Q1 2022 Ingevity Corp Earnings Call
Our IR team.
We will follow the agenda on slide three and John Unfortunately will start us off with a review of our key strategic themes for 2022 and with that over to you John .
Thanks, Barry and good morning, everyone before I begin I also want to welcome Donna Meredith to our IR efforts I know they will be a terrific resource for all of you on the phone.
I also want to recognize rich white, who is co president of performance chemicals will be speaking to the segments results. Today, we think the world of rich and know he will do a great job, leading and growing this business.
And Germany delivered terrific results. This quarter, we achieve these levels of growth and profitability, while focusing on our mission to purify protect and enhance the world around us.
First quarter 2022 was an all time record quarter for revenue and a record for first quarter adjusted EBITDA.
Our products touch many aspects of daily life, and sustainably improve the performance of materials all around us.
We saw strong demand across all our businesses.
Mary will shortly cover the financial results in more detail, but I want to thank the <unk> team for all their hard work this quarter.
If you turn to slide five I'd like to discuss some of our key strategic initiatives in 2022.
We delivered strong first quarter results in large part due to our ability to capture value for our products.
Both segments saw their revenue growth drop through to EBITDA.
In many instances our price increases have been necessary to offset inflationary increases that are impacting energy raw material freight and logistics costs.
We took quick action to optimize our mix of products, where possible to address raw material constraints <unk> logistics challenges.
<unk> and an improved mix of higher valued <unk> products in our performance chemicals segment.
Performance materials benefited from a positive geographic mix shift, but also from increased demand for our process purification products.
We continue to price our products based on their performance characteristics and the value that they bring to our customers.
Our products are typically sold and comparatively small quantities, but deliver outsized performance in the form of durability endurance safety and environmental benefits.
We continue to drive long term organic growth through innovation, we recently introduced new envelop wedding agents and into dry additives to the oilfield market to enhance emulsifiers used in drilling and production.
In the upper right of this page you can see a baker with a clear liquid.
Is that was run last week at our Crossett, Arkansas bio refinery.
Testing of production at scale is happening now and we expect to ramp up sales over the rest of the year.
The team at across it worked around the clock to get this process started up this alternative fatty acid is very high quality and we continue to work on this project, we should be able to drive revenue through product substitution and entry into new markets, while continuing to drive costs down.
And every product substitution allows us to sell more telephone.
We will continue to work with other non CTO oils to broaden our product offerings. This is a win across our value chain.
The polyol expansion into renter, while delayed a bit due to supply chain disruptions is on track for completion in the next few months.
In performance materials, we have had considerable success in growing increasingly more profitable opportunities and our process purification markets for customers. The addition of our carbon improves the efficacy of their processes, which in turn lowers their manufacturing cost.
Our sustainability profile is a competitive advantage and we see ourselves as a leader in this movement.
We sell products today with real sustainable value that generate strong economic profit now.
To demonstrate this in command higher prices in the markets, we need to generate the relevant data and research to achieve certain certifications a few weeks ago, we announced the results of our latest product study. This one on and agricultural disbursement Polyphone H <unk>.
The study was conducted by ESG consulting firm <unk> and found that the greenhouse gas reductions obtained by our products more than offset the greenhouse gases generated in their manufacturer by more than 120%.
Stay tuned for more of these studies as we continue to certify our products and their benefits from the planet.
We also recently received certification from Tuc, Austria for Marine Biodegradability related to our cap of thermoplastic products.
This is potentially a huge opportunity for in Germany I'm sure you are all aware of the issues associated with plastics in our oceans biodegrade ability will play a large part in solving this for future generations.
In addition in the first quarter, we joined the UN global compact as a participant in working to advance important social and environmental goals to improve our world.
And be on the lookout for our next sustainability report, which we expect to issue in the coming weeks.
Lastly, we continue to main our maintain our focus on operational excellence. This takes the form of first safety, but also resource efficiency and cost reduction. This is particularly important when there is uncertainty regarding raw material energy supply costs as.
As I've, often said we work on controlling what we can control.
We remain flexible and adaptive in an environment, where so much is influenced by economic and geopolitical distractions.
Auto production issues the war in Ukraine, and Covid issues in China are all part of a dynamic operating environment.
