Orion SA (OEC) 2021 Q2 法說會逐字稿

Greetings, and welcome to the Orion Engineered Carbons' Second Quarter 2021 Earnings Conference Call. (Operator Instructions) As a reminder, this conference is being recorded.

It is now my pleasure to introduce Wendy Wilson, Head of Investor Relations. Thank you. You may begin.

Thank you, operator. Good morning, everyone, and welcome to Orion Engineered Carbons conference call to discuss our second quarter 2021 financial results. I'm Wendy Wilson, Head of Investor Relations. With us today are Corning Painter, Chief Executive Officer; and Lorin Crenshaw, Chief Financial Officer.

We issued our press release after the market closed yesterday, and we posted a slide presentation to the Investor Relations portion of our website. We will be referencing this presentation during the call.

Before we begin, I'd like to remind you that some of the comments made on today's call are forward-looking statements. These statements are subject to the risks and uncertainties as described in the company's filings with the SEC. Actual results may differ materially from those described during the call. In addition, all forward-looking statements are made as of today, August 6. The company does not undertake to update any forward-looking statements based on new circumstances or revised expectations. All non-GAAP financial measures discussed during this call are reconciled to the most directly comparable GAAP measures in the table attached to our press release.

I will now turn the call over to Corning Painter.

Thank you, Wendy. Good morning, everyone, and welcome to our second quarter earnings conference call. I'm pleased to report that we produced near record results for the second quarter, capping an excellent first half of the year.

At $78.8 million, second quarter adjusted EBITDA was the second highest in our history, 4x higher than year ago levels and 10% higher than the second quarter of 2019, with both divisions contributing to the strong performance.

Given that volumes a year ago, we're running at exceptionally low pandemic levels, I believe it's useful to compare our second quarter volume levels to 2019. On that basis, total company adjusted EBITDA was up, again, 10.2% on volumes that were approximately 93% of second quarter 2019 levels and favorable Specialty product mix.

Compared with the first half of 2019, total company adjusted EBITDA was up 10% on volumes that were approximately 95% of first half of 2019 level. Overall, against the backdrop of the COVID-19 induced economic downturn a year ago, both businesses demonstrated substantial operating leverage.

In addition to delivering strong financial performance this quarter, we also settled our long-standing dispute with Evonik for approximately $79 million. We now consider this matter totally settled.

As I've said many times, we have been managing our company's capital plan without counting on a recovery from Evonik. Therefore, investors and creditors should view the $79 million in proceeds for what it is -- a cash injection that is not earmarked for any specific matter.

The immediate effect of receiving the cash is that it will substantially strengthen our balance sheet and accelerate our achievement of net leverage within our targeted range of 2x to 2.5x. We expect the associated debt reduction to result in an annualized interest expense savings of about $1.1 million.

Turning to recent developments related to sustainability. Our strategy is to develop new products across 3 core pillars: Enabling Carbon Blacks, Circular Carbon Blacks and Renewable Carbon Blacks.

Year-to-date, several developments aligned with these pillars have taken shape, including launching a new renewable product offering, ECORAX nature, collaborating with the European Commission's HiQ-CARB battery consortium to design and scale up innovative battery materials, including our high-purity conductive Acetylene Black. And partnering with the Research Institutes of Sweden to produce Carbon Black from forest-based products. Each of these efforts and our broader strategy are summarized on Slides 5 and 6.

I want to salute the efforts of our team year-to-date, not only to deliver impressive financial results, which are important from a short term perspective, but also to advance our sustainability efforts, which are critical to positioning Orion to drive longer term in a lower carbon world.

Using Slide 6, I would like to elaborate a bit further on how the 3 recent developments fit into the broader strategy. First, regarding Enabling Carbon Blacks strategic pillar, we developed ECORAX, a family of Rubber Carbon Black for tires that have unique properties. It is aimed at extending tire life, lowering rolling resistance and reducing hysteresis, which collectively reduces fuel consumption, material use and the CO2 footprint. All of these attributes are aligned with our customers' goals to improve the environmental impact of transportation.

Regarding the Circular Carbon Black strategic pillar, our focus is to drive the development of the circular economy for tires. Here, we are working to make Carbon Black from oil derived from used tires. To that end, we are well into a year of working as a partner with the BlackCycle project that is an EU funded group led by Michelin, working to drive a circular economy and sustainable solutions by recycling end-of-life ties. Our partnership is off to a good start, and we will provide additional updates over time.

