Q2 2022 Ingevity Corp Earnings Call
It's a commitment to jointly develop technology for electric vehicles that will use our activated carbon to enhance battery performance.
So we have long stated the performance characteristics of our carbon can be used in a variety of high value added applications and this one is particularly exciting as an entry point for our activated carbon into the growing electric vehicle battery market is.
As next young grows this market could be a very significant source of volume demand for our carbon.
These transactions demonstrate our ability to identify and execute on growth investments.
We are committed to maximizing shareholder value in utilizing our resources and a strong balance sheet to support growth.
Before I turn it over to Mary as you saw announced a few days ago, we made some changes to our board of directors.
Added two new board members Williams, locum and shown right both of whom bring great experience to our board and will be key contributors and advancing our long term strategy.
Mike Fitzpatrick, who has been on the board since our spin is retiring we want to thank Michael for his years of service to the board.
With that I'll turn the call over to Mary to discuss our consolidated results.
Please turn to slide five.
As John mentioned second quarter revenue was a record for the company growing at just over 17% year over year and market demand remains strong for our products and our teams were successful in driving price increases to recoup the inflated input costs that continue to rise during a quarter or so.
Apply chain and logistics teams continue to do great work and navigating the congestion and delays in the various delivery networks their creativity, and frankly dogged persistence optimized our ability to meet customer needs.
Gross profit was up nearly 8% year over year, while our gross margin declined about 300 basis points. This decline was due to some margin compression in each segment and also the mix shift in revenue from performance materials to performance chemicals.
Performance chemicals margin compression was primarily due to lower volumes attributed to raw material availability and plant downtime, particularly in engineered polymers that rich will discuss.
While performance materials margin compression was primarily due to the mix shift within performance materials from automotive carbon to process purification, which Ed will will review.
In addition performance chemicals represented 71% of total sales in this Q2 as compared to 65% last year as performance chemicals revenues grew 28% year over year, while performance materials revenue was down about 3% due primarily to low.
Sure auto production in China.
Or SG&A, which excludes depreciation and amortization was up a bit in total dollars due primarily to higher labor related costs, but was lower as a percentage of sales.
Our strong top line growth drove our second highest quarterly adjusted EBITDA of $121 1 million and our diluted adjusted EPS of $1 73 is up over 11% versus last year.
Turning to slide six you can see our positive sales trajectory good free cash flow generation and stable leverage you can also see in the bottom right capital allocation chart that we've been active the last few years and using our strong free cash flow to return cash.
To shareholders spending around $90 million year to date to repurchase approximately one 3 million shares.
By the end of Q2, we had used about 300 million of our outstanding 500 million board authorization for share repurchases. So last week, our board refreshed the authorization to allow repurchases up to $500 million.
Turning to the transactions that John mentioned, the purchase price for Ozark materials is $325 million and its expected to close in Q4, hopefully early Q4, rich will give you more color on the business and strategic fence.
Financially, we estimate that this business will contribute approximately $150 million of revenue in 'twenty 'twenty three with adjusted EBITDA margins of approximately 20% and it is expected to be immediately accretive to earnings.
As John mentioned, Ed will speak to our $60 million investment in Nexsan limited, which is a strategic investment to diversify the end markets for our automated carbon this investment gives in jeopardy of minority interest in Nexsan as well as the seat on their board.
The next day on investment was completed in July using cash on hand.
We expect to fund the acquisition of Ozark materials with a mix of cash and borrowings from our recently upsized revolving credit facility.
Initially we expect our net debt to adjusted EBITDA leverage ratio will be in the mid to high two times area, but we also expect our free cash flow generation will allow us to be back within our targeted two to two and a half times range within six to 12 months post close.
Phil, allowing for other capital allocation choices, including share repurchases.
In summary, we continued to deliver solid financial results and strong free cash flow, our commercial and financial discipline enabled us to execute on our organic and inorganic growth initiatives, while supporting a balanced capital allocation strategy.
