Orion Engineered Carbons(OEC) - 2020 Q1 - Quarterly Report

PART I - Financial Information Financial Statements and Supplementary Data (unaudited) This section presents the unaudited condensed consolidated financial statements for Q1 2020, reporting $18.0 million net income and $1.32 billion total assets, while acknowledging COVID-19 impacts Consolidated Statement of Operations Highlights (Unaudited) | Indicator | Three Months Ended March 31, 2020 ($ million) | Three Months Ended March 31, 2019 ($ million) | | :--- | :--- | :--- | | Net sales | $336.007 | $384.714 | | Gross profit | $90.193 | $97.969 | | Income from operations | $37.543 | $34.699 | | Net income | $18.032 | $18.954 | | Diluted EPS | $0.29 | $0.31 | Consolidated Balance Sheet Highlights (Unaudited) | Indicator | March 31, 2020 ($ million) | December 31, 2019 ($ million) | | :--- | :--- | :--- | | Total current assets | $569.688 | $507.718 | | Total assets | $1,323.845 | $1,257.394 | | Total current liabilities | $373.659 | $285.211 | | Total liabilities | $1,157.030 | $1,071.382 | | Total stockholders' equity | $166.815 | $186.013 | Consolidated Statement of Cash Flows Highlights (Unaudited) | Indicator | Three Months Ended March 31, 2020 ($ million) | Three Months Ended March 31, 2019 ($ million) | | :--- | :--- | :--- | | Net cash provided by operating activities | $4.905 | $26.171 | | Net cash used in investing activities | ($50.851) | ($22.487) | | Net cash provided by financing activities | $94.560 | $0.337 | - The company is a leading global manufacturer of carbon black, with two main product lines: Specialty Carbon Black (for polymers, printing inks, coatings) and Rubber Carbon Black (for reinforcing rubber in tires and other goods)[19][20][21] - The company acknowledges significant risks and uncertainties from the COVID-19 pandemic, noting that the extent of the impact on its financial condition, liquidity, and results of operations is uncertain and difficult to predict[24][25] Management's Discussion and Analysis of Financial Condition and Results of Operations This section analyzes Q1 2020 financial performance, noting a 12.7% net sales decrease to $336.0 million but an 8.2% increase in operating income to $37.5 million due to reduced SG&A Operating Results Q1 2020 net sales decreased 12.7% to $336.0 million due to volume and feedstock costs, but operating income rose 8.2% to $37.5 million due to reduced SG&A - Net sales decreased by $48.7 million (12.7%) YoY, and volume decreased by 27.7 kmt (10.5%) YoY, with a sharp reduction in sales beginning in mid-March due to the COVID-19 pandemic's impact on tire manufacturing[146][147] - SG&A expenses decreased by $11.1 million (19.9%) YoY, primarily due to lower personnel-related expenses, including bonuses and long-term incentive expenses[150] - Despite a $7.8 million decrease in gross profit, income from operations increased by $2.8 million (8.2%) YoY, driven by the significant reduction in SG&A expenses[149][156] Non-GAAP Performance Metrics | Metric | Q1 2020 ($ million) | Q1 2019 ($ million) | Change | | :--- | :--- | :--- | :--- | | Contribution Margin | $131.9 | $136.3 | -3.3% | | Contribution Margin per MT | $560.8 | $518.7 | +8.1% | | Adjusted EBITDA | $63.8 | $64.6 | -1.1% | Segment Discussion Specialty Carbon Black net sales fell 9.0% to $119.8 million, while Rubber Carbon Black net sales dropped 14.6% to $216.2 million, despite the latter's Adjusted EBITDA increasing 1.7% Specialty Carbon Black Segment Performance (Q1 2020 vs Q1 2019) | Metric | Q1 2020 ($ million) | Q1 2019 ($ million) | Change | | :--- | :--- | :--- | :--- | | Net Sales | $119.8 | $131.6 | -9.0% | | Volume (kmt) | 58.3 | 64.0 | -8.8% | | Gross Profit | $39.7 | $41.4 | -4.0% | | Adjusted EBITDA | $28.1 | $29.4 | -4.5% | Rubber Carbon Black Segment Performance (Q1 2020 vs Q1 2019) | Metric | Q1 2020 ($ million) | Q1 2019 ($ million) | Change | | :--- | :--- | :--- | :--- | | Net Sales | $216.2 | $253.1 | -14.6% | | Volume (kmt) | 176.8 | 198.8 | -11.1% | | Gross Profit | $50.5 | $56.6 | -10.8% | | Adjusted EBITDA | $35.8 | $35.2 | +1.7% | Liquidity and Capital Resources Net cash from operations significantly decreased to $4.9 million, while capital expenditures more than doubled to $50.9 million, and liquidity was bolstered by drawing $109.8 million from credit facilities - Net cash provided by operating activities decreased significantly to $4.9 million in Q1 2020 from $26.2 million in Q1 2019[186][187] - Capital Expenditures increased to $50.9 million in Q1 2020 from $22.5 million in Q1 2019, with $22.7 million of the Q1 2020 spending related to environmental improvements for EPA requirements[199][200] - To enhance liquidity amid COVID-19 uncertainties, the company utilized local bank loan facilities, resulting in cash inflows of $109.8 million during the quarter[189] - Net Working Capital increased to $257.7 million as of March 31, 2020, from $221.1 million as of December 31, 2019, primarily due to the timing of oil-price related pass-through effects on accounts receivables[196][197] Quantitative and Qualitative Disclosures About Market Risk Market risk disclosures for Q1 2020 remain materially unchanged from the 2019 Annual Report on Form 10-K - Information about market risks for the period ended March 31, 2020 does not differ materially from that discussed in the 2019 Form 10-K[209] Controls and Procedures Management concluded that disclosure controls and procedures were effective as of March 31, 2020, with no material changes to internal control over financial reporting - The principal executive officer and principal financial officer concluded that the company's disclosure controls and procedures were effective as of March 31, 2020[210] - There were no changes in internal control over financial reporting during the fiscal quarter that have materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[211] PART II - Other Information Legal Proceedings The company is involved in various ordinary course legal proceedings, which management believes will not materially affect financial condition but could impact operating results for a specific period - The company is involved in various claims and lawsuits from the ordinary course of business, with some matters involving large damage claims[213] - Management believes that the results of ongoing legal proceedings will not have a material adverse effect on the company's financial condition, but may be material to operating results and cash flow for any particular period[213] Risk Factors This section updates risk factors, adding significant disclosure on the adverse effects of the COVID-19 pandemic, including operational disruptions and reduced demand - A new, significant risk factor has been added concerning the adverse effects of the COVID-19 pandemic on the company's business and results of operations[215] - The pandemic has caused operational disruptions, including to the supply chain and employee productivity, and has led to temporary closures of its own and its customers' facilities[216] - The company has experienced significant and unpredictable reductions in demand for its products, noting a significant decline in tire volume in the U.S. and Western Europe in the last two weeks of Q1 2020[217] Unregistered Sales of Equity Securities and Use of Proceeds The company reported no unregistered sales of equity securities or use of proceeds for the period - The company reported "None" for this item[220] Defaults Upon Senior Securities The company reported no defaults upon senior securities for the period - The company reported "None" for this item[220] Mine Safety Disclosures This item is not applicable to the company - This item is reported as "Not applicable"[220] Other Information The company reported no other information for the period - The company reported "None" for this item[221] Exhibits This section lists all exhibits filed with the Form 10-Q, including corporate documents, executive agreements, and required officer certifications - A list of exhibits filed with the report is provided, including amended Articles of Association, employment agreements, compensation plans, and required officer certifications[222]