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Orion Engineered Carbons to Announce Second Quarter Financial Results

Orion Engineered Carbons S.A. (NYSE: OEC), a global supplier of specialty and high-performance carbon black, today announced financial results for the second quarter ended June 30, 2020.

Second Quarter 2020 Highlights

  • Continued focus on protecting employees, maintaining agile production and managing costs
  • Generated $85.7 million of operating cash flow despite sharply lower volumes and profitability, reflecting a $77.3 million working capital reduction, providing a countercyclical, stabilizing impact on results
  • Established $45 million in additional ancillary credit lines under revolving credit facility, contributing to a $86 million sequential increase in liquidity accessible at any net leverage level to $333 million
  • Net sales of $202.6 million compared to $399.0 million in the second quarter of 2019 reflecting the COVID-19 induced global economic downturn
  • Net loss of $17.8 million and basic EPS of $(0.30) compared to net income of $24.7 million and $0.41 in the second quarter of 2019
  • Adjusted EBITDAof $15.2 million compared to $71.5 million in the second quarter of 2019
  • Adjusted Net Loss1 of $8.6 million and Adjusted EPS1 of $(0.14) compared to Adjusted Net Income of $31.7 million and Adjusted EPS of $0.53 in the second quarter of 2019
  • Net leverage ratio of 2.97x LTM Adjusted EBITDA compared to 2.28x at year-end 2019

1 See below for a reconciliation of non-GAAP financial measures to the most directly comparable U.S. GAAP measures

“Against the backdrop of the pandemic, the Orion team did an excellent job in working safely, supporting the communities we serve, cutting costs, maintaining operational agility and further enhancing liquidity. As a result, we are well positioned for the eventual recovery in our end markets, which was evident in our Rubber markets throughout the quarter and continued into July, while most Specialty end markets remained largely subdued during the quarter with a significant step-up in July. Our people have done a tremendous job working through this unusual period and most importantly operating our facilities safely with no employee-to-employee contagion, and with great agility in the face of rapidly shifting demand. In addition, our teams continued to support the communities where we operate by donating their time and equipment to those who are working on the front lines during the global pandemic. I want to thank them for their continued focus and dedication,” said Corning Painter, Chief Executive Officer.

Mr. Painter continued, “Our reported results reflected the effects of a 42 percent reduction in volumes caused by the abrupt reduction in global mobility induced by COVID-19, with Adjusted EBITDA of $15.2 million. We continue to focus on safety, building agility to serve our customers, reducing costs, and emerging stronger from this. We believe the long-range outlook for underlying carbon black demand remains strong and unchanged, but in the short run, we may benefit from a tailwind if driving continues to grow as a preferred mode of transportation during this period of stringent physical distancing. Indeed, miles driven proved to be a leading indicator of the nascent recovery of recent months.”

Second Quarter 2020 Overview

ORION ENGINEERED CARBONS

(In millions, except per share data or stated otherwise)

Q2 2020

Q2 2019

Y/Y Change in %

Volume (kmt)

156.9

270.5

(42.0)%

Net sales

202.6

399.0

(49.2)%

Income/(loss) from operations (EBIT)

(12.9)

41.5

(131.1)%

Net income/(loss)

(17.8)

24.7

(171.8)%

Contribution Margin

74.3

143.4

(48.2)%

Contribution Margin per metric ton

473.6

530.3

(10.7)%

Adjusted EBITDA

15.2

71.5

(78.7)%

Basic EPS (1)

(0.30)

0.41

(0.71)

Adjusted EPS (2)

(0.14)

0.53

(0.67)

Notes:
(1)

Basic EPS calculated using net income/(loss) and weighted number of shares outstanding in the respective quarter.

(2)

Adjusted EPS calculated using net income/(loss) for the respective quarter adjusted for acquisition related expenses, restructuring expenses, consulting fees related to group strategy, certain other items (such as amortization expenses related to intangible assets acquired from our predecessor and foreign currency revaluation impacts) and assumed taxes and weighted number of shares outstanding in the respective quarter.

Volumes declined by 42.0%, or 113.5 kmt, to 156.9 kmt, year over year, with lower demand in both segments and in all regions, due to the effects of COVID-19 on the overall global economy.

Net sales decreased by $196.4 million, or 49.2%, year over year, to $202.6 million, driven primarily by lower volumes and, to a lesser extent, the effects of passing on lower feedstock costs to customers.

Loss from operations was $12.9 million compared to income from operations of $41.5 million in the second quarter of 2019, due to the effects of COVID-19 on the overall global economy and carbon black demand.

Lower volume drove a net loss of $17.8 million, compared to net income of $24.7 million in the second quarter of the prior year.

Contribution Margin declined by $69.1 million, or 48.2%, to $74.3 million, year over year, primarily driven by lower volumes, partially offset by favorable base price increases in the Rubber segment, in particular.

Adjusted EBITDA decreased by $56.3 million, or 78.7% to $15.2 million, year over year, primarily due to lower volume, partially offset by lower fixed costs and base price increases in the Rubber segment, in particular.

