Orion S.A. Common Shares

greetings and welcome to the orion engineered carbon second quarter 2021 earnings conference call at this time all participants are in a listen-only mode the question and answer session will follow the formal presentation if anyone should require operator assistance during the conference please press star 0 on your telephone keypad as a reminder this conference is being recorded It is now my pleasure to introduce Wendy Wilson, Head of Investor Relations. Thank you. You may begin.

Thank you, Operator. Good morning, everyone, and welcome to Orion Engineered Carbon's conference call to discuss our second quarter 2021 financial results. I'm Wendy Wilson, Head of Investor Relations. With us today are Corning Painter, Chief Executive Officer, and Lauren Crenshaw, Chief Financial Officer. We issued our press release after the market closed yesterday, and we posted a slide presentation to the investor relations portion of our website. We will be referencing this presentation during the call. Before we begin, I'd like to remind you that some of the comments made on today's call are forward-looking statements. These statements are subject to the risks and uncertainties as described in the company's filings with the SEC. Actual results may differ materially from those described during the call. In addition, all forward-looking statements are made as of today, August 6th. The company does not undertake to update any forward-looking statements based on new circumstances or revised expectations. All non-GAAP financial measures described to the most directly comparable gap measures in the table attached to our press release. I'll now turn the call over to Corning Painter.

Thank you, Wendy. Good morning, everyone, and welcome to our second quarter earnings conference call. I'm pleased to report that we produced near record results for the second quarter, capping an excellent first half of the year. At $78.8 million, second quarter adjusted EBITDA was the second highest in our history, four times higher than year-ago levels and 10% higher than the second quarter of 2019, with both divisions contributing to the strong performance. Given that volumes year-ago were running at thus exceptionally low pandemic levels, I believe it's useful to compare our second quarter volume levels to 2019. On that basis, total company-adjusted EBITDA was up, again, 10.2% on volumes that were approximately 93% of second quarter 2019 levels and favorable specialty product mix. Compared with the first half of 2019, total company-adjusted EBITDA was up 10% on volumes that were approximately 95% of first half 2019 levels. Overall, against the backdrop of the COVID-19-induced economic downturn a year ago, both businesses demonstrated substantial operating leverage. In addition to delivering strong financial performance this quarter, we also settled our longstanding dispute with Evonik for approximately $79 million. We now consider this matter totally settled As I've said many times, we have been managing our company's capital plan without counting on a recovery from a VONIC. Therefore, investors and creditors should view the $79 million in proceeds for what it is, a cash injection that is not earmarked for any specific matter. The immediate effect of receiving the cash is that it will substantially strengthen our balance sheet and accelerated our achievement of net leverage within our targeted range of two to two and a half times. We expect the associated debt reduction to result in an annualized interest expense savings of about $1.1 million. Turning to recent developments related to sustainability. Our strategy is to develop new products across three core pillars, enabling carbon blacks, circular carbon blacks, and renewable carbon blacks. Year-to-date, several developments aligned with these pillars have taken shape, including launching a new renewable product offering, Ecorax Nature. collaborating with the European Commission's Hi-Q CARB battery consortium to design and scale up innovative battery materials, including our high-purity conductive acetylene black, and partnering with the Research Institutes of Sweden to produce carbon black from forest-based products. Each of these efforts and our broader strategy are summarized on slides five and six. I want to salute the efforts of our team year-to-date, not only to deliver impressive financial results, which are important from a short-term perspective, but also to advance our sustainability efforts, which are critical to positioning Orion to thrive longer-term in a lower-carbon world. Using slide six, I would like to elaborate a bit further on how the three recent developments fit into the broader strategy. Regarding enabling carbon black strategic pillar, we developed Ecorax, a family of rubber carbon blacks for tires that have unique properties. It is aimed at extending tire life, lowering rolling resistance, and reducing hysteresis, which collectively reduces fuel consumption, material use, and the CO2 footprint. All of these attributes are aligned with our customers' goals to improve the environmental impact of transportation. regarding the circular carbon black strategic pillar. Our focus is to drive the development of the circular economy for tires. Here we are working to make carbon black from oil derived from used tires. To that end, we are well into a year of working as a partner with the Black Cycle Project that is an EU-funded group led by Michelin working to drive a circular economy and sustainable solutions by recycling end-of-life tires. Our partnership is off to a good start, and we will provide additional updates over time. Finally, with respect to the third pillar, renewable carbon blacks, our focus is reducing consumption of fossil fuels by producing carbon black from renewable feedstocks. We actually started this journey a decade ago with the development of Printex Nature, a carbon black derived from plants aimed at the printing market. More recently, we launched Ecorax Nature, the first highly reinforcing carbon black grade made from renewable feedstocks, which can be used in tire tread construction. The product is currently being tested by customers. Given the development cycle for tires, we expect it to be in testing for 2022 as well. We also announced Recently, our partnership with the Research Institutes of Sweden to develop a carbon black from sustainably harvest forest-based products. As we gain traction in conjunction with these and related initiatives, we will keep you abreast. The main idea is that we expect renewable carbon blacks to play a role in a lower carbon world and look forward to partnering with key players to bring these types of products to fruition. Finally, we recently announced that we have become a part of the European Union-funded HiQ CARB project that was formed to design and scale up innovative battery materials leveraging Orion's high-purity conductive acetylene black. We're excited about this development and that the project organizers chose Orion's acetylene black to develop lithium-ion batteries in Europe. Overall, we've made significant progress with our sustainability efforts, and with these and many other initiatives that you can read about in our recently published 2020 sustainability report that is now available on our website. Turning to our second quarter results in greater detail. As you can see on slide seven, adjusted EBITDA rose to $78.8 million year over year, primarily driven by the sharp broad-based demand recovery across most rubber and specialty applications and geographies, as well as favorable specialty and rubber mix. That concludes my opening remarks. For the remainder of today's call, Lauren and I will cover second quarter results in greater detail and our second half outlook. After our prepared remarks, we'll be happy to take your questions. Lauren?

