to the strong year-to-date performance in Reinforcement Materials and a positive outlook for the fourth quarter, we are increasing and narrowing our full year outlook for the segment and expect fiscal 2018 segment EBIT to be in the range of $275 million to $285 million.

In Performance Chemicals, demand remains strong across the segment and we expect to maintain our margin levels through continued price realization.

Thus, we have raised the floor and narrowed our fiscal 2018 segment EBITDA expectation to be in the range of $205 million to $215 million.

Due to the lower-than-expected third quarter results in Purification Solutions, we are lowering the range of our full year outlook for 2018 segment EBIT to now be in the range of a loss of $5 million to breakeven.

However, as we look sequentially, we do expect to see a stronger fourth quarter.

Finally, in Specialty Fluids, we will continue to see the benefit of recent commercial success in the last quarter of the year as project activity continues to ramp up in both the Middle East and Asia.

We have narrowed the expected full year 2018 segment EBIT range to be between breakeven and $5 million.

In closing, we are seeing success with our strategy and remain confident it will deliver attractive total shareholder return.

We will continue to grow volumes, invest in new product and process technology, seek to capture the operating leverage from improving utilizations and pursue growth investments, including bolt-on M&A in our existing businesses.

And finally, we continue to focus on creating shareholder value through generating strong discretionary free cash flow and reinvesting that in our core businesses as well as returning cash to shareholders.

Thank you very much for joining us today.

And I will now turn the call back over for our question-and-answer session.

(Operator Instructions) Our first question comes from David Begleiter from Deutsche Bank.

Sean, on the contract tire negotiations, could you provide a little more color on what's driving the strengths?

And I assume you're expecting price increase.

Do you expect also volume or share gains this year as well?

Well, it's a tough time of year, David, to comment in too much detail as we're in the middle of our annual negotiation cycle.

But let me try to provide some color that may be useful.

And just as a reminder for folks, so we serve our major tire customers on a global basis from these negotiated agreements.

And they typically have regional volume and pricing commitments.

And then the balance of our business is on the spot market, principally in China and Asia Pacific.

And so the annual agreements or contracts, as we call them, are very important part of our tire business.

And the tire customers, I think, have come to rely on Cabot for our reliability and consistency and quality.

And I think in a tight market, and this is probably an important factor behind our commentary, I think having supply security is of key concern for our customers and the fact that we operate with a level of reliability and stand behind our agreement.

So I think what I can say is that we're seeing a market, which is supportive and we're making good progress.

And the outcomes we're seeing would be consistent with that supportive environment.

And I would say that we will see both volume gains as well as pricing movements, again consistent with the supportive environment.

Very helpful.

And Sean, just on Purification Solutions, is there an update to the strategic review process, when it might conclude?

So nothing specific, David, that I can comment on at this point, other than we continue to evaluate strategic alternatives to the business with a goal to maximize value for the shareholders.

And in the meantime here, we're focused on improving the results in the business.

I'm not happy with the results.

We're focused on improving the results by regaining share in North American mercury removal and powdered applications, continuing our efforts to grow the specialty side of the business and then evaluating options to reduce the fixed and variable costs.

The business is cash flow-positive and it will continue to be run that way, as I've commented before.

And it will not get a priority claim on growth capital.

But I can't comment any further on the specific strategic alternatives.

Our next question comes from Mike Sison from KeyBanc.

In terms of the operating rates around the regions, could you remind us where is the most -- where operating rates are pretty tight for the industry?

And then as I recall, when you think about the U.S. as new tire capacity coming on, has that come on and absorbed a lot of capacity already?

Mike, thanks.

Thanks for the comments and the question.

So maybe I'll just walk around some of the key regions to give a sense for operating rates, as you call them, or utilization levels.

And I guess I would start by saying that globally, we're seeing that utilization rates are pretty high across the industry.

There is some difference between regions but globally, pretty high.

So in markets like in Europe, we're seeing quite high, low 90s percent utilizations as well as really across the Asia Pacific region, the same, and only slightly lower utilizations in the Americas, North and South.

So I would say they are all sort of converging in a fairly tight range right now.