That includes returning cash to shareholders and managing to a prudent debt level and now I'll turn it over to rich for more color on our performance chemicals segment results.
Thank you Mary and Hello, everyone.
Turning to slide seven our performance chemicals segment, so our record revenue growth versus the prior year's quarter on solid end market demand and continued price improvement, particularly in engineered polymers and industrial specialties.
These increases were necessary to keep pace with a significant cost increases we're experiencing related energy raw materials and logistics, we continue to see strong demand across all of our business lines segment sales were up 20% quarter over quarter to $298 million.
Speaking for Steve or engineered polymers business had a solid second quarter with revenue growing almost 21% versus prior year. This.
This is largely due to necessary price increases to help offset inflation in raw materials logistics, and particularly energy we continued to see strong demand across most product lines.
Isolated temporary weakness in some markets due to the inability of our customers to source specific raw materials.
In the quarter, our ability to meet all customer demand was constrained by unplanned downtime, resulting from the inability of our strategic partners to consistently provide energy and raw materials.
Given our market position, we believe that this is creating pent up demand for Teva products, which should benefit the second half of the year barring further disruption.
We are very excited about our deridder polyol capacity expansion project and expect it to be up and running in August with commercial sales late Q3 early Q4.
As mentioned earlier, Steve will be available for Q&A.
Industrial specialties had another record quarter with sales up 38% versus prior year quarter sales growth in our adhesives oilfield and lubricants businesses were all up over 50% versus prior year and averaging double digit growth versus Q1 of this year.
While this was primarily due to price increases to help offset inflationary cost we're able to maintain buzz in these key markets. These gains are a direct result of our team's success in optimizing our product mix by focusing on higher value derivatives markets things.
Payment technologies had a record Q2 with sales up 15%.
While we did implement some price increases most of this growth was driven by improved volumes.
Season is in full swing with much of the volume increase in the Americas.
One was chemicals EBITDA of almost 66 million in Q2 was up 16% versus prior year quarter, while our segment EBITDA margin was down 230 basis points, which we attribute to the timing of pricing actions supply.
Supply chain constraints and lower volumes impacting our plant throughput our team remains focused on improving and maintaining margins in the second half of the year.
I would like to thank our entire performance chemicals team for their continued excellent work.
I'll now turn the call over to Ed to discuss performance materials.
Thanks Rich.
As you can see on slide number eight sales of the performance materials segment were $122 $4 million.
Down two 9% versus the prior year's quarter.
With global Auto production down we are proud of our team's ability to quickly pivot to process purification markets to keep our plants running at near planned utilization rates, helping to deliver solid results.
Sales of our automotive activated carbon products were down compared to the second quarter of 2021, reflecting the impact of China's COVID-19 related shutdowns in April and May and the cascading negative impact on global vehicle production.
We are optimistic about the second half of the year as we see encouraging news out of China.
For example, China has announced the introduction of multiple auto related incentives at all levels of the government.
Some Oems have announced incentives as well.
License plate limits are being increased and major cities for internal combustion engine vehicles.
As well as incentives by the central government, reducing the purchase tax on these vehicles by 50% with some Oems further reducing the purchase tax on internal combustion engine vehicles to a near zero tax level.
I also want to thank our China team for their continued dedication during such a challenging time.
Outside of China, we saw significant ripple effects of the China Covid related shutdowns throughout the global automotive production supply chain and particularly in neighboring countries.
Art supplies for vehicle production were constrained due to their reliance on China auto parts production further impacting our sales in Asia Pacific, While we estimate that chip supply constraints continued to have some negative impact on auto production.
The effects of the China shutdowns in April and May on global Auto production in Q2 were the primary driver negatively impacting our activated carbon sales.
In North America, we saw increased volumes in automotive carbon as North American light vehicle production was up 13% versus prior year quarter.
Process purification sales were higher as volume was up and we were able to increase prices to capture more of the value of our highly differentiated carbon.
Segment, EBITDA was $55 $6 million down nine 3% versus prior year period on lower sales.
