Cabot Corporation

Hello, and welcome to the Q4 2021 Cabot Earnings Conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star, then the number one on your telephone keypad. If you would like to withdraw your question, press the pound key. Thank you. I would now like to turn the call over to Mr. Steve Delahunt. Please go ahead, sir.

Thanks, Lisa. Good morning. I would like to welcome you to the Cabot Corporation Earnings Teleconference. With me today are Sean Cohane, CEO and President, and Erica McLaughlin, Senior Vice President and CFO. Last night, we released results for our fourth quarter of fiscal year 2021, copies of which are posted in the investor relations section of our website. The slide deck that accompanies this call is also available in the investor relations portion of our website and will be available in conjunction with the replay of the call. During this conference call, we will make forward-looking statements about our expected future operational and financial performance. Each forward-looking statement is subject to risks and uncertainties that could cause actual results to differ materially from those projected in such statements. Additional information regarding these factors appears under the heading Forward-Looking Statements in the press release we issued last night and in our annual report on Form 10-K for the fiscal year ended September 30, 2020, in subsequent filings we make with the SEC, all of which are available on the company's website. In order to provide greater transparency regarding our operating performance, we refer to certain non-GAAP financial measures that involve adjustments to GAAP results. Any non-GAAP financial measure presented should not be considered to be an alternative to financial measures required by GAAP. Any non-GAAP financial measures referenced on this call are reconciled to the most directly comparable GAAP financial measure in a table at the end of our earnings release issued last night and available in the Investors section of our website. Also, as we do typically each year, I would like to remind you that over the next several weeks, in connection with the vesting of restricted stock awards issued under our long-term incentive equity program, officers of the company will be selling shares to pay tax and other obligations related to their rewards. I will now turn the call over to Sean, who will discuss the fourth quarter and full year highlights. Erica will review the business segment and corporate financial details. Following this, Sean will provide closing comments and open the floor to questions. Sean?

