Stepan Company

Greetings and welcome to the Q4 and full year 2020 earnings conference call. During the presentation, all participants will be in a listen-only mode. Later, we will conduct a question and answer session. At that time, if you have a question, please press the 1 followed by the 4 on your telephone. If at any time during the conference you need to reach the operator, please press star 0. As a reminder, this conference is being recorded. Thursday, February 18th, 2021. It is now my pleasure to turn the conference over to Luis Rojo, Vice President and Chief Financial Officer. Please go ahead.

Good morning, and thank you for joining Stepan Company's fourth quarter 2020 financial review. Before we begin, please note that information in this conference call contains forward-looking statements, which are not historical facts. These statements involve risk and uncertainties. that could cause actual results to differ materially, including but not limited to prospects for foreign operations, global and regional economic conditions, and factors detailing our security and exchange commission filings. Whether you are joining us online or over the phone, we encourage you to review the investor slide presentation, which we have made available at www.stepan.com under the investor relations section of our website. We make these slides available at approximately the same time as when the earnings release is issued, and we hope that you find the information and perspective helpful. Now with that, I would like to turn the call over to Mr. Quinn Stepan, our chairman and chief executive officer.

Thank you, Luis. Good morning, and thank you all for joining us. We hope you and your families are safe and healthy. As the world continues to be challenged by the global pandemic, we at Steppen remain committed to doing our part by supporting customers that supply essential cleaning, disinfection, and personal wash products to the market. We are extremely grateful to our employees for their passion and commitment to get the job done for our customers throughout what was a challenging year. Overall, COVID opportunities in the consumer product segment of our business outweighed the negative impacts elsewhere, and the company delivered record fourth quarter and full-year earnings. Fourth quarter adjusted net income was $33.1 million, or $1.42 per diluted share, up 29% from $25.7 million, or $1.01. and 10 cents per diluted share last year. Adjusted net income for the full year was a record $132 million, up 11% from last year. For the quarter, surfactant operating income was up significantly on volume growth, which was mostly attributable to continued strong demand for cleaning, disinfection, and personal wash products. Mexican operations delivered strong volume growth versus the prior year quarter. Our polymer business was up significantly during the quarter due to the Millsdale insurance recovery. Our rigid polyol volumes are gradually improving. We had a good fourth quarter and finished strong with double-digit growth driven by increased demand and customer inventory Brexit build in Europe. Our specialty product business results were up slightly in the fourth quarter. Board of Directors declared a quarterly cash dividend on Steppen's common stock of 30.5 cents per share, payable on March 15, 2021. Steppen has paid higher dividends for 53 consecutive years. As recently announced, Steppen acquired Invista's aromatic polyester polyol business and associated assets. The acquired business has global sales of approximately $100 million per year. We are excited to add Invista's polyester polyol business and believe that Invista's available spare capacity, combined with de-bottlenecking opportunities in both plants, will allow Stepan to support future market growth in a capital-efficient way. At this point, I'd like Luis to walk through a few more details about our fourth quarter results.

