Q1 2021 Ingevity Corp Earnings Call
Greetings and welcome to the Endeavour D first quarter 2021 earnings webcast and conference call. At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad as a reminder, this conference is being recorded.
It is now my pleasure to introduce your host Bill Hamilton Treasurer, and head of Investor Relations. Thank you Sir you may begin.
Thank you Jessie good morning, everyone welcome to <unk> first quarter 2021 earnings conference call.
Earlier. This morning, we posted a presentation onto the investors section of our website.
Haven't already done so I encourage you to download this file so you can follow along during the call you can find it by visiting IR dot in jeopardy, dot com under events and presentations.
For participants who are logged into our webcast.
It should be visible in the online viewing pane and also available to download.
On slide two of that deck, you'll see our disclaimer that today's earnings call may contain forward looking statements.
Relevant factors that could cause actual results to differ materially from these forward looking statements are contained in our earnings release and in our SEC filings, including our form 10-K, and our most recent form 10-Q, which we expect to file later today.
Jeopardy undertakes no obligation to publicly release any revision to the projections and forward looking statements made during this call.
Or to update them.
Reflect events or circumstances occurring after the date of this call.
Throughout this call we may refer to non-GAAP financial measures, which are intended to supplement not substitute for comparable GAAP measures.
Definitions of these non-GAAP financial 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 three.
With me today are John Fortson, President and CEO, our new CFO Mary Hall Mics.
Mike Smith, President of performance chemicals and.
Ed Woodcock President of performance materials, and Eric Ripple, Chief growth and innovation officer.
First John will comment on the highlights of the quarter.
Mike and Ed will review the performance of our two segments Eric.
Eric will discuss details of our recently announced strategic partnership with Green gas USA Holdings LLC.
And then Mary will comment on our current financial status and lastly, John will discuss our revised guidance for the year.
With that I'll turn the call over to our CEO John Fortson.
Thanks, Bill and good morning, everyone. Thank you for joining us and we appreciate your continued interest in longevity.
Before we go any further I'd like to take a moment to welcome two of our teammates to the call.
First I'd like to formally welcome married to the longevity team.
Many of you know Mary former former position at Quaker we are thrilled that our professional at her caliber join in Germany, and we know that she will be a value member of our team in this critical role welcome Eric.
You May also have noticed a bill Hamilton led the introduction of this call those taking over IR duties from Jack Bauer, who has made the decision to retire we wish Jack the best and we know Bill will do a great job in his new role as treasurer and head of IR don't let our S. D N. A efforts for the last four years and has spoken on some of the most recent earning calls he knows this company into.
Right now and I know you will enjoy working with him.
With that if you turn to slide four you'll note some highlights for the quarter.
We had a strong first quarter demand improved across the board in all of our businesses revenues in the first quarter were $320 million up 11% compared to the previous year's first quarter.
Our results were driven by both volume and price increases in certain key businesses.
Automotive based activated carbon sales were up sharply given last year's Q1 shutdowns in China.
The engineered polymers delivered and experienced strong growth across many of its end use applications, our industrial specialties business, which now includes oilfield applications was up slightly and we're off to a good start to the paving season.
With respect to earnings adjusted EBITDA was 105 million up 14% from the same period last year, representing strong drop through.
Our margins continue to hold up well across the board and as a result, our adjusted EBITDA margin for the first quarter Rose to 32, 9% up 90 basis points.
We generated free cash flow of $34 million and as a result, we're able to both reduce debt and repurchase shares in the quarter, our leverage remains within our targeted two to two and a half times range at 2.39 times.
I want to thank everyone on the longevity team for their continued work I am so proud of them, especially our manufacturing and supply chain employees. They remain committed to working productively amidst the constraints of operating in a COVID-19 safe environment. Our performance. This quarter is again, a testament to the efforts of these employees across the company.