Finally, with respect to the third pillar, Renewable Carbon Black, our focus is reducing consumption of fossil fuels by producing Carbon Black from renewable feedstocks. We actually started this journey a decade ago with the development of PRINTEX Nature, a Carbon Black derived from plants aimed at the printing market.

More recently, we launched ECORAX Nature, the first highly reinforcing Carbon Black grade made from renewable feedstocks, which can be used in tire thread construction. The product is currently being tested by customers. Given the development cycle for tires, we expect it to be in testing for 2022 as well.

We also announced recently our partnership with the Research Institutes of Sweden to develop a Carbon Black from sustainably harvest forest-based products. As we gain traction in conjunction with these and related initiatives, we will keep you abreast. The main idea is that we expect Renewable Carbon Blacks to play a role in a lower carbon world and look forward to partnering with key players to bring these types of products to fruition.

Finally, we recently announced that we have become a part of the European Union funded, HiQ-CARB project that was formed to design and scale up innovative battery materials, leveraging Orion's high-purity conductive Acetylene Black. We're excited about this development and that the project organizers chose Orion's of Acetylene Black to develop lithium-ion batteries in Europe.

Overall, we've made significant progress with our sustainability efforts. And with these and many other initiatives that you can read about in our recently published 2020 Sustainability Report that is now available on our website.

Turning to our second quarter results in greater detail. As you can see on Slide 7, adjusted EBITDA rose to $78.8 million year-over-year, primarily driven by the sharp broad-based demand recovery across most Rubber and Specialty applications and geographies as well as favorable Specialty and Rubber mix.

That concludes my opening remarks. For the remainder of today's call, Lorin and I will cover second quarter results in greater detail and our second half outlook. After our prepared remarks, we'll be happy to take your questions. Lorin?

Thanks, Corning. Revenue nearly doubled year-over-year, up 97.9%, reflecting a strong demand recovery for our products across all end markets from the year ago pandemic trough and the favorable impact on revenue passing through higher feedstock costs. Contribution margin more than doubled, up 106.7% year-over-year, mainly due to strong volume-driven operating leverage.

Adjusted EBITDA rose over 400% year-over-year to $78.8 million, reflecting strong operating leverage, partially offset by higher fixed costs, driven by higher maintenance, labor and incentive costs, reflecting a more normalized operating environment at our plants. Finally, we reported adjusted net income for the quarter of $37.2 million on higher adjusted EBITDA.

On Slide 9, you will find several useful bridges that provide greater financial details in support of the comments I just shared on our quarterly results.

Slide 10 details are year-to-date cash generation, which, as a result of the Evonik proceeds, has been positive despite a surge in working capital. As a reminder, when oil prices rise, our working capital increases by roughly $30 million for every $10 change per barrel of oil in our feedstock costs.

Of the year-to-date increase in working capital, roughly half is driven by higher oil prices and half is driven by higher receivables and finished good levels, in line with the current robust demand dynamics we are experiencing and building inventory during the quarter ahead of numerous upcoming turnarounds.

On a full year basis, at the midpoint of our adjusted EBITDA guidance, if oil prices average where they are today, we would expect net debt to be roughly flat year-over-year with the cash associated with strong operating results and the EPA settlement payment, largely offset by CapEx and higher working capital.

Slide 11 summarizes our leverage and liquidity profile as of the end of the second quarter. As Corning mentioned earlier, with the receipt of the Evonik proceeds, and our trailing 12-month EBITDA normalizing, we are now comfortably within our targeted steady state net leverage range at 2x to 2.5x. In addition, our liquidity available at any adjusted EBITDA level has risen to $364 million.

Overall, our strong financial standing positions us well to fund and execute the EPA investments as rapidly and safely as possible, while also advancing growth initiatives that bolster our adjusted EBITDA and free cash flow capacity. With the Ravenna expansion ramping up next year and the Huaibei expansion projected to ramp in the 2023 to 2024 timeframe, while EPA investments ramp down, we expect these 2 investments to contribute roughly $30 million to $40 million in adjusted EBITDA at steady state levels.

Moving to Slide 12. Specialty volumes increased 37.6% year-over-year, showing strength across all end markets and geographies, with strong operating leverage and favorable mix, driving adjusted EBITDA to rise by 138.9% year-over-year.

As shown in the trailing 12-month gross profit per ton chart, we are pleased to see that Specialty profitability is approaching levels last experienced in 2018, reflecting near record profitability levels, strong operating rates and favorable mix.

