Q2 2021 Kraton Corp Earnings Call
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Good morning, and welcome to the creator and corporations second quarter 2021 earnings Conference call. My name is Kirby and I'll be your conference facilitator. At this time all participants are in listen only mode. Following the company's prepared remarks, there will be a question and answer period.
I'd like to ask a question. Please press star 1 on your Touchtone phone today's conference call is being recorded if you have any objections you may disconnect. At this time I will now turn the call over to Mr. Gene Shiels director of Investor Relations.
Thank you Kirby and good morning, and welcome to the <unk> on corporations second quarter 2021 earnings call.
If you were on the call. This morning are Kevin Fogarty, <unk>, President and Chief Executive Officer, and that's on US are Thomas off Craig Collins, Executive Vice President and Chief Financial Officer.
A copy of the second quarter news release, and the related presentation material that well review. This morning is available and the Investor Relations section on our website.
Before we review the second quarter results I'd like to draw your attention to the disclaimers on forward looking information and the use of non-GAAP measures included in our presentation. This morning, as well as yesterday's earnings press release.
During the call we may make certain comments that are not statements of historical fact, and thus constitute forward looking statements.
We have and investors are cautioned there may be risks uncertainties or other factors that could cause breakdowns and actual performance to be significantly different from the expectations stated or implied by any forward looking statements we make today.
Our forward looking statements speak only as of the date. They are made and we have no obligation to update such statements and the future.
<unk> our business outlook is subject to a number of risk factors as the format of this mornings presentation does not permit a full discussion of these risk factors. Please refer to our forms 10-K, 10-Q, and other regulatory filings available and the Investor Relations section of our website.
Regarding the use of non-GAAP financial.
And measures a reconciliation of each non-GAAP financial measure we use to its most comparable GAAP financial measure was provided in yesterday's earnings release and and the appendix of the presentation material. We will look at this morning.
Following our prepared comments, we'll open the line for your questions I'll now turn the call over to Kevin.
<unk> Kevin.
Thank you gene and good morning, everyone.
The positive momentum and global demand that we experienced earlier this year continued throughout the second quarter.
Benefiting results for both our polymer and chemical segments, while we incurred substantial costs for the planned statutory turnaround at our Bayer, France site and although we face continued.
Continued inflation in raw material costs. The impact of these factors was largely as we had anticipated as a result, we are pleased with our financial results for the second quarter as they were in line with our internal expectations.
As reported in yesterday's earnings release, adjusted EBITDA for the second quarter of 2021 was $61.8 million.
Kevin Firewall this was down $7.7 million compared to the second quarter of last year. The decrease is attributable to 3 primary factors and our polymer segment that we believe are transitory in nature and that masked the underlying positive momentum underway and the quarter, particularly on our chemical segment that we believe is setting the stage for a positive full year 2020 results.
Quickly polymer segment sales volume was up 10, 9% compared to the second quarter of 2020, driven by broad based demand growth across all regions for our specialty polymers business and higher sales into paving and roofing and adhesive applications within our performance products business.
Sure.
And our chemical segment and we saw significantly.
And specific gain and sales volume, which increased over 32%.
Compared to the second quarter of last year during which time COVID-19 has had a pronounced impact on demand, while organic growth and favorable market dynamics provided for further expansion and unit margins.
As a leader and the pine chemical industry create on remains focused on expense.
Expanding innovation led growth and consistently encouraging adoption of truly sustainable pine chemical solutions to our customers to replace hydrocarbons for the benefit of all key stakeholders.
In terms of the specific factors accounting for the decline and consolidated adjusted EBITDA versus the second quarter of 2020 during the quarter, we successful successfully complete.
<unk>, a significant statutory turnaround at our bare France fate, which occurs approximately every 6 years and as such and the second quarter, we realized $16.9 million and costs associated with this turnaround and excluding.
Excluding the turnaround costs alone adjusted EBITDA would have been up $9.2 million or approximately 13% compared to the second quarter.
2020.
In addition, and the raw material environment and the second quarter of this year was the inverse of what we experienced and the second quarter of 2020. So far this year, we have seen significant inflation in raw material and transportation costs, and contrast, and the second quarter of last year, and butadiene and declined to a historically low price level, which it allowed for significant margin uplift.
While the inflationary price pressures have continued into the third quarter I should note that based upon improved pricing and we achieved thus far and the third quarter and.
And with continued price actions, we expect to take we are anticipating margin expansion and the second half of the year.
