Q2 2020 Ingevity Corp Earnings Call
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At this time of trust can sort of listen only mode.
Do you watch require operator assistance. Please press star zero under telephone Keypad. A question answer session will follow the formal presentation. As a reminder, this conference is being recorded its all my pleasure to trickle over to Jack Mohr, Vice President of Public Affairs and Investor Relations. Please go ahead.
Thank you Kevin Good morning, everyone welcome to Ingevity second quarter 2020, <unk> earnings Conference call.
Earlier. This morning, we posted a presentation onto the investor section of our website.
Having already done so I would encourage you to download this file. So you can follow along on the call you can find it by visiting our dog Ingevity Dot com underwritten bad presentations.
Well just much more logged into our web.
Slide should be visible in the online viewing.
And also available to download.
Our slide number two of that that you'll see our disclaimer that todays earnings call may contain forward looking statements.
Robin factors that could cause actual results may differ materially from these forward looking statements are contained in our earnings release and in our FCC filings, including our form 10-K, and our most recent form 10-Q.
Ingevity undertakes no obligation to publicly released any revision to the projections.
Statements made during this call.
Orchard update them to reflect events or circumstances occurring after the date of this.
Throughout this call we may refer to non-GAAP financial measures, which are intended to supplement substitute for comparable GAAP measures.
Definitions of these non-GAAP financial measures and reconciliations to comparable GAAP financial measures are included in our earnings release and can be found on the Investor Relations section of our website.
Our agenda is on slide number three.
With me today, our rig kelsen chairman of aboard and interim President and CEO.
John Fortson, Executive Vice President and CFO.
Mike Smith, President of performance chemicals, and add Woodcock president of performance materials.
First Rick will comment on the highlights for the quarter and discuss some of the recent cost reduction actions, we've taken in light of the economic impact related to the Corona virus Workover 19.
Mike can add will review the performance of our two segments.
John will discuss our current financial status and our reaffirmed annual guidance.
It will offer some closing thoughts and then we'll open up the call for Q and <unk>.
With that I'll turn the call over to red cells.
Thanks, Jack and good morning, everyone. Thank you for joining us. This morning, we appreciate your interest in Ingevity.
If you turn to slide four you'll note some highlights for the quarter.
Ingevity deliberate second quarter financial results in line with the special onetime guidance, we provided at the end of the first quarter.
And looking forward as John will discuss later, we are reaffirming our fiscal year 2020 guidance.
During the quarter, our team remain focused and implemented a series.
Cost reduction initiatives to bolster second quarter profitability well at the same time continuing to.
You conduct business despite the constraints.
The economic impact and the Corona virus or covert 19.
Overall revenues in the second quarter were 271 million down, 23% when compared to the previous years quarter.
This was slightly better than our second quarter guide.
Similar to most companies, we experienced lower volumes attributable to weaken demand associated with the Corona bars.
The downturn in automotive sales in production in North America in Europe during the quarter significantly reduced our revenues for automotive.
Activated carbon products this was partially offset.
But an upturn in demand for similar products in China.
Reduced demand in industrial specialties applications, such as printing and volatility in the oilfield drilling and production industry also contributed to the revenue decline.
With respect to earnings adjusted EBITDA were 67 million down 38% from the previous years quarter.
This was within the range of our guidance.
We experienced an increase in production costs due to the reduced throughput driven by lower volume.
Over we more than offset this for the series of cost reduction initiatives I will review in just a minute.
Our adjusted EBITDA margin to the company was 24.8%.
For the quarter, we generated solid free cash flow of 34 million.
As I said earlier.
We posted these results by taking a hard line on cost and if you turn to slide five I'd like your <unk> review some of the steps we've taken.
We made some difficult decisions to reduce headcount in the organization.
That said, we thought that quickly and respect people's dignity, well the same time, making sure we retain the town we need for our future.
We implemented in early retirement program for which approximately 61 people were eligible we had 39 acceptances.
We also implemented in involuntary reduction in force of approximately 26 people.
We suspended for one k. and deferred compensation matches and reduce the accrual for annual incentive compensation.
In terms of S U N a.
We've seen reduced travel as you might imagine, but we've also reduced spending on other corporate initiatives. As a result of these actions we will see a benefit this year of $16 million.