However, these types of environments present opportunities for us to differentiate ourselves from our competition by providing better and more consistent support to our customers.
As we move forward into 2022, we continue to focus on both near term execution and long term strategy, our future as a best in class specialty chemical company remains bright.
Our performance chemical segment has many secular tailwind tied to the sustainable nature of our products.
Our increasing use of alternative oleo based chemistries, coupled with important opportunities and engineered polymers that they had in traditional and bioplastic markets.
<unk> and <unk> with great opportunities to grow revenue and profits.
Additionally in performance materials, we are continuing to find promising alternative uses for our carbon while we support the auto industry transition to electric vehicles, we will continue to grow the business regardless of the exact rate of change in the auto transition.
We continue to develop and supply technologies to eliminate gasoline emissions on ice autos and our products will be a critical component and hybrid electric vehicles as that market grows across in Germany. We are also are using cap of products for noise reduction chances of Evs and our time based materials are increasingly being used to support lithium mining.
I am more confident than ever that in Germany, we will continue to grow and thrive with that I'll turn the call over to Mary to discuss our strong results for the quarter. Thank John Please turn to slide 10.
Here you see our impressive top line improvement with record sales up nearly 20% year over year.
Strong end market demand enables our sales and commercial team to act quickly to recover the substantial increases in costs, we experienced in the quarter.
For example, we saw increased logistics costs across all modes of transportation, particularly in Ocean freight where we bought some room.
60%.
Our gross profit was up over 9% year over year, while our gross margin declined due primarily to the mix shift in revenue and performance materials to performance chemicals. This quarter performance materials performance chemical represented 61% of sales as compared to <unk> 50.
6% last year.
We were able to hold our core SG&A flat versus last year despite record inflation.
Helped us important adjusted EBITDA, which was up about 13% year over year to $119 million, which is a record first quarter result.
Diluted adjusted earnings per share of $1 62 was up nearly 28% over prior year, reflecting primarily our increased sales and good cost management supplemented by a lower share count as we repurchased about one 5 million shares in the last 12 months was 600.
10000 shares in this first quarter.
Turning to slide seven as laid out certain key financial metrics and highlights.
In the top left chart ECR trend in revenue growth over the past few years our.
A record $383 million of sales this quarter are largely due to continued strong end market demand for our products and our ability to pass through cost increases and upgrade our product mix, where possible and we're happy to note. The paving season is off to a good start.
Free cash flow was slightly negative at quarter end, reflecting working capital increases primarily in accounts receivable driven by the strong sales.
Our leverage is stable at two two times within our target range, allowing us to focus our capital allocation on growth initiatives and opportunistic share repurchases.
As you can see in the bottom right chart, we spent approximately $28 million on capex in the quarter with over 40% of that funding growth initiatives, including the debottlenecking of the Capa lactone monomer line in Warrington UK and our alternative fatty acids project in Crossett, Arkansas.
Song.
Also we spent $44 million to repurchase 610000 shares I mentioned earlier at an average price of $66 26 per share.
We have approximately $262 million remaining under our existing board share repurchase authorization and expect to continue to repurchase shares as a core element of our balanced capital allocation strategy.
In summary, our financial results continue to be strong and we have the balance sheet and liquidity to support our organic and inorganic growth initiatives, while continuing to return cash to shareholders.
And now I'll turn it over to rich for more color on our performance chemicals segment results.
Thanks, Larry and Hello, everyone.
We'll continue on slide number three.
Our performance chemical segment saw strong revenue growth versus the prior year's quarter on solid end market demand and continued price improvements, particularly in engineered polymers and industrial specialties.
These increases were necessary to keep pace with a dramatic increases we are experiencing related to energy raw materials and shipping.
We continue to see strong demand across all of our business segments and are selling everything that we can make.
<unk> sales were up 30% quarter over quarter to $234 million.
Our engineered polymers business grew 34% as business increased pricing to offset inflationary costs raw materials logistics, and especially energy. Despite some Q4 'twenty one and has remained at a high level.
From a regional perspective sales in Asia for Caprolactam products for both robust in the quarter due to demand in automotive and UV coatings applications.
This was offset by a decline in the Americas with some polyurethane customers' experiences availability issues with key raw materials.
As mentioned earlier Steve.
Steve whom will be available for Q&A.