Now for those of you who've been following the company over the years you will appreciate that.
Periodic raw material and freight inflation.
Is inevitable and our polymer segment, we understand this and more importantly, our commercial teams know how to correspondingly correspondingly respond and the marketplace with pricing actions. We have always maintained a critical element of our price right strategy has been to consistently pass along inflation and.
Lift on or that our customers can actually predict our behavior that is what market leaders do.
Nevertheless.
And while there is an inherent lag and price realization that can result in near term margin pressure I would again remind you that when the inflation turns to deflation or price pricing disciplined typically also allows us to expand margins for a period of time much.
Much like we did in 2017.
Finally, with regard to polymer segment results as discussed on our second quarter earnings call last year, we elected to leverage the extremely low butadiene prices through a strategic inventory build.
Which also contributed to an adjusted EBITDA margin of 26.4% given the benefit of favorable fixed cost.
Absorption on quarterly segment profitability.
In terms of key strategic priorities and debt reduction remains a focus area. During the second quarter, we reduced consolidated net debt by $11.5 million, including $6.3 million of unfavorable impact from currency translation.
And as we have discussed previously.
Seasonal working capital release associated with our paving and roofing business, we historically generate the majority of our cash and the second half of the year.
Therefore, we expect meaningful debt reduction over the next 2 quarters.
And this will provide more insight into our expectations for debt reduction and balance sheet metrics and his comments.
As evidence of our continued commitment.
Previously to global to a global circular economy.
And by driving and sustainability focused mindset throughout our company. We are extremely pleased to be awarded a platinum level sustainability rating by Echovirus and recognition of our efforts to integrate sustainable principles and our business and management systems.
Platinum rating is the highest distinction.
Inkjet and the Echo a lot of sustainability rating structure and places great on and the top 1% of the universe of approximately 75000 companies evaluated.
In addition, our circular plus family of performance enhancing products recently received critical guidance recognition.
From the association of plastic Recyclers for our series C.
<unk> thousand and see 3000 polymers for high density polyethylene and bottoms.
This recognition further highlights <unk> ongoing commitment to providing sustainable solutions and packaging design.
And our efforts to facilitate expansion of the broader circular economy.
Lastly, while we do and I have the specifics we can share at this time.
And 2 thing on progression towards broader commercial opportunities for <unk>.
During the second quarter, we continued our efforts and the pursuit of a section 3 approval from the U S. Environmental Protection agency that we believe will provide for broader commercial applications for by accident.
We continue to believe there are significant market application opportunities for our by acts and.
Regarding <unk>.
We're also very pleased to announce that Jeff <unk> has recently joined <unk> on to lead our by Axon platform development, Jeff had substantial relevant experience and the anti microbial space. He will oversee and manage all activities associated with Blackstone and cleaning evaluation development of potential market applications and oversight of the requisite regulatory processes.
Technology, and I'm going to turn the call back to our executive Vice President and Chief Financial Officer at and it sits on our software will provide more specifics on our present financial results for the second quarter of 2021 evidence.
Thank you Kevin and good morning, everyone. I'll begin my comments on slide 5 with a review of the second quarter 2021 financial highlights.
In light of the favorable market fundamentals and positive demand trends, Kevin referenced and taken into account the impact of specific factors at play during the quarter.
<unk> turnaround and inflationary pressures and tough comparisons against the second quarter of 2020, which benefited from lower raw material prices and a favorable fixed cost absorption.
So stated was a strategic inventory build and we're very pleased with our results from both the second quarter of 2021 and for the first half of the year.
Moreover, we enter the third quarter, well positioned to leverage positive market fundamentals and therefore, we remain encouraged by our prospects for the second half of 2021 and.
And the year as.
And then.
During the second quarter of 2021, the rebound and global demand from the second quarter 2020 levels, and which COVID-19 was a factor combined with targeted marketing development actions led to a strong growth and sales volume chemicals sales volume was up over 32% compared to the second quarter.
<unk> 2020, and polymer sales volume was up almost 11%.
The increase in sales volume and higher average selling prices associated with higher average raw material costs were the primary drivers of the revenue increase versus the year ago quarter.
Consolidated revenue for the second quarter of 2021 was.
$493.6 million up $137.9 million or 38, 8% compared to the second quarter of 2020.
Consolidated adjusted EBITDA for the second quarter was $61.8 million, and while down $7.7 million compared to the second quarter of 'twenty more than.