The next slide breaks out the major year-over-year drivers of adjusted EBITDA for the Specialty business in greater detail, the most significant of which was higher volume and improved mix. We have increased prices significantly year-to-date, but these increases have simply allowed us to hold even with rising costs as opposed to expanding our margins.

In market-wise, polymers and coatings were particularly strong. Geography-wise, the European and Asia Pacific regions showed the greatest relative strength.

Turning to Slide 14. Rubber volumes were up 69.6% year-over-year, with strength across all regions, with both tire and MRG up significantly, but tire stronger than MRG on a relative basis. Higher volumes translated into higher adjusted EBITDA, which rose to $39.5 million, a substantial improvement from essentially breakeven during the year ago period.

Slide 15 breaks out the major year-over-year drivers of adjusted EBITDA for the Rubber business in greater detail, the most significant of which was higher volume.

With that, I will turn the call back over to Corning.

Thank you, Lorin. Turning to our outlook for the balance of the year. We are raising our full year 2021 adjusted EBITDA guidance to the range of $265 million to $285 million from our prior guidance of $250 million to $280 million.

While there are many bullish signals for the global economy, we continue to expect that the second half financial results, though strong, will not match the robust level of our first half due to lower volumes, due to planned outages at several Specialty and Rubber plants, including our Ivanhoe, Louisiana site, where we're completing our air emissions upgrades there, and a typical Rubber Carbon Black end of year seasonality.

Finally, I'd like to provide an update on our CapEx guidance. We expect 2021 CapEx to be in the range of $190 million to $200 million, up $25 million at the midpoint from our prior guidance. This increase reflects higher costs as we approach the finish at Ivanhoe, accelerating some spending for the remaining 2 air emissions projects, and accelerating a number of debottlenecking projects in light of the ongoing market demand.

Regarding our overall EPA spending estimate, we recently obtained stage 3 front-end loading estimates, or FEL3 for our Borger and Belpre sites. These sites are the last 2 EPA-related installations, and this is the most robust cost estimate we have had to date.

As a reminder, front-end loading activities fall into 3 stages, FEL1, FEL2 and FEL3. FEL2 is developed up to a predefined level of detail, not yet sufficient for construction and operation, but enough to develop a cost estimate, a schedule and to make critical decisions that will influence the final design of the project.

At the FEL3 phase, the engineering team has more fully designed the project, including defining how it will be constructed, commissioned, started up and operated.

As a result of the higher cost of Ivanhoe that I referenced earlier and incorporating the Belpre and Borger FEL3 estimates, our current estimate for the cost of the EPA work is in the range of $270 million to $290 million, up roughly $30 million or 12% at the midpoint from our prior guidance of $230 million to $270 million.

Beyond getting to FEL3, we recently entered into lump sum turnkey EPC contracts with engineering firms for both of the remaining sites, significantly derisking those projects.

Finally, as a reminder, for these sustainability-related projects, we seek to recover both the higher operating costs associated with them and to achieve an adequate return on invested capital by driving higher base prices and surcharges.

In closing, the key messages I would like to reiterate is that our business continues to do very well. We have deleveraged our balance sheet. We're investing in key growth and sustainability initiatives, launching new differentiated products, derisked our EPA efforts going forward, and are on track to generate substantial free cash flow in 2023.

We look forward to the ongoing support of our investors as we continue to profitably and responsibly grow Orion in the coming years.

With that, operator, please open the line for questions.

(Operator Instructions) Our first question comes from the line of Laurence Alexander with Jefferies.

It's Dan Rizzo for Laurence. So with the Evonik settlement and the influx of cash and the balance sheet in better shape, I mean, is the first use of this cash going to be to kind of look at more brownfield or just expansions of organic growth for Specialty Black? Or are there other alternatives you're looking at?

Well, so when we look at this, as we have our internal discussions, as we talk to investors, as we talk amongst the Board of Directors, we hear a number of voices and considerations, one of which would be around returning cash to shareholders in the form of dividends or buybacks, but also growth.

Specific to growth, I mean, I think the most interesting opportunities for us are in some of the exciting Specialty areas and in sustainability. Those can be the Greenfield, especially the one we're doing right now in Huaibei or could be something like what we've done at Ravenna. I'd say those options are open to us. There's obviously commercial sensitivity in all of this. So we don't really have an announcement until we have one.