Finally earlier this week, we announced an investment in Green gas Holdings. We are really excited about this opportunity through our work on our absorbed natural gas technology, we have learned a lot about how our technology and expertise can add value to the methane renewable natural gas value chain and we are fortunate to have identified a partner in our region.
Green gas.
We expect to be a significant market participant as we scale our investments and realize the value in jeopardy provides you will hear more from Eric ripple in a few minutes.
Turn to slide five Youll see the first quarter results for performance chemicals and at this point I'll turn the call over to Mike Smith, Mike.
Thanks, John.
Slide five you'll see our performance chemicals segment sales in the first quarter were $180 million up almost 8% versus prior year period.
Sales to pavement technology applications were slightly higher than prior year and reached a first quarter record driven by growth in our <unk> warm mix asphalt product sales <unk>.
Increased sales in North America were partially offset by other regions.
Sales in industrial specialties applications as John mentioned that went to sales in oilfield technologies, reflecting the reduced size of that business and our view that the category of products is another end use tolerable fatty acid or telephone and its derivatives.
Just real specialty sales were up slightly due to increases above 10% to lubricants adhesives and disbursing customers.
These increases were partially offset by decreases in sales to oilfield applications.
Due to a lower year over year, North American rig counts and drilling activity.
In addition, the business implemented price increases for rosin and total products.
We are encouraged the Chinese gum rosin export price increased an additional 10% during the first quarter, which is a continued positive signal of improving supply demand dynamics alter.
Alternative vegetable and tallow based fatty acids have also increased in price during the first quarter and should support further improvement in silver prices.
We're also very encouraged by our first commercial production of soy based fatty acid and derivatives during the first quarter. This.
This is an exciting and important step in expanding our market focus and product portfolio into products and applications. We are already have strong capabilities by broadening our raw material feedstocks beyond legacy crude tall oil.
We made our first commercial sales of soy based fatty acid derivatives during the first half of April.
Quarterly sales of engineered polymer products were up a sharp, 27% due would improve polyurethane and industrial equipment automotive applications electronic devices medical equipment in footwear.
Sales grew in all geographic regions, but were particularly strong in Asia.
We realized strong technology adoption and sales growth in micro cellular polyurethane applications for battery pads and electric vehicles and an electronic devices.
The engineered polymer sales increases were largely due to volume improvement was also supported by price improvement.
Performance chemicals segment EBITDA for the first quarter was $32 million up 2% versus the prior year quarter due to higher volumes and price mix.
We offset by slightly higher freight and raw material pricing.
I will note that absent the effect of foreign currency exchange our segment EBITDA growth would have been more closely reflected sales growth.
We continue to control costs and generate a good mix of our higher profitability products, which resulted in our adjusted EBITDA margin holding respectively at almost 18% in the first quarter.
With that I'll turn the call over to Ed Woodcock to review the results of performance materials.
Thanks, Mike.
As you can see on slide six revenues for the segment were up 16% at $141 million.
Strong automotive production and sales in China supported by increased demand in South Korea and Europe.
Drove growth for our activated carbon products used in gasoline vapor emission control systems.
Sales in China, nearly doubled versus the prior year period, given the dramatic decrease in automotive production that occurred during February and March of 2020 due to COVID-19.
In the January and February period for which data is currently available China vehicle production and sales were both up substantially at 87% and 75% respectively.
In the first quarter North American vehicle production was down 5% and was outpaced by sales in the U S and Canada, which rose 12%.
The U S and Canada vehicle sales mix of light duty trucks, and Suvs versus sedans continues to maintain record levels hitting over 78% during the quarter.
This truck and SUV mix has trended higher since April of 2020 and is favorable as these vehicles typically have larger canisters and multiple honeycombed as part of their evaporative emissions control systems.
Additionally, U S and Canada tier three implementation is ongoing as some model year 2022 platforms were delayed due to COVID-19 impacts.
The remaining tier three implementations should be complete by the end of this year or by early 2022.