Thanks, Corning. Revenue nearly doubled year-over-year, up 97.9%, reflecting a strong demand recovery for our products across all in-markets from the year-ago pandemic trough and the favorable impact on revenue passing through higher feedstock costs. Contribution margin more than doubled, up 106.7% year-over-year, mainly due to strong volume-driven operating leverage. adjusted EBITDA rose over 400% year-over-year to $78.8 million, reflecting strong operating leverage, partially offset by higher fixed costs, driven by higher maintenance, labor, and incentive costs, reflecting a more normalized operating environment at our plants. Finally, we reported adjusted net income for the quarter of $37.2 million on higher adjusted EBITDA, On slide nine, you will find several useful bridges that provide greater financial details in support of the comments I just shared on our quarterly results. Slide 10 details our year-to-date cash generation, which as a result of the Evonik proceeds has been positive despite a surge in working capital. As a reminder, when oil prices rise, our working capital increases by roughly $30 million for every $10 change per barrel of oil in our feedstock costs. Of the year-to-date increase in working capital, roughly half is driven by higher oil prices and half is driven by higher receivables and finished goods levels, in line with the current robust demand dynamics we are experiencing and building inventory during the quarter ahead of numerous upcoming turnarounds. On a full-year basis, at the midpoint of our adjusted EBITDA guidance, if oil prices average where they are today, we would expect net debt to be roughly flat year over year, with the cash associated with strong operating results and the EPA settlement payment largely offset by CapEx and higher working capital. Slide 11 summarizes our leverage and liquidity profile as of the end of the second quarter. As Corning mentioned earlier, with the receipt of the EVONIC proceeds and our trailing 12-month EBITDA normalizing, We are now comfortably within our targeted steady state net leverage range at two to two and a half times. In addition, our liquidity, available at any adjusted EBITDA level, has risen to $364 million. Overall, our strong financial standing positions us well to fund and execute the EPA investments as rapidly and safely as possible, while also advancing growth initiatives that bolster our adjusted EBITDA and free cash flow capacity. With the Ravenna expansion ramping up next year and the WAPE expansion projected to ramp in the 2023 to 2024 timeframe, while EPA investments ramp down, we expect these two investments to contribute roughly $30 to $40 million in adjusted EBITDA at steady state levels. Moving to slide 12, specialty volumes increased 37.6% year-over-year, showing strength across all in-markets and geographies, with strong operating leverage and favorable mix driving adjusted EBITDA to rise by 138.9% year-over-year. As shown in the trailing 12-month gross profit per ton chart, we are pleased to see that specialty profitability is approaching levels last experienced in 2018. reflecting near record profitability levels, strong operating rates, and favorable mix. The next slide breaks out the major year-over-year drivers of adjusted EBITDA for the specialty business in greater detail, the most significant of which was higher volume and improved mix. We have increased prices significantly year-to-date, but these increases have simply allowed us to hold even with rising costs as opposed to expanding our margins. In market-wise, polymers and coatings were particularly strong. Geography-wise, the European and Asia Pacific regions showed the greatest relative strength. Turning to slide 14, rubber volumes were up 69.6% year-over-year, with strength across all regions, with both tire and MRG up significantly, but tire stronger than MRG on a relative basis. Higher volumes translated into higher adjusted EBITDA, which rose to $39.5 million, a substantial improvement from essentially break-even during the year-ago period. Slide 15 breaks out the major year-over-year drivers of adjusted EBITDA for the rubber business in greater detail, the most significant of which was higher volume. With that, I will turn the call back over to Corning.

