CCC Intelligent Solutions Holdings Inc. (CCC) Q4 2016 Earnings Report, Transcript and Summary

Good morning ladies and gentlemen, thank you for standing by. Welcome to the Calgon Carbon Corporation's Fourth Quarter 2016 Earnings Conference Call. Today's call is being recorded. At this time all participants have been placed on a listen only mode, and the call will be opened for your questions following the presentation. [Operator Instructions] It is now pleasure to turn the floor over to Dan Crookshank, Director of Investor Relations. You may begin.

Thank you, Maria. Good morning everyone and thank you for joining us for today's conference call and webcast. Our speakers for the prepared remarks portion of today's call are Calgon Carbon's Chairman, President and Chief Executive Officer, Randy Dearth; and Calgon Carbon's Senior Vice President and Chief Financial Officer, Bob Fortwangler. Also on the call and available to take your questions are Executive Vice President and leader of our Core Carbon and Services business, Jim Coccagno; and Executive Vice President and leader of our Advanced Materials, Manufacturing and Equipment business, Steve Schott. Management's prepared remarks today are accompanied by presentation slides. Those of you accessing the call via the webcast will find the presentation displayed in the webcast window. A standalone copy of the presentation is also available for download from our Web site at www.calgoncarbon.com via the link to today's Web cast that can be found on the investor home page. I'll now draw your attention to Slide 2. Statements made during today's call that are not historical facts are considered to be forward-looking statements and are made pursuant to the Safe Harbor provisions of federal securities laws. A list of factors that could affect actual results can be found in the news release we issued earlier this morning and are discussed more fully in the reports we file with the SEC, particularly those listed in our most recent Annual Report on Form 10-K. These filings, as well as this morning's news release can also be found in the Investor Relations section of our Web site. Now, let me turn the call over to Randy.