Oems continue to face production issues, primarily associated with the global semiconductor chip shortage and to a lesser extent the ongoing global supply chain challenges.
Based on IHS data.
We estimate the Q1 impact to <unk> of chip related production losses to be about $10 million in revenue.
We expect the chip supply issues to continue throughout 2021 with the most significant impact in Q2.
Followed by gradual recovery in the second half of the year.
That being said the strong U S and Canada vehicle sales and production mix of trucks, and Suvs and ongoing implementation of U S. Tier three will continue to drive a favorable sales mix for us.
Additionally, our process purification business, including sales into air filtration devices that combat the spread of COVID-19.
Continue to be a reliable and profitable revenue source for us outside of the automotive gasoline vapor emission control.
Segment, EBITDA was $74 million up almost 20% versus the prior year period.
Segment, EBITDA margin increased 190 basis points to 52%.
Reflecting our facilities across the globe operating at full utilization.
I'll now turn the call over to Eric Ripple.
Hey, Ed and good morning, everyone on slide seven I'd like to provide more information about the strategic partnership with Green gas USA Holdings, LLC that we announced earlier this week.
As part of in Germany, 2.0, we stated our commitment to explore value added applications for activated carbon beyond vehicle gasoline vapor emission control and to growing markets such as renewable natural gas, our RMG and human health.
An example of these expansion efforts are absorbed natural gas are a N G technology for light duty vehicles that we've spoken about previously and that we continue to advance with commercial and gas utility fleets across the U S.
In the course of our business development efforts with potential AMG fleet partners. We were introduced to green gas as we learn more about the green gas business model and the company's role in the larger RMG value chain.
We recognized an opportunity to apply our activated carbon expertise to the purification transport and bulk storage of natural gas green gas as an integrated R&D solutions provider today, the company contracts with agricultural farms, landfills, and industrial and municipal wastewater treatment facilities.
To collect and treat biogas from the organic waste of their operations.
Green gas themselves the treated biogas as pipeline quality low carbon Orange, Inc. The company also provides compression transportation and delivery of natural gas directly to customers through a totally owned pipeline injection point or as part of its virtual pipeline fleet services.
Our partnership with Green gas is a significant step in advancing a Gemini 2.0, as we worked together with green gas to broaden the reach of R&D as a cleaner alternative energy and fuel solution.
Our investment will enable green gas to further develop biogas capture and cleanup systems at currently contracted and future RMG supply partners and help green gas funding incremental transportation capabilities as the business continues to grow our partnership is focused on two near term opportunities.
First we will accelerate the application of our <unk> technology for the storage and transport of natural gas. We are currently engaged with green gas to launch a pilot program to deploy the first use of an activated carbon bolt bulk storage tank to demonstrate the system's efficacy.
Second our collaboration will facilitate the use of LNG as part of our E. N G vehicle platform by offering our fleet customers broader access to the greenhouse gas reduction benefits of RMG when used as a transportation fuel.
We are uniquely positioned to leverage our expertise is in operating a technology partner for Green Green gas our investment gives us a foothold in a rapidly expanding arent RMG industry, an industry in which we see tremendous overlap within Javanese purpose to protect purified protect and enhance the world as we continue to pursue strategic.
Partnerships and investments across the R&D value chain, we believe green gas has a substantial runway ahead of them and we are excited to work with our outstanding management team to further grow this business.
At this point I will turn the call over to Mary Thanks, Eric and good morning, it's great to speak to you all today as part of the endeavor D team.
I'll now briefly review, our financial summary, which you'll find on slide eight.
Overall this slide highlights our continued strong financial position, which reflects our solid business performance combined with our discipline in managing costs and leverage our stronger sales performance in the quarter led to a sequential and year over year increase in trade working capital driven.
Primarily by the increase in accounts receivable. This is the primary reason why our operating cash flow and free cash flow were down versus last year.