Industrial specialty sales increased 29% versus the prior year quarter with strong performance across all markets, particularly in oilfield adhesives.
End market demand and price increases drove a significant portion of the growth.
The supply demand dynamic for Chinese gum rosin continues to be favorable as the market for gum rosin continues to be tight and prices remained 50% above levels in late 2020.
The last two harvest seasons in a poor output. This provides support for increased pricing of all our tall oil rosin products.
The increase was supplemented by an improved mix shift to higher value derivative products as growth in hiring additives to open an EBIT markets outpaced growth in merchant <unk> sales.
We also saw a sharp increase in sales and customers.
Pavement technologies also had or payment.
<unk> had a record Q1 with sales up 30%.
While we did implement some price increase most of this growth was driven by improved volumes.
Business has commenced the payment season strong with much of the volume increases in Americas and Europe .
Performance chemicals EBITDA of $41 million in Q1 was up almost 30% versus prior year quarter, while our adjusted EBITDA margins remained relatively flat.
This speaks to how critical it is for us to react to inflationary pressures with downstream pricing to maintain margins.
I want to thank not only our sales and commercial teams, but also supply chain logistics customer service sourcing and operations for their excellent work in this difficult environment.
I will now turn the call over to Ed to discuss performance materials results.
Thanks, Rich if youll turn to slide number nine.
Sales for the performance materials segment were up five 5% at $148 million versus the prior year's quarter.
This is the second best quarter ever for the segment.
And the comparison to last year's quarter is a tough one.
If youll recall, the first quarter of last year was quite robust as the auto industry rebounded from the pandemic lockdowns.
The impact of the chip shortages began to take place shortly thereafter.
In the quarter demand for our automotive carbon and honeycomb products continues to be strong.
Prices were up versus the prior year.
And while volumes were generally flat ordering patterns are stable.
Growth for these products continue to be constrained by lower vehicle production globally, driven by ongoing supply chain challenges and the global microchip shortage.
North American vehicle production of $3 $4 6 million units was down three 9% in the first quarter versus last year.
Ed.
US light vehicle inventories remained very low in fact at the end of March they were almost half of what they were a year ago.
However, our sales were up due to price increases and product mix with an increased proportion of sales in North America.
Offsetting lower volumes in China were COVID-19 related shutdowns impacted production.
Our sales in South America grew dramatically in the quarter as Brazil has launched the implementation of its recognizee.
<unk> emission standards.
We expect revenue will grow progressively during the three year phase in as they moved to higher capacity onboard refueling vapor recovery canisters, while continuing to meet the stringent diurnal emission standards that will benefit from honeycomb systems in some cases.
In other regulatory news, we are encouraged by the recent comments from the European Commissioner for the internal market.
Indicated the new regulations proposal would be prepared for release in July .
With this we are anticipating implementation of new regulations in the EU in 2025 or 2026.
Also the outlook for a near zero standard in China for what May be termed China. Seven is still on track, we're anticipating implementation of our regulatory package that would benefit from honeycomb systems beginning sometime in 2027.
Our sales to process purification customers grew in the quarter based on volume and price increases the efficacy of these products and use as well regarded and we're able to leverage our long standing relationships to place volume when we need to.
Our results in this business also reflect our ability to adapt our manufacturing network to changing market conditions.
We are pleased with our performance in a very turbulent environment for.
For the quarter, our segment EBITDA of $78 million was up almost 6% versus the prior year's quarter and our adjusted EBITDA margin has remained steady at over 50%.
Based on IHS data, we estimate the impact to our first quarter from the chip shortage was approximately $8 million in revenue.
Which is less than what it was a year ago.
However, we also estimate the new disruptions such as other parts shortages and Covid related shutdowns had negatively impacted revenue such that the overall impact of supply chain and operational disruptions with similar to last year.
We expect microchip supplies to continue to be constrained throughout 2022.
Despite the challenges we had a very strong quarter and our operational and commercial execution was excellent.
I will turn the call back to John to discuss our guidance for 2022.
Thank you Ed on.
On slide 10, I'd like to review, our outlook and guidance for 2022.
We are adjusting our guidance for 2022 by increasing the top end of the range for sales to be between 1525, and $1 65 billion and adjusted EBITDA to be between 430 and $470 million.
These adjustments reflect that one quarter and we're off to a great start for the year demand across the company a strong <unk>.