Thank you, Lauren. Turning to our outlook for the balance of the year, we are raising our full year 2021 adjusted EBITDA guidance to the range of $265 to $285 million from our prior guidance of $250 to $280 million. While there are many bullish signals for the global economy, we continue to expect that the second half of financial results those strong, will not match the robust level of our first half due to lower volumes due to planned outages at several specialty and rubber plants, including our Ivanhoe, Louisiana site, where we're completing our air emissions upgrades there, and typical rubber carbon black end-of-year seasonality. Finally, I'd like to provide an update on our CAPEX guidance. We expect 2021 CapEx to be in the range of $190 to $200 million, up $25 million at the midpoint from our prior guidance. This increase reflects higher costs as we approach the finish at Ivanhoe, accelerating some spending for the remaining two air emissions projects and accelerating a number of debottlenecking projects in light of the ongoing market demands. Regarding our overall EPA spending estimate, we recently obtained Stage 3 front-end loading estimates, or FEL3, for our Borger and Bellevue sites. These sites are the last two EPA-related installations, and this is the most robust cost estimate we have had to date. As a reminder, front-end loading activities fall into three stages, FEL1, 2, and 3. FEL 2 is developed up to a predefined level of detail, not yet sufficient for construction and operation, but enough to develop a cost estimate, a schedule, and to make critical decisions that will influence the final design of the project. At the FEL 3 phase, the engineering team has more fully designed the project, including defining how it will be constructed, commissioned, started up, and operated. As a result of the higher cost at Idaho that I referenced earlier, and incorporating the Belpre and Borger FEL-3 estimates, our current estimate for the cost of the EPA work is in the range of $270 to $290 million, up roughly $30 million, or 12% at the midpoint from our prior guidance of $230 to $270 million. Beyond getting to FDL3, we recently entered into lump sum turnkey EPC contracts with engineering firms for both of the remaining sites, significantly de-risking those projects. Finally, as a reminder, for these sustainability-related projects, we seek to recover both the higher operating costs associated with them and to achieve an adequate return on invested capital by driving higher base prices and surcharges. In closing, the key messages I would like to reiterate is that our business continues to do very well. We have deleveraged our balance sheet. We're investing in key growth and sustainability initiatives, launching new differentiated products, de-risked our EPA efforts going forward, and are on track to generate substantial free cash flow in 2023. We look forward to the ongoing support of our investors as we continue to profitably and responsibly grow Orion in the coming years. With that, operator, please open the line for questions.

Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. The confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for your questions. Our first questions come from the line of Lawrence Alexander with Jefferies. Please proceed with your questions.

Good morning. It's Dan Rizwan for Lawrence. How are you? Good. Good morning, Dan. Good morning. So with the Evonik settlement and the influx of cash and the balance sheets in better shape, I mean, is the first use of this cash going to be to kind of look at more brownfield or just expansions of organic growth for specialty black, or are there other alternatives you're looking at?

Well, so when we look at this, as we have our internal discussions, as we talk to investors, as we talk amongst the board of directors, We hear a number of voices and considerations, one of which would be around returning cash to shareholders in the form of dividends or buybacks, but also growth. Specific to growth, I mean, I think the most interesting opportunities for us are in some of the exciting specialty areas and in sustainability. Those can be the greenfield, especially the one we're doing right now in Huawei, or could be something like what we've done at Ravenna. I'd say those options are open to us. There's obviously commercial sensitivity in all of this, so we don't really have an announcement until we have one. But I would just stress that we see this is really a classical capital allocation, and we're looking to strike the appropriate balance between those interests that I mentioned earlier. Thank you.

That's helpful. And then what's the sustainability? And it looks like you have a few pretty promising projects. I was just wondering, is there one in particular that should be kind of first to commercialization? And if you've kind of quantified what the can is for these products?

Well, so we're in commercialization effectively with the circular carbon black. So we've actually had the Printex nature for a number of years. The Ecorax is out sampling. But as I said in really expect that to be a meaningful contributor until 2022. For sure, there is strong demand for sustainable carbon blocks, no question about it. It's also true, for sure, they're going to cost more than what the other materials are. And our look is to maintain a return on capital for these areas and a gross profit per ton in, let's say, the range that we're in. But I wouldn't expect that, for example, to really be contributing until more like 2023. Thank you very much.

Thank you. Our next question has come from the line of Josh Spector with UBS. Please proceed with your questions.

Hey, guys. Thanks for taking my question. Congrats on a solid quarter. Thank you, Josh. Relative to our estimates, margins came in stronger, but a little bit surprised with some of the sequential volume progression, particularly in rubber with things kind of flattish sequentially where you had some constraints in the prior quarter. So I'm curious if you could give some color on what held back the sequential volume growth, be it supply constraints continuing or demand, and any context by region would be helpful as well.

So in general, I'd say we have strong demand and most of our rubber carbon black plants are running hard. We are in a situation where we're building inventory in certain situations. For example, the turnaround that we have going on right now to upgrade the air emissions in Ivanhoe. And so that's a constraint for us. I'd say the market right now in many places There are robust spot opportunities, and we are really curtailing our participation in that. We're focused on taking care of our contract customers, the people who are more of, let's say, a partnership relationship with them, because that's really where we've made the commitment. But that's a constraint to the volume that we can take as well.

Thank you. Our next question has come from the line of Kevin Hosobar with North Coast Research. Please proceed with your questions.

Hey, good morning, everybody. Hey, I'm curious on the rubber side, you know, the EBITDA return was 217, which I believe was a quarterly record or at least close to it. So I'm curious, you know, how you're able to to do that because obviously volumes weren't at record-type levels. I wouldn't imagine pricing changed much quarter over quarter, just kind of how the contracts work. But I guess the one thing is oil prices did move up quite a bit sequentially, so I don't know if that was a big variable in there. But kind of curious your take on what drove the sequential improvement in kind of profit per ton there in the rubber side and how sustainable you I think that it obviously sounds like there might be some factors here of some maintenance and stuff that might make it go backwards. But that sounds almost, you know, kind of temporary. But, yeah, I'm curious your take on what drove that higher and how sustainable that is.

Well, Kevin, you know this business well. So, yes, oil prices going up, that was certainly a factor. I'd say mixed a little bit favorable for us as well. but also some one-time effects, for example, when the oil price goes up. I would expect that to moderate a little bit in the second half.