And you'll remember from Investor Day that certainly over the last 10-or-so years, the most significant capacity investments that have come on in the industry globally have come on in China.

And with a continued commitment to environmental enforcement in China, I think our long-term view on how things play out there remains the same.

So we think we're in an advantaged position there.

And the impact of that certainly plays out in China.

But because it's such a big part of the global industry, it has an impact globally, which I think is favorable.

Great.

And then a quick follow-up on the earlier contract negotiations to the tire companies, if they're looking for security, is there any possibility they're looking for longer-term contracts of some of the volume and price thoughts?

So I think security of supply, ability to support customers' growth plans, I think, is very important.

Most of our major customers have growth plans in place and underway.

And underpinning those with high-quality, reliable raw materials, I think, is, I think, a key thing for them.

And there are certain cases where customers are looking for a little bit longer reliability or security of supply, and therefore, introducing discussions around longer-term agreements rather than just 1 year.

I think our view on that is we're open to that if it makes sense for Cabot.

Our next question comes from Jim Sheehan from SunTrust.

Could you quantify what type of impacts the maintenance outages might have in Reinforcement Materials and Performance Chemicals?

Sure.

So I think for Reinforcement Materials, the expectation would be probably low to mid-single-digit millions of dollars as you think about sequentially quarter-to-quarter.

And then for the fumed silica business, it would impact both, I'd say, volumes as our customers will be doing turnaround activities, and so we wouldn't expect our sales volumes to be as high, and the maintenance-related costs as we do maintenance on our own facilities.

And so the combination of those are probably in the same range that are mid-single million dollars when you add those 2 together.

Great.

And on the fumed silica investments, can you talk about what is the EBITDA margin outlook for that business?

Well, I think at Investor Day, we commented on this, Jim.

So I think that's as far as we'll go in terms of specifics.

But just to refresh your memory, it is the highest-return product line in the segment and one that we think has great long-term fundamentals to it.

The markets that this material goes into, things like silicones, are growing at above GDP, call it, in the sort of 5% range.

And when you look at the sort of the barrier to entry and the feedstock dynamics of securing feedstocks in this market, I think it is, I think, a favorable dynamic.

And furthermore, the material is a very valuable material that's used in a lot of innovation projects with customers.

So when you look at those factors, I think our view on it is that the high quality that we have today will continue.

Terrific.

And you recently made an announcement about your Activated Carbon business for automotive applications.

Could you expand on that announcement and what that means in terms of maybe your growth in 2019 within that business?

Yes.

So maybe just a couple of background comments on this, first, Jim.

So I think as probably most of you know, the world is shifting to these higher vapor fuel emission standards.

And activated carbon is needed to meet these.

And so there is an expectation of significant growth around the world because of these regulations, especially in China.

And this is a product line today that we participate in.

We're the #2 share player in this market today and have been investing some R&D dollars here to strengthen our position that culminated in some recent product introductions, which I think you're referring to.

And so we're in the process of going through customer approvals right now and in a range of different programs with customers for approval.

And so the expectation over the next few years as these regulations come into play across kind of the 2019 to 2022 time period that we would see commercial wins there that allow us to not only capture growth but also build on our market share position here.

So I think we're excited about the potential for these.

But I think it's important to also understand the timeline.

As the regulations come in and as qualifications happen, there's sort of a natural ramp to this.

So there wouldn't be any material contribution in the 2019 period.

Our next question comes from Kevin Hocevar from Northcoast Research.

Wondering if -- so your rubber Reinforcement Materials volumes were up 6% in the quarter.

I was wondering if you can comment -- that was a nice acceleration.

Particularly in Asia, we saw 8% growth.

So wondering if you'd just give some comments on what you expect out of volumes going forward.

And particularly, that Asia region, we saw a big turnaround here.

And if that's related to maybe there's more curtailments, government-mandated curtailments in the past that are coming back online now in the spring and summer.

Just wondering if you can give us some type of update on the volumes you're seeing and what's driving that and your outlook.

Yes.

Well, clearly it was a very strong quarter for the segment, Kevin.