Road paving has commenced and it looks like it should be a good season.
We have been successful in reacting quickly to in keeping pace with inflation.
If we stay on this trajectory it will be a very good year.
However, uncertainties do remain out there that could temper our performance in the year.
Auto production issues the situation in Ukraine, and Covid in China, all could impact the rest of the year.
Regardless of how things play out we are ready and we will be flexible to best serve our customers and maximize our profitability.
I am confident that in Germany, with our team focus on operational excellence and will deliver a strong performance this year.
In closing I appreciate I appreciate the ongoing hard work and efforts of our employees worldwide.
Really inspiring and be a part of this great team.
We hope you share our enthusiasm for <unk>, Germany and at this point, we'll take your questions.
Thank you.
If you would like to ask a question. Please press Star then one on your telephone keypad.
We will pause momentarily, while we compile the Q&A response.
Okay.
The first question comes from.
Tom.
BMO capital markets. Please go ahead, when you're ready John .
Yes. Good morning, Thanks for taking my questions and congratulations on a strong start to the year.
So I had a question.
Sure Adam.
Regarding the commentary around some potential new European Regs, I guess can you give us any insight if you have any as to the kind of level that that might push push Europe two would it get as high as kind of.
The tier two that we all kind of refer to is that is that kind of in the cards is it less than that I guess is there way to kind of.
Level set us on that.
Yes, John This is Ed what we're expecting from Europe is.
Our VR standard, which was a U S tier two type standard where you're capturing the refueling vapor emissions and returning those refueling emissions back into the engine.
We're expecting potentially.
Potentially some overall.
Vehicle emissions requirement as well that could drive. The addition of activated carbon honeycombs on those systems.
And we are obviously eagerly anticipating.
Outcome and what they decide to do in July .
Obviously, we will be able to respond to the capacity that's needed to be able to meet that demand.
And the other side is that it's a big uptick in revenue. If you think of the diurnal canisters that they're using today, we may have one to $2 of content on them with.
With the <unk>.
Requirement it would be anywhere from six to $9.
Got it.
That'll be huge if it comes out that way okay.
Okay. No that's great and then I guess the second question was more about capital allocation. So your balance sheets looking clean and it looks like you've got a really strong year ahead, assuming kind of the cash flows work out towards the back half of the other way I think they will you'll have you'll have enough flexibility.
<unk> for as much as.
$900 million or so of balance sheet flexibility, if you figure whatever leverage level up to three times or so which I think in the past kind of the peak of what you've looked for so when I think about opportunities in terms of deploying capital whether it's for.
Buybacks or whether it's for a larger scale M&A or smaller scale M&A I guess, how do you kind of lay out those opportunities.
See you.
Do you see chances for a larger scale M&A in your future or should we kind of stick to what we've seen over the last year or two which is little onesies and twosies investments in some of your existing business and buybacks how should we think about that.
Good question and I'll start with that one and John or others can chime in.
We've set long term target is that two to two and a half time.
Net debt to EBITDA, so we're consistent there.
We have elevated that.
Net debt to EBITDA when we found.
Acquisitions that makes sense for the company and expect we would do that again.
When I think about.
Our deployment of that free cash flow.
So for example.
We did say in our last call that cap organic capital expenditure would be elevated this year and to that $170 million to $175 million area. As we've talked about we have a number on theory exciting we think organic growth projects that.
From the expansion of Deridder.
And engineered polymers.
Various debottlenecking to continue to successfully meet demand et cetera.
And then as you'll note if you look at our share repurchases over the last couple of years anyway, we've deployed better than $100 million a year.
Through that Avenue as well so we continue to have a robust M&A pipeline.
Intend to be active in that space and are looking at bolt on acquisitions.
Which to me are kind of that small to medium size, but also as you kind of indicate we do have the capacity to look at some larger things. If we believe the street strategic merit warrants that.
John I think that's very well said I mean, the only thing I would add is.
Does feel John after.
A year year plus.
So.
Amazing a very active M&A market. It feels like the valuations are getting to a better place for strategic to really be able to create some value. So.
We're looking at and we're going to continue to look at it as Mary said, if we find the right opportunity.
A good position to do it.
Got it.
That's all helpful color, maybe I can sneak in one one last one just with regard to the Chinese gum rosin.