Although as you know our working capital generally increases in the first half of the year as we prepare for paving season, we remain focused on careful management of working capital to optimize operating cash flow.
Our leverage continued to improve within that debt to adjusted EBITDA ratio to three nine times at the end of Q1 down from 245 times at year end, our weighted average cost of debt was approximately $3 seven per cent and we have no meaningful debt mature.
<unk> until 2023.
We will continue to be opportunistic with share repurchases in 2021 as we were in 2020 in Q1, we repurchased 39 $39 million a share, bringing our total repurchases under our share repurchase authorization to 127.
One $4 million, leaving approximately $373 million available in summary, our balance sheet is strong and we have ample liquidity to support our organic and inorganic growth initiatives and now back over to you John Thank.
Thank you Mary.
On slide nine I'd like to review, our revised guidance for 2021.
Based on our strong first quarter and continued optimism we are increasing our fiscal year 2021 guidance for sales to be between 1.2 dollars 75 billion and 1.325 billion and adjusted EBITDA to between 410 and $430 million.
As our performance continues to improve we are watching issues related to transportation and logistics raw material inflation and automotive material disruptions that could become stronger headwinds throughout the rest of the year.
Our intention is to address these issues as we always do pedal on through strong execution we.
We'll play close attention to supply and demand in the market and both pass through cost and price our products appropriately to ensure we get the value we deserve.
We believe deeply in the strength of our Reenergizing javits to point O strategy and our team's ability to execute on the opportunities ahead.
Our production of soy based products, the sale of honeycomb and the health and safety applications and our investment in Green gas are all examples of how we are positioning in Germany for the future by entering adjacent growth markets, where our assets and technologies provide us a competitive advantage, we intend to remain a best in class company as measured by.
Growth profitability and return on investment.
Before we end the call I'd like to encourage you all to attend the second webinar series for investors and analysts this year.
Which occurred on May 26, we will focus on the end users growth opportunities and strategy for our engineered polymers business.
In closing I appreciate the work and efforts of our 1700 50 employees worldwide.
They are a 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 <unk> at this point operator, we'll open the call up to questions.
Thank you, ladies and gentlemen, we will now be conducting the question and answer session. If you would like to ask a question. Please press star one on your telephone keypad. The confirmation tone will indicate that your line is in the question queue. You May press star two if he would like to remove your question from the queue for participants using speaker equipment and may be necessary to pick up your handset before.
The Star Keys.
Our first question comes from John Mcnulty with BMO capital markets. Please proceed with your question.
Thanks for taking my question I guess.
A question just regarding the overall seasonality of the business I mean normally when we look at your core platform.
The first quarter about 20% or so of EBITDA is there anything that would given all kind of wonky moves that we're seeing in terms of like shipping channels and supply chain issues and what have you is there anything thats dramatically shifts that or should we expect the usual seasonality with the help of paving coming in into Q3, Q et cetera, et cetera, how should how should we be.
Think about that.
Yes, yes. Good question John I mean look there are there are a lot of wonky movements going on to be blunt.
Because we kind of move through this stuff that seasonality will remain right. I mean, we are ramping up where as I mentioned in the commentary we're off to a decent start we're optimistic about the painting season, it looks pretty good sitting here today, but.
But we do get that we also had issues. When you think about it engineered polymers really had a ridiculously strong start they delivered incredible performance.
That's sustainable, but we want to see how the year plays out well you know we've got to decide how much of that was restocking versus other longer term better more fundamental type sales. So again, we're optimistic and feel good about it but we want to be careful with that and then you've also got the sort of strange dynamics on the auto market.
See really throughout the year right don't forget Q1 and Q2.
There are obviously pretty easy comps right compared.
Compared to what happened last year, but then you had a pretty remarkable snapback in Q3, and Q4 of last year and we're just going to have to see how the chip shortage.
Impacts that sort of comparable comparison year over year, but you know sitting here today.
At the macro level, we feel pretty good we feel good.