Second segment EBITDA margin was 45, 4% as our segment product mix shifted from our higher margin automotive carbon to process purification volume.
Turning to slide nine as John mentioned earlier, we are thrilled to be investing in and partnering with Nexium as part of our strategic focus to expand in markets and our performance materials business and to gain a technology footprint in the electric vehicle.
Market.
There are a lot of participants in the electric vehicle battery market working on different parts of the value chain.
Nexium is one of the four or five that are emerging as leaders in the <unk> space.
They are unique to others and that they're focusing on a silicon anode to drive better battery performance, including shortening the charging times and extending the driving range as compared to todays batteries that have graphite anodes.
While silicon is known to provide up to 10 times, the energy storage capacity versus graphite it's.
Its use in lithium ion batteries has been limited by the tendency of the silicon to swell and damage the internal cells of the battery.
We started working with <unk> to test our activated carbon as a substrate for the silicon <unk>.
Silicon activated carbon composite anode enables higher levels of silicon to be effectively incorporated in the lithium ion battery, while mitigating the potentially negative impact of swelling.
In jeopardy, sustainable wood based activated carbons are already showing promising results with <unk> patented technology.
[noise] seeding test parameters Pep parameters, and we are working with them now to develop and commercialize this application.
Our long track record of meeting rigorous automotive industry quality standards and commercial scale volumes make us an excellent partner for Nexium as they strive to meet their aggressive long term goals.
This collaboration will evolve over the next few years with any significant volumes coming in middle of the decade.
But we view this as a tremendous opportunity and we are excited about our future goal and how we can impact this realm this rapidly developing market.
I'll turn the call back to rich to discuss our acquisition of Ozark.
Thanks, Ed.
As already mentioned by John We are certainly excited about Ozark become a part of the <unk> family and expect to close on the transaction in Q4 this year.
I would like to spend a couple minutes, taking you through an overview of the strategic rationale a summary of the industry the business and why we feel that Ozark as a unique fit for in jeopardy.
On slide 10, we provide an overview of the transaction, which is mostly already highlighted in the comments by both John and Mary.
This transaction is the culmination of over a year's worth of work and an output of a strategic exercise we undertook with respect to our payment technology has been.
This is the strategic rationale on slide 11 is focus on six areas.
The moves performance chemicals downstream and closer to end customers.
<unk> full toward diversification of our product offerings in core segments.
What was that comes with a strong growth and margin profile.
Expands on our logistics capabilities are in jeopardy.
Allows for the opportunity to leverage the respective strengths of both corporations and provides a foundation on which to further build and expand.
We believe that this transaction further strengthens our position in two key segments of our business payment technologies, and adhesives and expect that it will serve as a platform on which to grow.
On slides 12, and 13, you will see more details about the paving margin industry and ozone.
Ozark as a leader in the North American payment, marking industry, which is estimated to be on the order of one point.
$5 billion.
Industry is comprised of thermal plastic coatings paint and pre fall and thermoplastics for the highway on traffic markings industry with each playing a specific role in the market.
As we have discussed in the past in jeopardy tall oil rosin is using thermoplastics coatings and provides enhanced chemical resistance and increased retro reflectivity versus alternative technologies.
Who's our specializes in each of the applications and is headquartered in Greenville, Alabama with roughly 200 employees spread across five strategically located facilities. They also have a fleet of trucks that serve as the business as well as third party customers.
If we go to the final slide.
You'll see that why we believe <unk>.
Our materials business is a unique fit within Germany.
We have previously discussed the increased government spending and the benefits to our business. The same can be said about ozark.
It also provides a platform for the cap the abusive in jeopardy Rod.
The Ozark team has done a wonderful job on product development, and we expect that leveraging that expertise with our in house capability will keep us on the front end of technology.
The broad network axis, we currently have with our payment business will help further expand the Ozark brand in the marketplace.
While still early we believe there will be opportunity for margin expansion once post close and we have had the opportunity to further leverage our combined strengths and the capture and then capture the common valuable ownership.
