Cabot Corporation (CBT) Q1 2024 Earnings Report, Transcript and Summary

Good day, and thank you for standing by. Welcome to Cabot's First Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Steve Delahunt, Vice President, Treasurer and Investor Relations. Please go ahead, sir.

Thanks, Norma. Good morning. I would like to welcome you to the Cabot Corporation earnings teleconference. With me today are Sean Keohane, CEO and President; and Erica McLaughlin, Executive Vice President and CFO. Last night, we released results for our first quarter of fiscal year 2024, copies of which are posted in the Investor Relations section of our website. The slide deck that accompanies this call is also available on the Investor Relations portion of our website and will be available in conjunction with the replay of the call. During this conference call, we will make forward-looking statements about our expected future operational and financial performance. Each forward-looking statement is subject to risks and uncertainties that could cause actual results to differ materially from those projected in such statements. Additional information regarding these factors appears in the press release we issued last night and in our 10-K for the fiscal year ended September 30, 2023, and in subsequent filings we make with the SEC, all of which are also available on the company's website. In order to provide greater transparency regarding our operating performance, we refer to certain non-GAAP financial measures that involve adjustments to GAAP results. The non-GAAP financial measures referenced on this call are reconciled to the most directly comparable GAAP financial measure in a table at the end of our earnings release issued last night and available in the Investors section of our website. I will now turn the call over to Sean, who will discuss the first quarter highlights, followed by an update on our execution against our strategy and then discuss the company's recent cash flow performance. Erica will review the first quarter financial highlights and the business segment results. Following this, Sean will provide a strategic summary and closing comments and open the floor to questions. Sean?