And, Kevin, I would add that we built inventory, and that was beneficial during the quarter. When you look at the GP per time, you can see us averaging that 270 to 80 range for the year. And so this was a strong quarter. It will moderate in the second half, and on average we'll probably be in that 270 to 80 mark for a GP per time. Okay, gotcha.

And then did I hear it correct? I think somebody had mentioned that the two new facilities that you're ramping should add $30 to $40 million of EBITDA once that's at a steady state. And I think the Ravenna one is next year, and the China one might be the year after in terms of when those are ramping. But I'm curious, did I hear that right? And then how do you expect that to ramp in terms of the you know, how does that ramp to $30 to $40 million over the next couple of years in terms of contributions from those new facilities?

Right. So, first of all, your timing is right, and let's say the overall magnitude is in the right order as well, I would say. In terms of how it would ramp, I would just draw your attention to the relative size of the two projects. If we're in an environment like what we have today, obviously loading is going to be favorable for 2022, and I fully expect that in terms of how we could do that. But keep in mind, Ravenna is the smaller of the two projects.

Okay, gotcha. Okay. I think that, and maybe just one other one. On slide nine, you showed, you know, 13.8 million of other benefits to contribution margin, which was, you know, obviously a fairly large number. So curious what that is exactly.

You know, that's the combination of cogen, the oil price movement that we noted earlier, as well as the inventory build. The same things you were referencing on the rubber side, most of those are in that bucket. Okay.

Okay. Got it. All right. Thank you very much.

Yep. You're welcome.

Thank you. Our next question has come from the line of Josh Spector with UBS. Please proceed with your questions.

Yeah. Hi again. Thanks for taking the follow-up. Apologize. Went on to the view after the last question. I was just curious on the specialty side, where would you say you are from a price-cost perspective and your visibility over the next couple quarters? I know there's probably some moving parts with Ottawa OEM demand perhaps being constrained from a mixed perspective. But I'm curious if you think you're pretty much caught up on the pricing side against what I expect you to see as rising RAS into the second half.

Yeah, so we worked very, very hard on specialty pricing, and we moved those prices significantly. However, I would say that was really catching up with what the cost inflation was versus margin expansion for us. We think we've largely got that in place at this time. I'd say a thing to keep in mind is right now we are constrained on a lot of our volumes just in terms of what demand is, and we have these outages in the second half. So that's a challenge for us in the second half, but, um, you know, all in all, I'd say the underlying demand and the prospects for that business are really tremendous.

Okay. Thanks. Just a follow up from the prior question about the rubber black profitability. So understand the sequential move, but I guess if we look at the gross margin per ton for this quarter and try to bridge to next year, where I expect you to have volume growth on top of this year, and potential for pricing with some of those contract settlements perhaps later this year, should we expect that being a level that you can grow off of? Or is there anything temporary from, you mentioned inventory, I think in your prepared remarks or your slides, that we should, you know, remove from that bridge when we look year over year in rubber specifically?

So let's be clear. We absolutely positively expect to grow off that number. I think the conditions are excellent for 2022 pricing. The economy is strong. I think COVID will continue to make progress against it. We still see onshoring of materials, for example, our tire manufacturing in North America. Shipping in terms of importing materials, that's a nightmare today. Even the chip shortage we see today is going to be an upside for 2022. So I think the raw pricing market is going to be tremendous. We just need to keep in mind that there's going to be a lot of cost drivers as well. So, I mean, pricing is going to move, but it has got to move because we're all going to have higher costs associated with operating all our air emissions controls as well as just simply getting a return on capital for them. But 100%, we expect to build off of where we are right now.

Okay. Thank you. And that's on an oil price neutral basis.

Thank you. Our next questions come from the line of John Tonwantang with CJS Securities. Please proceed with your questions.

Good morning. This is Brendan Popsin on for John. Just wanted to ask real quick on are you any closer to a longer-term return on capital-based pricing model for our RCB? And then is the supply and demand dynamic changing heading into next year?