Situations, where it does seem like things are tightened and it's a good environment can you speak to the impact of China Lockdowns on that what that might be doing to the market as well like if it's either exacerbating things, where it's actually helping things I guess can you help us to frame that with a little bit of color.
Yes. Thanks, this is rich and thanks for your writing yesterday evening.
We are seeing this gum rosin market continue to be tightened and the lockdowns in China are not helping the folks can't get out in the field due to harvesting and we all know that the harvesting is due.
Due to start.
Later this month.
So we expect that the market will continue to be tight throughout this season.
Primarily because of the lockdown that because I'm not try in the harvest of products, but if everything associated with the lockdown.
Got it thanks very much for the color I appreciate it.
Thank you.
Have a question from Tim Anderson of Stifel. Please go ahead. Your line is open.
Good morning, and I'll Echo the congratulations on the quarter for sure.
Right.
But notice your commentary around adhesives growth has seemed to pick up more and more since <unk> was acquired.
Given a lot of their historical strength in that market was driven at least in part by Theres DSP derivatives portfolio can you maybe discuss the how and the why now of your push into adhesives, and what incremental investments you may be willing to make to support that growth.
Yes, I'll start and then I'll, let rich comment.
<unk> and <unk>, but I would not correlate that to the sale of <unk>.
It is an opportunity that frankly, we'd be pursuing whether they were still operating as an independent company or in their current configuration. The reality is.
They have historically been a much larger player in the <unk> market and we have.
But thats changing.
We see it as a high growth market and an opportunity for us too.
Be aggressive and provide value to customers, so youre going to see us to continue to.
Growing there, but I wouldn't relate it to the.
The situation with Craig Hallum.
And fair enough. Thanks. Thanks, Vincent Thanks for the question I'll, just follow up a little bit of view.
Have you been listening to us, which I know you have over the last couple of years are our participation. In this market has continued to increase we are active in innovation in this space and we continue to promote our products in this space. So it's just an area that there is plenty of room and there's plenty of demand and we're looking to participate in that.
Okay Alright perfect.
Just really quickly.
Comments that you've now started to make on the purification process markets.
I guess is any of that enabled by maybe higher prices on traditional activated carbon grades that have helped us kind of lift the.
The margin difference between automotive and process purification or is this.
This is really just focused on being able to maintain stable asset utilization rates and a volatile auto market.
Yes, Vincent good pull a boat, we obviously have a more premium powdered activated carbon than I would say what it by two minutes carbon our lignite carbon would be able to do.
Well, they do have lower margin profiles in our automotive product that allows us as you suggested where we can flex and flex out.
As auto volumes fluctuate as you said it does help us keep our plants running at full capacity.
Okay excellent if I could sneak in just one quick one you mentioned.
Pine chemicals going into lithium mining.
I believe is this.
It kind of a surfactant capacity. Okay is this just kind of like in a surfactant capacity.
Maybe related to some of the more unique ore bodies that are being developed or maybe more simply I guess would you just would you describe the demand as a rising tide or is there something differentiated about your products into those applications.
Yes, great Great question, Vincent and thank you for that.
Our products are used and flotation technology.
<unk> technologies, primarily in Australia, but all over the world and we see that trend continuing to increase with the increase that you are seeing with regard to the demand for lithium batteries.
All right excellent. Thank you.
Thank you.
The next question comes from the line of.
Ian Zaffino.
Please go ahead.
Thank you very much.
I just wanted to touch on China, one more time.
Are you.
Determined how much lost sales you had in the.
A quarter and then maybe what your expectations are going forward with lockdowns on the material side.
So I have a follow up ones.
Yes, Ian its Ed.
We did see a decline in the back half of March.
Lockdowns began to kind of propagate.
Obviously, youre aware that that Lockdowns are propagated as well into April so may most.
Most likely.
Likely have some impact to our revenue in China due to those issues.
That being said there are a lot of incentives that the government is putting in place.
Their expectation and my team's expectation in China.
We'll make up the loss production in the back half of the year.
Okay. Good thank you and then.
Did you guys give us maybe some of your updated thoughts on the infrastructure Bill kind of winding through the system right now.
What do you expect what areas in your paid and should do well, but any warehouse.
Pointed out and.