Off to a really good job.
Off to a good start I know it's fair.
Fair enough and then I guess, what's your cash flow and your balance sheet improvements are if anything that probably ahead of where where we would've expected net and you're really making some pretty solid progress I guess can you speak to how you're thinking about.
Capital allocation as we look through this year and into next year give us maybe an update in terms of the M&A pipeline and also how youre thinking about buybacks. You. Obviously took some some shares down this past quarter and I guess, how how should we think about the potential for more of that as we go through the year.
Yeah, No sure I mean look.
We've said I mean, our R. R.
Our capital allocation hasn't really fundamentally changed we do view ourselves as having a lot of growth opportunities in front of us and I think youll see us continue to invest in those I mean, the investment strategy.
It really will be a series of probably a number of smaller more modest investments as opposed to something sort of larger just given the state of the M&A market and also the opportunities that are in front of us right. So.
You'll see us invest but it's not mutually exclusive right. I mean, this is a great quarter and today as an example, we invested we also pay down or reduce debt and we bought back shares right. So we're going to remain flexible.
It is important for you to realize though that we are going to buy back shares. When we think we have an opportunity to buy our shares in what we consider to be a value or a good price but.
But we think we can sort of do all three.
As the opportunities present themselves.
Got it and it makes sense and maybe just one one last question when we think about the potential for an infrastructure Bill, which admittedly there's kind of a lot of fuzziness still around it but I guess, how should we think about when the bill is announced and it's a little bit more definitive how long it would take for your paving business to actually feel the real uptake at that point is it six to nine.
Mustang is multi year. It obviously it would be a great tail.
Tailwind John.
Truth of the matter is funding projects for infrastructure. There is typically a seasonal lag right I mean, the good news is is that the projects that we're seeing for this year are pretty fully funded and ready to go and so we have good line of sight into that.
To the extent, we get an infrastructure bill that just bodes well.
Looking forward into the future 2021, and beyond so we'd love to see one, but it's not going to necessarily change our outlook for 2021.
Got it thanks very much for the color.
Thank you. Our next question comes from the line of Jon <unk> with CJS Securities. Please proceed with your question.
Hey, good morning, Thank you for taking my questions, great quarter, and Merit, let's keep working with you.
And here.
John can you talk about what's built into your guidance at this point I mean, it looks like you raised the year by the same amount that you beat the expectations probably in Q1 is that more of a comment on that.
Level of demand, maybe not getting better or sustaining through the year or is it more of a nickel prices just eating up all the upside.
No look I know youre going to ask that question John.
Look obviously, it's a it's a dollar for dollar uptick right, but I think I would interpret it as optimism to where we think the rest of the year is going well.
Obviously entered the year there are a lot of uncertainties right. The good news is as vaccines are underway and it felt like things were recovering, but the auto industry has had some issues.
And it was unclear to us exactly how the recovery in our performance chemicals business, which sort of unfold, but sitting here today. It feels good and I would say our.
I guess, our risk position is probably skewed more to the continued upside than downside, but you know us well, we're not going to over promise or be aspirational, we're going to tell you guys. What we think.
And what we what we feel we can deliver so we did raise.
We think we're off to a good start let's see how the rest of the year goes we're one quarter end.
Okay Fair enough. Thank you and then.
Can you just talk about the soy feedstock business, a little bit more I know you've been trying to do that for a little bit now.
Just how big can that business be how much of the capacity utilizing.
And are the margins similar to your CTO based businesses at this point.
Well I'll talk a little bit, but Mike can chime in here too.
Look the idea of the sort of part of the Genesis of this is to make sure that we operate our existing.
Net work at maximum utilization rate and we do have the opportunity the way one.
One of our facilities is configured to effectively sort of run soy in parallel to CTO right. So.
That actually will provide us with some incremental capacity to use which is a good thing we're off to the races.
My own view is that this might be a $20 million to $30 million Mark at some point not this year, but eventually.