We're certainly excited to welcome the Ozark material team to indemnity and look forward to closing the transaction later this year.
That I will turn the call back over to John to discuss guidance and closing remarks. Thanks rich.
With another strong quarter behind us we are reiterating our guidance on slide 15.
End markets appear healthy across all of our businesses and in the second half of the year, we expect to benefit from the recovery of auto production. Additionally, we expect to see a reacceleration of growth in engineered polymers.
We have not seen signs of a recession in our businesses, yet and if we stay on this trajectory we should finish the year at or even above the high end of our guidance for both revenue and EBITDA.
However, we are monitoring the market carefully and recognize that many believe a recession may happen in the second half of the year.
Those who follow US know we are conservative by nature. So we're factoring that into our guidance and we will be prepared as a company. If we see demand begin to weekend.
Before I turn it over for Q&A I wanted to mention that we have a new chief Human Resources Officer, Christine studio, who joined US last month from host hotels and resorts Kristina that's more than 20 years experience and she will be instrumental in continuing our commitment to diversity equity and inclusion drawing the best talent to in Germany, and helping to develop our employee.
Both professionally and personally.
Thrilled to have her on our leadership team and welcome Christine.
That will take your questions operator.
Yeah.
Thank you.
That will begin to <unk> session.
If he would like to ask a question. Please press Star then the number one on your telephone keypad.
We'll pause for a moment to compile the Q&A where stuff.
Yeah.
Yes.
Yes.
Your first question comes from the line us.
Vincent Anderson of Stifel. Your line is open.
Thanks, and good morning, everyone.
And I know this.
Hi.
I know this question has definitely premature.
But if I just look at what next year is claiming for energy density and just kind of throw some back of the envelope math that you know what what share your carbon might be.
It's a normal cell economics, I'm coming out to numbers and kind of the low hundreds of dollars of in jeopardy product per electric vehicle.
Compared to the tens of dollars you get today on Ics.
I'm not looking for a blessing on that but am I out of line thinking that this could be looking at multiples of per vehicle revenue versus your current business.
Yeah, Vince this is Eric ripple that that.
That math is headed in the right direction.
Lot of it depends upon the size of the battery for the vehicle and so that can range from a smaller vehicle. The fifth 50 kilowatts to a Tesla truck that's 250 and so if you get up to the 250 size you certainly are getting in the range that you talked about the average that we would see you know it's kind of 75 to 100 on a vehicle.
Certainly multiples of what we're selling on a vehicle today.
The reality, though Vincent is obviously as we said in our script I mean, but.
This technology will take several years to develop and commercialize an area of the market.
We're pretty excited about it because.
As we sort of look at our business portfolio and our exposure to the automobile industry and this provides.
<unk> as internal combustion demand might slow that we are very hopeful that this demand will accelerate right, but you are correct that.
It could be very significant volumes for us depending on the market share that maxion debts, and and you know there's a lot at work here, but.
It's a great opportunity for us.
Sure No that's that's.
Very helpful. Maybe.
Maybe just turning over to Ozark is is there any more detail that you could give on the magnitude of the opportunity to move more of your raws and into pavement markings like you know where they already a large customer of <unk> prior to the acquisition and then just maybe a part b to that is there also an opportunity to incorporate your specialty polyol into the you know the pavement markings biz.
Uh huh.
Yeah, Vince we see that there'll be some opportunities for extension of our raws in into this market or Ozark has only been a customer for us for a few years now, but what we do so you see some extension of our RASM going into that business.
Great. Thanks, and if I could just ask one last quick one and I'll get somebody else to a turn here.
In Capa.
What are you learning maybe for the first time here about the price sensitivity of demand for that product in such a high inflation environment I'm thinking along the lines of customers potentially trading down out of cat Blackstone or just how does.
Does that demand Ben.
Yeah, I appreciate that but I think look.
But the issues or the slower I don't want to say issues, but the slower growth in this quarter versus Q1, and where are we expect for the rest of the year was really due to operational inefficiencies at the site right the demand for the product.