Thank you, Steve. Good morning, ladies and gentlemen, and welcome to our call today. At this time last year, I talked about being prepared to win as the recovery takes hold, and I think 2021 is evidence that we were prepared. Fiscal 2021 was a remarkable year for Cabot as the business recovered from the 2020 COVID lows to deliver record results. We accomplished this through a combination of extraordinary execution and our commitment to driving growth through differentiated investments. I would like to spend a little time now recapping the accomplishments of the year. The Cabot operating model is built on the foundations of commercial and operational excellence, and our strength in these disciplines drove our outstanding results in fiscal year 2021. We delivered record adjusted earnings per share of $5.02 and total segment EBIT of $550 million. And our focus on cash resulted in a record discretionary free cash flow of $353 million. The macro environment in 2021 required resilience and agility, and I'm very proud of the Cabot team and how they worked tirelessly to support our customers' evolving needs. Serving our customers and innovating to grow with them is what motivates our team. This was made more challenging in 2021 given the myriad global supply chain disruptions that companies face and the fact that necessary COVID safety protocols continue to evolve and adjust our normal ways of working. Additionally, companies experienced sharply rising input costs, which required dynamic commercial management. Our teams worked closely with our customers to manage through this environment, and we were successful in our pricing efforts to ensure our margins remained robust and we could invest to support our customers' long-term supply needs. Fiscal year 2021 marked the sixth year of our Advancing the Core strategy, and I am very pleased with our record of execution and the growth prospects for our company. Adjusted earnings per share has grown at a compound annual growth rate of 11% since the inception of our strategy, ahead of our 7% to 10% target. A growth focus built around our core segments and disciplined execution have been the hallmarks of our approach. As pleased as we are with the results since 2015, I am even more excited about the growth opportunities that lie in front of us and the progress we made in 2021. Our growth strategy is built on a philosophy of investing from positions of strength and where we have what we call a right to win. A few highlights from 2021 are particularly noteworthy. Our unmatched portfolio of conductive carbon additives and our strong customer-focused model resulted in a doubling of revenue in our battery materials business year over year. We are progressing with the specialty carbons conversion of our plants in Shuzhou, China, and this investment will provide growth across our broad range of specialty carbon applications and will free up additional capacity to support battery materials. Our inkjet business is well positioned to capitalize on the shift in the commercial and packaging segments from analog to digital printing, and we achieved multiple OEM qualifications in 2021 that set us up well for growth as inkjet presses penetrate these markets. And finally, we continued with the execution of a project to build a specialty compounds production line in Cilugan, Indonesia, which will allow us to meet customer demand for Black Master Batch in this high-growth region. While growth and execution are highlights from 2021, these accomplishments have been achieved with sustainability at the core. We continued our sustainability journey in 2021 with several noteworthy accomplishments. First and foremost, we committed to align our disclosures with the recommendations of the Task Force for Climate-Related Financial Disclosure, or TCFD, and we engaged a third party to help us evaluate climate risks and opportunities following the TCFD guidelines. We intend to share the results of this work in the coming months. While the operating rhythm of 2021 was challenging, I am very proud of our performance in employee safety. Our total recordable incident rate of 0.34 keeps us firmly in the upper echelon of chemical and industrial companies. We also completed a major air emissions control project at our carbon black manufacturing facility located in Louisiana. This investment in control technology will result in improved air quality through the substantial elimination of nitrogen oxides and sulfur dioxide emissions, and will ensure that we can support our customers' supply needs in a sustainable fashion over the long term. In addition, waste heat from the plant is being recovered and used to generate up to 50 megawatts of co-gen power without creating any additional emissions. In August, we announced a new $1 billion revolving credit facility that has pricing that is based on the company's credit ratings as well as our performance against annual intensity reduction targets for sulfur dioxide and nitrogen oxide emissions. The transaction reinforces our commitment to sustainability and was one of the first sustainability-linked revolving credit agreements in the U.S. chemical industry. Lastly, as a chemical industry, we need to attract the next generation of talented and diverse candidates into our field of chemistry. In support of this aim, Cabot is taking part in an industry effort to support the Future of STEM Scholars Initiative, or FOSSE, which focuses on creating pathways for students at historically black colleges and universities to enter and succeed in STEM careers within the chemical industry. This initiative will have a lasting and transformational impact on the students and our industry. and we are proud to be an inaugural sponsor. Overall, we had a very successful 2021 in terms of financial performance and progress against our strategic objectives. This well-rounded performance is a testament to the positioning of our portfolio and our exceptional team. Now a few comments on the fourth quarter. I am pleased to report solid fourth quarter results with adjusted earnings per share of $1.11. This performance was 63% above the same quarter last year, despite the effects of the semiconductor chip shortage and ongoing global supply chain disruptions, as well as a higher level of maintenance spending due to the timing of turnarounds. We also continued the momentum of battery materials and ended the year with EBITDA in our previously communicated range of $15 to $20 million. Cash flow from operations was strong at $100 million in the quarter, despite the impact of higher raw material prices. I'll now turn the call over to Erica to discuss the financial results of the quarter in more detail. Erica?

