Q2 2020 Orion Engineered Carbons SA Earnings Call
Good morning, ladies and gentlemen, thank you ever standing by welcome to the Orion engineered carbons second quarter 2020 earnings conference call. At this time, all participants Sarnia listen only mode question answer session will follow the whole presentation.
Sure you require operator assistance during the conference. Please press star zero to say going operator. Please note. This conference is being recorded.
I'll now turn the conference over to your host Wendy Wilson head of Investor Relations and corporate communications.
You may begin.
Thank you operator, good morning, everyone and welcome to Orion engineered Carbons conference call to discuss our second quarter 2020 financial result.
I'm Wendy Wilson.
<unk> Investor Relations and corporate communication.
With us today, our Corning painter, Chief Executive Officer, and Lorin Crenshaw Huh.
Financial Officer.
We issued our earnings press release after the market close yesterday, and I posted a slide presentation to the Investor relations portion of our website.
He 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 our forward looking statements.
These statements are subject to the risks and uncertainties as described in the company's filings with the FCC.
Actual results may differ materially from those described during this call.
In addition, all forward looking statements are made as of today August huh.
And the company does not undertake to update any forward looking statements based on new circumstances or revised expectations.
Oh, so 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 and good morning, everyone and welcome to our second quarter earnings Conference call I.
We don't want to look at this moment pass without thanking our people for their dedication and flexibility during turbulent times, they've worked diligently and with greater agility to ensure that both safety and production priorities word Matt. Thank you.
I'd also like to congratulate the people who upgraded the air emission controls at our Orange, Texas plant.
This project was executed on time, despite the pandemic and associated physical distancing requirements necessary to work safely.
The impact of this project is a reduction in the sites and I'll watch emissions by 2300 metric tons per year.
Dedication of our people and the magnitude of this investment demonstrate our commitment to sustainability and to being a good community citizen.
On today's call Loren and I will cover the second quarter results as olin's, but also devote time to two additional topics our operational response to covert 19, so far.
And select leading indicators of recovery in our business.
As always we'll be happy to take your questions about the conclusion of our comments.
Turning to slide three.
Second quarter demand for carbon black was dramatically impacted by the pandemic throughout the crisis, we focused on protecting orion's employees and production capability, ensuring supply chain stability, enhancing our financial standing and supporting our customers needs as they ramp up their production each.
Since April we saw rubber carbon black demand improves sequentially across all geographies. This trend continued into July.
We believe our rubber carbon black business will continue to be one of the first economic sectors to respond to improvements in the broader situation.
From a financial perspective, we reported adjusted EBITDA of $15.2 million and generated $85.7 billion, an operating cash flow, despite orion's lowest volume quarter on record.
Reflecting a 77.3 billion dollar working capital reduction and $10 million in fixed cost reductions year over year.
We also continue to take proactive steps to enhance liquidity by drawing the entirety of our uncommitted lines of credit and installing and story lines that increase our liquidity accessible at any EBITDA level by $36 million.
Turning to slide four I'd like to provide an overview of the steps we've taken.
Manage our business in the face of the pandemic.
Starting with people the most important topic is protecting our people we continue to distribute personal protective equipment, such as masks segregate work teams implement daily temperature checks maintained strict cleaning protocols and in South Africa, we initiated a private shuttle service so our employee.
He's would not need to use crowded transport systems.
We also continued all returned to office protocols for office space personnel, depending on geography.
Continue to follow governmental and World Health organization guidelines and modulator, bringing employees back into offices as the virus wanes in geographies, where it is not fully contain.
Moving to production.
First plants can operate without people, so keeping them say and maintaining confidence that we care is important.
During the recovery phase managing demand surge is critical we're continuously adjusting our production plans and she'd be O procurement to support our customers in this very dynamic demand landscape.
Notably at several plants in the U.S. when production rates were quite low in the early months or the corridor, we worked collaboratively with union leaders and workers to achieve great flexibility in terms of roles and responsibilities across the labor pool. This allowed us to use this downtime to advanced projects.
Enhancing the safety and reliability of our plants.
Such efforts also temporary lower fixed costs as labor was capitalized.
Despite these efforts we have had to implement temporary layoffs and part time work arrangements.
Moving to customers, we're staying very close to our customers to keep them supplied in the face of what can be very large swings in demand and deviations from forecasts as I alluded to earlier.