And if taken about 9 million out of the annual run rate.
During the quarter our operations in supply chain teams were able to quickly adapt to changes in demand signals from customers in this dynamic market.
Which allowed us to meet demand, while keeping costs down.
If you add this to the benefits of lower.
Plant spending associated with reduced demand.
And this includes curtailed production and temporary furloughs that certain facilities maintenance expenses and energy savings it cost reductions total $35 million and 2020 and will reduce our ongoing cost structure by $12 million.
In summary, we continue to maintain a strong financial position. Most importantly, we were working on controlling what we can control.
And continue to focus on the levers we can cool to enhance our performance in an environment of uncertainty. If you turn to slide six you will see the second quarter results or performance chemicals.
At this point I'll turn the call over to Mike Smith, Mike.
Thanks, Rick.
In performance chemicals sales to all of the end use applications declined due to covert 19 economic impact varying degrees.
We saw comparatively reasonable string even technologies engineered polymers.
Actually offset reduced demand industrial specialties.
Knowledge.
Overall segment sales in the second quarter $186 million down 19% versus the prior year period.
Sales to payment technology applications.
Even with the prior year.
Paving season in North America is progressing largely unaffected by the economic shutdowns.
Projects planned by the majority of state departments transportation are generally proceeding as planned and progressing on schedule.
In addition, realize the sales increased in EMEA, which was partially offset by decreases in India.
Sales for the engineered polymer product line or down somewhat due to reduced industrial demand predominantly for capital Act on monomer, particularly in Europe.
At the same time, we have seen increased demand for thermoplastic bio plastic applications.
We continue to do to move toward high value Derivatized Polyols thermoplastics in this business.
In fact in the quarter Holly all isn't thermoplastics accounted for approximately 80% of engineered polymer revenue.
Margins continue to remain strong.
Given our raw materials petrochemical links to benzene, we are realizing some cost benefits due to lower input costs.
[noise] sales decreased industrial specialties applications and these include printing inks and he's is agricultural chemicals lubricants and others.
We're down about 24%.
Sales in this area were affected by weak demand in industrial markets, especially for printing.
As printed advertising.
Decline due to its grown a virus impacted retail industry.
And for the last quarter revenues were down due to the exit of an unprofitable distributor agreement in the year ago period.
We also continue to experience pressure or tolo rosin prices from supply of alternative materials, particularly low price Chinese government I will discuss in a minute.
Despite oil prices stabilizing the quarter.
Sales to oilfield technology customers were cut sharply in line with reduced drilling in North America.
It's business as you would expect continues to whether through volatility.
Sales performance chemicals products, the oilfield customers were down about 50% versus the prior year.
Performance chemicals segment, EBITDA were $144 million down 26% versus the prior year quarter due to lower volumes.
Price mix impacts production costs and foreign currency exchange, we're fundamentally unchanged.
Selling general and administrative S unit cost reductions.
Helped to improve the segment EBITDA.
I've been EBITDA margin declined 210 basis points to 23.6%.
I mean operations perspective, we did take a six week temporary furlough at our process, Arkansas Pine chemicals facility.
That plant restarted earlier in the week.
Given the dynamics state of markets in which our segment competes I thought we review some pertinent economic conditions on slide seven.
Devotees exposure to oil over last several years decreased significantly.
Our oilfield technology sales will comprise less than 8% the company's total 2020.
And there was only diminimus relevance to other parts of their business.
Nonetheless, it continues to be a topic of interest.
And as you all know the oil industry has been extremely volatile as of late.
Due to the Russia, Saudi Arabia oil price for any reduction in demand due to the prone virus.
We saw prices of oil dropped precipitously.
Since then they have recovered in the $40 per barrel range.
Oh pricing has stabilized recently the remains a significant drop in demand.
In addition.
Worldwide lots of inventory is negatively impacting the whole industry, including North American drilling and production, where we primarily participate.
According to Baker Hughes U.S. rig count is down 67% year to date.
Having said all this we have had some success with new customers in the middle East in China.
He's or initiatives, we began several years ago as part of our strategy to expand our geographic presence.
We are now beginning to develop.
As a partial offset to the reduction in our U.S. sales.
Regarding our Tal rosin business, we closely track, what's happening with gum raws in hydrocarbon resins. Since these are considered substitute materials in many applications.