Thank you, Steve, and good morning, ladies and gentlemen, and welcome to our call today. I am pleased with our first quarter results, which were aligned with our expectations and reflected strong year-over-year growth. We delivered adjusted earnings per share of $1.56, which is up 59% as compared to the same period in the prior year, setting us off to a strong start to fiscal year 2024. I would like to thank our entire global Cabot team for their resilience and commitment to execution as we navigate these dynamic times. EBIT in Reinforcement Materials was up 37% year-over-year, demonstrating the structural improvements, we have made in recent years to the business and a structurally tight supply/demand balance in the mature regions. We also concluded our customer agreements with strong pricing and mix improvements in all regions that total an annualized increase year-over-year of $75 million. Net of inflationary and other cost increases, we expect the pricing and product mix benefits to equate to an EBIT increase of approximately $15 million per quarter for the remaining three quarters of fiscal year 2024 as compared to the same quarters of fiscal 2023. These results reflect the favorable supply and demand outlook and Cabot's value proposition of supplier reliability, quality, and sustainability leadership. EBIT in Performance Chemicals was up 17% compared to the first quarter of fiscal 2023, as demand in the segment appears to have generally stablized and the effects of de-stocking have diminished. While we did see some signs of pickup in our automotive applications, demand in other key end markets for this segment remained consistent with the September quarter. Cash flow was strong in the quarter, which supported the return of $55 million to shareholders through a combination of share repurchases and dividends. And finally, we continue to be recognized for our leadership in sustainability. For the fifth consecutive year, we were named to Newsweek's list of Most Responsible Companies. This distinction recognizes our strong performance in the areas of environmental, social and governance, and we are very proud of this recognition. With the company off to a strong start to our fiscal 2024 and a track record of disciplined execution, I am confident in our ability to deliver continued earnings and cash flow growth consistent with our Creating for Tomorrow strategy. As we discussed last quarter, the EBIT performance in the Reinforcement Materials segment has increased dramatically over the past eight years, supported by the long-term resilience of the replacement tire market and an increasingly tight supply/demand balance in the mature regions. The industry is also facing stricter environmental regulations that require producers to make significant abatement investments to ensure reliable and sustainable supply to our customers. These investments raise the barriers to entry for additional capacity, roughly doubling the cost of new capacity. Furthermore, I believe we have structurally improved our performance through a commitment to commercial and operational excellence across the company. Over the past decade, we have invested in the marketing and sales capabilities of our team and relentlessly pursued continuous improvement across our manufacturing network to drive excellence in yields, OEE, and energy recovery. As a result of these factors, I believe the outlook for this business remains strong. Our expectation is that we will see continued earnings growth driven by enhanced pricing and product mix, volumes that move in line with growth of passenger and freight miles driven, differentiated capacity adds in high-growth markets such as Indonesia, continued efficiency benefits from yield, OEE, and energy recovery, and finally, innovation contributions through our EVOLVE Sustainable Solutions and E2C technology platforms. In our fiscal 2023, Performance Chemicals' results were impacted by significant de-stocking, but we have seen these impacts diminish in our most recent quarters. While we do not expect the same impact to our sales volumes from destocking in fiscal 2024, we have not yet seen signs that some of our key end markets such as building and construction, infrastructure, and consumer durables are moving back to prior levels. This segment is comprised of a core group of businesses with a GDP-plus growth outlook and strong earnings potential. In addition, we are building out our strategic positions in battery materials and inkjet, two growth vectors that offer compelling long-term growth and where we believe we have a strong right to win. In battery materials, we expect the market to grow between 20% and 30% over time and we are well positioned with the leading global EV battery makers, particularly as they expand in the western economies. In inkjet, we are winning share with printer OEMs that are serving the packaging market as it transitions from traditional analog printing to digital. EBIT in this segment is expected to grow north of 20% per year and we are well positioned to capture this growth. We remain confident that these businesses can be material contributors to Cabot's earnings profile in the coming years. With this portfolio of businesses, we have been delivering strong earnings growth over time. When we met in December of 2021 at our Investor Day, we had just completed fiscal year 2021 and had achieved adjusted earnings per share of $5.02, which represented a compound annual growth rate of 12% from 2015. We set a three-year target at that Investor Day with the expectation to grow adjusted earnings per share between 8% and 12% by 2024. Our current outlook for fiscal 2024 puts us in this band and would reflect a 9% CAGR at the midpoint of our guidance range. While the macroeconomic environment has weakened since Investor Day in 2021, we continue to manage the businesses dynamically and execute to deliver on our commitments. I remain confident in the resilience and strength of our portfolio and in achieving the Corporate Investor Day target for adjusted earnings per share growth. In addition to strong growth in adjusted earnings per share, the Cabot portfolio has robust cash flow characteristics. On a trailing 12-month basis, our strong execution has resulted in operating cash flow of $648 million. Free cash flow yield over that same time period was 8.3%, which puts us in the top quartile of the S&P 1500 Chemicals Index. Our cash generation power allows us to pursue a balanced capital allocation strategy focused on funding strategic investments to deliver long-term earnings growth and returning cash to shareholders while maintaining a strong investment-grade balance sheet. We have maintained a continuous and growing dividend since 1968 and that commitment remains a core part of our capital allocation priorities. Over the last 12 months, we paid $89 million in dividends, including an 8% increase in May, reflecting our confidence in the long-term cash flow outlook for the company. We would expect to continue to raise the dividend over time as our earnings grow. We also repurchased 114 million of shares over the last 12 months. We plan to offset dilution every year and will be opportunistic with additional purchases based on our outlook for cash flow and the timing of growth investment opportunities. The dividends paid and shares repurchased totaled $203 million in the past 12 months, equating to a total payout ratio of 61%. We also set a corporate discretionary free cash flow target at our December '21 Investor Day, which was to generate in excess of $1 billion of discretionary free cash flow over three years. We are also on track to achieve this target in fiscal 2024. The strength of our cash flow generation and disciplined capital allocation are fundamental to the strong Cabot investment thesis and are a priority for this management team. I will now turn it over to Erica to discuss the segment and financial performance in the quarter. Erica?