Thanks, Sean. I will start with discussing results in the reinforcement materials segment. During the fourth quarter and full year of fiscal 2021, EBIT for reinforcement materials increased by $8 million and $167 million, respectively, as compared to the same periods in the prior year. The increases were principally due to higher unit margins and higher volumes. Higher margins were driven by higher spot pricing, particularly in Asia. The higher volumes in the fourth quarter and full year of fiscal 2021 were due to a strong recovery in all regions from the COVID-related impacts in fiscal 2020. The fourth quarter results were also impacted by higher costs associated with plant maintenance. Globally, volumes were up 6% in the fourth quarter as compared to the same period of the prior year due to 6% growth in the Americas, 5% increase in Europe and up 7% in Asia. Higher volumes are driven by strong demand in all regions as the replacement tire market remain robust. Looking at the first quarter of fiscal 2022, we expect a sequential increase in EBIT from a decrease in fixed costs with lower plant maintenance spend and as volumes are expected to increase modestly sequentially as demand for replacement tire remains solid. Now turning to performance chemicals. EBIT increased by $20 million in the fourth quarter and $93 million for the full year as compared to the same periods in fiscal 2020, primarily due to improved product mix, stronger volumes, and higher customer pricing. The stronger product mix was driven by an increase in sales into automotive and conductive carbon applications in our specialty carbons and compounds product line. Pricing improved year over year in our fume silica product line, particularly in China. Year-over-year volumes in the fourth fiscal quarter increased by 2% in performance additives and decreased by 8% in formulated solutions. Volumes were impacted during the quarter, largely due to two plan outages, as we discussed on last quarter's call. The segment experienced increased maintenance costs in the fourth fiscal quarter as expected, but these higher costs were offset by $7 million of insurance proceeds related to a claim from earlier in fiscal 2021. Looking ahead to the first quarter of fiscal 2022, we expect sequential volume growth as one of the impacted plants came back online and a positive benefit from growth in our battery materials product line. We anticipate higher input costs in the first quarter that will temporarily impact results until our latest round of announced price increases and surcharges can be fully implemented to recoup the rising costs. Moving to purification solutions, EBIT in the fourth quarter of 2021 increased by $4 million compared to the fourth quarter of fiscal 2020, and full-year EBIT increased $7 million. The increases were driven by lower fixed costs from the sale of the mine in Texas and the related long-term activated carbon supply agreement and a favorable impact from improved pricing in our specialty applications. Looking ahead to the first quarter of fiscal 2022, We expect EBIT to decline sequentially due to seasonally lower volumes and higher maintenance costs due to planned turnaround activities. I will now turn to corporate items. We ended the quarter with a cash balance of $168 million, and our liquidity position remained strong at approximately $1.3 billion. During the fourth quarter of fiscal 2021, cash flows from operating activities were $100 million, which included a working capital decrease of $4 million. Capital expenditures for the fourth quarter of fiscal 2021 were $80 million, and additional uses of cash during the fourth quarter were $20 million for dividends. During fiscal 2021, we generated $257 million of cash flow from operations, including an increase in net working capital of $222 million. The working capital increase was largely driven by the impact of higher raw material costs on our inventory balances and accounts receivable balances as we pass higher costs on to our customers in our pricing. The increase was also partially driven by the growth in our business year over year. Capital expenditures for fiscal year 2021 were $195 million, which included both our targeted growth investments and the spend related to U.S. EPA compliance projects. We expect capital expenditures in fiscal 2022 to be between $225 and $250 million. This estimate includes continued U.S. EPA-related capital compliance spend and increased spending on growth projects related to high-confidence, high-return areas of the portfolio. The growth-related capital includes completing the conversion of upgrading our new China carbon black plant to produce specialty carbon. which is planned to come online in the second half of 2022. In addition, we are executing on a new specialty compounds unit in Indonesia and have planned growth capital related to capacity expansions in battery materials and inkjet. Additional uses of cash during the fiscal year included $80 million for dividends. The operating tax rate for fiscal year 2021 was 27%, And we anticipate our operating tax rate for fiscal 2022 to be in the range of 27 to 29%. I will now turn the call back over to Sean.