Thanks, Dan and thank you everyone for joining us for our fourth quarter and fiscal 2016 year-end earnings conference call this morning. I'm going to start my remarks with an overview of our fourth quarter results on Slide 3, about a third of the way through the fourth quarter on November 2nd, we closed on the acquisition of CECA's wood activated carbon and filtration media businesses. For the purpose of external reporting in our discussion today, we are calling them the new business. Sales rebounded from the third quarter to 137.5 million, a sequential increase of 11%. Legacy sales grew 1% driven primarily by potable water sales from perfluorinated compounds or PFC projects and were slightly under our expectations for 2% to 5% sequential growth reflection a strong than anticipated dollar, particularly against the euro and the pound sterling. A continued weakness in the ballast water systems. The negative impact from foreign currency translation for the quarter was $1.4 million compared to the range of $500,000 to $1 million we had expected. The new business contributed $12.1 million to our fourth quarter sales. As with the case when a company completes a sizable acquisition, our fourth quarter results include various accounting costs and charges, creating a fair amount of noise in the numbers and causing us to report a loss of $0.12 per share. On the pre-tax basis, we incurred acquisition and project related expenses totaling $13.7 million which was higher than the $5 million to $6 million estimate we gave you on the third quarter call. We completed our post-closing activities in November and December and we arrived at our final determination that certain French [ph] asset and business transfer tax payment we were expecting to make that totaled of $6.5 million would have to be expensed immediately. Closing the acquisition was a bright spot in an otherwise difficult year. With EPS weighted down by weak industrial sector demand, unfavorable market conditions for mercury removable sales particularly early in the year, and continued delay in the formation of the market for ballast water equipment. While we held share, our industrial sector customers were simply using and purchasing less activated carbon in 2016. As a remainder these customers comprise approximately 30% of our sales. Significant acquisition and project related cost were a burden on full year results and the strengthen of the U.S. dollar also hurt us. From a cash flow perspective however, we had a good year. We generated close to $70 million in operating cash flow and return the total of $18.8 million in capital to shareholders in the form of dividend and share repurchases. In short, during the period of weak market conditions and demand for our products, we focused on the things we can control, we preserved our premium brand and maintained our leadership position for high quality, high performance activated carbon solutions. And we continue to focus on our model of providing products and services to the most hard to treat applications and saw notable success in quickly capitalizing on the PFC contamination issue in the U.S. And we continue to take cost out of our business and push for further operational efficiencies. Still, I am glad to have 2016 behind us. As you will hear in a moment we have good reason to believe that soft demand we face in 2016 in the industrial sector, mercury removable and the ballast water market may all represent areas of improvement for us in 2016. Please turn to Slide 4 for an overview of our fourth quarter performance by the end markets we serve. Starting with the left side of the slide, in industrial processes we saw initial signs of improving demand toward the end of the quarter, as well as some early indications of potentially improving conditions in the market served by our industrial sector customers. Measures of economic, manufacturing and production activity appear to be moving off the lows starting earlier this year. Customer sentiment is really more positive and our funnel of opportunities is better now versus historical levels. All of which leads us to be cautiously optimistic about the potential for a recover year. Stating on the left side of the slide in the environmental water market, while sales for industrial sector projects were not as robust as last year's fourth quarter, we saw a modest improvement over the third quarter which was our lowest quarter for the year. With respect to our ballast water management systems the pace of bid activity which started to pick up in the third quarter following the ratification of the IMO Convention last September stayed robust during the fourth quarter. As long as the September 8th compliance date of the IMO Convention stays on track in its current form we should see some of these bids lead to sales towards the end of the year. With respect to U.S. Coast Guard Type Approval we are set to begin testing our system under their protocols in March which keeps us on track to submit our application for approval in the fourth quarter of this year. In the environmental air in the mercury removal market, higher natural gas prices resulted in a very good fourth quarter. As these conditions are holding and we continue adding new customers we're off to a strong start to the year in terms of improved demand and volumes bolstered by our technology expertise and continuing success marking up our high value add powdered activated carbon solutions for hard to treat situations. Turning to the right side of the slide, in the portable water market demand remains strong particularly in United States. During the quarter we won awards for PFC remediation valued at approximately $2 million bringing the total PFC projects won during 2016 to 20, valued in total at approximately $10 million. And we're currently actively engaged in more than double the 2016 awards both in terms of number and value of additional PFC related project opportunities and active leads. In addition, we're pursuing and gaining traction with opportunities to provide our solutions to military bases, that have used PFC containing firefighting foams for training and to provide clean use from water filters to consumers who get their drinking water from private wells where PFC contamination is present. As this market continues to develop we believe the North American portable water business will see further growth in 2017. Coal based granular activated carbon, specifically our filters product range and equipment offerings continued to be the solution of choice for this emerging market opportunity. In Europe with our Tipton reactivation facilities successfully coming back online from a post start outage in Q3 we expect to see improving utilization going forward. Touching briefly on the two main market segments, in food and beverage you will see volumes pickup as result of the addition of the customer base of the wood carbon and filtrate products that came with the new business. In our specialty carbon market we won new business in metals recovery and secured a new five-year contract for respirator carbon products with an existing customer that should generate approximately $6 million of sales per year. While I only touched briefly on the activities of our acquired wood activated carbon and filtration media businesses, if you turn to Slide 5 I'll give you an update on integration activities and financial impacts of the transaction. Since closing the transaction last November I have visited the facilities and met our new employees and I have to say I'm very impressed even more excited about the opportunities ahead to strengthen our premium brand and our high-end leadership position. Like our legacy business, the new business has earned a reputation for technical expertise in solving its customers' most demanding purification and separation problems and for providing high quality products. We're moving ahead smoothly with our integration plans. Due to completion of debottlenecking project and synergy capture we still expect to improve the new businesses EBITDA by 40% by 2019 as envisioned when we announced the transaction last April. The wood based activated carbon facility currently has a capacity to manufacture roughly 22 million pounds of steam activated, chemical activated and higher value added washed wood carbons for food, industrial and pharmaceutical customers. And the debottlenecking project underway is design to expand capacity by more than 2 million pounds as we enter 2018. We also remain on track to capture expected cost synergies by the end of 2019, and we have begun to capture incremental business to utilize the new businesses available industrial and food reactivation facility in Italy to more effectively serve more customers in Europe. In terms of operations, we continue to be sold out of wood activated carbon products. Having owned the new business for nearly four months, we are in a position now to give you an update on the financial impact of transactions. Purchase accounting adjustments on the inventories and ATMs [ph] fixed assets have been quantified at $0.04 per diluted share in 2017, and we still expect the transaction to be accretive to a 2017 diluted EPS. So, that completes my review of our fourth quarter performance. And I would now like to turn the call over to Bob, who will take through our financial results for the last quarter and our thoughts around first quarter. So Bob?