I think as you know, it can be hard to read too much into any one period as timing of orders as well as our commercial actions in the spot market to take advantage of market conditions can cause numbers to move around a little bit quarter-to-quarter.

So maybe I'd start by saying that if you just pull the lens back and think about, on a full year basis, we would expect to see volume growth across the reinforcement business in the 3% to 4% range.

This would be about 1 point above the global industry growth rate.

And I think we're trending well for that.

I think specifically in Asia Pacific because it is a very dynamic situation, given the prominence of China and the impact of China in the tire market but also how things there spill over into the broader Asia Pac region, is certainly very dynamic.

But we see a continued commitment from the Chinese government around environmental enforcement.

As I talk to my chemical company peers, I don't see any wavering on that commitment.

In fact, there were more cities that have adopted these 26+2 standards around environmental emissions.

So I think it will continue.

And so what that means is that we're a leading operator there and we believe we'll -- because of our differential approach to sustainability and environment and because of our customers' understanding of this, I think we'll probably see some benefit accrue to us, would be the expectation.

But again, I would sort of pull the lens back on any quarter-to-quarter moves and just sort of look at the full year, which again we see coming in at a very healthy number.

Got you.

And then I know you have a couple of spot market price increases in North America and Europe in the rubber business.

And maybe could you comment on how those are doing?

And I know those are relatively small part of the business, spot business in those regions.

But what percent of North America and Europe is on the spot market?

So in North America, it's very, very small.

And in Europe, it's maybe 10%, 10-or-so percent, 10% to 15%, so again relatively small in the grand scheme of things.

Those 2 regions tend to be much more heavily contracted.

But I think just back to the overall environment, we are seeing an environment across the market that is pretty supportive.

And I think that that's an important factor here.

And then again, customers in terms of supporting their growth plans and looking for quality and supply reliability, I think, really value the Cabot offering.

And so I would say the expectations on pricing here would be consistent with that current market environment and consistent with the types of conversations we're having with customers on the contracted pieces of business as well.

Our next question comes from Jeff Zekauskas of JPMorgan.

If you hit your guidance in Reinforcement Material in EBIT this year, you'll be up about $90 million.

And I think about 25% or 30% of your reinforcement business is in China.

And so what I was wondering is did that piece of business and its EBIT growth grow in excess of the rate of the overall segment?

In other words, did you get a disproportionate amount of profit improvement from China this year?

Or was that change similar to what you got in other regions?

Yes, Jeff.

So you're roughly right in terms of the size of China to the overall proportion of our carbon black business.

And you'll remember from our earlier discussions around Investor Day that China represents somewhere in the order of 35% to 40% of the world's tire market.

So it is the biggest market.

We did, in fact, see profit improvement at a greater rate in China and Asia Pacific because of the connection to what happens in China than in rest of world.

But profits grew in all regions on a year-over-year basis.

So I think we're seeing a quite consistent direction.

The magnitude from region-to-region, some differences.

Okay.

And in your Performance Materials business, your operating margins moved up about 100 basis points year-over-year.

Is that due to improvements in specialty black pricing?

Or is there something else behind that?

Well, certainly in specialty carbons over the last pretty much 2 years, we had been chasing rising oil.

And that was the case again here this year, where I think if we go back to the end of our fiscal '17, oil was kind of in the high 40s.

And today, it's sitting somewhere, just looking at headline sort of barrel prices, somewhere closer to $70.

So we've definitely been chasing this and moving prices to recover that.

And I think what you are seeing is, in previous periods, we hadn't reached the level of recovery that we are now demonstrating.

And so that is accounting for a slug of that margin improvement.

The other thing that is happening in this segment, not just in specialty carbons but across the whole segment, is our efforts around new products, new applications, product mix and continuously moving towards higher and higher value applications.

And that is certainly contributing to the margin.

But the largest piece of it, I think, is sort of kind of catching up, if you will, to this running oil story over the last 2 years.

Okay.

And then finally, at the Analyst Meeting, you spoke of your opportunities in conductive carbon market.

And you had something of a focus on the lithium market.

And I'm still not clear as to whether your current sales of conductive carbons to the lithium market are material or not.

