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, announced financial results for the second quarter of 2021.

Second Quarter 2021 Highlights

Achieved second highest Adjusted EBITDA since IPO.
Positioned the company to complete EPA investments, capture growth in differentiated markets and generate substantial free cash flow in 2023.
Received cash payment of $79.5 million, resolving longstanding dispute with Evonik, substantially bolstering financial position.
Net sales of $401.0 million, up $198.4 million, year over year.
Net income of $89.1 million, up $106.9 million, year over year.
Basic EPS of $1.47, up $1.77, year over year.
Adjusted EPS¹ of $0.62, up $0.76, year over year.
Adjusted EBITDA¹of $78.8 million, up $63.6 million, year over year.
Adjusted EBITDA margin¹ of 19.7%, up 1,220 basis points, year over year.

¹ The reconciliations of Non-GAAP measures to the respective most comparable GAAP measures are provided in the section titled Reconciliation of Non-GAAP Financial Measures below.

“This quarter we delivered Adjusted EBITDA representing the second highest level since our IPO in 2014, four times higher than year ago levels and ten percent higher than the second quarter of 2019. Our outstanding financial performance demonstrates the strong resilience and operating leverage inherent to our business and the agility of our team to capitalize on robust economic conditions during the period. We also substantially bolstered our financial standing during the quarter by successfully settling the longstanding Evonik dispute. Overall, the Orion team remains focused on maximizing long term shareholder value by advancing select growth investments, driving sustainability, executing the remaining EPA installations safely and positioning the company to generate considerable free cash flow in 2023,” said Corning Painter, chief executive officer.

Second Quarter 2021 Overview:

(In millions, except per share data or stated otherwise)	Q2 2021	Q2 2020	Y/Y Change
Volume (kmt)	250.3	156.9	93.4
Net sales	401.0	202.6	198.4
Income (loss) from operations	132.5	(12.9)	145.4
Net (loss) income	89.1	(17.8)	106.9
Contribution margin	153.6	74.3	79.3
Contribution margin per metric ton	613.9	473.6	140.3
Adjusted EBITDA⁽¹⁾	78.8	15.2	63.6
Adjusted EBITDA margin⁽¹⁾	19.7%	7.5%	1220bps
Basic EPS	1.47	(0.30)	1.77
Diluted EPS	1.47	(0.29)	1.76
Adjusted EPS⁽¹⁾	0.62	(0.14)	0.76

(1)

The reconciliations of these non-GAAP measures to the respective most comparable GAAP measures are provided in the section titled Reconciliation of Non-GAAP Financial Measures.

Volumes increased by 93.4 kmt or 59.5%, year over year, with higher demand in both segments, across all applications and geographies, primarily driven by a sharp global recovery from the COVID-19 induced economic downturn.

Net sales increased by $198.4 million, or 97.9%, year over year, driven primarily by higher sales volume, favorable product mix and the impact of passing through higher feedstock costs.

Income from operations increased to $132.5 million, compared to a $12.9 million loss from operations in the prior year, an increase of $145.4 million. The increase was primarily driven by favorable operating leverage associated with substantially higher sales volume, favorable product mix and the Evonik legal settlement related gain, partially offset by higher selling, general and administrative costs.

Net income increased to $89.1 million, compared to a net loss of $17.8 million in the second quarter of the prior year, up $106.9 million. The increase was driven primarily by higher sales volume, and the Evonik legal settlement related gain.

Contribution margin increased by $79.3 million to $153.6 million, year over year, primarily due to favorable operating leverage associated with substantially higher sales volume.

Adjusted EBITDA increased by $63.6 million, from $15.2 million to $78.8 million, year over year, primarily due to favorable operating leverage associated with substantially higher sales volume and favorable product mix.

Quarterly Business Segment Results

SPECIALTY CARBON BLACK
(In millions, unless stated otherwise)	Q2 2021	Q2 2020	Y/Y Change
Volume (kmt)	68.1	49.5	18.6
Net sales	156.3	94.4	61.9
Gross profit	53.0	24.2	28.8
Gross profit per metric ton	779.2	489.4	289.8
Adjusted EBITDA	39.3	16.5	22.8
Adjusted EBITDA/metric ton	578.3	333.1	245.2
Adjusted EBITDA Margin (%)	25.2%	17.5%	770bps

Net sales rose by $61.9 million, or 65.6% to $156.3 million, year over year, primarily driven by a 18.6 kmt, or 37.6%, to 68.1, volume increase, favorable product mix, and passing through higher feedstock costs. Volume gains across all regions reflected a broad-based demand increase across all applications reflecting a sharp global recovery from the COVID-19 induced economic downturn.

Specialty Adjusted EBITDA rose by $22.8 million to $39.3 million, year over year, primarily due to favorable operating leverage associated with substantially higher sales volume, and favorable product mix. Year over year, Adjusted EBITDA margin rose 770 basis points to 25.2%.

RUBBER CARBON BLACK
(In millions, unless stated otherwise)	Q2 2021	Q2 2020	Y/Y Change
Volume (kmt)	182.2	107.4	74.8
Net sales	244.7	108.2	136.5
Gross profit	57.1	9.7	47.4
Gross profit per metric ton	313.0	90.7	222.3
Adjusted EBITDA	39.5	(1.3)	40.8
Adjusted EBITDA/metric ton	216.5	(11.5)	228.0
Adjusted EBITDA Margin (%)	16.1%	(1.1)%	1720bps

Rubber Carbon Black volumes increased by 74.8 kmt, or 69.6%, year over year, reflecting the broader global economic recovery across all regions.

Net sales increased by $136.5 million to $244.7 million, year over year, primarily reflecting higher sales volume, favorable product mix, and passing through higher feedstock costs.

Rubber Adjusted EBITDA increased by $40.8 million to $39.5 million, year over year, primarily due to favorable operating leverage associated with substantially higher sales volume and favorable product mix. Adjusted EBITDA margin rose 1,720 basis points to 16.1%, year over year.

Balance Sheet and Cash Flows

As of June 30, 2021, the company had total liquidity of $364.0 million, including cash and equivalents of $74.1 million, $252.2 million under our revolving credit facility capacity, including ancillary lines, and $37.7 million of capacity under other available credit lines. Net debt was $640.7 million and net leverage was 2.37x.

Cash Flow

Cash inflows from operating activities amounted to $85.1 million down $5.5 million, year over year, primarily driven by higher working capital, partially offset by higher income from operations.

Cash outflows from investing activities were $58.3 million, down $31.1 million, year over year, primarily driven by the timing of EPA-related capital expenditures.

Net cash used by financing activities of $16.6 million, compared to cash provided by financing activities of $81.7 million in the prior year. Cash outflows during 2021 were primarily related to repayments under our senior secured revolving credit facilities, and scheduled debt repayments, partially offset by drawings under our local bank loan facilities. In the prior year, management bolstered its cash position in preparation to successfully manage through the pandemic.

Outlook

We are raising our Adjusted EBITDA guidance to $265 million to $285 million primarily reflecting improved second half Specialty pricing and mix versus our prior outlook. While there are many bullish signals for the global economy, we continue to expect that our second half financial results, though strong, will not match the robust level of our first half, due to planned outages at several plants, including our Ivanhoe, Louisiana site where we are completing our EPA work, and typical Rubber Carbon Black end-of-year seasonality,” Mr. Painter concluded.

Source: Orion Engineered Carbons

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