After a sharp price reduction compared to 2018 levels.
It was part to a shortage of turpentine from European plant outage that brought more Chinese gum supply onto the market.
We have seen year to date of chicken prices, the Chinese government raising approximately 25%.
These prices more recently seem to have plateaued and remain at low levels.
One element likely preventing further recovery of Chinese gum rosin prices is additional competition from Brazilian got rosin.
Assisted by currency devaluation earlier this year Brazilian dumb rod export prices are approximately 30% lower than they were two years ago.
And Astra C five hydrocarbon resins.
<unk> volatility oil prices the prices for these resins has remained somewhat stable.
Year to date hydrocarbon resins.
Prices are flat.
All of these dynamics continue to put pressure on pricing for Tolo Rosin and we expect this will continue until there was a change in supply demand balance.
With that I'll turn the call over to Ed Woodcock to review the results of the segment.
It's Mike turning to performance materials as you can see on slide eight revenues for the segment were down 31%.
Shutdown that automakers in North America in Europe resulted in significantly lower volumes in the quarter.
The decline was partially offset by regarding automotive.
Business in China.
Chinas automotive pellet sales in the second quarter, where the second highest on record.
Reflecting the strong demand rebound and the implementation of the China six standard which is essentially completed.
Overall, we saw significant significant demand late in the quarter, which enabled us to finish the period strongly we believe this bodes well for the rest of year.
Segment, EBITDA were $23 million down 53% versus the prior year period due to the sharp downturn in volumes and the resulting decrease in production throughput.
These were partially offset by decreased plant spending.
Are those at several performance materials manufacturing facilities.
And reductions in SGN a cost.
Segment, EBITDA margin decreased 1200, 40 basis points to 27.6%.
This significant fall reflects the high fixed cost nature of this business.
It's important to note that this fixed versus variable cost ratio benefits us greatly and normal conditions, but by the same token they fall equally hard in a difficult environment.
From an operations perspective, our U.S. carbon plants and honeycomb scrubber plant and Waynesboro are running normally.
Our plants in China are running on reduced shifts in order to reduce some inventory.
We have maintenance outages planned and Wickliffe, Kentucky.
Our plan is you high China in the third quarter.
And we'll be completing the last four kilner placements income exists in the fourth quarter.
But that turning to slide nine I'd like to talk a little bit about current conditions and the global auto industry.
China has had an amazing rapid V shape recovery to their auto market.
The rapid restart can be attributed to a degree.
Production readiness and inventories that were in place prior to the Chinese new year.
Oh vehicle production plants are operating and rates are at least 85% of normal.
And I had year over year light vehicle sales increases in all three months of the quarter.
Jews light vehicle sales, reaching 2.1 million vehicles up 9% versus the prior year.
For the quarter light vehicle sales were 170% of prior.
Production in China has rebounded perfectly in lockstep with the demand.
Looking forward similar to the U.S. is July production shutdowns trying it typically takes August shutdowns.
However, these have been reduced canceled or delayed and will support more production in 2020.
China sales has been fully implemented and we'll continue to see strong year over year revenue growth through the third quarter.
You asked and Canadian April May and June light vehicle sales, respectively, 51%, 70% and 74% of prior year.
Which tally to a quarterly total of 65% versus prior quarter.
North American light vehicle production fell well short the sales totals.
April light vehicle production was a remarkable 10300 vehicles, which was 1% of prior.
Maze production of 235000 vehicles increased to 16% of prior.
And your production of 1.14 million vehicles, I know you reflected a return to production as it reached 80% of prior year.
For the quarter production was 33% of prior year.
Strong end of period finish in Q2 and weak North American production in the same period left ended June U.S. light vehicle inventories down 1.3 million vehicles or 33% below prior years inventory.
June sales leveling off is likely a reflection of the low vehicle inventories.
Oh, yes have greatly reduced cancelled or pushed out their normal July shutdowns to rapidly rebuild dealer inventories in the third quarter.
Well you guys are focusing their production efforts on their most valuable platforms like.
Light duty trucks and as she needs.
He's vehicle typically had the highest content up ingevity these products.
European market was more heavily impacted by the Kogas 19 virus than the U.S. or China.