But I would just stress that we see -- and this is really a classical capital allocation, and we're looking to strike the appropriate balance between those interests that I mentioned earlier.

And then with the sustainability -- and it looks like you have a few pretty promising projects. I was just wondering, is there one in particular that should be kind of first to commercialization? And if you've kind of quantified what the TAM is for these products?

Well, so we're in commercialization effectively with the Circular Carbon Black. So we've actually had the PRINTEX Nature for a number of years. The ECORAX is out and sampling. But as I said earlier, I don't really expect that to be a meaningful contributor until 2022. For sure, there is strong demand for sustainable Carbon Blacks, no question about it. It's also true, for sure, they're going to cost more than what the other materials are. And our outlook is to maintain a return on capital for these areas and a gross profit per ton and, let's say, the range that we're in. But I wouldn't expect that, for example, to really be contributing until more like 2023.

Our next question is come from the line of Josh Spector with UBS.

So U.S. relative to our estimates, margins came in stronger, but a little bit surprised with some of the sequential volume progression, particularly in Rubber, with things kind of flattish sequentially where you had some constraints in the prior quarter. So I'm curious if you could give some color on what held back the sequential volume growth, be it supply constraints continuing or demand? And any context by region would be helpful as well.

So in general, I'd say we have strong demand and most of our Rubber Carbon Black plants are running hard. We are in a situation where we're building inventory in certain situations. For example, the turnaround that we have going on right now to upgrade the air emissions in Ivanhoe and so that's the constraint for us.

I'd say the market, right now, in many places, there are robust spot opportunities, and we are really curtailing our participation in that. We're focused on taking care of our contract customers, the people who are more -- let's say, a partnership relationship with them, because conceptually where we've made the commitment, but that's a constraint to the volume that we could take as well.

Our next question is come from the line of Kevin Hocevar with Northcoast Research.

I think I'm curious on the Rubber side, the EBITDA per ton was $2.17, which I believe was a quarterly record or at least close to it. So curious how you're able to do that because, obviously, volumes weren't at record type levels. I wouldn't imagine pricing changed much quarter-over-quarter, just kind of how the contracts worked. But I guess, the one thing is oil prices did move up quite a bit sequentially. So I don't know if that was a big variable in there.

But kind of curious your take on what drove the sequential improvement in kind of profit per ton there in the Rubber side? And how sustainable you think that is? Obviously, it sounds like there might be some factors here of some maintenance and stuff that might maybe go backwards. But that sounds almost kind of temporary. So I think, I'm curious what your take on what drove that higher and how sustainable that is?

Well, Kevin, you know this business well. So yes, oil prices going up, that was certainly a factor. I'd say mix a little bit favorable for us as well. But also some onetime effects, for example, when the oil price goes up, I would expect that to moderate a little bit in the second half.

And Kevin, I would add that we built an inventory, and that was beneficial during the quarter. When you look at the GP per ton, you could see us average in that $270 to $280 range for the year. And so this was a strong quarter. It will moderate in the second half. And on average, we'll probably be in that $270 to $280 point mark for GP per ton.

And then did I hear it correct? I think somebody had mentioned that the 2 new facilities that you're ramping should add $30 million to $40 million of EBITDA once that's at a steady state. And I think the Ravenna one is next year and the China one might be the year after in terms of when those are ramping. But I'm curious if you -- did I hear that right? And then how do you expect that to ramp in terms the -- how does that ramp to $30 million to $40 million over the next couple of years in terms of contributions from those new facilities?

Right. So first of all, your timing is right. And the -- let's say, the overall magnitude is in the right order as well, I would say. In terms of how it would ramp, I would just draw your attention to the relative size of the 2 projects. If we're in an environment like what we have today, obviously, loading is going to be favorable for 2022, and I fully expect that in terms of how we could do that. But keep in mind, Ravenna is the smaller of the 2 projects.

I think that -- and then maybe just one other one. On Slide 9, you showed $13.8 million of other benefits to contribution margin, which was obviously a fairly large number. So curious what that is exactly.

Yes, that's the combination of co-gen, the oil price movement that we noted earlier as well as the inventory build. The same things you were referencing on the Rubber side, most of those are in that bucket.

Our next questions come from the line of Josh Spector with UBS.

I was just curious on the Specialty side. Where would you say you are from a price cost perspective and your visibility over the next couple of quarters? I know there's some -- probably some moving parts with auto OEM demand, perhaps being constrained from a mix perspective. But I'm curious if you think you're pretty much caught up on the pricing side against what I expect you to see as rising raws into the second half?