Yeah, good question. First of all, welcome, Brandon. Nice to have you on with us today. We continue to be in discussions with customers. If you're speaking specifically to the longer-term discussions, we have those underway with actually a couple right now. I think the underlying industrial logic remains very strong for that, but we don't have it until we have it done. Overall, though, I think the structural movement of this industry is very positive in that direction. And in, let's say, just higher returns on capital, because as I said before, there's much more localization. So think about Europe, think about North America, and there just isn't a lot of local investment in carbon black there, and pricing has got to get to the point where it's going to support incremental investment. And so I think that's just a fundamental fact on the ground that's a positive for this industry. A second thing I'd say is there was once a time where I think people felt they could buy on price and not worry about reliability so much. But you see now that's really not the case, right? And when it gets tight, you know, it really goes to those who have made commitments to their suppliers. Those are the people who get product. Spot market, I think, is very difficult right now. And I really think that's a positive evolution for this industry as well.

Great. Thank you. Appreciate it.

Thank you. Our next question has come from the line of Michael Lighthead with Barclays. Please proceed with your questions. Great. Thanks. Good morning, guys.

Good morning, everybody. First, just on the demand side, one, I was hoping you could peel back the onion a little bit. I know you cited broad-based demand recovery from the pandemic, but just what end markets you're seeing trend better or worse versus your expectations maybe three months ago? And second, on the EV lithium-ion front, if you could just remind us how Orion is approaching that market and the long-term potential for growth there. Okay, yeah, excellent.

We saw broad-based improvement across nearly all markets in that timeframe. You know, specific changes and unique niches here and there. So I think some people, let's say in the MRG space, when automotive OEM first started slowing down, were eager to build inventory to be ready for the rebound. I think some of those people have now sort of slowed down on, let's say, their rebuild for that. But in many other areas, We're maxed out, and people are quite eager for product. It's strong, and I say it's strong really across all three geographies in terms of that sense. Now, if we're going to go to conductives, right now our conductives business, I'd say, is about $15 million, $20 million of EBITDA per year. A small portion of that being lithium ion batteries today. But if we were going to look out, let's say, five years, you could see that roughly double for us. And, of course, at that point, lithium ion batteries would be a much larger part of it. Today, in that space, the way we play is with acetylene black. There's other materials. There's other conductive materials that go into lithium ion batteries, into the electrodes specifically, things like carbon nanotubes. When you think about it, those materials are really one-dimensional materials, like graphene, too. Well, we put in a three-dimensional additive, and that's got a certain synergistic effect with these other materials. And that's the space where we play now and one that's obviously very much tied to working with other people who are doing some of those other materials and developing the battery technology itself.

Got it. That's helpful. And then maybe for our second question, just on the EPA project, and congrats first on reaching the Evonik settlement, but can you just maybe flesh out why cost estimates are moving higher again? And relatedly, now with the turnkey EPC contract, does that essentially lock in this new figure, or is there still risk around further cost movement? Any color there would be helpful. Sure.

So the majority of the cost movement we've had has been effectively getting right, getting the final things addressed at the Ivanhoe site. That's been the majority of the cost movement we saw. We did see some movement going from FEL2 to FEL3 at the other sites. It's a higher, let's say, just general cost environment today than when we had done FEL2. By moving those to EPC, I think we have very significantly de-risked them. But, you know, I would never say it's zero risk. And particularly for Bell Free, the one that's further out, there is some exposure on that. But that's how we see it. So going forward, I'd expect to spend about $80 million this year on air emission controls in the U.S., roughly the same amount next year. But then in 2023, only about $20 million. And part of what we're doing right now is creating the ability to accelerate, particularly the last project moving forward. So that's going to mean in 2023, we're going to have tremendously better free cash flow as we get that work behind us. Great. Thank you.

Thank you. As a reminder, if you would like to ask a question, please press star 1 on your telephone keypad. Our next question has come from the line of Chris Kapsch with Luke Capital Markets. Please proceed with your questions. CHRIS KAPSCH with Luke Capital Markets. Please proceed with your questions.