April May and June light vehicle sales were respectively, 24%, 46% and 80% of prior year.
Which led to a quarterly vehicle sales totaled 51% of prior.
Similar to China, and North America, we do expect the European Oems to add more production into August which is typically the primary holiday month in Europe.
In summary June was a strong month for sales and these three regions in comparison to April and May.
China was at 109% Empire, the U.S. and Canada were at 74% of prior and Europe was 80% prior.
For these three regions in total.
Comprise roughly 70% of the 2019 globally.
Auto demand.
June light vehicle sales were 88% of prior year. We believe this is a positive side heading into the second half.
At this point I'll turn the call over to John Fortson, Our executive Vice President CFO, and treasurer or more detailed review of our financial status John.
Thank you Ed Good morning, everyone I will provide some additional color on our second quarter results review, our capital structure and discuss our reaffirmed annual guidance.
Turning to slide 10, as Rick might that have covered the revenue and EBITDA the company and its segments I will begin at the Ash DNA line on the income statement.
Actually I was down 19% versus previous year, reflecting the initiatives that rig discussed getting a recall.
On a percentage of sales basis. Our total asked DNA is up 70 basis points and our core rest unique excluding amortization of 8 million included an estimate.
<unk> was down 20 basis points as a percentage of sales.
Non interest expense for the quarter was 10 million, which decreased almost 24% year over year.
Provision for income taxes on adjusted earnings was 7 million for the quarter.
Our adjusted tax rate for the quarter was 21.1%.
We continue to expect our fiscal year 2020 estimated cash tax rate to be in the range of 20% to 24%.
<unk> adjusted earnings per share were 63 cents down 54% from a quarter a year ago, we did not repurchased any shares in the quarter approximately $407 million remain available for repurchases our current authorization.
Free cash flow was solid at 34 million down 32% versus the prior years core.
Given the current economic conditions. We believe this is a solid outcome in the second quarter.
Turning to slide 11, you'll see our current capital structure.
Our borrowing rate at the ended the quarter for our revolver was LIBOR plus 150 basis points, and then borrowing rates from our term loans.
Well I won't plus 100, or my more plus 150 basis points off the term loans 166 million has been hedged in euros to be fixed at 1.35%.
Right on our senior notes remains fixed at 4.5%.
And the 80 million dollar industrial revenue bond borrowing rate remains at 7.67%.
The result weighted average interest rate for in Germany was approximately 2.71%.
Net debt as of June 30, US was 1.078 billion.
Net debt ratio was 2.96 times up for you first quarter, which was a 2.7.
Trade working capital from the quarter increased slightly from the previous sequential quarter to 277 million, which is 23% of sales.
In regards to our capital allocation given recent events and the impact of the current of ours to our business. Our priorities have shifted somewhat we're focused on returning to our long term target of net leverage between June June at times, the same time, if and when the market stabilizes be opportunistic share repurchases, which we did in the first quarter wouldn't.
Full scope in the current a virus impacts were now.
Well, we continue to examine M&A opportunities, we are weighing knees and the life of the above prefer uses of capital.
Additional information will be available on our form 10-Q, which we expect to far later today.
On slide 12, you'll see our reaffirmed guidance for the year.
Our guidance stands at sales between 1.1 billion and 1.2 billion and adjusted EBITDA between 310 million and 350 million.
We will continue to control our capital expenditures currently plan to spend about 85 million almost all of that or maintenance as such we expect free cash flow for the year to be between 130 in 170 million.
What gives us confidence in this guidance and we should give our investors. Some confidence is our most recent performance in the second quarter.
At the end of the first quarter given the level of uncertainty around the krona virus impacts we provided special one time information are coming quarter and advise in second quarter 2020 revenue will be down 25 is very precise adjusted EBITDA will be down 35% to 40% versus the second quarter 2019.
Rick stated we exceeded our guidance revenues are right down the middle of the fairway for our guidance for adjusted EBITDA.
Those of you as those of you follow us recall at the end of the first quarter, we provided three potential scenarios for the year, which serves as the bookends for annual guidance.
And these scenarios correlated to win auto demand globally return to a 75% to 85% level.
The fourth quarter mid third quarter early third quarter.
As we stand today and based on what we're seeing currently on the auto industry. We're really your strongly in the middle range scenario.