Thank you, Quinn. My comments will generally follow the slide presentation. Let's start with slide five to recap the quarter. Just the net income for the fourth quarter of 2020 was $33.1 million, or $1.42 per diluted share, a 29 percent increase versus $25.7 million, or $1.10 per diluted share in the fourth quarter of 2019. Because adjusted net income is a non-GAAP measure, we provide full reconciliations to the compatible GAAP measures, and these can be found in Appendix 2 of the presentation and Table 2 of the press release. Specifically, adjustment to reported net income this quarter consists of adjustments for deferred compensation and cash settled SARs, and some minor restructuring expenses. Adjust the net income for the quarter exclude deferred compensation expense of $2.4 million, or 10 cents per diluted share, compared to deferred compensation expense of $1.8 million, or 7 cents per diluted share in the same period last year. Deferred compensation numbers represent the net expense related to the company's deferred compensation plan, as well as cash settled stocks appreciation rights for our employees. Because these liabilities change with the movement in the stock price, we exclude these items from our operational discussion. Slide 6 shows the total company earnings breach for the fourth quarter compared to last year's fourth quarter and breaks down the increase in adjusted net income. Because this is net income, the figures noted here are on an after-tax basis. We will cover each segment in more detail, but to summarize, Sulfactants and polymers were up significantly, while specialty product was slightly up versus the prior year. Corporate expenses and all others were higher during the quarter due to higher acquisition-related expenses and incentive-based compensation. The company's full-year effective tax rate was 25 percent in 2020 compared to 18 percent in 2019. This year-over-year increase was primarily attributable to non-recurring tax savings in 2019 and a one-time tax cost in Q4 2020 due to a cash repatriation project as part of the INVISTA acquisition. Less favorable geographical mix of income in 2020 versus 2019 also impacted the effective tax rate. We expect the full year 2021 effective tax rate to be in the range of 24 to 27 percent. Slide seven focuses on surfactant segment results for the quarter. Surfactant net sales were $358 million, a 16 percent increase versus the prior year. Sales volume increased 8 percent, mostly due to higher demand for products sold into the consumer product end markets. driven by increased demand for cleaning, disinfection, and personal wash products due to COVID-19. Higher sales volume to our Tier 2, Tier 3 customers also contributed to this increase. This growth was partially offset by lower demand in the agriculture and oil field markets. Selling prices were up 11 percent, and the translation impact of a stronger U.S. dollar negatively impacted net sales by 3 percent. The higher selling prices primarily reflect improved product and customer mix. Surfactants' operating income increased $9.4 million, or 28% versus the prior year, primarily due to strong sales volume growth and a $3 million insurance recovery related to the first quarter mid-sale power outage. North America results increased primarily due to strong demand in the consumer product end market, and a better product and customer mix. Brazil had a record quarter driven by strong volume growth. Lower Mexico results were due to a high base period with insurance payment in December 2019, although Mexico volume was up 31 percent. Europe results increased slightly due to higher consumer product demand. Now, turning to polymers on slide eight. Net sales were $116.7 million in the quarter, in line with the prior year. Sales volume increased 7 percent, primarily due to double-digit growth in global rigid volumes. Lower PA demand partially offset the above growth. Selling prices declined 8 percent, and foreign currency translation positively impacted net sales by 1 percent. Polymer operating increased $11.4 million, or 100 percent versus the prior year, due to the $10 million insurance recovery and the positive impact of volume growth. All regions did well during the quarter. North America polio results increased due to higher volumes of margins, reflecting a gradual improvement in market conditions. Europe results increased due to double-digit volume growth in both rigid and specialty polio. while Asia and Latin America results increased slightly versus prior year. Specialty product sales were $19.6 million for the quarter, a 6 percent increase versus the prior year. Sales volume was down 1 percent between quarters, and operating income improved 2 percent. Turning to slide nine, despite significant challenge during the year, including the global pandemic and the first quarter 2020 planned power outage at our Millsdale facility, the company delivered record four-year results. Adjusted net income was a record $132 million, or $5.68 per diluted share, versus $119.4 million, or $5.12 per diluted share in the prior year. an increase of 11%. The surfactant segment delivered record operating income of $169 million, up 38% versus prior year. This earnings growth was driven by a 6% increase in global volume due to higher demand for cleaning, disinfection, and personal wash product as a result of COVID-19, and a significantly better product and customer mix. The polymer segment delivered $68 million of operating income, almost flat versus prior year, despite the negative impact of COVID-19. Global polymer sales volume was down 5% as a result of lower demand within the PA business. Global rigid polyols volumes were slightly down for the year due to construction project delays and cancellations due to COVID-19. Specialty product operating income was $14 million, down slightly from the prior year when we grew significantly versus 2018 actuals. Slide 10 shows the total company earnings breach for the full year 2020 compared to last year and breaks down the increase in adjusted net income. The figures noted here are on an after-tax basis. Surfactant was up significantly. while polymer and specialty products were down slightly versus the prior year. Moving on to slide 11, our balance sheet remains strong. We had negative net debt at year end, as our cash balance of $350 million exceeded total debt of $199 million. The company had full year capital expenditure of $126 million, and we've returned $41 million to our shareholders via dividends and share repurchases. This strong balance sheet allows us to execute the INVISTA acquisition in January 2021. Beginning on slide 13, Quinn will now update you on our 2021 strategic priorities.