But we're not done with just soy right I mean, we're going to look at other things other feedstocks as well.
And we may surprise ourselves to the upside in terms of expanding the market that we're looking at but right now that's kind of what we're targeting for Mike I don't know if you want them well the only thing I'd add to that is I think that there's a really interesting opportunity throughout our derivative product lines. So.
We've got a lot of obviously tofu based derivatives that we have the opportunity to either.
Displace our augment with Tovah and free that up for the market and from from early looks there may be really interesting value added.
Derivatives that we can make that have better functionality or improved functionality compared to.
Total based ones in our current market and that spans.
Oil field industrial and payment opportunity. So we're going to continue to evaluate the opportunities both with a sofa.
And also for a broader range of derivatives, it's a pretty exciting opportunity John I mean, it gives us a lot of flexibility.
And a lot of growth avenues, so we'll see how it evolves, but it is encouraging I mean.
My hat is off to my team a lot of effort and energy has gone into this.
And we'll just see how the how it unfolds here over the next 18 months.
Okay, Great just one more if I could the green gas business today, how big is that and kind of where do you see that you make two or three years.
It's a pretty nascent today I mean, it's got a handful of customers.
In our mind and I don't want to get sort of I don't consider this sort of official forecasting. This is just sort of this standalone opportunity probably has a revenue opportunity of $50 million to $60 million in four or five years right.
The Standalone green gas as it's configured today.
Okay, great. Thank you.
Thank you. Our next question comes from Daniel Rizzo with Jefferies. Please proceed with your question.
Mr. <unk>. Your line is live you May proceed with your question.
Sorry about that I was on mute. Thank you for taking my question.
So I was just looking at performance materials margins that took kind of a big step forward I assume with the increase in tier three.
Standards I was wondering if we're getting kind of close to peak here where were any any growth from here would be marginal or if there was another step change possible.
Look I've got a.
That is here with me and we've gone back and forth about whether we should have fallen on our sword based on the comments, we made last year.
At the end of the day, we're going to drive margins as high as we can every single quarter every single month every single week right.
Matt we are operating at Max absorption and we are seeing some impacts to demand we talked about that so could there be could there have been more upside had there been more demand in the market probably but.
We're happy with where we are we're going to fight every quarter to keep the highest margins we can.
And we had a good quarter.
Okay.
That's actually that's very helpful. And then just one other question. So obviously the focus is on a national infrastructure Bill I was wondering if local infrastructure is kind of in a boom phase now or should be going forward just given some of the fund the federal funding that's now going towards the states if that could potentially be a tailwind as well.
Well I think when it comes to federal funding towards the states.
The fact that that had been reinstated and that support is there is very promising.
We were a bit concerned as you may recall last year with state gas tax being significantly reduced and if that could have an impact and unfortunately that seems to be behind us. We're happy with the backlog of projects as we enter this year and as John mentioned.
This significant infrastructure Bill gets gets passed that's only going to per.
Provide a further tailwind.
And more growth opportunities in the years ahead.
Alright, Thank you very much.
Thank you. Our next question comes from the line of Ian Zaffino with Oppenheimer. Please proceed with your question.
Hi, Great I wanted to kind of touch up on maybe a little bit of a forgotten business now that it's been slammed inside of industrial specialties, but.
Energy prices are are way up.
You know some of them.
The people operating that space very positive comments about oilfield how are we thinking about the cadence of that going forward and maybe like what are you seeing maybe second quarter and into the <unk>.
Back half of the year.
Yes sure.
The sequential performance has certainly been better than we had anticipated at the end of last year. The first quarter comp naturally is a very tough one because as you know the first quarter last year was really not impacted by demand.
But as we look towards second quarter third quarter compared to last year, it's up and on a sequential basis. It's also improving so.
The improved pricing is very.