Our June performance gives us optimism, who will take time to see exactly how the rest of the year plays out.
However, this gives us confidence annual guidance we're fine.
With that please turn to slide 12, and I'll now turn the call back over to correct.
Thanks, John.
These are most certainly very unprecedented times from a business standpoint.
That said, we're generally pleased with our performance all things considered.
More importantly, given our track record on guidance and meeting guidance as John said, we continue to have cautious optimism and confidence in our guidance for the full year.
Longer term, we believe we're well positioned for value creation.
As the market, leading global specialty chemicals company, we continue to leverage our technical expertise to the benefit of customers.
Combined with the strong balance sheet and experienced management team, we believe that the soundness of our strategy in our sharp execution warrants continued investment in Ingevity in the long term.
In closing I appreciate the work in efforts of our 1800 50 employees worldwide. There are distinct competitive advantage for US. We continue to believe very strongly in the long term potential of our company. We hope you share our enthusiasm for Ingevity.
At this point, we'll open the call up for questions.
Thank you without became does to your question answer session, if you'd like to be placing the question Q. Please press star 100 telephone keypad, a confirmation tone with indicate your line is in the question Q.
A press star too if you like to remove your question from the Q.
For participants using speaker equipment, they may be necessary to pick up your handset before pressing star one.
One moment, please what we pull for questions.
Our first question today its way from Jim Sheehan from Suntrust. Your line is not alive.
Thank you good morning.
Could you comment on performance materials EBITDA, what was that for the month of June or what was the run rate exiting the quarter.
Yeah, I think the Jim we exited kind about our normal margins and so it gives us again strength. So looking at the back half relative to volume getting back into our plants.
Thanks, and not engineered polymers are really stronger results and I was expecting there.
You talked a little bit about some of the drivers, but could you provide more color on not a wired the end markets doing so well some of the bio plastics et cetera, and what's your outlook for continued.
Tailwinds from a lower benzene costs going forward.
Yeah sure Genesis bike.
Well as I mentioned, a we did have some pretty significant growth in the bio plastics market, which is an area that we've really been working on developing with our customers. So so that's positive we're having to face a lot of both industrial headwind. So so that's a that's tough and.
We also have a pretty significant presence in footwear and a lot of footwear being sold as of late.
With the advancements were making with new applications with with customers and how they're introducing products.
Engineered polymers.
Business line is progressing pretty well and especially the growth in bio plastics for our thermal processing product line.
Terrific and.
Could you provide any update on your intellectual property lawsuits or has there been any developments R&D honeycomb scrubber patent lawsuits.
Yeah, Jim is that no changes since the Webinars and we're still scheduled trial would be a assets in September but as we kind of discussed we expect that to be delayed because of the cobot 19.
Issues.
Thank you very much.
Thank you. My next question today is coming from is if you know from Oppenheimer. Your line is that a lot.
Great. Thank you very much.
Let me pay them really held in there maybe give us a sense of what your visibility is there.
As far as the continued strengths.
And then also kind of your view as you know once projects that were already in the works I'm once they roll off you know, what's the appetite to resume new projects well, we had an air pocket or do you think will just kind of seamlessly see it rolled over into new projects on thanks.
Yeah sure he and you know as Nick mentioned, you know to date, a we're seeing our paving business a hold up or you know really relatively strongly.
And projects for the third quarter seem to be very much on track I think that's in terms of the funding levels that are especially gets related to the states and their budgets for gasoline.
I think for for this year, we're going to continue to be in pretty good shape I think it really becomes a matter of what sort of happens as we go into next year and and we really you know I didn't would be hard to have a lot of visibility on that theres a lot of talk about.
Significant infrastructure investments, which would clearly be a very nice tailwinds. The a lot of communities in states certainly want to continue with infrastructure and paving and a and we hope that remains going forward.
Okay. Thank you and John you said that.
You would look for M&A that that's correct what does the words.
No I think it we're you know look.
We're focused on that reduction right now or you can never really in stop right, because you're always control when different assets.
The market, but just sort of give them a broader.
Macro drop or uncertainty and financing capabilities et cetera, it's not at the top markwest right now.
Okay, great. Thank you very much.
Thank you next question today is coming from John Mcnulty for being no capital markets somebody was alive.