It remains very very very robust and one of the nice things about that product is once it sort of scoped into an end market application, it's hard to scope it back out and substitute right.
So we don't see a pricing pressure issue.
We need to get the operational change kind of worked out we had some as you can imagine over there in Europe , you know some issues with some raw materials et cetera, but from where I sit that re acceleration is already underway they seem to have that behind them.
Alright, perfect. Thank you.
Yeah.
Thank you Sir.
Your next question comes from.
John kind of limiting some piece of <unk> Securities. Please go ahead John .
Hey, good morning, everyone and thank you for taking my question.
My first one is on net and they do seem to have a very interesting product.
Do they have design wins, the off take agreement to support a potential adoption scenario than a threat.
One and second do you have to build additional facilities to support them. If they are successful.
Yeah. So so yeah.
So to your two questions. The first is they do have offtake agreements signed with with customers. They are in the process of <unk>.
Qualification and that takes several years in the automotive industry, but they have several very large Oems that they are successfully moving down the pathway for that and then secondly, you know relative to our facilities and the.
Carbon supply for that we have a we have a process.
Process purification volume, that's available to sell them and and as you know from the earlier question, we anticipate multiples of volume on a vehicle and there's a need to expand our facilities in the future we'll be prepared to do that but it would be John some period out yep Yep.
We might do some work at work with to help.
Do some some you know some debottlenecking and some work at Wycliffe to help facilitate us but you know just this will be several years out.
And it is a product that we have made.
Yeah.
This is what they've tested and in the U K and they've had great success with the products that we sent to them and so you know obviously, we're we're thrilled that we already have a product that can meet most of their needs and ultimately our objective is to.
Get our product to meet all of their needs.
Got it that sounds very exciting my second question just on Ozark that 20% EBITDA margin you have for next year does that include any potential synergies in it or is that before you get into the weeds with that number I guess the second part what what is the potential logistics business within the company it seems like a bit of a.
Noncore things out there.
So so theres no synergies involved right synergies and then and the numbers that we've given right I mean, we obviously anticipate that and we will as we work and refine and take ownership of the company Theres lots of opportunities and we will quantify those hopefully by the time I get to our Investor Day, and then close don't don't want it.
Closing is that right.
But listen the logistics business I mean, it's listed because it's sort of a separate entity as a part of the acquisition, but it's a fleet of 71 trucks right that help them move their product around them and it helps bring helps support the customer, but we have opportunities. There I mean, we're already looking at you know maybe when they back haul back.
They bring anything then from the renter.
Easy Ana facility. So you know in this type of business environment.
Having that kind of logistics support can be quite helpful across the network. So.
But we're you know we're not going to be focusing on that as a third party logistics company if that's what.
You're worried about.
No.
Got it understood it and do you have a sense what was the historical growth.
The entire business just for a reference.
Pretty robust, okay, and but we you know what I think were sort of prepared to sign up for right. Now would you guys. As you know we see it is on top of multiples of G. D. P M.
But it does have a very strong track record of growth and we think the business has a lot of tailwind behind it they've done a great job getting a position for sort of the next wave.
So I'll just standby for more.
Understood. Thank you guys.
Thank you your.
Your next question comes from the line of power attached mid South bound back your line as a comparator.
Thanks, Ron and good morning for next year, what are some of the near term golf and projects that they're working on and is there any specific use for that $60 million of proceeds.
For them.
Yes, So you know as we.
As we announced in the press release, our near term action is continuing to work with them on the development of an activated carbon for their application that'll be you know our goal over the next couple of months, we have a product that.
And it's been approved in and it just we have a little bit of refinement to that relative to the $60 million is nexium.
<unk> also made an announcement today that that's to continue their their development efforts and to prepare for full production of the product in the next couple of years.
Got it and then can you comment about the soy based product development in the performance chemicals business any updates on that project.
Yeah. We're we're still very excited about the alternative fatty acid capability that we brought online as we mentioned at the end of our last call. Good Cross the facility is up and running and we can we don't give numbers, but we can tell you that a.