Yes. So we worked very, very hard on Specialty pricing, and we moved those prices significantly. However, I would say that was really catching up with what the cost inflation was versus margin expansion for us. We think we've largely got that in place at this time.

I'd say a thing to keep in mind is right now, we are constrained on a lot of our volumes just in terms of what demand is, and we have these outages in the second half. So that's a challenge for us in the second half. But all in all, I'd say the underlying demand and the prospects for that business are really tremendous.

And just a follow-up from the prior question about the Rubber Black profitability. So I understand the sequential move. But I guess, if we look at the gross margin per ton for this quarter and try to bridge to next year, where I expect you have volume growth on top of this year and potential for pricing with some of those contract settlements perhaps later this year, should we expect that being a level that you can grow off of? Or is there anything temporary from -- you mentioned inventory, I think, in your prepared remarks to your slides that we should remove from that bridge when we look year-over-year in Rubber, specifically?

So let's be clear, we absolutely, positively expect to grow off that number. I think the conditions are excellent for 2022 pricing. The economy is strong. I think it's going to -- COVID will continue to make progress against it. We still see onshoring of materials, for example, our tire manufacturing in North America. Shipping in terms of importing materials, that's a nightmare today. Even the chip shortage we see today is going to be an upside for 2022.

So I think the raw pricing market is going to be tremendous. We just need to keep in mind that there's going to be a lot of cost drivers as well. So I mean, pricing is going to move, but it has got to move because we're all going to have higher costs associated with operating all our air emissions controls as well as just simply getting a return on capital for them. But 100% we expect to build off of where we are right now.

And that's on an oil price neutral basis.

Our next questions come from the line of Jon Tanwanteng with CJS Securities.

This is Brendan Popson on for Jon. Just wanted to ask real quick on -- are you any closer to a longer term return on capital base pricing model for RCB? And then is the supply/demand dynamic changing heading into next year?

We continue to be in discussions with customers. If you're speaking specifically to the longer term discussions, we have those underway with actually a couple right now. I think the underlying industrial logic remains very strong for that, but we don't have it until we have it done. Overall, though, I think the structural movement of this industry is very positive in that direction. And in, let's say, just higher returns on capital because, as I said before, there's much more localization. So think about Europe, think about North America, and there just isn't a lot of local investment in Carbon Black there and pricing has got to get to the point where it's going to support incremental investment. And so I think that's just a fundamental fact on the ground, that's a positive for this industry.

The second thing I'd say is there was once a time where I think people felt they could buy on price and not worry about reliability so much. But you see now, that's really not the case, right? And when it gets tight, it really goes to those who have made commitments to their suppliers. Those are the people who get product. Spot market, I think is very difficult right now. And I really think that's a positive evolution for this industry as well.

Our next question is come from the line of Mike Leithead with Barclays.

First, just on the demand side. One, I was hoping you could peel back the onion a little bit. I know you cited broad-based demand recovery from the pandemic. But just what end markets you're seeing trends, better or worse, versus your expectations maybe 3 months ago? And second, on the EVs lithium-ion front. If you could just remind us how Orion is approaching that market and the long term potential for growth there?

Okay. Yes, excellent. We saw broad-based improvement across nearly all markets in that time frame. Specific changes and unique niches here and there. So I think some people, I'd say in the MRG space when automotive OEM first started slowing down, we're eager to build inventory to be ready for the rebound. I think some of those people have now sort of slowed down on, let's say, they're rebuild for that. But in many other areas, we're maxed out, and people are quite eager for product. It's strong -- I'd say strong, really across all 3 geographies in terms of that sense.

Now if we're going to go to conductors, right now, our conductors business, I'd say, is about $15 million-$20 million of EBITDA per year. A small portion of that being lithium-ion batteries today. But if we were going to look out, let's say, 5 years, you could see that roughly double for us and of course, at that point, lithium-ion batteries would be a much larger part of it.

Today, in that space, with the way we play is with Acetylene Black. There's other materials. There's lot conductive materials that go into lithium-ion batteries, into the electrodes specifically, things like carbon nanotubes. When you think about it, those materials are really one-dimensional material and -- like wrappings too, were we put in a 3-dimensional additive. And that's got a certain synergistic effect with these other materials. And that's the space where we play now and one that's obviously very much tied to working with other people who were doing some of those other materials and developing the battery technology itself.