Thanks, Erica. As we look ahead to 2022, I'm excited about the growth opportunities in front of us. Let me take a couple of minutes to share with you our priorities for the upcoming year. First, we will finalize our 2022 Tire Customer Agreements and we remain positive about the outcome as security of supply remains the top priority for customers. Demand continues to be strong and is projected to be robust in all regions. Inventory levels are low across the value chain and global transportation flows remain challenging, all of which are placing a greater premium on local supply. Second, We'll continue to advance a broad portfolio of strategic growth investments across the company. In battery materials, we plan to expand capacity at our Carbon Nanotube facility in Zhuhai, China. Additionally, the aforementioned specialty carbons conversion of our Shuzhou plant will provide 50,000 metric tons of growth capacity across specialty carbons and will free up our network to support growth of battery materials. We also expect to complete our new specialty compounds production unit in Indonesia later in the calendar year 2022, which will enable us to build on our strong position in the high growth ASEAN region. And finally, we intend to build on our track record of execution by delivering earnings growth and strong cash flow while maintaining our investment grade rating and industry leading dividend. I hope this gives you some color on our priorities for 2022. I'll close out my prepared comments today by talking about our outlook for the year. Clearly, we are pleased with the momentum coming out of fiscal 2021, and we feel very good about how the new year is shaping up. We expect to step up in reinforcement materials starting in the second quarter based on an expected positive outcome from our 2022 customer agreement. We anticipate improved results across all product lines in the performance chemical segment, with above-market growth in our battery materials and inkjet product lines. Based on this, we expect adjusted earnings per share for the fiscal year 2022 to be in the range of $5.20 to $5.60. The first quarter results are expected to be generally in line with the fourth quarter, with results accelerating as we move through the year. On the cash side, we anticipate strong free cash flow from year-over-year earnings growth, partially offset by an increase in working capital to support growth. Cash flow will be used to fund advantage growth investments, dividends, and opportunistic share repurchases. Overall, I'm very excited about where we are as a company and where we are going. The growth opportunities we have in front of us are better than they have been at any point during my time as CEO. The long-term fundamentals of our businesses are strong, our end markets remain robust, and we continue to execute at a high level. Looking ahead, we believe we have a winning formula, a talented team, an excellent portfolio of businesses set for growth, and a strong balance sheet, all of which position us to deliver on our strategic objectives and continue to grow and lead in our industry. Thank you very much for joining us today, and I will now turn the call back over for our question and answer session.

At this time, I would like to remind everyone, if you would like to ask a question, please press star, then the number one on your telephone keypad. Your first question comes from the line of Josh Spector with UBS.

Yeah, hey guys, thanks for taking my question. I guess first, I just wanted to ask on reinforcement, if you could maybe go through some of the puts and takes as you look at 2022. So specifically thinking about, you called out higher Western pricing. We had some China price benefit earlier this year, and then also some benefit of, I assume, higher volumes and higher oil. How would you kind of bucket those as you think about growth over the next year?

Sure. Hi, Josh. Good morning. Well, I think first and foremost, tire production is expected to grow next year, and so we expect demand will remain robust and in line with demand. with long-term trends here. So I think that's important. Inventory levels still seem to be very low across the whole value chain. And again, the replacement market remains very robust. So I would say that's the first point. Second is related to our entire customer agreements and how those settle out. Where we sit right now, Our view hasn't changed on this. Supply-demand fundamentals remain favorable in both the Americas and Europe and no capacity additions online. And again, you know, pretty strong demand. So we would expect these markets should remain pretty tight. And so as a result, you know, we would expect a positive outcome from the tire agreements. Now, the third point is where oil prices go. Oil prices definitely moved up, of course, as you know, through the year. And generally, when oil prices are higher, we earn more on our technology yield investments and on the benefits from our co-gen energy facilities. And so if oil prices sort of stay high, at elevated levels, then there'd be really no change from the exit rate of where we are. So I think it really comes down to demand and how our entire customer agreements end the year. Those would be the two biggest movers and why we're optimistic on this segment.

I guess I assume you won't be willing to quantify any earlier view of where those tire agreements come out at in terms of EBIT contribution to 2022 versus 2021?

No, we're still in the process of those. And so when we complete that, then we'll be sharing more detail on our look as we normally do.

Okay, thanks. If I could just ask on China specifically, What are you guys seeing? I guess, did you guys have any direct impact from any dual control measures? Or broadly, have you seen any material impact on supply or demand in that region?

Yeah. The China environment certainly has been dynamic as the country is pursuing a zero COVID policy, and that can cause some lockdown-related impacts you've probably read about. and there certainly have been power shortages that impacted many parts of the country. Our volumes in the last quarter were solid, and we navigated through this situation well. We did not have any supply disruptions, so this allowed us to serve our customers well in the quarter, and margins held steady. So I think certainly some factors to manage, but we seem to be managing those quite well.

Okay, thank you.

Your next question comes from the line of Mike Leathead with Barclays.

Great, thanks. Good morning, guys. I guess first, Sean, can you maybe just talk a little bit more about how you're thinking about the phasing or the cadence of the 22 EPS guide? I truly appreciate it's still very early in the calendar, but just how are you currently thinking about when some of those near-term disruptions fade? And how fast do you expect earnings to accelerate as we kind of move through the year?