Thank you, Luis. As we wrap up a challenging but rewarding 2020, We continue to believe that Steppen's business remains better positioned to perform than most as we demonstrated in the fourth quarter and full year 2020. We continue to prioritize the safety and health of our employees as we deliver products that contribute to the fight against COVID-19. Our EPA approved biocidal formulations kill the specific novel virus that causes COVID-19 and allow our customers to provide the public with additional tools to protect their families and fight the pandemic. We believe surfactant volume in consumer product end markets should remain strong as a result of changing consumer habits and increased use of disinfection, cleaning, and personal wash products. We are increasing capacity in certain product lines, including biocides and amphoterics, to ensure we can meet our customers' higher requirements. We are increasing North American capability and capacity to make low 1,4-Dioxane surfactants. As explained in our previous calls, recent regulations passed in New York will require reduced levels of 1,4-Dioxane in a number of consumer products by January 1, 2023. 1,4-Dioxane is a minor byproduct generated in the manufacture of ether sulfate surfactants which are key ingredients in consumer products. Through a combination of process optimization and additional manufacturing equipment, Steppen will be prepared to supply customers ether sulfates that meet the new regulatory requirements. This project is the driver of our increased CapEx forecast for 2021 of $150 to $170 million. We are working with our customers to ensure these projects deliver our financial return targets. Tier 2 and Tier 3 customers continue to be the center of our strategy. We grew Tier 2 and Tier 3 volume by 28% in the fourth quarter and added 405 new customers. Our diversification strategy into functional products continues to be a priority for Stepin. During the fourth quarter, Despite a slight volume decrease, our agricultural business grew in terms of profitability due to a favorable product mix. We have introduced many new products to the agricultural market and will continue to invest in new capacity and capabilities to support growth in the agricultural market. Oil field volume was down due to overall challenges in the industry. We remain optimistic about future opportunities in this business as oil prices have recovered to the $60 per barrel levels. Polymers had a challenging year given the availability of labor on construction projects and the need for social distancing. However, the long-term prospects for our Poly-L business remain attractive as energy conservation efforts and a more stringent building codes should increase demand. The Illinois River lock closure work was completed on schedule during the quarter, which ended the premium logistic costs associated with the business. We remain fully committed to delivering productivity gains across Steppen. We delayed our project at Millsdale to allow the team to focus on COVID-19 related market opportunities. Work on the project will continue this year, and we expect to see benefits in 2020 and beyond. M&A represents an important tool as a means to delivering meaningful EBITDA growth and margin improvement. We are excited about the company's recent acquisition of Invista's aromatic polyester polyol business. This is our largest acquisition to date and will allow us to continue our journey to create a more specialized, higher margin chemical company. The transaction included two manufacturing sites, intellectual property, customer relationships, inventory, and working capital. The acquisition was financed with cash on hand. We are putting our cash to work. The acquired business has global sales of approximately $100 million. The acquisition cost was $165 million plus working capital and is expected to be slightly accretive to Steppen's earnings per share and EBITDA margins in 2021. The company expects the multiple on a post synergy basis to be between six and a half and seven and a half times. We expect to deliver full year run rate synergies within two years. This acquisition will allow us to support market growth for the next decade in a capital efficient way through available spare capacity as well as de-bottlenecking opportunities in both plants. The two additional locations also significantly enhance business continuity for our customers. The previously referenced multiples exclude the benefit of extra capacity acquired. The company also announced the acquisition of a fermentation plant in Lake Province, Louisiana. Fermentation is a new platform technology for Stepin. As we look to commercialize the next generation of surfactants, biosurfactants produced via fermentation are attractive due to their favorable biodegradability, low toxicity, and in some cases, unique antimicrobial properties. This goes hand in hand with our previous Nats Surfact rhamnolipid acquisition in 2020. This technology provides an important new option as customers across markets seek to achieve greater sustainability advantages within their products. The acquired plant will require additional investment to make our targeted products, but the site will provide world-scale capabilities to support incorporation of new biosurfactants in agricultural and consumer products. Given the strength of our balance sheet, we will continue to identify and pursue acquisition opportunities to fill gaps in our portfolio and to add new platform chemistries. Finally, 2020 was a difficult but rewarding year as our team responded to challenges and delivered on opportunities, particularly in our surfactants business. We believe the long-term prospects for rigid polyols remains attractive as energy conservation efforts and more stringent building codes should increase demand. We believe our acquisition of Invista's aromatic polyester polyol business and two manufacturing sites position us better to meet long-term demand growth. We anticipate our specialty product business results will improve slightly year over year. In conclusion, we remain optimistic that We will continue to deliver value to you, our shareholders, in the new year. This concludes our prepared remarks. At this time, we'd like to turn the call over for questions. Tina, please review the instructions for the question portion of today's call.

