Orion Engineered Carbons(OEC) - 2022 Q4 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The company reported a record full year adjusted EBITDA of $312 million, marking a 25% increase in Q4 adjusted EBITDA compared to the previous year despite challenges in customer destocking [43][44] - Full year revenue increased by 31% to over $2 billion, with adjusted EPS growing from $1.73 in 2021 to $1.96 in 2022 [56] - The average gross profit per tonne was $350 in Q4, reflecting a significant upward trend over the past two years, with expectations to exceed $400 in 2023 [6][11] Business Line Data and Key Metrics Changes - Specialty business experienced a volume decrease of over 20% year-over-year, but revenue remained flat due to improved pricing and mix [57] - The rubber business saw improvements across all metrics year-over-year, with volume increases in the Americas and APAC regions, particularly in China and Korea [5][7] - Adjusted EBITDA for the specialty business decreased by 18%, while the rubber business benefited from strong base pricing and cogeneration income [4][7] Market Data and Key Metrics Changes - In North America, demand for rubber carbon black is increasing due to the onshoring of tire production, leading to a tight supply-demand balance [12][13] - The European market is complicated by the ongoing war and its impact on Russian supply, with expectations of further tightening in the carbon black market [13] - The company anticipates significant discretionary cash flow of $200 million to $240 million and free cash flow around $100 million in 2023 [11] Company Strategy and Development Direction - The company aims to achieve a mid-cycle adjusted EBITDA capacity of $500 million by 2025, focusing on high-value projects and sustainability initiatives [50][62] - The management emphasized the importance of maintaining a specialty valuation and leveraging the resilience demonstrated during fluctuating oil prices [9][10] - The company is committed to balancing capital allocation between investing in growth, reducing debt, and returning cash to shareholders [11][68] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the business's resilience and growth potential, despite uncertainties in the global economy [59] - The company expects 2023 to be even better than 2022, with a focus on maintaining strong pricing and addressing supply-demand imbalances [9][10] - Management noted that the first quarter of 2023 may be weaker than usual due to seasonal factors and ongoing challenges in the Chinese market [81] Other Important Information - The company has repurchased over 800,000 shares, approximately 1.4% of the shares outstanding, as part of its stock buyback program [7] - The completion of the U.S. air emissions project is expected to reduce spending significantly, allowing for more focus on high-value projects [8] Q&A Session Summary Question: Specialty business guidance and volume expectations - Management indicated that the forecast for the specialty business is based on a second-half performance repeating into 2023, with challenges in the Chinese market still present [20][21] Question: Supply-demand dynamics in North America - Management acknowledged that while there is some incremental investment occurring, the market remains tight, and pricing improvements are expected but not at the same magnitude as the previous year [26][28] Question: Capital allocation and free cash flow usage - Management emphasized a cautious approach to capital allocation, considering debt reduction and potential high-return projects while maintaining flexibility for future opportunities [68][69]