What kind of your updated expectation alright. Thank you.
Yeah. Thanks. Ian This is this is rich certainly we know that that infrastructure build is rather large one two trillion. We do know that 110 billion have been.
Directed towards highway bridges, and roads and expect that the second half of this year, we will see some positive impact across our pavement business is still a bit too early to tell but as you notice. This bill will be in effect between now and 2026, but primarily within payment and not so much in the other segments that we participate in.
Yes.
Alright, Thank you very much.
Thank you.
The next question comes from the line of.
John Campbell Lang from FBR.
<unk> Securities Your line is open.
Good morning, and thank you.
And again congrats on an excellent.
Thanks, John .
Yes.
Good work.
My first question is just looking at the Q1 result.
I know you can't just annualize them and expect to get at a full year number but that would get you to the high end I know you'll get paid.
<unk> recorded a net are you just tell me what youre seeing directionally as you enter Q2.
If there is any headwinds we should be thinking about that caution I know, there's lockdowns in China, but maybe break it down by what you're seeing in auto.
If there is any.
Everybody else is happening out there in input costs that we should be aware of that keeps you from.
From doing better than what it should be even stronger for it.
Yes.
All right.
Ross This is Jon.
We do the same math you do correct.
And it is true that typically Q1 for this company is about 20% plus or minus a little bit north of 20.
Our sort of overall year EBITDA contribution right.
And look painless if.
The current environment remains.
We are going to have an incredible year alright.
The issue is we're one quarter into a year and it's been this way the last couple of years, where Theres just a lot of volatility a lot of unpredictability right. I mean, I don't think anyone December 31 thought that there would be award in Ukraine.
Yes.
No one really knows exactly how thats going to play out right.
Feels like it's a little bit of a stalemate, but it's hard to know right and.
The same is true with Covid in China.
For the last two ears Covid has not really been an issue in China, because they haven't been locked down but they've locked the country.
They sort of circled themselves in a mode right and.
So we're just being we're a quarter and it's going to be.
Things continue it's going to be an incredible year, but as Ed alluded to I mean, there's a little softness right now in China.
Months.
I think if things shake themselves out then it will snap back and we'll get there but.
We've also never seen seen COVID-19 in China like this right. So.
And it does seem that they are trying to ask sort of a zero COVID-19 policy theyre very aggressive about walk in this stuff down. So we'll just have to see how it plays out but.
You can tell hopefully sitting here today, we feel pretty good.
But if we just kind of early in the year.
Okay Fair enough I understand that my second question is.
Marine biodegradable certification interests me.
Can that be a standalone raw materials.
For CPG Cogs or how would it be using solar and kind of what does the market potential standalone.
Standalone right, but it is an important certification because as people work on.
Plastics that are biodegradable, particularly in an ocean environment.
Our product offers them in an additive that provides efficacy and all the things that.
Capital provides a somewhat but they know that it will degrade in the ocean it potentially could be huge for us because this is a big challenge for the plastics industry writ large you can talk about recyclability.
On land, but when something goes in the ocean.
Youre not going to catch it all right. So.
As a huge opportunity and open up opens up a pretty broad range of technologies that are working to solve this problem. It puts a cap to the four of that.
Great. Thank you for that.
Thank you.
Your next question comes from Daniel Rizzo with Jefferies. Your line is open.
Hi, everyone. Thank you. Thank you for taking my call.
The new standard in Brazil that security implanted over the next three years is that going to be more like a tier two standard or something different.
Yes, Dan Youre.
<unk>.
There is 40 years of the program VL seven changes. So the first year is 2022, when it is effectively a dire it'll requirement.
It's a rather strict diurnal acquirements.
More strict than what China has and probably equal to what the U S. EPA tier two was.
<unk> five gram emissions so that.
That basically has to be on all vehicles going forward from this point.
In 2023.
VR systems will begin phasing in of 20% phased in in 2023, 60% phased in in 2024 and 100% by 2025.
And similar to what we talked about with Europe .
Brazil going from a small diurnal canister with granular carbon with potentially 50% to 100% increase in capacity by going to additional sized canister, but also a shift from granular carbon pellets.
And we do think because of the dire it'll.
Requirements, there may be some opportunities for a honeycomb.
In the Brazilian market as well.
Okay, and then I guess, along the same lines.