From a financial perspective during the quarter, we initiated actions to reduce expenses and 2020 by $10 million to $15 million a combination of strategies will drive these savings some of which will result in temporary savings such a salary freezes lower discretionary spending temporary layoffs.
And lower incentive compensation, while others will result in permanent savings such as select head count reductions.
Roughly $3 million. These savings are expected to result in permanent reductions to our cost space.
From a liquidity perspective, we took two actions during the quarter that further solidified our financial standing burst in April we drew $40 million the entirety of borrowings available under our uncommitted lines solely to eliminate any funding risk under those lives.
Secondly in June we added two new and storing lines that together bolster liquidity available at any leverage ratio by $36 million.
Finally, we continue to take efforts aimed at lowering safety stock levels and have continued to step up credit monitoring of customers to protect our balance sheet, while holding the line long term.
<unk> supply chain perspective, we continue to believe that we have adequate access raw material supplies at all our plans for the foreseeable future.
Friction we experienced during the quarter was primarily around uncertainty in demand an order patterns and continued reliability issues in the logistics sector, which we were able to manage through agile production scheduling and adapting inventory strategies. Nevertheless, we are tightly monitoring our supply chain.
Particularly for consumables and international shipping ability and have qualified alternative suppliers as needed.
Communities in the as cheap as I mentioned earlier, we successfully completed our air emission control project at our Orange, Texas plant, despite the requisite physical distancing protocols.
Additionally, we continue to support the communities surrounding our sites by donating P. P cleaning equipment to those elements from lives for example in South Africa. The team donated hundreds of blankets and thousands of mass to the cope with 19 isolation facility located at the Nelson Mandela based stadium.
In Port Elizabeth.
Now turning to slide five.
I'd like to shed light on what we're seeing and share a few thoughts on the current pace and shape of the recovery.
This slide shows the demand pattern around the world as of July.
As you can see on a year over year basis, our rubber carbon black business has recovered sharply since April.
Specialty carbon black as we predicted deteriorate didn't may before improving sequentially in June and July.
As a reminder back in April rubber volumes were down year over year in the high Sixtys percentage range in the Americas, and email and 30% in a pack.
In April specialty volumes were down year over year in a range of 38% to 8% depending upon the geography with the Americas and it may as regions lagging and the APEC region, clearly holding up much better.
As of July specialty volumes had recovered somewhat but now lag rubber.
Clearly volume showed strong resilience in July I would just caution that we've benefited from some restocking.
Some timing driven purchasing and some reliability base volumes in the month, it's quite possible, but this might be the strongest month in the quarter considering the continued spread of cobot 19 in many of our markets.
Slide six provides a breakdown of the complexion of our business by end market and our view of how select markets will emerge as the economy rebounds.
Still quite early but the dynamics are playing out largely as predicted on this slide.
From a replacement tire perspective, which makes up roughly 60% of our rubber business, we've seen a relatively sharp bounce off the April bottle.
Levels are still below 29 team, but demand has significantly picked up these to be the doldrums of March.
Mobility and congestion or good coincident gauges of miles driven and therefore, the health of this business.
Based on apples mobility data. These measures were much stronger than April across all geographies. Although recently, there's been some leveling off in the U.S.
Shifting gears from the replacement side of the rubber business to the original equipment side, which makes up 40% of rubber volumes and 15% of our specialty volumes. This business will ultimately track global sales of new trucks and light vehicles.
This market has also picked up from April according to IMS Hs, whereas in April Global light vehicle production was down 61% as of June production was down 26%.
While we're encouraged by the improvement we expect this business to lag the replacement market and be more tethered to the key indicators of a classic downturn in the business cycle, such as unemployment levels discretionary consumer spending and consumer confidence.
A common question in recent months has been what's likely to change long term for the carbon black business as a result of this crisis.
I don't think theres going to be a change miles driven automobile servicing and motor vehicle production. The drivers of the rubber carbon black business are likely to continue supporting the 3% growth. This sector has reliably deliver over many years. Meanwhile, people are likely to continue feeling most comfort.
A couple writing in their cars not on planes or public transportation for some time to calm.
Within the 85% of our specialty business does not go into automotive at this stage the trends were observing across a broad range of diverse end markets. We serve are proving to be more cyclical and secular in nature and specialty is well positioned to recover as a broader economy rebounds.
On slide seven now turning to our second quarter results in greater detail as you can see on slide seven against the backdrop of the lowest volume in Orion's history, even compared with 20 own on adjusted EBITDA declined by approximately $56 million, reflecting that.