As a percentage of the decline is explained by costs associated with the turnaround at Bayer France.
Excluding the $16.9 million of turnaround costs and the second quarter of 2021, adjusted EBITDA would have been up $9.2 million or 13, 2%.
And as Kevin noted the lower adjusted EBITDA.
EBITDA compared to the second quarter of 2020 also reflects inflation in raw material and transportation costs and less favorable absorption of fixed costs, driven by turnaround activity, which results in a challenging comparison to the second quarter of last year during which we benefited from declining raw material costs and in which our strategic.
Inventory build gave rise to favorable absorption of fixed costs.
Chemical segment adjusted EBITDA for the second quarter of 2021 was $35.5 million up 126, 2% versus the year ago quarter, reflecting higher sales volume and part associated with post COVID-19 and recovery.
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And expanded unit margins in all product groups with these positive drivers, partially offset by higher raw material and logistics costs.
Polymer segment adjusted EBITDA for the second quarter of 2021 was $26.3 million down $27.5 million compared to the second quarter of 2020.
With the decrease principally reflecting costs associated with a bare turned around and the impact of higher raw material and transportation and logistics costs and the change and fixed cost absorption between the 2 periods.
These pressures were partially offset by improved demand fundamentals and resulting in higher sales volume.
During the second quarter, we reduced consolidated debt by $14.1 million and we reduced consolidated net debt by $11.5 million, including the unfavorable $6.3 million effect of foreign currency.
I'll now move to a review of segment results, starting with our polymer segment on page 6.
Second quarter 2021 revenue for the polymer segment was $278.4 million up $74.6 million compared to the year ago quarter.
The increase was driven by higher average.
Selling prices implemented in response to inflation and raw materials and transportation and logistics costs.
And the 10, 9% increase and sales volume.
Specialty polymer sales volume was up 14, 6% versus the second quarter of last year and this increase was driven by healthy demand recovery across all regions with particular strength and consumer durables and automotive applications and North America and Europe sales.
<unk> volume for performance products was up 12, 6% compared to Q2 of 'twenty, principally due to higher sales and North America, paving and roofing applications and higher SaaS sales into adhesives applications.
Polymer segment, adjusted EBITDA was $26.3 million and the second quarter of 'twenty 1.
And this was down $27.5 million compared to the second quarter of 'twenty.
Again, the components of the decrease includes the $16.9 million of costs associated with our bare turnaround and inflationary pressures on raw materials and transportation and logistics during the second quarter of 2020.
And 1 compared with 2 a deflationary raw material environment a year ago.
Particularly if you build a dine and the absence of fixed cost absorption favorability, we had and the second quarter of 2020 associated with the strategic inventory build to leverage low butadiene prices, which benefited our margins and the.
Second half of 2020.
In fact, the second quarter 2021 draw on inventory during the bear turnaround led to less favorable absorption of fixed costs that we otherwise would have had and the second quarter and therefore, the relative change and fixed cost absorption between the periods was magnified.
And the relative change between the 2 periods explains a significant portion of the period over period decline and adjusted EBITDA.
These factors scatter market impact on the quarterly profitability for the polymer segment and as a result, the adjusted EBITDA margin was 9.5%, reflecting approximately 600 basis.
Points reduction for costs associated with the bare turnaround similarly.
There was a corresponding decline and adjusted gross profit per ton, which decreased from $1040 per ton and the second quarter of 2020 to $615 per ton.
And the second quarter of 2021 of the 4.
<unk> hundred $25 <unk>.
Kris and adjusted gross profit per ton approximately 50% was driven by costs associated with the <unk> turnaround and approximately 30% reflects the transitory margin lag associated with price increases implemented in response to inflation and raw materials.
With the balance largely reflecting the relative change and fixed cost absorption between the 2 periods.
Looking at the year to date results for the polymer segment revenue for the first 6 months of 2021 was $519.6 million up $75.4 million compared to the first half of 2020 the increase.
And revenue reflects the benefit of higher sales volumes and higher average selling prices implemented in response to higher raw material and transportation and logistics costs.
For the first half of 2021 polymer segment sales volume increased 8.3% compared to the first half of 2020.
This growth was the result of a 19.
4% increase and specialty polymer sales volume with growth across all regions, but particularly into consumer durable applications in China, and broader Asia, and automotive applications, and North America, and Europe, and additional sales volume for performance products increased 9.8% compared to the second quarter of 2020 on.