Thanks, Sean. I'll start with discussing results for the company and then review the segment results. Adjusted EPS for the first quarter of fiscal 2024 was $1.56 compared to $0.98 in the first quarter of fiscal 2023, with growth coming from both the Reinforcement Materials and Performance Chemicals segments. Cash flow from operations was strong at $105 million in the quarter, which included a working capital increase of $46 million. Discretionary free cash flow was $118 million in the quarter. We ended the quarter with a cash balance of $244 million and our liquidity position remained strong at approximately $1.2 billion. Capital expenditures for the first quarter of fiscal 2024 were $54 million, and we continue to expect $250 million to $275 million of capital spending for the fiscal year. Additional uses of cash during the first quarter were $22 million for dividends and $33 million for share repurchases. Our debt balance was $1.3 billion and our net debt to EBITDA was 1.5 times. The operating tax rate for the first quarter of fiscal 2024 was 28% and we anticipate our operating tax rate for fiscal 2024 will be in the range of 28% to 30%. One additional item to note is the benefits seen in the general unallocated income. As we discussed last quarter, this line item of general unallocated income and expense includes currency exposures related to our net asset positions, mainly in South American currencies and investment income we earn in that region, as well as the interest income on our global cash balances. During the quarter, we experienced a foreign currency loss due to a government-imposed devaluation in Argentina. On December 13, the Argentinian government devalued the currency from ARS365 per dollar to more than ARS800, resulting in a foreign currency loss of $33 million on that day. We treated this as a certain item consistent with how we treated the Argentina government devaluation in August and how we have treated similar government-imposed devaluations in other countries, most recently being Venezuela. The market depreciation of the Argentinian peso throughout the rest of the quarter, which was an expense of $7 million, is included in operating results, as only the impact on the day of the government devaluation was treated as a certain item. During the quarter, interest and investment income in Argentina outpaced the foreign currency losses in operating results and was the driver of general unallocated income of $13 million in the first quarter. While currency movements are quite difficult to predict, as we look ahead, we are expecting in the range of $7 million to $9 million per quarter for general unallocated income, driven by interest and investment income and the net foreign currency impacts on our cash balances. Now, moving to Reinforcement Materials. During the first quarter, EBIT for Reinforcement Materials was $129 million, which was an increase of $35 million as compared to the same period in the prior year. The increase was driven by higher pricing and product mix in our 2023 calendar year customer agreements and higher volumes. Globally, volumes were up 2% in the first quarter as compared to the same period of the prior year due to 11% growth in Europe and 7% in Asia as demand in those regions improved. Looking to the second quarter of fiscal 2024, we expect the Reinforcement Materials EBIT to improve sequentially due to the outcome of our calendar year 2024 customer agreements and modestly higher sequential volumes. Now, turning to Performance Chemicals, EBIT increased by $5 million in the first fiscal quarter as compared to the same period of fiscal 2023. The increase was driven by higher volumes in the specialty carbons, specialty compounds, and fumed metal oxides product lines, as the destocking we experienced in 2023 was not a significant factor in the first quarter of fiscal 2024. Looking ahead to the second quarter of fiscal 2024, we expect a sequential increase in volumes, driven by seasonality impacts, more than offset by higher costs sequentially, including $4 million of higher costs associated with maintenance activities and the impact of reducing inventory levels. I will now turn the call back over to Sean to discuss the fiscal year outlook. Sean?

Thanks, Erica. Moving to our 2024 outlook, we feel very good about the first quarter results and the remainder of the year. We are reaffirming our outlook for adjusted earnings per share in the range of $6.30 to $6.80, which is up 22% at the midpoint year-over-year. In terms of the assumptions that underpin our outlook, the key drivers of earnings growth continue to develop as we expected. We had a strong outcome to our calendar year 2024 reinforcement materials customer agreements, reflecting the structurally tight supply/demand dynamics and the importance of regional supply security, quality consistency, and sustainability leadership to our customers. The improved pricing and mix from our calendar year 2024 agreements will drive margin improvement in fiscal 2024. We continue to believe that the Q4 2023 volume run rate is a good basis for segment volumes in fiscal 2024, which would imply low single-digit percentage growth compared to fiscal year 2023. These factors will drive our expectation for another year of strong EBIT growth in the Reinforcement Materials segment. The Performance chemical segment is still expected to be impacted by weakness in certain end markets, with volumes on average expected to be similar to the fourth quarter of fiscal 2023. Regarding margins for the segment, we continue to expect relatively consistent margins to the Q4 exit rate. Cash generation is expected to remain strong and we intend to return a robust amount of cash to shareholders through dividends and share repurchases. Overall, I'm very pleased with how the company is positioned today, and I'm confident in the outlook for the year. Thank you very much for joining us today, and I'll now turn the call over for our Q&A session.

Thank you. [Operator Instructions] Our first question comes from the line of David Begleiter with Deutsche Bank. Your line is now open.

Hi, it's David Huang here for Dave. I guess first on China, can you talk about your outlook for the key segments specific to China and what type of volume outlook is embedded in the full-year guidance?