My pleasure. Via the phone lines, if you would like to register a question or comment, please press the 1 followed by the 4 on your telephone. You will hear a three-tone prompt to acknowledge your request. If your question has been answered and you would like to withdraw your registration, please press the one followed by the three. One moment, please. The first question comes from Vincent Anderson of Stiefel. Please go ahead.

Yeah, good morning and very impressive end to the year, everyone. Thank you, Vincent. Yeah, absolutely. Given we were in many ways far removed from the panic buying of the second quarter, I was hoping you could maybe go into a bit more detail on what the main drivers were of the strong surfactant sales performance in the fourth quarter.

I think generally the increase in disinfection and hand wash has continued to change. Consumer habits have changed So that has sustained our growth in the surfactant market. And as we look at our customer comments, and we just finished our annual global meeting, our American Chemistry or Cleaning Institute conventions, and all the customers remain bullish about their long-term prospects. that have sustained increased demand for their products. So we fundamentally believe that we are going to continue to see increased demand in the consumer product segment. We've got better availability of our raw materials to support the growth in those end markets. We, as I've said, have de-bottlenecked and are expanding our capacity both in the buy side and the amphoteric market. So we think overall the markets will continue to grow and we'll be able to support our customers.

Perfect. That's helpful. Thank you. And, you know, so with so many Tier 2, Tier 3 accounts added this year, How should we think about the ramp up in dollar sales for those accounts? For example, maybe to be more clear, maybe you got in the door selling 10% of their total surfactants needs, but you believe you can service, say, 25%. Any color you'd be willing to give around there and how much we could maybe expect to see that contribute over the next one to two years?

So fundamentally, we think we can grow our share of their wallets. We do use metrics in terms about the number of products that we're selling to each of these customers. And generally speaking, the penetration that we have varies around the world, depending on the markets that we're in. For example, in Brazil, we're actually selling, on average, over probably 5,000 customers today in Brazil in the Tier 2, Tier 3 segment. and we're selling on average less than two products per customer. And so we do fundamentally believe there is an opportunity to expand the number of products that we're selling to the smaller tier two, tier three customers on a global basis. Now our penetration in the US tends to be a little bit higher than it is in Brazil, but we still have an opportunity to expand the number of products we sell and continue to add more customers on a global basis.

Yeah, Vincent, if you remember what we have talked with the IR presentation, we believe there is a universe of around 20,000 customers out there today that we are not serving. And so as Quinn was mentioning, the strategy is two fronts, or actually three. It's acquiring more customers, selling more products to the customers that we already have, and improving the mix. So it's the three legs that we are after with our Tier 2, Tier 3. And as you saw, we added more than 1,000 customers in 2020, which is the first part of the strategy. And we will continue focusing on the three elements.