Second quarter was record sales for us in that space, but we expect expect to continue to grow up in that area and I'm very excited about everything that the team is working on and the customers that are being are interested in the product well, we're actually already working on another original oil as well so were beginning to push beyond soy based products.
Yeah, and you know it takes a while to get product substitution certified and but we do see this as being a meaningful part of our platform going forward.
And when we look at it from a derivative standpoint, it is being applicable in our payments business and our oilfield business and our lubricant business and not just in some historical a merchant type businesses. So we're really excited about that that work that's going on.
And if I could just add a quick follow up on the recent sell off in some of these commodities.
Does that change the economics of that business are not so much the cost of quality.
For your product is.
It's kind of very differentiated.
Well it does.
It's a complicated question parents hospital good one right.
It does change the quality of our pine chemical our legacy business. If you will for a couple of reasons. It does have better performance characteristics. So in some applications.
It is more valuable if you will to the customer because it gets better and better.
Color on the Gartner scale doesn't have an odor.
The Allen somewhat but then theres other markets, where it's not it doesn't work right, but net net it's very much a positive for us the other benefit we get from this is when we do run this sofa.
We can take that tofu and put it into other applications right. So other derivatives applications. So we sort of get a double whammy benefit right and you know as rich works to take cost out of this process and scale of this business is just going to continue to make the margin profile better.
Yeah.
Got it thanks, Sean.
Thank you.
We now have a question from Mike Sison of Wells Fargo. Your line is open.
Hey, good morning, Ah Congrats on a good quarter in and these.
These transactions look great, but so just a quick question in terms of Nexsan.
You know your base activated carbon business he had an advantage.
Using sort of wood to make your activated carbon is an advantage here relative to the other.
No car activated carbon players I know some of the others have talked about getting into evs as well I'm not sure. If it's a similar application but it is there is it is there a sort of tech not technically.
[laughter] technology advantage what's.
What's your feedstock to make to activate covering for that for the Evs.
Yeah. Thanks. This is Eric Thanks for the question there absolutely is advantage there they're really two one is the.
The fact that our product is sustainable and so you all the battery manufacturers want as much sustainable chemistry and their batteries as possible. So that gives in jeopardy of unique advantage with our blood based carbon and then the second is as a cost advantage compared to some of the alternatives for using silicon and batteries.
Using our activated carbon will give <unk> on a cost advantage to be able to expand their revenue and grow faster as a company.
Got it and then.
Yeah.
Along with this expansion of the there's all sorts of them.
Right, Yeah, I mean, it and using it as a in general is a scaffold to control the expansion of Silicon is the core advantage of the activated carbon usage.
On the on the anode.
Got it.
And then just a follow up on on Ozark materials.
Is I'm just curious who the competition is it are you.
Competing against them.
I think companies like <unk> of the world and and as this is the same market that there's still a lot of.
Smaller players that if this initial deal works out while that you could continue to roll up.
This this industry in and add some growth.
Yeah as you as you mentioned there there is a very regional play in this market, where there are a lot of regional players that participate in segments of the North American Mexico in Canada for that reason and it could be a platform for which we can build upon going forward.
You're right, though I mean, you know in a slant it will compete against Dennis plant in certain marketplaces, right, which is now owned by PPG to answer the first part of your question but.
One of the attractions is what you described Mike which is it's pretty fragmented marketplace a lot of operators across the geographies as Richard alluded to so there theres good opportunities for us to grow this business organic and in organically at a N a.
You know at a good pace.
Overtime.
Great. Thank you.
Thank you Mike we now have a question from Daniel Rizzo of Jefferies. Your line is open Danielle.
Good morning, everyone. Thank you for taking my questions if.
If we talk about the orphan drug.
Acquisition, and a $20 million I'm, sorry, the 20% EBITDA margins.
How does that compare to payment technologies margins is it roughly similar a little higher a little lower.
It is it is not as good as pavement technologies, but at where we are sort of at the adhesives right. So.