Sure. Hi, David. So maybe an update on China, and I'll sort of pull the lens back a bit in terms of what we're seeing there. I would say, the Chinese economy appears to have stabilized, albeit at a lower level of growth than we've seen historically. And it is showing some signs of marginal improvement in the recent months. We've definitely seen some pockets of stronger demand in certain sectors, notably in tire, driven by replacement tire exports and the automotive OE sector. And the growth, I think, in the replacement tire exports is likely a sign that supply chains are destocked in the West and there's a need for more tire inventory. But the latest economic indicators released in Q4, in the calendar Q4 of '23 and for the full year calendar '24 were largely consistent with market expectations. And so, I think we're seeing some stability here. The housing market, which accounts for about 25% of China's overall economy, is still quite weak, and we believe it'll take some time to replace this demand driver. But the government is trying to stimulate consumer confidence and we're seeing actions on that front. I just came back from a two-week trip to China, and I think there's a pretty consistent narrative that the government has stimulus plans around their so-called three major projects, which are building out affordable housing, urban renovation, and what they're calling dual-use infrastructure. So things like 5G and EV charging and renewable energy and power distribution, these types of forms of infrastructure. So, I think these efforts, if we see them materialize, will definitely drive demand for chemicals, but we'll have to see how things develop coming out of Chinese New Year. I think the next few months will be important and we'll be monitoring the situation closely and we'll continue to actively manage our business there in this dynamic situation. So, overall, I think growth expectations would probably be kind of in line with the latest macroeconomic indicators out of China, which sort of has GDP growth in the 4% to 5% range, something like in that zone.

Okay. Got it. And then on battery materials, do you still expect EBITDA to be up in '24, given all the incremental challenges, I guess, in some parts of the EV battery chain?

Yeah, definitely, the sentiment across the EV and battery chain is somewhat depressed right now. We would expect EBITDA to grow in fiscal year '24 based on continued year-over-year volume growth and a better product mix in China as we optimize our participation and drive a higher penetration of our performance grades. Now, I think growth in fiscal '24 is expected to be more second-half driven as OEMs and battery makers are expected to reduce what are pretty high inventory levels in this coming quarter, in the March quarter. So that's definitely a factor in China today. Outside of China, we're expecting volumes to be higher than fiscal year '23, though, again, the ramp is somewhat difficult to project here, but overall, we'd expect to grow profitability in fiscal '24, I would say, roughly in line with battery production growth. That's probably the best way to think about it.

Okay. Thank you.

Thank you. One moment for our next question, please. Our next question comes from the line of Laurence Alexander from Jefferies. Your line is now open.

Good morning. In Reinforcement Materials, how much of your volumes are now covered by multi-year contracts?

On multi-year contracts, very little, Laurence. They're largely all one-year agreements.

Okay.

In fiscal '24, we had a residual of two-year agreements from last year, so we'll have the second year in 2024. And then the negotiations that we had this year were one-year agreements, and that was really reflecting our view on outlook. I would say multi-year discussions were a more minor part of the conversation. And given the market environment we were negotiating this year, we were not seeking multi-year deals.

And how much can you debottleneck capacity across your system each year?

Yeah. So, the way that we think about capacity, Laurence, are really two levers. One is continuing to drive what we call OEE, overall equipment effectiveness. And so this is really driving up the uptime in the assets, as well as the throughput rates and minimizing off quality. Those three factors calculate to what's called OEE. And, of course, that is the first priority for us because that is the most capital-efficient way to grow capacity. And over a period of time here, we've substantially improved the OEEs. And so, I think you can expect to get a 1 point or 2 points of OEE each year, that kind of an increase. And then, the second lever is what we call capital-efficient debottlenecks. And so this would be where there is relatively minor capital required to debottleneck a particular unit operation in the plant in order to unlock some additional capacity. And I would say every carbon black plant has an option set of debottlenecks that can be done, some more capital efficient than others, but these are generally very capital-efficient ways. So, if you then take those two levers and match them up against what is a low single-digit growth rate from a demand standpoint, we feel confident that we've got growth runway here for multiple years.

And then, with the carbon elastomers projects, if you invested more, could you accelerate market adoption, or is it purely sort of customer considerations at this point?

Yeah. It's more about customer adoption because it is a high performance, but a novel technology, new technology that does require some change in the customer's production process. You're basically making some changes to the front end of their plant, the mixing part of their plant. And so, it's really about the customer adoption time more than anything else. Now, we have seen very clear adoption in the market segment for off-the-road tires. These are large earth-moving tires, and that's where particularly the wear and cut and chip performance of this enhanced compound really plays very strongly. So that's the first place where you're seeing customers commercialize. There are a lot of commercial tires out there right now in this space. I think the next place would be in the truck and bus tires, where they're trying to improve both the wear characteristics, but also balance the fuel economy or the rolling resistance. And our elastomer composites materials play well there. And so those, we have a number of customers that are in extended road tests right now in that application. So, it's a conservative market, understandably, from a qualification standpoint. But the driver here, I think, is really just that. I think the compelling nature of the value proposition has been becoming more evident here over the last several years. And so I think it's about them working through their adoption cycle.