Sure. So as we commented, we expect that Q1 will be largely in line with the Q4 level and then a step up beginning in Q2. I think the best way, Mike, to think about that step up is from a few specific actions. The tire customer agreements, as you know, are on a calendar year basis. So those will kick in in January, as they always do. So I think that's one important element of the expected step up. The other is that consistent with views in general around the semiconductor chip shortage on automotive production, while there are impacts flowing through for tire-related value chains right now. It's expected to improve as we progress through 2022, and so that's our view on that one. So that's a second point. Third is we're continuing to build momentum quarter over quarter in our battery materials business, and so that naturally builds as we go through the year. And then finally, I would say the remaining material point is in performance chemicals right now, we are in process of implementing price increases and surcharges to deal with not only higher oil prices, but higher natural gas costs and rising CO2 costs in Europe. And so these prices will be implemented across the fiscal first quarter, and we expect to be at a full run rate of recovery as we enter Q2 and through the balance of the year. But in Q1, we might be chasing it a little bit as we're out in the market right now. You're familiar with our approach in this business. It tends to be more of a spot business. So we have to go out and get the price increases. But we've demonstrated an ability to do that over a very long period of time, including 2021, and we'd expect to continue that. So those would be the biggest factors, I would say, Mike, that account for the step up as we transition from Q1 then into the Q2 through Q4.

Great. That's helpful, Sean. And then second, you have your investor day next month. could you maybe just highlight the two or three points that you want to bring out in the investor day? I appreciate now is not the time or the place to kind of get into all the details, but just high level, what do you want investors to walk away from, from this upcoming investor day?

Yeah. Yeah. We look forward to that on December 2nd, Mike, and what we plan to cover in investor day are a couple of things. First of all, our updated strategy and view on longer-term financial targets. Number one, a deeper dive into our growth investments. Certainly, I've been talking more about battery materials, and we intend to dig deeper into that as momentum continues to build. But we want to provide a deeper view at our advantage growth investments for investors. And then third, we want to make sure that the level of transparency is there so that people can truly see the power of the portfolio. And then finally, sustainability is really at the center of everything that we're doing. And I commented on some of our steps of progress in 21, but we want to provide a more holistic view of our approach to sustainability and how how that's integral to our strategy and what we're doing to not only improve our own operations but helping our customers through innovative chemistry to meet their sustainability goals. So I would say those are the priorities, Mike, for Investor Day, and we very much look forward to it.

Great. Thank you.

Your next question comes from the line of David Bigletter with Deutsche Bank.

Good morning, Sean. Just on battery materials, I think you gave a number of $15 to $20 million of earnings in 2021. What are your expectations for 2022, and what's the sales base of that business exiting the year?

Yeah, good morning, Dave. So as we commented earlier in the year, we talked about this business having approximately $80 million of sales, and that is, in fact, the right the right way to think about it. And we landed in the EBITDA range that we previously communicated. So those would be a reasonable basis on which to build from. Now, as we look forward, the market is growing. The market for conductive carbon additives into lithium ion batteries is growing at around 30%. And so we'll call that the sort of organic growth rate. provides a strong foundation here. Our expectation is to outperform that organic growth rate because we believe we've got a leading position here, both in terms of technology, a distributed production footprint, technology labs in multiple regions to support our customers, and a portfolio between our traditional conductive carbon furnace blacks and conductive carbon nanotubes to win in the market here. So that's kind of a thumbnail of how a sketch of how we think about this business. And as I said, we'll definitely be providing a deeper dive into this at our investor day.

Very good. And just on performance chemicals, Sean, what portion of the pricing here is sticky if and when raws do moderate or rollover?

Yeah. Well, generally in this business, like a lot of specialty businesses, what you see when raw materials moderate or decline is that there's a certain ability to hold on now to those prices. Now, it really depends. The portfolio has a diverse set of applications, so some of them you would be able to hold substantial portions of it, and others you'd have to give back more, those that are more on the commodity end of the product spectrum. But traditionally, what you've seen in periods of decline is that there's some margin expansion there. It's generally because the performance in the application is pretty important and the loading in the formulation relatively low. There's a certain support there. That's how it's typically happened and we would expect that dynamic should we see that's what raw materials do. Thank you very much.