Hey, Good morning, guys. This is colton bean on for John.
Like home so I guess on the first question I had is I believe the Q3 products that you fell into the North American market in performance materials are a little bit higher margin on than some of the tier two products. So I was just wondering on with North American auto production down almost 70% into Q4 and.
That kind of going into just down low single digits in Threeq and Fourq you I was wondering how much that margin mix impacted margins in Twoq you at how that'll progress going forward.
Yeah.
Golden I I'd say, you know our bigger issue was around or production facilities.
You know, we basically decided to take all the pain in Q2 relative to operating our facilities and these facilities reactivation facility is you can't turn them down its binary they're either on or off.
And for our acclamation facilities, so that'd be the coming from facility. The Wickliffe facility in U.S. and this you high facility in China, those facilities were down for over half of the quarter.
But this has set us up to run our facilities U.S. facilities through the back half of the year.
Except for the normal outages that I mentioned.
For the killing replacement and maintenance outage at Wickliffe as well.
Yeah I think.
You know the pain that we took in Q2 sets us up for a back half, where we should get back to our normal margins and you know we think the demand and production will continue.
To increase as they continue to feel inventories on dealer lots.
Okay. Thanks, that's helpful and I'm just wondering one quick follow up I see I'm performance materials side does that price was a positive contributor to segment EBITDA and I know in past downturns you guys have been pretty successful in pushing your prices is that kind of what's happening right now or is there.
Something else going on that number.
No. It's still the case you know we annually and look at our product pricing and we try to capture the value that it creates we put up a significant amount of price in.
Non China in this quarter, we did at a price increase in China.
So that that was showing up some for the quarter, but you know again I think consistent cumulative year over year price increases that you're seeing adequate for the quarter.
Okay. Thank you I really appreciate it.
Thank you and next question today is coming from Jon Tanwanteng with CJS Securities. Your line is not a lot.
Yes, hi, good morning, it's Pete Lucas for John.
You guys have covered most everything I guess just one general question for me in terms of your outlook, how does that change if a second U.S. stimulus bill is or isn't path.
Well, obviously a.
Stimulus bill to the extent it helps consumer sentiment, particularly on the auto side would just give us more confidence to be probably more towards the higher end of the.
So we've got an but right now we sort of stand behind we think auto sales are in that 70, 585% range by the end of year. It's just a question about how quickly they get there and does it stay sustained.
Perfect and I think that other questions were answered so thank you.
Thank you. My next question please coming from parents US misspoke for Gerber Your line is alive.
Thank you good morning, so in performance materials in China as we go into Q3, there's really no incremental adoption there right due to kind of six in other words, China was essentially 100% for the entire Q2.
Yeah, Eric Josh This is that correct.
Got it and then a cookie on engineered a in engineered polymers have you fully absorb that accounting benefit that you've talked about before that $7 million at the benefit I guess I'm just that you have to be reflected in numbers.
Huh.
I think that Ive, primarily all been are accounted for and yes.
Got it and lastly, just going through your industrial specialty business, how likely do you think that it bought them Im second quarters given that.
Some of the substitute prices have improved and you realize them or.
See down my guess would it be lag.
Just a general implementing industrial activity in Q3 versus Q2, so we should be good for your volumes and any comments on that would be great.
Yeah I.
Certainly like to get I believe the second quarter is a is around to the bottom you know that said as we see here.
Early in the third quarter I wouldn't be able to say that you know, we're seeing a real uptick compared to where we were in the second quarter. It feels like we're kind of bumping around bumping along a pretty low level in the industrial specialty market and and we'll just a need Uh huh.
Or broader industrial demand to pick up.
In order to get that turnaround.
Understood. That's fair Thanks, guys, that's all I had.
Thank you paradoxically.
Thank you as a reminder, that star one three placing the question Q. Our next question today is coming from Daniel Rizzo from Jefferies. Your line is alive.
Hey, guys. Thanks for taking my questions I'll just a couple of you mentioned that at this point well well services is only about 8% of total sales is that a business you could or would consider just.
Exiting or just completely de emphasizing given how small is now and I don't see outlook for for oil domestically I know you have some some wins in the middle East Coast when you book processes there.
Yeah, I think that you have to think about <unk>.
Sort of contribution that oilfield business makes to the overall refinery balance the.