On higher sales into paving and roofing applications, and North America, and Europe, and higher sales of SaaS associated with favorable global adhesives demand.
The polymer segment adjusted EBITDA for the 6 months ended June 32021 was $63.8 million and this was down $41.2 million.
Compared to the first half of 2020.
The decrease $10.3 million is attributable to the contribution from <unk> and the first half of 2020 prior to its divestiture and of the remaining $39 million decrease and adjusted EBITDA $19.7 million is associated.
And with costs of the statutory turnaround of our Bayer France site.
$11.2 million balance of the decrease is attributable to the delta and fixed cost absorption between the 2 periods and the margin pressure associated with inflation and raw materials and transportation and logistics costs.
Given the foregoing for the first half of.
<unk> 2021, the polymer segment adjusted EBITDA margin was 12, 3% with the cost of the turnaround of bear having a negative impact on adjusted EBITDA margin of approximately 380 basis points. And addition for the first half of 2021 polymer segment adjusted gross profit was $711 per ton.
Down $345 per ton from 1056 per ton for the first half of 2020.
Of this decrease approximately 40% reflects the sale of <unk> and inflationary pressures.
Approximately 35% relates to turnaround on there.
And with the balance largely associated with a.
A relative change and fixed cost absorption between the 2 periods, primarily associated with the inventory build and the first half of 2020 versus a turnaround and inventory draw and the first half of 2021.
Turning to slide 7 for a review of our chemical segment results, our chemical segment results and 2020.
1 continuing to benefit from our diversified product portfolio and positive market dynamics, which have resulted in a post COVID-19 rebound and demand and favorable market trends providing for margin expansion across all product groups as we continue to execute strategic actions to innovate and develop new applications for our.
Total derivatives.
<unk> global adhesive demand has contributed to higher sales of tall oil rosin and rosin esters, while strong demand for broader vegetable oil markets combined with our targeted targeting a broader application solutions has benefited our sales of total.
Oil fatty assets and related upgrades.
The chemical segment revenue for the second quarter of 2021 was $215.2 million up $63.4 million compared to the second quarter of 2020, the increase reflects higher sales volume versus the second quarter of last year in which demand was adversely impacted by COVID-19, and higher average sales prices.
<unk> with favorable market dynamics.
Sales volume during the second quarter of 2021 was up 32, 3% compared to the second quarter of 2020.
Performance chemicals sales volume was up 37, 5% compared to the year ago quarter with higher global demand for all product groups, including Copa Dor.
<unk> and related upgrades sales volume for adhesives was up 17, 4% driven by robust global demand fundamentals and adhesives markets, including positive trends and E Commerce and the sales volume for our for our tires business was up 108% compared to the second quarter of 2020, and which the number of customers.
<unk> had idle production capacity due to COVID-19.
The second quarter 2021, adjusted EBITDA for the chemical segment was up $35.5 million up $19.8 million compared to the second quarter of 2020, the increase was attributable to higher sales volume and the expansion of unit.
Net margins, despite higher raw material and logistics costs as a result for the second quarter of 2021, the adjusted EBITDA margin for the chemical segment was 16, 5% up 620 basis points compared to the second quarter of last year.
Looking at the chemical segment results for the first half of 2021, the chemical segment.
<unk> revenue for the first half of 2021 was $411.3 million up $72.6 million compared to the first half of 2020. The increase was the result of higher sales volume and higher average sales prices associated with realization of price increases and favorable market fundamentals for the first half.
A 2021 chemicals segment sales volume was up 15, 1% versus the first half of 2020 sales volume for performance chemicals was up 13, 9% on strong demand on telfer and total derivatives and adhesive sales volume was up 14% driven by positive global adhesive demand.
Sales volume for tires was up 48, 2% compared to the first half of 2020, reflecting the rebound and post COVID-19 demand and increased sales into innovation based products. The chemical segment adjusted EBITDA for the first half of 'twenty, 1 was $65.8 million up $23.4 million compared to the first half of 2020.
Factors of the increase include higher sales volume associated with the rebound and post Covid COVID-19 demand and higher sales prices and unit margins associated with positive market fundamentals and strategic price actions.
Partially offset by higher raw material and logistics costs as such the adjusted EBITDA margin for the first half of 2.
2021 was 16% up 350 basis points compared to the first half of 2020.
Turning to slide 8 for a summary of consolidated results for the second quarter and first half of 'twenty 1.