Your next question comes from online of Jeff Zakakis with JP Morgan.

Thanks very much. Hi. Can you talk about carbon black pricing in China today? That is, has pricing sequentially weakened or strengthened from the September quarter to the December quarter?

From the September quarter to the December quarter, so the quarter that we're in right now, you mean, Jeff?

Yes. Yes, that's exactly right. In other words, because, you know, there are energy curtailments, there seems to be a slowing of economic growth. Has that filtered into the carbon black area or no?

No, it really hasn't, Jeff. And in fact, I would say directionally, prices are moving up in China because, you know, coal car prices most recently have been have been trending up a bit. So no, that's not what the industry is experiencing in China.

Why was formulated solutions volume down 8% year over year? What are the factors behind that?

Yeah, really a single factor, Jeff. It was related to the planned outage that we commented on last quarter. One of our plants in Belgium experienced a 100-year outage. flood and the plant was impacted by that and was out for a good part of the quarter and that's expected to come back online in our fiscal Q2. So that'll be out again in Q1 as we're working through the repairs and recovery there. So it's singularly related to that.

Some people think that auto production will grow 10 percent or 11 percent next year like ihs and other people think that it's going to be flat at least through the at least through june of next year flat with the december quarter do you have a view or what's your tendency do you think the ihs guys are right or they're too aggressive or how do you see auto production next year yeah hard to hard to call uh and certainly if

variable, Jeff, but our view on it is that the shape will be largely consistent with IHS, which I think is showing growth year over year, but I think the pattern as we transition through the quarters in 2021 saw some deceleration as the chip shortage took hold, and they continued to revised down full year forecast for 21 as we went through the year, and the expectation is that, you know, some of that chip shortage impact will be with us during the early part of 22 and then improve as we progress through the year. So that's the view that informs our, you know, our base case at this point, and difficult, you know, for me to... to have a dramatically different view than that at this point.

And then lastly, why is share repurchase such a low priority for Cabot? You really haven't bought back stock over the past couple of years. And now your net debt to EBITDA is, I don't know, one and a half times. Like, have you changed your view of what your capital structure should be? Or, you know, why isn't repurchase of shares a more important use of cash for you?

Yep. Well, in terms of our capital allocation, we certainly view share repurchases as an important component of our capital allocation. Our priorities right now are on investing in advantage growth projects, things supporting battery materials, for example, bringing on specialty carbons, things where we believe we'll be creating value for shareholders and investing a dollar there is in the best interest of shareholders, number one. Number two, maintaining an industry-leading dividend. It's always been an important part of our capital allocation. We've had an uninterrupted dividend since 1968 and continuing to maintain a very competitive dividend is is priority number two, and then share repurchases would be third on that hierarchy and will remain an important part of our capital allocation. I would expect we would be back in the market to some degree in 2022, but that's the prioritization or the hierarchy, and I wouldn't say it's really changed any time we have advantage growth investments where we're going to do better than a dollar for the shareholder, then that's where we want to put the money. And then, again, the dividend being second, and then share repurchase third. So that's how we think about it, Jeff.

Okay, great. Thank you so much.

Your next question comes from the line of Lawrence Alexander with Jefferies.

Good morning. Can you give a sense, I mean, given the range of growth opportunities that you have now and how kind of the menu has improved, what kind of conventional growth opportunities that Cabot used to focus on have you now sort of walked away from or has fallen kind of to the bottom of the list? I just want to give a sense for how much of what you're doing is prioritizing versus the kind of all of the above. And secondly, kind of with respect to kind of the flooding and the climate stress, are your facilities sort of insured for those kinds of events? Or, I mean, as you do a scrub of the portfolio, is there a chance some of your facilities have to be reevaluated?