The idea is to improve that margin profile as we work to sort of better integrated into our platform and bring it closer to our salesforce et cetera et cetera.
Okay. Okay, and then if we think about the back half of year was with cost and pricing I don't know if I missed this but is it are we expecting things kind of even out from here, probably a plateauing with both or are we still playing I mean, we still expecting some appreciation and a corresponding price increases.
We have not we.
We have not seen.
The peak yet in our raw material and logistics costs. So we did see in Q2, if you look kind of sequentially. We did see the slope of the line if he will dampen a debt so the pace of increase.
<unk> was lower but but still increasing so we're cautious about that you know again, what we said is once that once that trend peaks and stabilizes and hopefully raws and logistics costs begin to come down we hope we can get a little margin expansion, but.
Again, we are not seeing that yet so we are continuing and continuing to push through price increases to offset the rising costs.
If and when to cost do rollover, how how meaningful our price concessions and in the different segments.
Yeah, I mean, well.
Find out.
I mean, there's a game [laughter] is this the game most chemical companies play right when when the cost began to trend. The other way we will have to give some back on price or we would expect to but well hold onto it kicking and screaming and as long as we can and with the.
Objective is expanding the margin one other advantage we have going for us.
It was because because of the you know the.
The market demand and everything just how dynamic the market has become and the rising CTO prices, we have probably jettisoned.
While a number of our mix is much better right, where we are and how can I do unfortunately stop supplying some of our lower margin customer. So our belief is is that as we do roll in the market rules when and if.
We should be in a better position.
Does the customers that were selling to today are more derivatives.
Okay.
Thank you very much.
Thank you.
Now have Ian Zaffino from Oppenheimer. Please go ahead when you let Ian.
Hey, Good morning, this is Alex on for Ian.
First question on the material side I know you mentioned, you expect China auto production to sort of ramp up to normal levels in the second half of year, I guess, assuming fewer shutdowns could you provide some insight into what you've seen with production and customer activity either in China or Europe through the end of the second quarter into the third quarter, but have you seen any.
I guess it prevents at all from the first half of the year.
Yeah I think this is Ed I can talk about the China issues. If you. If you look at what happened in April May and June .
Kind of shows what the trend so in April vehicle manufacturing was down 44%.
May was down like 1% and then June it was up 35% and so they basically through the quarter swung through the problems that they had in their back operating it at full rates too.
<unk> generate a lot of vehicles to take advantage of the incentives that are being pushed into the marketplace.
Okay, great that makes sense briefly on on the Capex guidance that was unchanged from the $1 55 to 175.
Would you be able to just sort of lay out the the projects within that that Capex and then I guess are there any investments going to be made in the Ozark business along with that.
Well, yes, so I mean look we are.
We're maintaining our guidance with regards to where capex is that truthfully raw material availability for some of these projects mikes jurors to the lighter end of that just because where you know you gotta get the steel to build their stuff out right, but you know the major projects.
We have to finish as the polyol expansion Deruiter right and then we've got some work going on but with relatively modest numbers.
And crossover Arkansas as you work on the alternate fatty acids, and then believe it or not we've got a nice four implementation that has some capital them off too. So that's where we're spending the money that.
We do not anticipate.
Any significant capital being injected capital expenditure being injected in the near term into Ozark.
And you might be looking at the cap the capex number on online the financial chart to you know if he.
Double that considering we're halfway through the year it looks like it's coming in lighter a part of that is our normal trajectory as well most of our Capex does get spent in the second half of the air.
Okay got it thank you congrats on that.
No.
In a larger more philosophical but it helps all of the things that we like about maxion is.
As we work to expand carbon availability for them our ability to actually offer a variant, but not too distant variant if you will that carbon into other markets.
Is good so to some extent, we see that as a derisk or if you will because as they work to expand capacity to support them. We do have the opportunity to use that capacity for other things.
That's a longer term answer but it's important.
Yep, Okay. Thank you very much.
Thank you and we now have Chris <unk> from loop capital markets. Please go ahead, when you're ready Chris.