As already noted second quarter 2021, consolidated adjusted EBITDA was $61.8 million.
Given the impact of factors, including turnaround costs and the impact of raw material inflation on margins. The consolidated adjusted EBITDA margin for the second quarter was 12, 5% the cost associated with a bare turnaround occurring approximately every 6 years had a negative impact of 340 basis points on.
Adjusted EBITDA margin for the first 6 months ended June 30, 'twenty, 1 consolidated adjusted EBITDA was $129.5 million down $17.9 million versus the first 6 months of 2020.
The adjusted EBITDA margin for the first 6 months of 'twenty, 1 was 13.9.
Percent.
This was down 490 basis points compared to the 18, 8% for the first half of 2020, principally due to the impact of the bear turnaround costs, the relative change and fixed cost absorption previously referenced and the impact of inflationary pressures all of which masked the 300.
Third 50 basis point improvement seen in the chemical segment margin and the first 6 months of this year compared to the first half of 2020.
With the cost of the turnaround now behind us and as we anticipate unit margin improvement and the second half of the year associated with further realization of increases and selling.
We expect improvements and the consolidated adjusted EBITDA margin and the second half of this year.
Second quarter 2021 diluted earnings was $1.11 per share and this compares to a loss of <unk> 25 per share and the second quarter of 2020 adjusted diluted earnings were <unk> 32 per share.
Price and the second quarter of 'twenty, 1 and this compares to <unk> 30 per share and the second quarter of 2020.
For the first half of 2021 and adjusted diluted earnings were <unk> 86 per share and this compares to <unk> 57 per share for the first half of 2020.
Turning to slide 9 for the balance and liquidity highlights.
Sure.
During the second quarter consolidated debt was reduced by $14.1 million and consolidated net debt was reduced by $11.5 million, including the $6.3 million and favorable impact of currency.
As previously noted the majority of our cash generation typically occurs and the <unk>.
Lights half of the year.
And as such we expect further debt reduction over the balance of 2021, and we therefore expect to achieve our target consolidated net debt leverage ratio of 3 turns or less by year end.
I hand, the call back over to Kevin a few comments on guidance.
As outlined in yesterday's press release and based upon our expectations for both demand and margin improvement and the second half of the year. We now expect adjusted EBITDA for the full year 2021 to be and the range of $280 million to $300 million.
We also expect our sales of solid isoprene rubber to be heavily weighted towards the fourth.
And fourth quarter and as such we anticipate a fairly even distribution of second half 2020, adjusted EBITDA between the third and fourth quarters.
I will now turn the call back to Kevin.
Kevin.
Yes, Thank you Adnan.
And as we've done in past quarters on slide 10, we.
Our near term outlook by geography and end use application.
As noted in our earlier comments on the global demand environment, Thus far and 2020 has been very favorable and our chemicals.
Chemical segment, we have seen a strong rebound in demand as well as improved margins both of which have been driven by fundamentals and the global vegetable oil markets, which has been a positive for our total sales.
He said markets, which has led to higher sales of tour and rosin esters and improved pricing and margins compared with the first half of last year.
These factors have resulted in improved financial results and higher profitability for the chemical segment, despite higher raw material costs and other inflationary pressures and <unk>.
Stated earlier craton continues to promote the overall pine chemical.
And just recovery through expanding innovation led growth and consistently encouraging adoption of truly sustainable pine chemical solutions to our customers to replace hydrocarbons for the benefit of all key stakeholders.
And our polymer segment, we continue to see solid demand trends across the breadth of the markets. We serve reflective both of solid market backdrop and.
And in Great times unique diversification and product offerings, while the inflationary pressures have continued into the third quarter standard earlier based upon improved pricing, we have achieved thus far and the third quarter and with the continued price actions. We expect to take we're anticipating margin expansion and the second half of the year. Once again, let me state that we have always maintain a critical.
And women of our price right strategy has been to consistently pass along inflation and a manner such that our customers can actually predict their behavior and while there's inherent lag and price realization and they can result in near term margin pressure and we can remind you that when the inflation turns to deflation and our pricing discipline typically allows us to expand margins for a period of time.
As a result of the foregoing, we do expect unit margin improvement for both our polymer and chemical segments and the second half of the year and we continue to actively address inflation through price increases for the balance of the year, we expect the favorable global demand trends to continue and therefore the stopped like chart on slide 10 for the first time is all green that said we of course remain mindful.