Oil business is based on Tofa or tofa derivatives, and so having a an important outlet like the oilfield market and to be able to.
Makes specialty derivatives for the oilfield market I think is one that really sort of meshes well with our sort of refinery system in general so it. So at this point I wouldn't see that we would be exiting the oilfield business in that regard.
[laughter] just my second question you mentioned some maintenance outages in in a in China in Kentucky, and then I can only placement I was wondering if that was just like a pull forward where those expected for next year. You just did it early and that now you're good for five years or just how did you just do some turnarounds fast or quicker than then were expected or it's just I just wondered also just color.
The football Center.
Yes, Dan we did when we're taking downtime we took care of a number of maintenance outages issues.
The Kilmer placement in Covington is a bomb shut down for us.
We couldn't pull that forward just because the magnitude of contractors and what has to happen to pull out of killed and replace it with a new one.
So that's.
Excuse me.
How long is the kill mess and most replaced.
Yeah. These 20 your assets and so if you think back to the mid Ninety's. When we put RV are in place all those kilns were added so they basically we've gone through over the last five years working through replacing those calton. This will be the last one forced.
Outage timing is about 30 days.
And the cost.
Two two to three.
Okay. Thank you very much.
[laughter].
Thank you. My next question today is coming from Chris Kapsch from loop capital markets. Your line is allied.
Yeah. Good morning, just a question on the performance chemicals segment. The EBITDA margin 23 six was.
Although down pretty reasonable considering that the magnitude of the sales decline and considering that probably had some adverse mix at least from maybe the oilfield business being down. So I'm. Just curious if you if some of the story there is you're getting benefit from lower CTO costs or.
The other thing that might have dragged I guess late in the quarter was the you know the under absorption having shut down the crossett facility for maybe a couple of weeks in the quarter. So just wondering yeah, you know what what's buttressing the eat the EBITDA margin and how does that play out sort of going into the third quarter, especially with crossing.
Having been shut for it looks like most of July.
Yes, Thank you, Chris and Yeah, we're pleased that even under challenging conditions of EBITDA margins in chemicals are holding up pretty well on to answer your first point CTO did not have any impact on on those margins they've been reasonably steady.
Versus last year or the benefits that we were having you know is our continued focus strategically on on really pushing the higher derivatized higher value products. So you know do you think about in the second quarter as we would expect that continue to happen in the third quarter, we've got strong payment technology business and that.
Business is holding up well and that is a very high margin business and one that you don't get the team is continually working on increasing its innovation.
And you know trying to do whatever we can especially pushing ego thurber any new products that we have it I mean at higher margin and the other part is you know that the cap business. The margin. The cap of business is is a certainly higher than the average for performance chemicals and Chris relatively speaking that's all.
So holding up pretty well so I think that's a kind of puts us in a pretty sustainable position.
As we head into the third quarter.
Okay, and then that does that the will that be.
The shutdown I guess of cross it for most of July will that have an adverse impact on on margins on sequential basis, and I assume since the seasonality of the pay.
There is seasonality with the payment business and then.
The there's outsize benefit presumably in the second and third quarter that the right way to think about that thank you.
Yeah, Yeah, Chris So in terms of the cross it for low.
You know it will certainly from that plant site, you know the lower absorption has a negative impact, but the fact that we took the cost reduction activity by Furloughing employees. There for six weeks helped offset that's a negative absorption and then we also do is make sure that were really optimizing our three plant network.
So to the effect that we are bringing the cross it site down we can move sales of other products to support other customers Giteau, the Charleston, and Ritter facility in a way that optimizes, our business and allowed us the opportunity to remove costs through the six week for though.
At cross it.
And in terms of the other point, Yeah, I think that as you mentioned that you recognized the second and third quarter are the the strong quarters for the paving business and a third quarter prepayment is off to a good start and so we.
Feel that that should continue pretty well.
Thank you.
Thank you we reach of our question answer session I like to turn the call back over to Jack pretty further closing comments.
Thank you Kevin So thank you everyone for your time and interest. This morning, we remain very positive about our long term business outlook and look forward to talking with you again next quarter. Thank you.
Thank you it doesn't consider telecom assuming it was talking about for line at this time and have a wonderful day. We thank you for your participation today.