I mean, I know, it's a few years away, but the new.
I think you saw the China, seven thats potentially nonscheduled for 'twenty 'twenty seven that would be I assume full tier three and will require a honeycomb scrubber scrubber or something else I was just wondering if you could provide color on that.
Yes.
The us tier three requirements it would require hunting coatings on all internal combustion engine vehicles.
And Thats, what then thats, what they're proposing.
Yes, it's going to be basically mirroring mirroring the U S tier three requirements.
Alright, Thank you very much.
Yes.
Okay.
Thank you Danielle.
The next question is a follow up question from Chris Pappas.
Capital markets. Please go ahead.
Yes. Good morning, My question focused on the performance chemicals segment.
Yes.
Obviously, it seems like there is.
Long demand, partly because of the gum rosin situations and tightness there and so was curious if therein lies an opportunity to increase your refining network throughput.
What I've noticed following you guys and great time for years is that.
The governor of the of the optimal rate.
How much demand there is for tour, so as not to overproduce hopeful given the fracs.
Fractions in the CTO feedstocks, it but it seems like with.
Your commentary about strong toward demand that there may be some headway for.
Higher rates and it seems like there is ample demand for both total and derivatives. So I'm wondering how you're thinking about this dynamic and what's sort of baked into your guidance around that.
Situations.
Yes.
Gross.
Yes, no. It's a good question.
So look.
Thought rich said it best in his commentary.
We sold everything we could make right and we sold them at very attractive prices.
As you know.
Those are the sort of continuous production nature of these refineries your inner ear in a game of what I would call sort of a value profit maximization.
On an ongoing basis right. So you are looking at how much you run through the refinery Youre looking at with the end markets are and how you're trying to optimize that mix. It is true that.
Historically, we run to rosin, that's the term we use right.
But that dynamic is even somewhat flexible depending on the relative pricing relationship between Copa and tour right. So all of this kind of goes into our mix.
<unk>.
To answer your question, we will continue to be aggressive in sourcing our raw materials and running the refinery as hard as we can.
I do think Chinese gum rosin is obviously, helping <unk>, where we've been in years past, but I would not over.
Emphasize that relative to the aggregate demand in the marketplace right.
It is definitely helps that there.
No.
Hum.
Had a tough couple of years, but I think the bigger opportunity for us.
Is really the <unk>.
A core strength of the demand in our end markets right and as we shift to things like adhesives, and our mines kind of up tier our end markets youre going to see that performance hopefully continue to improve.
Got it and then sort of a follow on on the on the PC segment and from a higher level, one and one that you could certainly put back on.
The security analysts.
Judgment, but curious your thoughts on the improvement in the.
The business cadence.
The outlook for the PT segment, if your view is that.
This is truly structural improvement in the industry driven by things like ESG and in end market demand for certain applications or.
Some of it's more cyclical cyclically oriented given that maybe even the gum rosin situation, obviously, the former would underwrite a stronger valuation for these pine chemical assets than what we've seen.
In the past in the latter might say well, we should discount what could be a peak earnings cycle.
In the business just curious about your view of structural versus cyclical improvement.
Thanks.
And believe in the former I believe that what is different about this industry.
And I think it has permanently changed.
Is there because of the advent of Biofuels.
You have.
You have formed are there now exists a step function change in the level of demand that will exist for our end products right and what's going to happen is is that our traditional products or.
There are more sort of chemistry oriented if you will are going to have to compete.
For telephone tour.
If they want to use that right. So we.
We do see this is I mean look there are obviously elements of cyclicality in all businesses oilfield is really doing right.
And that's because oil is back up in the.
North of a 100 Bucks right. So there are elements of that but I think what's different.
Macro level, it's probably missed by some people is this sort of step function in demand that's occurring.
Across our products gum rosin, if it has a gangbuster year could.
Impact us, but ultimately we've got a lot of new places.
Where we can put our product. So I just think we're in early innings of what's going to be a multi year sort of transition that we intend to benefit from.
So.
That's very helpful. Thank you John .
Okay.
Thank you we now have.
<unk> mismatch.
Right.
Your line is open.
Yes.
Thanks, Mike Good morning in the performance chemicals business. Your EBITDA margins were almost flat, but prices were up probably a lot. So just curious how your reserves just look on an EBITDA per ton or EBITDA per pound metric.