Very positive and should support investment and it's really a matter of really seeing ongoing increases in demand and continued strong pricing. So we get further investments in drilling, but but we're optimistic that an ongoing basis that it will improve.
Well just to be clear, that's not forgotten business and I mean look we.
It remains a.
Good credible strong source of demand for total for us just understand that.
From our perspective, that's how we view it right is another alternative end market that we have to weigh against other end markets and as we think about the business. We think about that segment as having an engineered polymers business.
The asphalt business.
Pine chemical our industrial specialties business right. So.
Don't don't Misconstrue, what we're doing is is there any signal that it's less important.
No clear, it's a very important application within industrial specialties.
Gotcha, Alright, guys. Thank you very much very good quarter and thanks for all the guidance and how it all thank you.
Thank you. Our next question comes from the line of Chris Capps with loop capital markets. Please proceed with your question.
Hi, Good morning first question is around the margin profile in the performance chemicals segment, you mentioned, some pricing getting traction in both rozman topher, but the year over year margin was down.
I think what was it should have been a positive contribution from mix associated with the strength in engineered polymers and might not have that right.
Im just wondering if you can talk about.
We're seeing here is is this just.
A lag.
Pricing pass through or pricing realization on higher CTO costs any color, there and how that dynamic plays out.
As we look forward in subsequent quarters I think you've made an important point there on the pricing dynamics as we move forward. If you think about our pricing in the first quarter.
Imagine a lot of that is naturally set at the end of last year tough competitive environment in that situation. Fortunately has changed so our price realization in the first quarter.
What was not really all that significant especially on RASM, we had some modest improvement on sofa.
What we see going forward second quarter, and especially as we get into the second half of the year as our contract commitments unwind much more significant price increase capability.
And in realizations.
During the first quarter, we did realize and got hit with increasing raw material costs, whether it be.
Cyclohexanone within engineered polymers or some CTO inflation.
And so we're working hard to offset that and.
As we said, especially as we get into the second half of the year, we're going to have.
Significant more price realization in performance chemicals.
Okay. Thanks for that and then.
<unk>.
On the guidance I'm, just wondering what if you can comment on.
What was contemplated in terms of North American auto builds given how important that is particularly in light of <unk> comment last night on their curtailments production second quarter, how much visibility do you have into.
Knowing that was coming in and.
Either with them or other oes, because I imagine that's going to be similar.
Announcements.
Yes, Chris This is Ed just to comment a little bit.
Ford, obviously, taking a hit in Q2.
If you look at what GM did impact was probably more focused in Q1. So you kind of think of these chip issues is kind of rolling through the year and various waves and cycles.
But ultimately you can afford us a large customer of ours that very important customer.
That being said, we are a global business and we're seeing growth outside of the U S that will help support the core.
<unk>.
And well.
Relatively we will continue to monitor the issue, but at this point, we feel we're in pretty good shape.
We obviously had the benefit of their comments, Chris before this call. So yes, yes to your question we were not surprised.
Right.
The full year guide you Ulf.
Minutely, if there's no shortages that affect production today, it's going to be it's just latent demand for tomorrow. So does that is that was kind of reflected in the full year guidance.
I think we're yes to answer your question specific to the auto market, but just more broadly again were sort of one quarter end.
Incredibly great quarter, really really pleased with the engineered polymers business and what they were able to accomplish they really have started delivering but we got to see.
You know how this will be is it sustained right. We feel good but we'll just we'll see as I said earlier I think you know if you would've asked weighted which way of my weighted we're probably more optimistic than we are pessimistic, but.
We're we're conservative in this regard.
Yeah, Okay. Thanks, guys.
Thank you as a reminder, if you would like to ask a question at this time. Please press star one on your telephone keypad.
Our next question comes from the line of <unk> Misra with Aaron Berg. Please proceed with your question Hi, prioritization.
Hey, John Thanks for taking my question can.
Can you talk a bit about your work on day.
<unk> feedstocks for renewable diesel any any progress.