Thank you.

Thank you. One moment for our next question, please. Our next question comes from the line of Chris Kapsch with Loop Capital Markets. Your line is now open.

Yeah, good morning. I had a question just on the pricing and mix gains that you mentioned in Reinforcing Materials. Just curious how balanced that was across regions, or was there more of an affirmative step change in Europe given the sanctions that are happening against the Russian-sourced carbon black this year?

Yeah. Good morning, Chris. So in the prepared remarks, you've got the net impact, which we're very pleased with. But let me try to give you a little bit of color here by region and see if that helps. I would say, first in terms of Europe, definitely the upcoming ban on Russian supply to the EU drove strong demand from customers to secure supply. And we engaged with our longstanding partners here first, followed by other customers looking for security and local supply from within the regions. And I think customers have recognized the long-term value of Cabot's stability. And I think the contract outcomes there affirm that view. So, we definitely saw impact from that phenomenon that you raised. In the Americas, even with a bit softer demand in the second half of 2024 due to the sort of transient destocking that occurred in the replacement chain, I think the outlook for tight supply/demand fundamentals remains in the Americas. And we realized price increases in this region as well, across the board. And I think, again, our customers continue to recognize the value proposition of regional supply and consistent quality and our sustainability leadership. And related to that, our need to pass along higher operational costs associated with environmental compliance and the need to earn a return on that capital. So that's the Americas. And then, in Asia, as you know, the majority of our business is negotiated on a monthly or quarterly spot basis. For those global customers where we do negotiate annual agreements, we achieve price increases in this region as well. So, really across the board with probably a little bit stronger outcomes in the European region because of the Russia sanction phenomenon.

That's helpful. And the follow-up was, I guess, sort of bigger picture because the company's performance has done well, the returns are improved. It sort of validates this structural improvement for the industry. Yet embedded in the valuation of the stock is some skepticism, I guess, that there'll be some reversion. And I'm just curious about your comments about the barriers to entry and the 2x multiple to stand up new capacity. Just wondering if you -- what your thoughts are on the skepticism, I guess, by the market about the structural improvement in the industry? And also juxtaposed against, there was an example fairly recently, one of your competitors did announce some small additions, granted they're targeted it looks like Southeast Asia and where the growth rates are higher. So wondering if you could just comment overall on just the competitive landscape and the structural thesis about the industry. Thank you.

Sure, Chris. So, well, in the prepared remarks, I commented on the long-term execution of our strategy and how we have now, over a very long period of time, demonstrated quite strong earnings growth. And so I think there are a lot of proof points there that the structural dynamics are very different, particularly in Reinforcement Materials. And as I've said in the past, I think if you go way back in history in this business, you did see a different set of structural dynamics, primarily because there was a tire migration out of the West and to China, and that tire migration has been over now for a number of years. And so that demand picture in each region is much more stable, I think number one. Number two, there have been a number over that period of time of supply side reductions in capacity that have consistently tightened up the balance. And that's been playing out now for seven, eight years, something in that range. And then, when you overlay the environmental capital that is required, if you can get new capacity permitted in a jurisdiction, certainly raises the barriers to entry and the cost recovery and earning a return on the capital is quite a different number from historical. And then finally, I would say, the importance of having regional supply, while this business has always been a regionally-driven business, I think today, with the, call it, derisking or de-coupling or regional supply security, however, you want to sort of phrase the trend, it's pretty clear that there's a level of sort of onshoring back to regions and an effort to try to derisk global supply chains. And so again, this business has always been regionally driven, but I would say the emphasis on that, the importance of that has only gotten stronger. So, I think the structural dynamics here are quite different and quite compelling. And on top of those market factors, we've done a number of things, as I commented on in the prepared remarks, to improve the performance of our business, sort of self-help, if you will, where we've really driven up over a long period of time through operational excellence, our OEE performance. We always are driving our yields, making investments to drive yield. And then finally, energy recovery is really critical not only to the economics of the business, but also to our sustainability goals, if we can produce cogeneration power. So, I think all of those self-help measures combine with the industry structure comments that I made to create a quite different-looking business. And now you're seeing proof points play out over a very long period of time.

That's helpful. But just any thoughts on the [Birla] (ph) additions? And is that just keeping up with growth in certain regions? Is it helping backfill the displacement of the Russian supplies? Appreciate it. Thanks.