Yeah, Hi, good morning, just a follow up on the earnings progression and performance chemicals really you touched on this in prior you talked some about pricing versus raws, but I wanted to parse it a slightly different way.
In terms of the inflation in Cogs.
So being the thing even is that as you mentioned the pace of inflation has slowed just wondering if the predominant contributor there is the energy component of P. T O and then in terms of you know more than passing along those cost via pricing just curious if that dynamic is more pronounced.
In Copa Visa B tour or is it pretty comparable across.
The various product in the derivatives.
Well, let me start with just a comment on the waterfall for PC, if that's what you're looking at one one thing that.
Sometimes escaped our attention is and the volume impact is.
On a revenue and EBITDA.
Is called out there and that one bar, but in Cogs, the plant throughput and impact of lower volumes is in that number. So when we're looking at Cogs on these segment waterfalls.
The main drivers of these big you know the big Red numbers is raw materials as you mentioned, but also to that's where plant throughput additional costs associated related to lower than expected.
The expected volumes shows up so it does and inflate that Cogs number if you will somewhat.
And then I wasn't really sure about the other part of your question.
Yeah.
Yeah. So just curious if you're able to get pricing through partly justified by higher raw material costs, presumably I'm just curious if that ability to pass along that pricing is comparable in the sofa complex as it is the tour.
Or in other words as pricing and mix better in one of those product lines versus the other.
Or is it comparable across the board.
Yeah No. That's that's a good question you mentioned CTO earlier and just based on the CTO you know for for this year you know the majority of business is contracted right. So as we look to produce more and we have to get seats you on a spot basis that CPO prices have inflated that being said in the.
Current condition that we're in we have been able to to obtain the necessary price on both of our tour until the products are tuned to to be able to justify us getting that spot CTO prices, but going forward. We expect our CTO will continue to in place for all the reasons that we've discussed previously but then the second part of his question.
As I understood. It is okay. So then were paying more for the C. T. O are we able to pass those.
Those costs through on the telephone and tour and do we have more better price leverage in Tulsa versus tours at about the same its about the same because as John mentioned earlier, we moved away from the merchant type sales to more of the derivative type sales, which we did we get better economics.
That's helpful color and maybe just as a follow up could you just.
Provide any context to what the dynamic is currently or recently with the gum rosin industry is it you know.
As an alternative to to.
Pine based raws and thank you.
Yeah. That's that's a that's a good question certainly we've been tracking gum rosin for a long time and as you all know that we're in currently in the middle of the harvest season recent data that has come out from from Rosin and Rguest shows that the the current Chinese pricing has dropped a bit versus Q1, but it's still greater than 50%.
What the price was whenever that is slow in early 2020.
So.
Chinese gum rosin prices still high trending lower than it was when we last talked I'm not sure where it's going not sure where it's going when we got to keep our eye on and we'll know more as it goes up the rest of the year.
Thank you.
Thank you we now have a follow up question from Vincent Anderson of Stifel. Your line is open.
Yeah. Thanks, I just wanted to go back to Mike's question earlier for some clarification you.
You know you mentioned the environmental footprint of your carbon and what next yard is doing with it that is unique but historically you've talked about your carbons pore size or blend of pore sizes and your ability to control that mix as differentiators in and your other.
Patients are those not as relevant in and the battery world.
Yeah. Vincent this is Eric that's a great question and it's a key T. A factor for next year, but it's really our ability to control the pore size of our carbon that gives us a unique position in them and to be a good partner with them. So that's one of the one of the important aspects that will be working with them going forward.
Yeah, and I'd add to be able to do that at scale is ultimately important as well.
Okay perfect that was it.
Thank you Vincent we haven't they found the questions on the line so I'd like to hand, it back to Tony for some closing remarks.
Everyone that concludes our call I appreciate your interest in in Jeopardy, and we'll talk with you again next quarter.
Thank you for joining that does conclude today's call.
Have a lovely day and you may now disconnect your lines.
Yeah.
Yeah.