Broad based rubber and specialty volume declines price in the rubber segment, particularly in the U.S. and specialty mix were favorable during the quarter.
And now I'll turn the call over to lower.
Thank you very much Corning now turning to slide eight.
Items were down 42% year over year, and 33% sequentially with lower demand in both segments and in all regions, notably.
Absolutely volume level, we experience with roughly 15% to 20% worse than the worst quarter of 2008, the last major economic downturn.
Against this backdrop adjusted EBITDA was $15.2 million basic EPS came in at negative 30 cents per share and adjusted EPS was negative 14 cents per share.
Contribution margin declined 48.2% year over year, primarily driven by lower volume, partly offset by base price increases in rubber.
Escorting indicated cash flow with a highlight for the quarter, despite facing a tough environment with an exceptional 77.3 million dollar working capital reduction in line with the levels that we expressed on the first quarter call driving operating cash flow of $85.7 million and free cash flow a fit.
The $3 billion as defined as adjusted EBITDA minus Capex minus the change in working capital.
Slide nine explains the drivers behind contribution margin adjusted EBITDA and net income in greater detail.
Starting at the upper left hand side contribution margin declined 48% year over year as lower volume and the impact of lower oil prices on margin offset base price improvement in both segments and favorable mix and specialty.
During the last call we shared the decremental margins in the range of 30% to 35% for rubber and in the mid Fortys for specialty.
Were good forecasting proxies during the current downturn and this proved to be the case, excluding the contribution to lower revenue related to FX and simply passing through lower feedstock costs.
Adjusted EBITDA fell 79% year over year to $15.2 million, reflecting the steep drop in contribution margin, notably cost reductions of around 10 million cushioned the impact somewhat of which roughly two thirds, we're manufacturing related showing up in cost of goods sold and one third.
We're SNA related.
The manufacturing cost reductions were primarily driven by lower bonus accruals higher than usual capitalization of labor as direct personnel had time to advance select critical safety and reliability projects and temporarily lower maintenance repair and overhaul costs.
The decline in essence name was primarily driven by lower bonus accrual and discretionary expenses such as travel.
Overall for modeling purposes, given the timing of the way expense reductions will impact the PML the balance of the year. The second half that's in a run rate should roughly matched the first half run rate with distribution costs, driving that number higher or lower depending upon volume levels.
Finally, we recorded a net loss for the quarter, primarily driven by lower adjusted EBITDA, reflecting the broader economic dynamics that we have described in detail.
Partially offset by lower taxes.
On Slide 10, you see our year to date sources and uses of cash. The main message is that despite the extraordinary volume decline. We've experience we generated positive cash flow for the quarter and cash from operations has funded all but $11 million of our cash needs year to date with working capital.
Providing a countercyclical buffer as expected.
I would add that the reduction in net working capital related to lower inventory was not entirely attributable to lower oil prices I want to dilute our supply chain leaders plant managers and planners around the world who worked diligently despite very low volume to drive inventory down sequentially, even excluding the impact from rule.
As a result of the working capital reduction over 80% of our year to date borrowings have proven to be strategic as expected with 79 million of the $95 million of year to date borrowings serving to simply bolster our overall cash position, reflecting a significant revolver draw during the first call.
Peter and uncommitted credit line draws during the second quarter.
Slide 11 summarizes our leverage and liquidity profile at quarter end.
Net leverage was around three times up from two and a half time that the ended the first quarter.
Liquidity available at any leverage level was $333 million up 86 million sequentially from 247 million last quarter, primarily driven by cash from operations and the conversion of another $45 million of revolver capacity to ancillary capacity.
We expect leveraged to rise for the rest of the year. However, as a reminder are one financial covenant a net leverage test the five and a half times gives us bringing covenant, it's only in play when revolver borrowings exceed 35% of our 250 million euro revolver commitment level.
Since Dec drawn on ancillary lines does not count towards this 35% trigger and we have now converted two thirds of our revolver to ancillary lines.
Our leverage could actually exceed five and a half time and the covenant steel not be in play.
As a result of our success at converting a significant portion of our revolver to ancillary capacity. We can now borrow 100% of the 250 million euro commitment.
Under our revolver at any adjusted EBITDA level, without our financial covenant being and clay.
The chart at the bottom of the table shows what our liquidity stack would look like on a pro forma basis, where we to access the full amount.