Full of the disruptive potential of COVID-19, particularly in light of the unfortunate spread the more contagious Delta virus Delta variant.
In terms of specific and Mac markets. We currently expect sales and do adhesive and packaging and consumer durable and general industrial applications to remain positive and these 3 and users account for a significant.
And polymer and chemical segments sales, specifically in terms of our adhesive business, which accounts for 27% of TTM revenue for our Chem segment and 21 per cent of our TTM revenue for our Poly segment E. Commerce continues to be a driving force and global adhesive markets supporting demand for labels tapes and other packaging products during the quarter, we had higher sales.
And Poor's I S into adhesive applications, and we continue to see favorable market adoption of our novel Revolution family of Rosin ester formulations, which is being driven by underlying market demand as well as the customers growing preference for biobased and renewable options to replace hydrocarbon based materials.
Furthermore, we're.
And on the midst of the summer paving season, and despite higher pricing for butadiene, and we're seeing good overall market demand and our north American and European markets.
Although we have commented on the headwinds presented by inflation and transportation and logistical costs in terms of our paving and roofing business. It has presented opportunities in 2020, 1 as the higher cost of trans.
Inspiration for producers and Asia to ship to the North American and European markets has resulted in lower export volumes and do these key markets.
Weather always remains an unknown at this time, we are anticipating a positive level of man for the balance of the season.
And lastly, despite the well known global chip shortage, we continue to see favorable demand into automotive.
Applications as well as on our tires business, where sales are more linked to OEM specifications and new vehicle sales.
Lastly, during the second quarter, we saw.
Higher levels of activity and oilfield markets, which has changed our outlook from neutral to positive.
In summary, we anticipate favorable trends and both volumes and margins across.
The breadth of our end markets exposures as we move into the second half of the year with the significant bear turnaround now behind us and therefore costs and completion timeline known.
And as we are now on to the third quarter and better able to calibrate our full year expectations for the critical paving and roofing season, we're in and better positioned to update our full year 2020.1.
<unk> for adjusted EBITDA as noted in Yesterdays earnings release, and is that and as shared with you. We now expect adjusted EBITDA for the full year of 2021 to fall within a range of $280 million to $300 million.
And those comments, we're happy now to open the call up for questions operator.
Thank you, Sir we will begin to question and answer.
Recession, if you would like to ask a question. Please press star 1 on your Touchtone phone. Please on mute your phone and record your name after the problem to cancel your request. Please press star 2 once again Thats star 1 to ask a question to cancel your request. Please press star 2.
Our first question would come from the line up Chris cash of loop capital markets.
And I was hoping please go ahead.
Yes. Good morning, you mentioned you touched upon this and some of your formal comments about the eases and market, but it seems like the demand for sure feeding that and market. It is notably strong, especially considering that it is.
<unk> and tackled by a supply surplus. So I was just wondering is there there's a shortage.
And Chinese gum, rosin and that may be contributing and you just talk about the dynamics there what is driving the outsized volume growth for the rosin ester based tack of buyers.
Is it more market strength or is revolution, starting to get beyond cannibalization and starting to take share.
Yes, Thanks, Chris.
And I don't think there is 1 answer I think there's.
On a multiple from a multitude of parts that go into that answer, but certainly your point about gum is true.
And that's structural.
Supply decrease or supply demand coming more on balance is favorable to us, but I'd also remind you that.
For free.
And on our focus continues to be innovation driving sustainability through you know the.
The comments I made earlier about about the positioning revolution in front of the.
And the OEM formulated such that they can appreciate the.
The the circular circular economy impacts of adopting revolution.
And so.
Yeah, we're definitely seeing examples where customers have opted to switch.
From a hydrocarbon to use revolution, and we think theres more to come and that's exactly how we positioned in the marketplace.
Right. Okay. Thanks for that and then my follow up question is more.
On the balance sheet and.
And just extrapolating a little bit here based on your implied second half guidance, if you think about.
Next year, you're you know and with.
And with some excess free cash flow.
And our leverage would be approaching mid twos.
With some growth maybe in EBITDA, and maybe even low too so.
And suddenly you may have excess capital and I'm just wondering what your thoughts are in terms of deploying that excess capital.
Are you inclined to.
Implement a dividend.
On our buybacks on the table what is what are some of the board's thinking on.
On that thank you.
So this is out on this.
I think as we.
Yeah.
As we go into next year and face the reality of it.