Perfect. And if I could sneak in maybe a little bit of a curveball. As you look at the options for adding platforms for new surfactant chemistries, Has this surge in, call it traditional oleochemical feedstock prices, kind of related to all this biodiesel demand, has that changed your thoughts on potential M&A targets, or would you say that you're largely feedstock agnostic?

So we are still somewhat feedstock agnostic, but There is a strong demand for more bio-based surfactants in the consumer product industry in particular. So you will see a move over a period of time to more bio-based products and or vegetable-based feedstocks or products derived from vegetable feedstocks over a period of time. You also have in the vegetable space, though, you also have people that want to make sure that the rainforests are not being destroyed to supply those products. So it's a complex mix. We do think rhamnolipids and other biosurfactants will be a large part of our portfolio over a period of time. I fundamentally personally believe that in 10 to 20 years, biosurfactants will represent a very large percent of our portfolio. And as we look at making the acquisition of the plant in Louisiana, that helps position us to make large-scale quantities for our customers. And I think in our meetings with them over the last couple weeks, I think they were enthusiastic about the size and scale that we were bringing to the marketplace. Eventually.

All right. Thank you very much. Good luck this year. I'll let somebody else have a turn. Thank you.

Thank you. The next question comes from Mike Harrison, Seaport Global Securities. Please go ahead. Hi, good morning.

I wanted to start out with a couple of questions on the Invista acquisition. I think if I do the math here around the EBITDA contribution, you said $100 million of revenue, six and a half to seven and a half times EBITDA. It sounds like you eventually expect about a $24 million a year type of EBITDA contribution. What can that contribution look like in 2021? I assume there's probably some initial investments and maybe some ramp-up costs, especially as you maybe do some deep bottlenecking.

Thanks, Mike, for the question. Look, we were very clear on providing guidance after full synergies. As you can expect, the first year is a transition year. We're going to have one-time cost of integration, etc., So we don't want to provide any specific guidance for the short term. However, as you see in the numbers, it's a business that is accretive to our business. We actually at this stage believe that it's going to be even accretive to EPS. As you know, the purchase price allocation work takes several months and up to a year in some cases. So we will see how that turns out. But fundamentally, your $24 million in a few years, in a couple of years, is a very good number, as you can see. And we're committed to deliver that or more.

All right. And I want to also understand the impact of Invista and this acquisition on your phthalic and hydride business. Does the amount of merchant commodity phthalic that you're selling – decline as you start to funnel some of that production out of Millsdale to be used as a raw material for the Wilmington location that Invista has?

Yeah, so the short answer is yes, a little bit. But Invista is primarily based on an alternative asset. So most of their business is based on PTA versus PA. So PA derivatives are part of their portfolio, relatively small in the big picture. But I will make a comment that last year was a difficult year for our thalic and hydride business. This year we've been able to recapture some lost market share, and we anticipate that that business will perform significantly better in 2021 than 2020.

All right, that's very helpful. I wanted to ask also on the CapEx front, your elevated number for 2021, I think you mentioned the 1,4-dioxane capacity addition, but maybe talk about what are some of the other key projects that are involved in your CapEx number, and what would normalized CapEx look like I guess, going forward after 2021?

Yeah, so let me say that there are kind of three different drivers for the increased capital expenditure. The investments in 1,4-Dioxane are kind of the largest component of it today. And as we said in the script, that we were looking or working with our customers to make sure that we get an adequate return on those investments. And And so, but there is in 2021 and 2022, there's a spike in terms of our CapEx associated with the 1,4-Doxane reduction projects. The second thing I would say is because of the increased demand that we have on a global basis, particularly for some of the specialty surfactants that we manufacture in the amphoteric and the biocide line, We have additional growth projects that we are looking at implementing in the United States, in Mexico, and potentially in France as well to support our higher margin specialty product lines. So we're excited about those opportunities. And then the third category, I would say that there's an infrastructure spend that we're working on. And one of the things I wanted to comment on is that the Chicago area has been labeled as a potential serious non-attainment zone for the country. And so as a result of that, we are going to be spending some money to reduce our emissions at our Millsdale site. And so there's a peak of some investments at our Millsdale site. as we look to reduce emissions so we can continue to support that site with future growth projects as we go forward.