Overall as we plan for a wide range of scenarios for how the economic outlook may transpire over the coming quarters and you're the strong state of our liquidity and the absence of any debt maturities until 2024 gives us great confidence in our ability to successfully navigate through this downturn.
Moving to slide 12, specialty volumes fell 29% year over year and 15% sequentially for the reasons detailed earlier.
Geographically volumes were down in all regions and across each of our core end markets.
From a profitability perspective gross profit per tonne declined 23% almost entirely due to sharply lower volume.
Partially offset by mix with decremental margins inline with expectations around the mid fortys, excluding the contribution to lower revenue related to FX and simply passing through lower feedstock costs.
The next slide breaks out the major year over year drivers of adjusted EBITDA, which were lower volume, partially offset by positive price and mix.
Turning to slide 14.
Robert volumes were down 46.4% year over year, and 39.2% sequentially for reasons detailed earlier.
Geographically volumes were down in all regions and across each of our core end markets.
From a profitability perspective gross profit per tonne declined 69%, primarily due to sharply lower volume, but also due to unfavorable inventory valuation adjustments, partially offset by price and lower fixed cost with decremental margins inline with expectations in that 30 to 30.
5% range, excluding the contribution to lower revenue related to FX and simply passing through lower feedstock costs.
Slide 16 shows the development of adjusted EBITDA with sharply lower volumes. The primary driver of the decline as previously discussed with that I will turn the call back over to Corning.
Thanks Laurie.
Moving to slide 16, as you know in March we lived through our 2020 guidance over we continue to provide insights and sensitivities on the drivers that we believe will be helpful to investors and developing financial scenarios for the balance of the year.
We are happy to answer any questions regarding these assumptions detailed on this slide.
At this point I'd like to share an update on our Capex outlook.
We're returning our 2020 capital forecast to the 140 to 145 million dollar range.
Last quarter, we lowered our projected capex spend for the year by about $15 million anticipating that physical distance in mandates would require us to slow work on complex projects, requiring heavy staffing, which it did.
However, there are several smaller safety reliability and productivity related projects that we were able to advance safely often taking advantage of demand related downtime. These projects will strengthen our asset base and position us to emerge stronger from this downturn.
During our last call, we estimated that the cost of the U.S. air quality investments would be $250 million plus or minus 8%.
That time I indicated that we were proceeding towards a stage two front end loading or FCL to quality design estimate for the final two plants and that upon completion. It would represent the most robust cost estimate we have had to date.
[noise] Justice background.
And FPL is a body of work conducted early in a project when it's easier and more cost effective to make design changes [noise] doing this work does add cost, but assess the project up for ultimate success.
Front end loading activities fall into three stages FPL, one two and three.
FPL two is developed up to a predefined level of detail not yet sufficient for construction and operation, but enough to develop a cost estimate schedule estimate and to make any critical decisions that will influence the final design of the project.
For example, budgetary estimates are secured from the key equipment vendors in our case. We're also have the insights based on our first two plants.
A preliminary version of the FCL to report was recently completed and it confirms the cost range that we previously shared.
Taking the $250 million midpoint, we expect around $115 million or 45% will have been spent between 2018 and the end of this year with the remaining $135 million spread between 2021 and 2023.
We're pleased to be on track to be almost halfway done by these years and.
And to have the most robust estimate today of our ultimate costs.
[noise] goal now press forward within FPL three level estimates for the third plant and we'll update you on the likely timing of its completion in future quarters. This estimating process sharpens, our focus on the importance of continuing to drive pricing to reinvestment level returns such that we achieve adequate return.
And on invested capital.
Turning to slide 17 in closing I would like to highlight a few takeaways from this quarter first I am pleased that we generated positive cash flow, despite such an extraordinarily difficult economic environment and secured additional liquidity in the throws of the worst quarter volume wise in our company's history. The.
These achievements reflects well on the resilience of our business and the confidence of our financial partners in the same.
Second demand in the rubber segment is recovering already as manufacturers and ramp up their production.
How the pandemic will play out from here and what public health measures will be taken we cannot say however, we're confident that this business will continue to be one of the first to rebound and is resilient.
Third I want to highlight that our specialty business delivered solid profitability mid teens margins in these extraordinary times, while demand will reflect the broader economy, what we just experience demonstrates the quality and the strength of back franchise.