And then maybe for my second question, just on the EPA project -- and congrats first on reaching the Evonik settlement. But can you just maybe flesh out why cost estimates are moving higher again? And relatedly, now with the turnkey EPC contract, does that essentially lock in this new figure? Or is there still a risk around further cost movement? Any color there would be helpful.

Sure. So the majority of the cost movement we've had has been effectively getting right, getting the final things addressed at the Ivanhoe site. That's been the majority of the cost movement we saw. We did see some movement going from FEL2 to FEL3 at the other sites. It's the higher, let's say, just general cost environment today than when we've done FEL2. By moving those to EPC, I think we have very significantly derisked them. But I would never say it's 0 risk. And particularly for Belpre, the one that's further out, there is some exposure on that, but that's how we see it.

So going forward, I'd expect to spend about $80 million this year on air emission controls in the U.S., roughly the same amount next year. But then in 2023, only about $20 million. And the part of what we're doing right now is creating the ability to accelerate, particularly in the last project, moving forward. So that's going to mean in 2023, we're going to have tremendously better free cash flow as we get that work behind us.

(Operator Instructions) Our next questions come from the line of Chris Kapsch with Loop Capital Markets.

Corning, you mentioned chip shortage and implying as that gets resolved, there should be some upside to your end market demand trends. And indeed, as we've learned, you have -- although, I guess, Rubber Black is leveraged to replacement tires, you have considerable exposure to the OE automotive end market as well, either direct or indirectly. So from what I've seen, it looks like IHS is pointing to possibly 11% higher passenger car auto builds next year globally. And I'm just wondering if that were to materialize, would you see that as outsized demand in that end market? And what would the implications be for your product mix?

Thanks for the question. We would see that kind of movement. I mean, that's a significant change in the market, and that would be an upside for us that would, in general, be a positive for us in terms of mix. The one challenge in that, though, is that a lot of our premium lines are under allocation right now. That's why we shared a little while ago, we were doing an expansion of our capability around surface treated Gas Blacks. So materials like that, that go into some of, let's say, automotive coatings, things like that, we are working to be able to take more full advantage of that. But depending upon when the wave comes and where we are in capacity, that would be just the potential limitation to what we can get out of that.

And Chris, as you think about modeling 2022, I would point you to for Rubber incremental margins in the low 30s and for Specialty in the mid-40s. And I think that as a rule of thumb would be a good proxy to use as you start thinking about next year.

And if I could just follow-up on the comments you had on capital allocation. You've had some pretty deliberate messaging around the possibility of reestablishing the dividend. And even if we were at a more modest and sustainable level. But just -- so given the restored to healthier balance sheet, bolstered by the Evonik settlement and given -- especially considering the CapEx that will be curtailed starting in 2023. I mean, should investors just be thinking about the reestablishment of a dividend is pretty much a given. It's just not -- it's more a matter of when, not if or we're jumping gun a little bit there.

Well, so I personally feel strongly that it's a good discipline for a company to have a structured way that you're returning cash to shareholders and structured can mean -- it really means in a dividend. I think you can supplement that as well, potentially in a buyback program. So I feel strongly that we'll get there. That's ultimately a full Board decision.

For us, there's several attractive opportunities here, right? There's growth. There's very strong demand. There's exciting opportunities in Specialty and connectivity and some of our core already markets that we're strong in, in terms of Specialty as well as sustainability.

And then there's the dividend and the buybacks. And I think there's going to be the opportunity to satisfy all of those needs. And it's just a matter of striking the right balance and what the right timing is. But I expect to be able to do all of that.

And then just one final one. If you look at sort of the bridges you have by segment on Pages 13 and 15 on your presentation. I'm just curious where the benefit from the co-gen, the higher oil price shows up, does that show up in mix or overhead absorption? Or I mean, I'm assuming on a year-over-year basis, you are seeing some benefits from that?

We are. And that would be in volume on the Rubber side of the business. On the chart that shows contribution margin, you would see it's in that contribution margin there. But yes, you would see it in volumes on that chart.

There are no further questions at this time. I would like to turn the call back over to Mr. Corning Painter for any closing comments.

Thank you all for your time and attention for joining us today. We appreciate your interest in Orion Engineered Carbons and we're working hard to create a profitable and sustainable future for all of us. Thank you.

Thank you for your participation. This does conclude today's teleconference. You may disconnect your lines at this time. Have a great day.