All right. And then the last question I had is on the raw material front. Maybe some of your thoughts on what kind of inflation you could be seeing and the pricing dynamics as you look at each segment. It seems like the pricing is up pretty nicely in surfactants, at least in Q4, and still under some pressure in polymers. So how should we think about raw material versus pricing progression during early 2021?

So what I'd like to do is answer two questions. One, prior to the freeze that we're experiencing down in the Gulf Coast region, and specifically Texas and Louisiana, What we've seen with the increase in the oil prices, our key raw materials, ortho xylene, diethylene glycol in our polymer business, linear alkyl benzene and ethylene derivatives in our surfactants business, we've seen an increase in those prices. We did announce a price increase in North America to try to recapture those in early January, mid-January. and I would say that our objective in there is to maintain or increase our margins as we look at those raw material movements. We are experiencing, the country is experiencing, a number of force majeures as a result of the freeze that we currently are in. We typically build inventories prior to the Hurricane season, every year we have a very disciplined process in which we build significant amount of inventories that are produced in the Gulf Coast in anticipation of a potential problem. And that strategy over the years has benefited our business. We were not anticipating this freeze in Texas, and nor was anybody else. So what we've seen is a number of our suppliers have declared force majeure. Not sure exactly how that's going to impact our business yet in the quarter. We are also experiencing transportation delays throughout the country as a result of the freeze as well. So I feel very comfortable in terms of our ability to recover the raw material price increases in our base business. Not sure currently how the current situation is going to impact our business in February and March.

All right. Appreciate the color there. Thanks.

Tina, we're having a hard time hearing you. I don't know if you can hear us clearly. Yes.

Tina, you want to call us on that other line, please, that we gave you?

One moment.

Yeah, hey, Quinn, this is Dave. Go ahead, I'm sorry.

Yeah, no, Dave, we can hear you. We can hear you fine. We can hear you fine.

Yeah, I was going to say... I am like you. I can't make out. I could barely make out what the operator is saying. But, no, I'll just jump in. Thanks very much. And I'll just preface my remarks by saying I've been dealing with what I would consider Tier 2 or Tier 3 Internet service this morning. So if I make you cover off things that you've already addressed, I apologize in advance. First, a point of clarification. So you did have the $13 million of insurance recoveries reflected in the fourth quarter results. Did you call out, I guess, the EPS benefit from that that's in the reported results? I mean, back of the envelope, it seems like it could be, you know, 40 cents a share or more. And then if you could just remind me, what were the expectations for insurance recoveries in the fourth quarter? That would be my first question. Thank you.

Thanks, David. So we had two particular one-timers in the fourth quarter. One was the insurance recovery. The $13 million number that we mentioned was on a pre-tax basis. So you are right that EPS is around 40 cents. And we also had an impact, a negative impact on the tax rate because of the cash repatriation project that we did for the INVISTA acquisition. So that had a roughly $0.12 EPS impact. So you have the net of the two collated $0.28 or roughly $0.28 EPS help in the water.