We are managing the company for long term success and increase shareholder value and I truly believe that we will emerge from this challenging period stronger we think the underlying demand for carbon black and therefore earnings power remains unchanged our balance sheet and liquidity position is strong the recent.
FPL to estimate provides the greatest clarity we've ever had on the EPA investments and though the global economy may well be in for a long tough period, both of our businesses enjoy substantial earnings leverage to the eventual recovery.
Operator, please now open up the lines for questions.
Thank you.
This time, we will be conducting a question answer session.
We'd like to ask your question. Please press star one on your telephone keypad.
Information tone will indicate your line is in the question Q.
If at any time, you wish to remove your question from the Q. Please press star to participants using speaker equipment, and maybe necessary to pick up your headset before pressing the star keys, one moment, please only poll for questions.
Our first question.
Josh Spector with yes.
Yes, Hey, guys. Good morning, Thanks for taking my question.
Just on the comments on July trends and potential restocking being a factor in North America in Europe is there any way for us they got to feel for how much that could be impacting trends near term either by looking at maybe June versus July trends or if youve any feel on maybe replacement tire market takeaway trends from retail outlets anything.
Might help us frame that.
Unfortunately, we don't have the ability to be very precise on that and in fact, when we talk to our customers. I think people are very transparent and trying to help each other work through it I would say they see pretty volatile conditions themselves. So just as a I would say.
Just as a general caution that statement versus that we have a lot of insight to exactly what's happening from a restocking point of view.
Can you share where volumes were down in June versus July.
I'll say this the July was a significant increase from shoot I think beyond that is commercially sensitive.
Okay.
And then just on pricing and specialty carbons I mean, I think pricing was only down a few percent, which is kind of surprisingly small given the move in energy and feedstock prices just trying to think about how you expect that to unfold maybe over the next.
Couple of months, but do you expect any further pricing declines is that a lag or do you expect the whole pricing better now than perhaps you did in prior cycles.
So and you're speaking specifically around specialty yeah.
Yes, specifically on specialty.
Okay. So if you if you were going to look at our slide when we break out the major factor all out the EBITDA walk you show or actually a positive there that's more on mix I think that all in all given my goodness all the changes in demand and the disruptions in the market.
Specialty pricing has proven to be really quite resilient going through this and.
And I expect that to continue to hold up.
Okay. Thank you.
Once again to ask a question. Please press star one of your telephone keypad. Our next question is from John Tom One time with CJS Securities.
Good morning, gentlemen, thank you for taking my questions and a very nice quarter all things considered.
Thank you John.
My first question as you know just on the working capital drawdown in the quarter and the than a tailwind from energy prices are you expecting to keep that for the foreseeable future if you're expecting some sort of reversal and to what extend where we see that in the next quarter or too.
Yeah.
Our balance sheet Reprices on about a 60 to 90 day basis, I'd say 60 to 90, because our inventory turn pretty slow in the second quarter and.
As we look forward it all depends on your view on oil prices, if they hang out here and say the mid Fortys, then we'd actually expect to invest in working capital in the third quarter, because our expectation is that volumes will be stronger in the third quarter and so it all depends on where oil prices go but on a oil.
Priced neutral basis, we'd expect to invest in working capital because we expect volumes to be stronger.
Got it that makes sense and then learn how should we think of incremental margins heading into a recovery out of the trough you know given that you are learning and all these ongoing cost and efficiency efforts.
Yeah, I think that the proxy we shared that 30% to 35% on rubber in mid Fortys on specialties works on the downside and it works on the upside I would caution you on the quarter, we were thrilled to see the fixed cost reduction, but some of those cost reductions related to say.
Reversing bonus accruals and capitalizing labor.
No time, those will not persist and so we beat expectations I think on the decremental margins, but I would encourage you to stick with that.
30% to 35% and mid forties and that will serve us well on the upside.
Okay got it and then just a little more color on the commentary regarding July.
Lastly, being the strongest month from Corning got can you get into little bit more detail regarding what insights drove that commentary either you know what you're seeing a customer inventory levels.
It's whether it's some kind of sell through data or you know maybe expectations of less or more seasonal downtime at your clients what have you.
Right. So one thing is just as we look forward for how we see our order books, I'd say, we see stability or rather than increasing volumes. So I think just are kind of read of.
Actual movements on the ground, we'll just say certainly the pace of the recovery I think may cause I think also you can look it's supplemental unemployment insurance in the U.S. now being cut back you can look at the spread of Cove and 19 in many geographies and just realize that.