Sure. Sure. Lawrence, I'll take them in the order that you posed them there. So I guess first, with respect to growth, I think it's always critical that we're prioritizing the growth projects that we work on. And so what guides us is really a framework that we call a right-to-win framework of these particular areas like battery materials. Let me use that as an example. Why do we think we have a right to win there? Well, if you look at the importance of conductive carbon additives to the battery chemistry and you look at our technology depth and product portfolio and our sort of global footprint, it's a natural fit for us to innovate in this space. And so that gets you know, priority claim, for example, on growth investments. I think Inkjet is a similar example. We have a strong base here in the traditional home and office printing markets, but those markets, the growth rates, you know, have softened over time as people are getting more and more of their news and the like from devices, iPhones, iPads, etc. So that has has really diminished the growth in those traditional markets from what it was thought to be maybe a number of years ago. But as we look forward, we see opportunities in the commercial and packaging space. And these are very large markets that are in the process of converting from analog to digital. And as new digital presses go in, Those are all based on inkjet technology. So extending our position in inkjet into those new segments is a natural place and one where we feel we have a strong right to win. So it's really that type of a framework that's guiding where we're prioritizing our growth investments. On the second question, we, of course, maintain a healthy coverage of our portfolio in terms of property insurance, and then we have a strong track record of really managing our operations very well. there's no change there in terms of our approach. We run our plants well. We manage risks. We take risk mitigation steps. And then we've had, you know, long-term insurance partners with us that provide that sort of property coverage.

Thank you.

Once again, if you would like to ask a question, please press star, then the number one on your telephone keypad. Your next question comes from the line of Kevin Hosomar with North Coast Research.

Hey, morning, everybody. Last quarter, you guys called out an expectation that this fiscal fourth quarter would be impacted by, I want to say around 20, 25 million of items between planned outages and maintenance. And I think there were some differentials you expected. And they're curious how much of those costs actually ended up hitting the fourth quarter and how that was kind of disseminated between the segments.

Sure. So, hi, Kevin. This is Erica. I can talk to that. So, last quarter we called out a few things, like you said. So, we said $8 million to $10 million of higher maintenance costs were expected. We did experience that. So, you can see it, probably one-third reinforcement, two-thirds performance chemicals. I would say what was unexpected is we did receive insurance proceeds in performance chemicals that largely offset the impact of that maintenance. So we didn't see really elevated costs in total as those two offset. And then I'd say we said eight to 10 million in plant outages. This is mostly performance chemicals related. One plant in Belgium in the compound space and then one carbon black plant in the US. We did experience that as well. I'd say going forward, we have one plant back online, the one in the US. We wouldn't expect that to impact us in Q1, but we do have still the Belgian plant out, we think, for the entire Q1. And then the third item we had called out was $5 million in differentials, feedstock differentials, that we thought would impact the reinforcement materials business. We did not see that happen as expected, and so I'd say there was no material impact in Q4 on that one.

Okay. Okay. Okay. Gotcha. So, so then the expectation then for the first quarter being similar to the fourth quarter is that, um, you know, sounds like some of that, um, maybe the Belgian plant continues to stay down. You don't repeat the insurance benefit, I guess. Um, but not that that matters because that offset the plan outages anyway. And, and really the, um, uh, you know, so some of that not repeating sequence in the first quarter is offset by kind of incremental price cost headwinds, um, in the, um, in the specialty carbons business, as well as some seasonality and purification solutions as that comes down. Is that kind of the right way to think of the sequential progression from 4Q to 1Q and, you know, the different moving pieces there?

Yes, I think you have it captured.

Okay. Okay. Thank you.

At this time, there are no further questions. I would like to turn the call back over to Mr. Sean Cohane for closing remarks.

Great. Thank you for joining us again today. We're excited about the momentum that we've built and our growth prospects here at Cabot. And as I said earlier, we plan to share more with you at our Investor Day, which we'll be hosting in Boston on December 2nd. And so we'll be taking a deeper dive into our key businesses and provide more insight into our long-term strategy and targets, as well as the key growth initiatives that we're underwriting here. and in our position of leadership and sustainability. So I think we've got a great agenda, and hopefully we'll be able to see you all there in person. Thanks very much for joining us today and for your support of Cabot.

This concludes today's conference. You may now disconnect.