Okay, great. I appreciate that. That helps a lot. My next question would be more of a marketing-oriented question. And, you know, this has to do with, you know, given the time of year, I'm pretty sure you have your business plan set, you know, for initial plans in place for 2021. And I guess I was going to ask if you could characterize customer behavior. In other words, For your surfactants business, I mean, there were periods of shortage, I would say, and maybe some panic buying at times during 2020. And I'm just wondering, is this the kind of market where your customers are extending or expanding their purchase commitments to you over the course of 2021? or are they looking at or alternatively are they kind of looking at the vaccination deployment and the progress there and they're saying well the situation you know might change dramatically um you know three to six months on i was just wondering you know from the purchase orders and the customer behavior you know how would you characterize you know the uh the demand for your core array of surfactants in 2021

you know I think demand for our core surfactant products we believe is fundamentally going to be up in terms of purchasing behavior by our customers it's really it is customer dependent there are many customers that want to ensure that they have long-term products available and we have worked with those customers and have contracted with customers and in some cases back that up with raw material contracts that we've made to ensure that those customers will be supplied product not only in 2021, but as we go forward. There are other customers that choose to buy more on the spot basis. So as we look at our business going forward, We believe that we have significant commitments from customers, not only in the biocide area, but also for 1,4-Dioxane surfactants that are used in the personal wash categories where customers have made firm commitments to us as we go forward.

Okay, no, that's great. Thank you for that. And then I do have one more question maybe for Quinn and more of the philosophy or maybe some background on the Invista purchase. So just briefly, but I'd say, Quinn, your company and you in particular under your leadership, I mean, your company's done a wide array of acquisitions and you know, I would credit you with kind of being unusually effective at kind of being both opportunistic and strategic, you know, as you kind of build, build your company in, in different areas. And as you said, the Invista purchase is kind of a, in some respects, I consider it kind of a step out for your company. You mentioned it's the biggest in your 89 years. But you know, it just, just, you know, a couple of things, but I'm kind of scratching my head and I was saying, this is, this is, you know, not in your surfactants business, at least principally, this is going to be for, you know, your polymers business. And, you know, maybe I'm just wondering if you could comment on how important you consider it to, you know, have a second strong leg, you know, as opposed to currently where, you know, your revenues are dominated more by one segment. And then secondly, the seller, Coke, is certainly a very frequent buyer of assets themselves. I don't recall them selling too many things that they had purchased. But maybe just a comment on how the transaction came about. In other words, how does it fit into your strategic priorities? You know, were you looking at that business for a while or did they come to you? I mean, just some thoughts about how the transaction, an unusual transaction in scale from your side, an unusual transaction maybe a little bit just from being a seller on, you know, on the other side. Just, you know, anything you could add color-wise and how the transaction came to be would be helpful. Thank you.

Yeah, so what I would say is the acquisition fits very well with our strategy. Fundamentally, we believe in energy conservation. We believe in that insulation is the lowest cost way to reduce energy. We believe that aromatic polyester polyol enables the most effective insulation product on the marketplace. So those are the fundamental beliefs that we have, and we believe that the market is growing today, and that we believe it will continue to grow in the future. And this acquisition provides a capital efficient way for us to supply future market growth. If we look at the next required investments at our historic sites, they would have been fairly expensive. So we have an opportunity to buy some business. They also have some different technology and they got a slightly different market position than we have. So we think there's some benefits for us in that regard. So we have an opportunity to enhance our product portfolio, both from a product perspective and from a customer perspective. And then we also have an opportunity to supply and de-bottleneck their sites as we go forward in a cost-effective manner to support our customers and their growth in the marketplace over a period of time. Relative to the acquisition process, we identified and initially approached Coke a number of years ago and were able to work with them and come up with a transaction that met their needs and met our needs as well. We are happy and pleased to work with them. They were a good entity to work with, and they have done a nice job growing the business over the last couple years. Again, we're pleased to have it in our portfolio.

Okay, great. That's it for me. I appreciate all the callers. Thank you.

And that was our final phone question. I'll turn the call back over to our speakers.

Okay, thank you very much, and thank you all for joining us on today's call. We appreciate your interest and ownership in Step & Company. Please stay safe and healthy. Wash your hands frequently and use disinfectants to clean surfaces at home and your workspaces. Have a great day. Thank you.

That does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your lines. Thank you and have a good day.