Quarterly Business Segment Results

SPECIALTY CARBON BLACK

(In millions, unless stated otherwise)

Q2 2020

Q2 2019

Y/Y Change in %

Volume (kmt)

49.5

69.9

(29.2)%

Net sales

94.4

139.3

(32.2)%

Gross profit

24.2

44.4

(45.5)%

Gross Profit per Metric Ton

489.4

635.7

(23.0)%

Adjusted EBITDA

16.5

31.0

(46.9)%

Adjusted EBITDA/metric ton

333.1

444.2

(25.0)%

Adjusted EBITDA Margin (%)

17.5

22.3

(480)bps

Specialty Carbon Black volumes decreased by 29.2%, year over year, to 49.5 kmt. All regions were down.

Lower volumes drove net sales lower by $44.9 million, or 32.2%, to $94.4 million, and gross profit lower by $20.2 million, or 45.5% to $24.2 million, year over year.

Specialty Adjusted EBITDA decreased by $14.6 million, or 46.9%, to $16.5 million, year over year, primarily due to lower volumes, partially offset by mix. Adjusted EBITDA margin fell 480 basis points to 17.5% compared to 22.3% in the second quarter of 2019.

RUBBER CARBON BLACK

(In millions, unless stated otherwise)

Q2 2020

Q2 2019

Y/Y Change in %

Volume (kmt)

107.5

200.6

(46.4)%

Net sales

108.3

259.7

(58.3)%

Gross profit

9.7

59.6

(83.7)%

Gross Profit per Metric Ton

90.7

297.3

(69.5)%

Adjusted EBITDA

(1.2)

40.5

(103.0)%

Adjusted EBITDA/metric ton

(11.5)

201.9

(105.7)%

Adjusted EBITDA Margin (%)

(1.1)

15.6

(1670)bps

Rubber Carbon Black volumes decreased by 93.1 kmt, or 46.4%, year over year. All regions were down. Volumes were down primarily due to COVID-19, but also reflect our commercial strategy as part of 2019 contract negotiations to emphasize raising price over volume.

Net sales decreased by $151.5 million, or 58.3%, to $108.3 million, year over year, primarily due to lower volumes and, to a much lesser extent, the pass through of lower feedstock costs to customers, partially offset by base price increases.

Gross profit decreased by $49.9 million, or 83.7%, to $9.7 million, year over year, driven by lower volumes, partially offset by base price increases.

Rubber Adjusted EBITDA decreased by $41.7 million, or 103.0%, to $(1.2) million, year over year, primarily driven by lower volume and the unfavorable impact on margins of lower feedstock costs, partially offset by lower freight costs and fixed costs. Adjusted EBITDA margin was (1.1)% in the second quarter of 2020 compared to 15.6% in the second quarter of 2019.

Balance Sheet and Cash Flows

As of June 30, 2020, the Company had cash and cash equivalents of $143.4 million, an increase of $79.6 million from December 31, 2019, reflecting a combination of strategic draws on select credit facilities to bolster liquidity and cash flows from operations, partially offset by capital expenditures. Net debt increased from $609.1 million as of December 31, 2019 to $624.8 million as of June 30, 2020.

The following table shows our current net debt position as of June 30, 2020 compared to December 31, 2019:

(In millions)

June 30, 2020

December 31, 2019

Term loans

$

629.8

$

635.0

Capitalized transaction costs (long-term)

(4.0

)

(4.7

)

Long-term financial debt, net

$

625.8

$

630.3

Term loans (current)

$

8.0

$

8.1

Capitalized transaction costs (current)

(1.4

)

(1.4

)

Short term local bank loans

130.3

29.8

Short-term financial debt, net

$

137.0

$

36.4

Cash and cash equivalents

$

(143.4

)

$

(63.7

)

add-back capitalized transaction costs (long-term and current)

$

5.4

$

6.1

Net Debt 1)

$

624.8

$

609.1

1) Long-term financial debt, net plus short-term financial debt, net less cash and cash equivalents and add back of capitalized transaction costs. Capitalized transaction costs as well as non-current debt from financial derivatives and other non-current liabilities are disregarded in computing net indebtedness under our lending agreements.

Cash Flow

Cash inflows from operating activities amounted to $85.7 million, up $37.8 million year over year, due to a decrease of net working capital of $77.3 million, primarily driven by lower accounts receivables and inventory, offsetting the decrease in net income.

Cash outflows from investing activities were $38.5 million, essentially unchanged year over year.

Cash outflows from financing activities of $12.8 million reflect a combination of voluntary repayments under select credit lines and $2.0 million in scheduled debt repayments, down $4.3 million, mainly due to suspended dividend.

Outlook

Mr. Painter continued, “We cannot predict the ultimate course of COVID-19 or the ensuing pace and shape of the recovery in our end markets. However, we can see that current trends, such as the recovery in driving rates and auto sales from historic lows early in the second quarter, are very positive for us. As economies gradually reopen, we expect demand to continue to recover across our specialty and rubber carbon black end markets.”

“We have successfully navigated through the first phase of this downturn and remain confident in our ability to deliver meaningful results for our customers, our employees, the communities where we operate and the shareholders whom we serve,” concluded Mr. Painter.

Source: Orion Engineered Carbons 

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