CHRIS KAPSCH with Luke Capital Markets. Please proceed with your questions. CHRIS KAPSCH with Luke Capital Markets. CHRIS KAPSCH with Luke Capital Markets. CHRIS KAPSCH with Luke Capital Markets. CHRIS KAPSCH with Luke Capital Markets. CHRIS KAPSCH with Luke Capital Markets. CHRIS KAPSCH with Luke Capital Markets. CHRIS KAPSCH with Luke Capital Markets. CHRIS KAPSCH with Luke Capital Markets. CHRIS KAPSCH with Luke Capital Markets. CHRIS KAPSCH with Luke Capital Markets. CHRIS KAPSCH with Luke Capital Markets. CHRIS KAPSCH with Luke Capital Markets. CHRIS KAPSCH with Luke Capital Markets. CHRIS KAPSCH with Luke Capital Markets. CHRIS KAPSCH with Luke Capital Markets. you know, leverage to replacing tires, you have considerable exposure to the OE automotive end market as well, either direct or indirectly. So from what I've seen, it looks like IHS is pointing to possibly 11% higher passenger car auto bills next year globally. And I'm just wondering if that were to materialize, would you see that as outsized demand in that end market? And what would the implications be for your product next?

Well, so first of all, Chris, good to hear from you. Thanks for the question. We would see that kind of movement. I mean, that's a significant change in the market, and that would be an upside for us. That would, in general, be a positive for us in terms of mix. The one challenge in that, though, is that a lot of our premium lines are under allocation right now that's why we shared a little while ago we were doing a an expansion of our capability around surface treated gas blacks so materials like that that go into some of let's say automotive coatings things like that we are working to be able to take more full advantage of that but depending upon when the wave comes and where we are in capacity That would be just the potential limitation to what we can get out of that.

And Chris, as you think about modeling 2022, I would point you to for rubber incremental margins in the low 30s and for specialty in the mid 40s. And I think that as a rule of thumb would be a good proxy to use as you start thinking about next year.

Okay. I appreciate that. And if I could just follow up on the comments you had on capital allocation, that you've had some pretty deliberate messaging around the possibility of reestablishing a dividend, even if it were at a more modest and sustainable level. But just so given the restored healthier balance sheet bolstered by this Ebonics element, and given, especially considering the CapEx that will, you know, be curtailed starting in 2023, I mean, should investors just be thinking about the reestablishment of a dividend as pretty much a given? It's just not, it's more a matter of when, not if, or we jumped the gun a little bit there.

Well, so I personally feel strongly that it's a good discipline for a company to have a structured way that you're returning cash to shareholders. And structured really means it's a dividend. I think you can supplement that as well potentially in a buyback program. So I feel strongly that we'll get there. That's ultimately a full board decision. uh for us you know there's a several attractive opportunities here right there's growth there's very strong demand there's fighting opportunities and specialty and conductivity and some of our core already markets that we're strong in in terms of specialty as well as sustainability and then there's the dividend and the buybacks and i i think there's going to be the opportunity to satisfy all of those needs and it's just a matter of striking the right balance and what the right timing is

um but i expect to be able to do all of that fair enough thank you and then just one final one if you look at sort of the bridges you have by segment um on pages 13 and 15 on your presentation well i'm just curious where the um the benefit from you know the the um cogen the higher oil price he shows up does that show up in in um in mix or overhead absorption, or I'm assuming on a year-over-year basis, you are seeing some benefit from that. Thanks.

We are, and that would be in volume on the rubber side of the business. On the chart that shows contribution margin, you would see it in that contribution margin there. But, yeah, you see it in volume on that chart.

Thank you.

Thank you. There are no further questions at this time. I would like to turn the call back over to Mr. Corning-Pager for any closing comments.

Thank you all for your time and attention for joining us today. We appreciate your interest in Orion Engineered Carbons and working hard to create a profitable and sustainable future for all of us. Thank you.

Thank you for your participation. This does conclude today's teleconference. You may disconnect your lines at this time. Have a great day.