Those are things that are going to be a headwind for the global economy, and we're going to be a part of that so it's more statements around macro things then any specific insight around inventory levels.
Around specific customers, that's our read of what's happening versus.
Really high quality information being share.
Got it that makes sense. Thank you very much.
Once again to ask a question. Please press star one our next question is from Mike Light had with Barclays.
Yeah.
Mike.
Okay. So Larry.
Oh, sorry, my definitely hearing now the shopping.
Two questions on Capex the increase on the this year's Capex were those projects pulled forward from 21 or just additional maintenance that you were doing.
Add downtime and second the EPA project, but 135 remaining how should we think about that phasing.
Roughly as me as we think through the next couple of years.
Okay. So I'd say it was a mix of some projects that were slated for next year also a mix of some projects that.
We knew we needed to do it will require a total site outage and the we hadn't really scheduled in a time when we're going to do that so we took advantage of the outages that we had to pull those forward as wells have allowed us to work with our our teams and our unions to come fall in this kind of a win win approach as we work through this difficult time.
Looking forward on the EPA roughly speaking next year, I'd say about $65 million.
50, then let's say 20.
Got it Okay, and then just as we think about pricing into next year, obviously, you've been very clear about your philosophy around reinvestment economics, but we'll probably end the year at a lower volume than last year. So so how do you think about kind of those dynamics heading into.
The next year, obviously trying to push price versus maybe a weaker demand backdrop.
Well I think first of all the key thing is we're pricing.
2021.
2020.
And I think you can look at the size of that rebound.
We reported and rubber carbon black and say I think 21 is going to be a great year. If you look at 2010 coming out of 2009 for the industry. It was a great year and beyond that I'd say the underlying factors that drive it, particularly in North America around on sourcing at higher price.
Suction, but the absolute absence of new carbon black factories going in and that's a set this up and you know against that we have the backdrop of the latest trade friction the U.S. moving towards implementing new tariffs on tires I think all that sets it up for another successful year.
Great. Thank you.
Once again to ask a question please press star one.
Our next question from Josh Spector from yes.
Hey, guys. Thanks for letting me, but then again I'm just curious.
By the impact of the inventory revaluation in the quarter and any comments on what you expect for that next quarter if anything.
Yes, I think I got your question you broke up a little bit you like would you just repeat it please.
Sorry about that just that try to quantify the inventory revaluation in the quarter.
Sure so.
The impact on the revaluation was only about 5 million less than we expected coming into the quarter. The oil price rally over the last 45 days or the quarter was was very helpful and so it was about $5 million.
No we don't expect.
Absent some sharp.
You know precipitous decline in oil prices or something of that Stuart any carryover impact that should be behind us at this point.
Okay. Thanks, and just on a raw material side I mean earlier comments you said you have all raw material secured.
I was curious if you could comment on any constraints in the quarter given the volatility in refining and chemicals markets. You know it was there any issue perhaps sourcing the exact material that you normally get is there any advantage or disadvantage from a cost perspective that would flow through over the next couple of quarters that we should consider.
In General I'd say, no we have stability in our supplies and that would probably also turned over to the commercial situation. There's always a few opportunities one way or the other but nothing out of the ordinary I think it just reflects the the overall stability of the business model that really just was not a.
And issue for us.
Well.
Okay. Thanks, I'll, let me try one more just a a higher level question you know in it in a scenario where trends in July and become kind of a steady state over the next year.
Is there anything that you would think differently from a production or operation standpoint to this positioning yourself for that.
Or would it just be kind of keeping some of the temporary costs out longer just sticking at a longer term scenario would you actually reposition or do anything really different.
Yes. So I think the question is really would we change our production footprint that kind of thing and you could be in a situation where in a given facility might you idle or reactor, that's a totally possible, but when you consider the distribution costs and the advantage and location and the fact that our reactors are different.
Making different grades I think we'd be very unlikely to close on facility driven by market conditions at current levels.
Got it thank you.
Once again ask a question. Please press star one on your telephone keypad.
Ladies and gentlemen, we have reached the end of the question answer session I would like to turn the call back to Corning painter for closing remarks.
Hello, everyone. Thank you one more time for joining us today and this different time slot that we selected for this week. We appreciate your interest in the company and appreciate your time have a good day.
Thank you. This concludes today's conference. Thank you for your participation you may disconnect your lines at this time.