That was made during the quarter.
Not a ton to report only that.
<unk>.
We obviously are working to certify our feedstocks as something that would go into that marketplace right. So.
When when and if that becomes economically viable for us relative to other opportunities that we have we would begin to take advantage of that market, where we're ready. It's just that market is going to have to evolve.
Got it and then just as a follow up on earlier question on your.
Commercial production for that soy based fatty acid feedstock based products.
And I'm, sorry, if I missed those comments, but how does that change the cost and pricing equation.
When you're using that feedstock versus standard versus the alternative while it hasnt yet because it's still in its nascent stages. So just to be clear right, but as Mike alluded to I mean, we do have an opportunity potentially in certain of our products to offer a sofa substitute right and our expectation would be that we would maintain.
Our pricing and even potentially in some markets do better it's interesting.
And Mike you can chime in here, but sofa.
And some end market applications that actually might be more efficacious are stronger or better product than actually tofu right. So we want to make sure that we get that value for that right in those end markets.
I don't know, Mike if you want to the only other thing I'd add that John had mentioned earlier is that we've been doing a lot of work from our technology team in our operation teams and we have.
Essentially free capacity by utilization of some of our distillation capability.
<unk>. So so on the margin that's a great cost position to be in.
And we're going to make sure we understand these markets and the opportunities in the value of these products can deliver.
And and make this as good a business as it can be.
Thanks for the color John and Mike That's all I had thank you. Thank you. Thank you.
Thank you. Our next question is coming from the line of Garen, Oregon with Palisade Capital Management. Please proceed with your question.
Hey, guys I wanted to see if you could.
Talk a little bit more about the engineered polymers business I mean, I think it's certainly by far the best quarter since you've owned the business.
And wanted to see what your kind of understanding as far as you know are you guys, making kind of progress.
Developing some of the products that you've been focused on or is it really more of hey, we've had some end markets that were down that if snapped back.
Any color.
You know what's going on there.
I think the team is making great progress on.
Getting more technology adoption for the products that they've been working on for the last couple of years.
There were some challenging end use demand dynamics from the middle of 2019 until the end of last year. So we actually do have some improvement in end use demand dynamics, but also the technology adoption for the <unk>.
Specialty applications high functionality caprolactam products has been great.
We mentioned a couple of applications such as <unk>.
Electronic vehicle batteries, so that's really been positive.
Got it.
The specialty.
Film coatings for automobiles that really seems to be.
Taking off medical devices picking up so very broad based technology adoption and overall demand increases really resulted in this business getting turned around and <unk> and we're confident that a large percentage of that is highly sustainable.
Through through the year, there may have been some pipeline fill in the in the first quarter, but what we see and we look at our order books and the new customers coming in were very encouraged by the technology adoption and demand growth of the business.
That's great and I think you had mentioned particular strength in Asia and I'm just curious for that business can you remind me what the rough kind of geographic exposures are and if I recall historically you were talking about maybe even bringing some production into.
North America, and didn't know where that stands now.
So let me answer the last question first we are bringing production of of polyol derivatives into North America, we are going to be building a polyol production facility at our Deridder, Louisiana. So that project is underway and we would expect that to be online.
Roughly end of the first quarter of next year.
And so as you also know this business.
Engineered polymer business is fairly geographically balanced.
So we've got let's say, 40% Europe 30.
30% Asia, 30% Americas.
And in Asia in this particular quarter in a very strong quarter, where we're all regions were up over 10%.
Asia was up the strongest on a percentage basis.
That's great. Thanks, so much.
Thank you we have no additional questions at this time, so I'd like to pass the floor back over to Mr. Hamilton for any additional closing comments.
Thank you everyone for your time and interest this morning.
Remain very positive about our long term business outlook and we look forward to talking with you again next quarter.
Ladies and gentlemen, this does conclude today's teleconference and webcast. We thank you for your participation and you may disconnect. Your lines at this time.
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