Continuous improvement and our.
On sheet and cash flow situation first of all.
Well, we've said that once we reduce debt to below 3 times.
And 1 of the areas of focus that we will look at and we'll continue to look at is obviously organic growth and we have a number of projects.
And those as you can appreciate would come in and highly accretive low multiples.
And that would be a priority for us obviously.
To to invest and our innovation and with respect to share repurchase that's something that will.
We will take to our board and would be a consideration.
Okay.
Thank you. Our next question would come from the line.
John Roberts of UBS. Your line is open. Please go ahead.
Thanks, and congratulations on the Echovirus platinum.
Thank you. Thank you.
Is there anything you can tell us about the strategic review, that's been reported and press.
Well I appreciate you asking the question, but great on we're not in a position.
And to comment on any type of market speculation or rumors.
Our focus continues to be on running the business and.
We're pretty proud of the results we've achieved so far and optimistic as I. Just described and there are comments about where our business is headed.
Okay.
On the comparisons with 2020, obviously your.
Affected by the pandemic if we.
Compared to second quarter 2019, pre pandemic chemical tons are up 18% and polymers are up 5% and tons I think could you give us some granularity on where some of the product lines are on a volume basis versus pre pandemic levels.
Well I think that Youre comparing.
Yeah.
I think you said second quarter of 19, so perhaps.
Less COVID-19 impact.
As I look if I just think back on 2019, though and I can still and think about particularly and our polymer business. We had a certainly a china impact.
It was a very much mindful for all of US in terms of what was happening with geopolitical challenges.
It was also probably not the best paving season that we had and the last few years. So we probably are.
Benefit now as you kind of compare that quarter versus this quarter, but overall I mean look and this.
<unk> continues to be evidenced in our view that the innovations that we're bringing to market are paying off in terms of market positioning the reliability of our service offering to our customers is something that we don't take lightly and we take very seriously and we always wanted to be in a position.
To be.
On the supplier of choice to our customers and then and I think about our chemical business specifically.
I think that the you know the the.
The total sales diversification that we've spoken to quite often continues to be a benefit.
For our portfolio of sales.
And of course, most recently you know we can now add the biodiesel aspect into that sales mix. So you know I think all these things are as a direct result of of what we work on it great on in order to position our business to succeed and good times as the backdrop of today's marketplace would indicate but also to.
To make sure that when Theres chimps and challenging headwinds and we do well is is as we can and that's you know kind of how you think about how we came out of this 2020 pandemic year positioning for our businesses future.
And then I'm thinking oilfield is probably still below second quarter, 19, and I didn't know with any.
Mix areas be below second quarter, and 19 or everything would be up versus net other than what I.
I don't know if I can answer this question, specifically because I'd have to go through each of each of the above segments, but again I call you to that slide 10, right now and I can't remember a time when we've had you know.
And the market dynamic that we've gotten all all grew.
Other Stoplight chart across to you know each of our key market segments. Okay. Thank you.
Yeah.
Once again, if you would like to ask a question. Please press star 1 on your Touchtone phone once again that is star 1 to ask some questions.
Yeah.
At this time, Sir I don't see any further questions.
There is another follow up question from John Roberts of <unk>.
Yes.
Yes, the mic is still mine.
Can you tell us where delta.
Alta Airlines is on utilizing the existing emergency use authorization from by axiom and do you expect any additional state level authorizations, where the next thing will be the federal action.
Yeah, I I can tell you that delta continues to.
And by axiom and use it and the facilities as expected.
<unk> so no change there, but as we've said all along.
And we're very proud of the section 18 with the 3 states involve of Georgia, Minnesota, and and Utah. We think this is just in many ways.
As a validation of the technology that we have to.
And sure that we can.
Absolutely take backs from into the marketplace with a full potential and that only comes from a section 3.
You know full approval from the environmental Protection agency and the.
Good news is we continue to work towards that objective as you as I said and my comments and.
And I don't think anything has changed and our view in terms of the market potential of of this attractive antimicrobial and I have said in the past that I think that the markets that and there are several markets that we including public transportation and billing.
The deduction and health care, but I think you know health care continues to present to us.
Probably the strongest opportunity because of the challenges that that oh that the industry faces overall and then secondly.
Air filtration, where there really is no offering.
<unk> today in terms of.
In terms of anti microbial protection of the of the filtered air there's antimicrobial protection of the.