Yeah, sure. Sorry, Chris, forgot about that. So our view on that dates back to announcements that might be almost 10 years old and never fully acted on. So, not sure how firm that most recent announcement is when you put it in the history of prior announcements that have been made. That being said, they're targeted in the ASEAN region. If they do come to fruition, and that is expected to be the highest growth region for tire production, and so that would certainly make sense as on the margin. Tire production is -- capacity is moving into ASEAN rather than China. The need for carbon black will certainly grow there. It's possible that there's some backfill to the Russian supply that's anticipated in that announcement as well. But we feel like between the growth in ASEAN and the fact that Europe does need some structural supply to backfill the Russian material, we think it should be in balance. But questions about whether or not it actually happens.

Thank you.

Thank you. [Operator Instructions] Our next question comes from the line of Joshua Spector with UBS. Your line is now open.

Hey, guys, this is James Cannon for Josh. I just wanted to poke on some of the data we saw in the reinforcement market, specifically with respect to the Americas. I think the data we were tracking pointed to reinforcement or replacement tires being up 10% year-over-year. And some of the weakness that I'm sure came through in the numbers with OE tires being down about 8%. I had a hard time kind of balancing that against the minus 7% you called out in Americas. I was just wondering if you could point to anything you saw in the delta there.

Yeah. Well, I would say it's really driven by demand in the region. Remember, this is Americas both north and south. I think south was probably a little weaker than North America, so that's impacting here. And we also see year-end inventory adjustments made by customers as well. And we think there was definitely some of that happening. But our expectation here is that we'll see sequential improvement in our fiscal Q2. So the March quarter here and then a return to year-over-year growth in the second half. So not particularly concerned about it. And our assessment is really driven by those factors.

Okay. Thank you. And then on the PC side, you called out some pretty solid volumes in the quarter. I think over the past couple you've had some headwinds on the pricing side. Is that starting to turn around or are you still seeing pressure there?

Yeah. So, I'm not sure that last statement was accurate. I think our comments more recently have been that margins in the segment have generally been holding up relatively well. And the biggest challenge in the segment has been volume weakness. But we definitely, on the volume side, did see some nice improvement in the quarter that was driven by specialty carbon, specialty compounds, and fumed metal oxides. So really kind of across the board. So I think that was positive to see after a pretty extended period of destocking and where we were seeing negative year-over-year comps. So, I think that's a positive signal here. I think the timing of recovery in the segment beyond this sort of the next leg will depend, I think, on how things develop in some of our key end markets, building construction, infrastructure, consumer durable goods, things like this. And so far, those aren't showing any signs of inflection. So, I think we're pleased to see that perhaps a turning point where we're no longer seeing negative year-over-year comps, but whether or not these end markets pick up and drive the next leg of growth, we're perhaps a bit cautious here until we get a number of months under our belt here, but definitely pleased to see the stabilization and hopefully the signs of a turn here.

Okay. Thank you.

Thank you. One moment for our next question. Our next question comes from the line of John Roberts with Mizuho. Your line is now open.

Thank you. Sean, there's a precipitated silica business for sale. Would that fit with the Reinforcement business?

Hey, John, I think we're always looking at M&A to enhance the portfolio. I would say, the way we think through it is, first, if there is M&A, that would help our existing businesses in terms of global footprint to serve customers and build that position out. I would say, number one. Number two, in our chosen growth vectors, so in battery materials and inkjet, if there are attractive opportunities there that would strengthen our position, then we are always looking at those. And then I think the third area would be, are there logical adjacencies where the combination of our business and another one would be accretive. Now, with respect to precipitated silica, specifically, I think there are a couple of ways to think about it. One is, you could get basic in the precipitated silica. The other is that you could use your technology platform like E2C to incorporate other materials into an advanced formulation. And that's certainly something that we look at and think about. So, it's definitely something that we evaluate. The prioritization of how we look at things would be strengthen our existing position, one. Number two, invest in or explore M&A to support the growth vectors. And then three, evaluate adjacencies such as the one you just described. Norma, I'm not sure, did we lose connection here?

Mr. Roberts, do we have another question?

No, just that one. Thank you.

All right, thank you.

Okay. Thank you, John.

At this time, I'm showing no further questions. I'd like to hand the conference back over to Mr. Keohane for closing remarks.

Okay. Great. Thank you, Norma. And thank you all for joining the call today and for your support of Cabot. And I look forward to speaking with you again next quarter. Thank you.

This concludes today's conference call. Thank you for your participation. You may now disconnect. Everyone, have a wonderful day.