On a year over year basis.
Yes.
They were they were pretty pretty.
So to speak.
Our stable, we would like to say certainly the price.
Benefited our overall performance in the business.
And we expect that to continue throughout the remainder of the year.
Got it and just a follow up I don't know if you commented about that earlier, but how does your maintenance schedule looks like for the rest of the year for the two segments.
Yes, we havent Youre right we will.
We can put that out for you guys, but maybe you can let each of the segment has to go through their different businesses. So yes, we have some smaller plant shutdowns and move across that.
De Ridder and Charleston between during the second half of the year and those are just scheduled maintenance outages that were going to be.
Yeah, and then for the materials segment, our biggest facility in Covington, Virginia, and we've got an outage scheduled in may for that one.
Got it.
Good.
Just a quick build muscle.
And more recently hub.
Scheduled outages for both May and October .
Sure.
Okay.
Anything else Josh.
That's all I had thank you very much.
Thank you.
Sure.
We now have a follow up from Vincent Anderson with Stifel. Your line is open.
Yes. Thanks, I just wanted to ask you alluded to larger strategic M&A not being off the table.
I am curious, maybe a larger oleo chemical portfolio would make that strategic bill just given the early success and your alternative fatty acid.
Or would something larger really have to meet a higher hurdle in terms of specialization or our business mode like what Kathryn provided it.
Well I'm going to we're not going to comment about our individual targets, but.
So obviously, it's very it should be clear to everyone that we're very focused on oleo based chemistries and we will look at both organic and inorganic opportunities as they present themselves.
Alright Thats helpful. Thank you.
Thank you we have another follow up question from Jim <unk> of BMO capital market. Your line is open.
Yes, thanks for taking a follow up I got one or two just left so first would just be on the pavement side. So it's off to a really strong start would you say that's a function of a weather was great and so we've made hay, while the Sun was shining or is it more a function of of the stimulus dollars finally kind of getting to the finish line and actually states and.
<unk> kind of putting that to work.
Hey, John Thanks for the follow up question noticed stimulus dollars, having having made their way into any of our.
Demand as of yet and as I mentioned earlier, we expected in the second half. So this was just strong demand driven by both America and Europe .
It wasn't pre buy it was just earlier demand because of the weather as you alluded to.
Off to a great start, but as you know the majority of that business or that season comes in the second and third quarter.
Got it no that makes sense and then the only other question I had was when I look at the performance materials segment I look at the price mix and that was whatever to one in terms of a contributor to EBITDA and then the and then the Cogs was actually was bigger than that it was a $2 three hit so.
So it kind of implies that the pricing didn't necessarily keep up with inflation. I guess first is that a is that a proper read on it and second how should we be thinking about how that may that may change as you push through the year do you have more pricing to kind of keep up with inflation or how should we think about that.
Yes, so we do have prices coming into the market.
The year.
We also are.
Heavily focused on the mix shift that we're seeing through Brazil, but also obviously.
Mostly monitoring what's going to happen with China, because that will ultimately be a hope.
Hopefully a good swing at the back half of the year.
And.
With the logistics issues that we have we've just got to make sure that we're able to supply in China. So that they can meet that surge in the back half.
Got it thanks for the color I appreciate it.
The thing as you know John you ought to be careful on a quarter on quarter look in this company right.
So just be mindful of that and just every individual quarter in every given year, particularly the last couple of years have just been very unique right. So there's a lot of noise in these when I look at these charts it's hard.
Yes, no thats fair enough, maybe putting it just a different way do you feel like you've got enough pricing in the business to offset some of the inflationary pressures yet or is there more work share them in the higher end performance materials for sure.
<unk>.
And look as you know I mean, the mix changing mixes and geographies can be quite impactful in that business right because you've got.
Very different.
Very different requirements in each regime right. So.
Yeah, I mean, we're.
We're in a good spot.
Yeah.
Got it thanks very much for the call I appreciate it.
Thank you.
There are no further questions at this time sang Mary Hall.
Turn the call back over to you.
Yes. Thank you breakout that concludes our call.
You for the great discussion and for the interest in in Jeopardy, and we will talk with you again next quarter. Thank you.
Thank you that does conclude today's call you may now disconnect your lines.
Okay.