Of the filter itself, but not of the filtered air and those are the kind of target markets and will be spending a lot of our time working on and the future.
And then secondly, it sounded like there were some timing issues.
And can strive supreme and what's going on there.
Well I think there were.
You know some supply disruption issues with respect to isoprene.
Probably shouldn't surprise anybody given the way this year started in terms of the cold snap and the Gulf region and.
It's been worked through and through time, but.
I'll also say that our Asia demand has been really strong and.
And that's where most of the isoprene in the world.
It is consumed so those 2 things and you know what it means for great. On obviously is is making sure.
Sure that through our strategic raw material supply arrangements you know we're in a position even when those challenges and headwinds come up to kind of pull levers from.
And their supply sources, where we have relationships in order to continue to be able to produce.
Produce the king.
Polymers that our customers.
We're looking for and air and high demand.
So that's probably what it reflects as much as anything but.
We've been through this before I'll, just say it as I said in my prepared comments and in terms of the challenges that you know tight raw material.
Markets present, and believe it or not you know if you're sitting on our shoes. It it's not all the challenge is it's a lot of hard work, but it's also what.
And a lot of opportunity and and and we view it as opportunity to really differentiate ourselves and the marketplace through our through our supply chain optimization efforts as well as you know the relationships. We have are there strategic raw material suppliers.
Great. Thank you.
Yeah.
Thank you our next question.
And he's come from Chris cash of loop capital markets. Your line is open. Please go ahead.
Yeah. The so the follow up question on the chemicals business and notwithstanding an updraft in the and the cost of our CTO feedstock you're in an advantaged position, there with availability and and this quarter. It seems you your derivatives.
EBITDA as you you ran more of that volume through your refining system.
Good day reselling the excess CTO you have so I'm just wondering if what was the governor of that decision and budgets.
And demand or more.
And.
And then.
With that I assume comes from unit cost benefit and I'm, just wondering about the sustainability of that benefit as you look forward over the balance of the year and into next year.
Sure Chris So I mean, we're always typically in a position where we're buying more CTO and that we consume.
That's.
Practice for us and a good position for us always to be and as we sourced additional CTO last year.
We then went to work on obviously, finding new market outlets for the derivative products because its on it and our interest and maximize the amount of material that we pushed through our refineries and.
That's a good and I think that's bearing fruit this year and that's kind of what youre seeing in terms of more of the rate of sales versus CTO and direct sales.
Yeah.
And I don't know any comment on that.
On sustainability of the unit cost benefit from that.
Yes.
Very much of a belief that those.
And those margins are sustainable and what Youre seeing.
This quarter is and really year to date is becoming more and more representative of what our view is on a go forward basis.
Okay, and then I just had a question about the.
The raw materials on that more on the.
On their side that butadiene obviously.
Sort of doubled recently and there's disruption.
From crackers down the Gulf Coast.
And so forth, but you don't seem to have you have not seemed to have any issues with availability.
And at least regarding.
Feeding your belt free, Ohio plant and so I'm just wondering what the strategy has been there what is that and.
And has that translated into an advantage.
For you guys. Thanks.
Look I'll go back to the same comments.
Question before you was about with respect to security of supply.
We've learned over time that security of supply is also a function of of diversity of supply and I think.
Always.
Not pursued the short term solutions, we've always looked at things much more longer term in terms of our supply arrangements. So that we can find ourselves in a position when there is a a market disruption as you point out there is today, 1 and much better positioned to continue to source raw materials, that's not to say.
We've not without effort and I'm posing some supply chain challenges from our team I I don't want anybody and great time to think that I don't see that because I do there and working tirelessly to ensure.
And our supply chains remain as on disruptive as possible, but nevertheless, I think it reflects some very good planning on our part and.
On the Gulf Coast.
Say that the interesting 1 and you know clearly most of the butadiene comes out of the Gulf Coast, but theres other butadiene supply sources and.
North America, and and that's where.
Great Tom.
On stride now.
Leverage that diversification.
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[noise] and at this time I don't see any further questions on queue.
Alright and <unk>.
Thank you very much.
We appreciate the interest of all of our listeners and participants.
As in the morning, and I just wanted to briefly remind you. There is a replay of the call that will start later on this morning and will be available through the middle of August and to access that replay you can dial 800.391.
9.8.
4.6.
And that concludes our prepared remarks.
And so to speak very much.
And thank you. This concludes the create on corporations second quarter 2021 earnings Conference call you may now disconnect.
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