That is, are they above $5 million or below?

Can you at least frame it that way?

Yes, they are above, substantially above.

Substantially above.

Yes.

And I would say the market is growing at very good rates.

And so as we highlighted in the case study or vignette at Investor Day, we think both the lithium-ion battery opportunity as well as the advanced lead-acid battery create great opportunities for us to grow and innovate with our conductive carbon additives.

So we're very pleased with that.

But I think what's important here is that, over time, we're trying to grow this to be a material part of the overall Performance Chemicals segment.

And I think we're on a good pace to do that.

Our next question comes from Chris Kapsch of Loop Capital Markets.

I have a couple questions.

One is on the revised performance outlook by segment, the earnings by segment.

If I look at Reinforcement Materials, you upped the midpoint of that EBIT expectation for the full year by $20 million.

So obviously, that was split over the third and fourth quarter.

Just wondering what the drivers there.

Is it primarily volume?

Is it operational performance?

Was there some better-than-expected pricing there or really just a combination of all of the above?

I would say it's probably a combination of all the above.

So I think volume performance has been quite strong and pricing realization as well.

And so those are probably the big factors.

But I think operationally, we continue to drive towards, as we talked about, the utilization of capacity debottlenecks, which is enabling growth, making sure we're using advantaged feedstocks where we can to ensure we have the right mix of feedstocks at a cost advantage that we like.

So we're doing all of the above, I think, to try to drive results higher.

Okay.

And then -- so there was a transaction in the industry not too long ago, Tokai purchasing Sid Rich.

And so just wondering if that's a sort of asset -- in the context of your capital allocation strategy, is that something that you would have looked at?

And why or why not would that be something that might be actionable in terms of your strategic and capital allocation outlook?

Okay.

So Chris, I think I can comment a bit more generally about this.

So in terms of our capital allocation, it's clearly focused on investing in our core businesses.

And the Reinforcement Materials business is one of those where we see real opportunity there.

And that investment will come in the form of both organic investment as well as M&A or inorganic opportunities.

Now any specific opportunity, I think, has to be looked at in the light of does it make sense for us?

Can we execute on it?

And what are our other alternatives?

And that's the thought process that we go through.

But bolt-on M&A, things that are additions to our existing businesses, straight-up bolt-ons, this is clearly an important part of our strategy.

And so we'll be looking at all opportunities again through the lens of how does it fit, what are our alternatives, can we execute on it.

Those would be the factors we'd be looking at.

And in this particular asset, is there any reason why it may or may not have been something of interest to Cabot, given what you just said?

Well, I think any time you look at an asset, I think you have to consider the quality of the asset.

And you also have to consider, is this something that we can execute on?

And I think the dynamics vary region-to-region in terms of ability to make a strategic acquisition.

And so I think those are the factors that one would typically think about.

Okay.

And then if I could just -- one sort of nuanced question about the Specialty Fluids business, I think I saw where you guys recently inked an offtake agreement from an Australian miner for some cesium.

And I'm just wondering if that's to -- if the purpose of that was somehow tied to either, one, a more robust outlook you have for that business, and therefore, you needed additional cesium at some point?

Or conversely, is there some challenge to get incremental cesium out of your mine in Manitoba?

Sure.

So you're right, Chris, on that.

And I would say the way we look at reserves, first of all, Cabot has the super majority of the known reserves in cesium through our mine.

And as we look at opportunities to grow this business, we're always looking at alternatives for raw material.

And so how does the cost of mining compare to other alternatives?

And in this particular case, we felt it was an advantaged tranche in that calculus.

And then also in terms of securing it, security of long-term supply and taking control of that particular tranche was something that we think made sense for us.

I show no further questions in the queue.

At this time, I'd like to turn the call back to Sean Keohane, CEO and President, for closing remarks.

Please go ahead.

Great.

Thank you.

Thank you very much for joining us on the call today.

And we look forward to speaking again next quarter.

And thank you for your support of Cabot.

Have a good day.

Thank you, ladies and gentlemen, for attending today's conference.

This concludes the program.

You may all disconnect.

Good day.