Orion Engineered Carbons S.A. — Q2 2021 Form 10-Q
Reporting period: Three and six months ended June 30, 2021; compared with the same 2020 periods. Orion manufactures rubber and specialty carbon black. Amounts below are in U.S. dollars unless stated otherwise.
Financial performance
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Net sales | $401.0 million | $202.6 million | $761.1 million | $538.7 million |
| Gross profit | $110.1 million | $33.9 million | $212.6 million | $124.1 million |
| Gross margin | 27.4% | 16.7% | 27.9% | 23.0% |
| Operating income (loss) | $132.5 million | $(12.9) million | $175.3 million | $24.7 million |
| Net income (loss) | $89.1 million | $(17.8) million | $112.6 million | $0.3 million |
| Diluted EPS | $1.47 | $(0.29) | $1.85 | Not clearly stated as a value; displayed as zero |
| Adjusted EBITDA (non-GAAP) | $78.8 million | $15.2 million | $149.7 million | $79.1 million |
| Operating cash flow | Not separately provided | Not separately provided | $85.1 million | $90.6 million |
| Capital expenditures | Not separately provided | Not separately provided | $58.3 million | $89.4 million |
Q2 sales rose 97.9% and first-half sales increased 41.3% year over year. Management attributed growth to higher volumes, favorable product mix, recovery in demand after the COVID-19 downturn, and pass-through of higher feedstock costs. Q2 volume increased 59.5% to 250.3 thousand metric tons; first-half volume rose 28.7% to 504.4 thousand metric tons.
Adjusted EBITDA, a non-GAAP measure, increased 418.4% in Q2 and 89.3% for the first half. Q2 and first-half operating results included an $82.9 million gain from the Evonik settlement; excluding settlement-related adjustments, Adjusted EBITDA was $78.8 million and $149.7 million, respectively. The filing presents the settlement gain separately from the company’s core segment performance.
Segments
- Specialty Carbon Black: Q2 sales were $156.3 million and Adjusted EBITDA was $39.3 million, versus $94.4 million and $16.5 million a year earlier. Q2 Adjusted EBITDA margin rose to 25.2% from 17.4%.
- Rubber Carbon Black: Q2 sales were $244.7 million and Adjusted EBITDA was $39.5 million, versus $108.2 million and a $1.3 million loss a year earlier. Q2 Adjusted EBITDA margin improved to 16.1% from negative 1.1%.
Balance sheet, cash flow, and liquidity
- At June 30, 2021, cash and cash equivalents were $74.1 million; total assets were $1.54 billion and stockholders’ equity was $302.1 million.
- Debt and other financial liabilities totaled $710.5 million, including $70.1 million current and $640.3 million long-term. Net debt was $640.7 million and net leverage was 2.37x.
- Total liquidity was $364.0 million: $74.1 million cash, $252.2 million available under the revolving facility and ancillary lines, and $37.7 million available under other credit lines. No revolving credit facility borrowings were drawn, although ancillary-facility use reduced availability.
- First-half operating cash flow of $85.1 million was below $90.6 million in 2020. Investing cash outflow was $58.3 million, while financing cash outflow was $16.6 million. Working capital increased to $337.7 million from $245.0 million at year-end 2020, primarily reflecting higher inventories and receivables.
- Cash and cash equivalents increased to $74.1 million from $64.9 million at December 31, 2020. The company paid no dividends in the first half of 2021; it paid $12.0 million in the first half of 2020.
Material developments, outlook, and risks
- Evonik settlement: Evonik paid €66.55 million, reported as $79.5 million, in June to settle disputes tied to the 2011 acquisition and environmental exposures. Orion also released $3.4 million of related legal reserves, producing a reported $82.9 million gain.
- EPA consent decree: Orion estimates pollution-control and monitoring installations at its four U.S. plants will require $270–$290 million of capital spending; approximately $155 million had been spent through June 30. Ivanhoe work was delayed by COVID-19 impacts. Orion declared force majeure and requested a schedule extension; the EPA had not confirmed the request and had deferred judgment. Actual total costs and timing remain uncertain, and noncompliance could result in additional penalties.
- Management outlook: Orion expects cash on hand, operating cash flow, and borrowing capacity to be sufficient for operating costs, debt service, and capital expenditures for the foreseeable future. The filing provides no specific revenue or earnings guidance.
- Key risks: Demand and results may be affected by COVID-19 and global economic conditions, cyclical markets, raw-material and energy cost volatility, the ability to pass costs through, customer and supplier concentration, manufacturing and severe-weather disruptions, environmental regulation and compliance costs, litigation, foreign exchange and interest-rate movements, and the ability to service debt.
- Management reported disclosure controls and procedures were effective as of June 30, 2021, with no material change in internal control over financial reporting during the quarter. The filing states there were no material changes to the risk factors disclosed in the 2020 Form 10-K.
Investor verification checklist
- Assess how much of reported earnings growth reflects underlying operations versus the one-time Evonik settlement gain.
- Track EPA project spending, the requested Ivanhoe schedule extension, and whether total projected costs remain within the stated $270–$290 million range.
- Monitor working-capital requirements and cash conversion as feedstock prices and sales volumes change.
- Verify available liquidity, net debt, and leverage against ongoing investment needs and debt-service requirements.
- Review volume, pricing, product mix, and segment margins to determine whether Q2 recovery and margin improvements persist.