Thank you, Randy. And good morning, everyone. I’ll begin with the income statement on Slide 6, the waterfall chart at the top of the slide displays the bridge from last year to this year's fourth quarter gross margin before depreciation and amortization. You will notice that we are showing variances for our legacy business separate from the new business and the related transaction and purchase accounting impacts. Starting from the left side of the chart, our legacy business was impacted by unfavorable customer and product mix as well as the loss of the higher margin mercury removable contract both of which impacted third quarter gross margin and were expected. However, solid operational performance at our Big Sandy and Pearl River virgin activated carbon production facilities, lead to our achieving gross margin before depreciation and amortization for the legacy business of 33.2%, slightly above the upper end of our guidance range of 31% to 33%. With respect to the new business, purchase accounting adjustments to inventory led to $1.5 million charge in the quarter of 1.1 percentage point of margin. We expect a final charge of approximately 700,000 in the first quarter as we complete one inventory turn and fully recognize the inventory step up adjustments. In addition, the new business results contributed a negative 1.1 percentage point of which 0.7 percentage points was due to scheduled planning maintained outages at two facilities. The remaining 0.4 percentage points reflect the new businesses lower gross margin profile relative to Calgon Carbon legacy business. The waterfall chart on the bottom of the slide displays the bridge from last year's operating income of 10.7 million to this year's operating loss of 5.4 million. The gross margin dollar impact in the chart above was $1.4 million. The legacy business operating expenses were essentially flat. However incremental cost comprised of two months of new business depreciation and amortization and operating expenses and the significant amount of acquisition of project related cost totaled $14.5 million, and pulled into a loss position for the quarter. Of notes the new businesses selling general administrative cost tend to run at a lower percent of sales in the legacy business. Before turning to a review of cash flow for the year, I want to call your attention to our couple of additional fourth quarter income statement line items. First our effective tax rate was approximately 28%, versus our expectation of 33.5% to 34.5% due to non-deductible transaction cost in lower earnings. Second, interest expense was $1.3 million for the quarter which was in line with our expectations. Moving to Slide 7, we show comparison of our operating cash flow for 2016 to 2015. Although the end result [ph] of both years is roughly the same with operating cash flow of approximately $70 million, our focus on working capital management was a positive contributor in 2016 while net income was burned by acquisition and project related costs. On Slide 8 we display uses of our cash in 2016 compared to 2015. In 2016 the two large components were the acquisition associated increase in our net borrowings. Solid cash flow contributed to our paying down of approximately $40 million of the initial borrowings drawn to complete the acquisition. Capital expenditures for 2016 came to 32.5 million within our expected range of 30 million to 35 million and compared to 62 million in 2015. In terms of enhancing shareholder value we paid $10.1 million in dividends to shareholders and $8.7 million in share repurchases. Moving to our outlook, starting with sales on the left side of the slide we expect first quarter 2017 to be 18% to 20% higher than last year's first quarter. This includes approximately 21 million to 24 million in sales from the new business. For the legacy Calgon Carbon business we're anticipating sales being flat with last year, reflecting improved mercury removal product sales and higher portable water and respirator carbon sales, with offsets coming from expected declines from Japan entity and lower UV equipment sales. We expect industrial sector sales to be comparable to last year's first quarter. This is a positive sign as we began to see the slowdown in this sector beginning in Q2 2016. Moving to our legacy sales outlook, it’s a negative impact from currency translation of approximately $2 million, ending from the strong dollar versus the euro and pound sterling. The right side of this slide details our outlook for other income statement line items including the results in the new business for a complete quarter, which for now comes with a generally lower margin profile and including the final inventory purchase accounting charge we're expecting consolidated gross margin to be in the range of 31% to 32%. Depreciation and amortization is expected to approximate $11.5 million, slightly higher than Q4 due to a full quarter of new business depreciation and amortization expense. Selling, general, administrative and research expenses as a percent of sales are expected to be 17.5% to 18.5%. During the quarter we expect to spend roughly $1.4 million on integration activities. We expect to complete these integration activities in the third quarter and spending another $1.5 million to $2 million mostly in the second quarter. In total we expect to spend $3 million to $3.5 million on integration projects in 2017. In addition we expect to incur a cost of about $1 million related to a subsidiary reorganization project, we have been working on single integrated plan, to create coherence across the organization and more efficient worldwide treasury functions which will allow for both efficient growth and future changes in the company's corporate structure. We expect to complete the subsidiary reorganization project by the end of the first quarter of 2017. Together expenses related to integration activities and the subsidiary reorganization plan should represent approximately 1.7 percentage point as forecasted SG&A and research expenses as a percent of sales. As a remainder the first quarter is typically our lowest sales generating quarter. Interest and other expenses net are expected to total or approximately $2.5 million. Moving to taxes, our expected effective tax rate for the quarters is 33.5% to 34.5%. In addition and as a result of the subsidiary reorganization project I just described, we expect to incur discreet tax charge of approximately $2 million during the quarter. One full year cashflow metric that we typically provide is our expected annual capital expenditures. In 2017, we are expecting to spend in the range of $70 million to $80 million with a large part of this spend related to the Neville Island refurbishment and expansion project that was delayed from last year's original capital plan as well as continued spending on new business projects including the debottlenecking project at our wood activated carbon facility and regular ongoing maintenance capital spend. I’ll now turn the call back to Randy for closing remarks.

Thanks, Bob. So during 2017, our key priority will be integrating the new business and extracting expected synergies. We expect the new business will contribute approximately $100 million in sales. In our legacy business, we expect to deliver revenue increases from potable water market projects in the U.S. and Europe and from mercury removal contracts run during 2016 while benefiting from elevated natural gas prices. We also expect to see an increase in ballast water treatment equipment sales late in the year. The ultimate timing and pace of which will be dependent upon the IMO remaining on track with the enforcement of its regulation on September 8, 2017 and in its current form. As we have mentioned on the call today, we are starting to see early indications of increasing demand from our industrial sector customers which gives us cautious optimism that they are moving into recovery period. As the recovery builds during 2017, our goal is to maintain if not expand our margins and we currently have our sights set on generating EBITDA of more than $100 million in spite of the approximately $5 million of cost that we expect to incur during the first three quarters of 2017 related to the subsidiary reorganization project, acquisition integration and the inventory related purchase accounting adjustments as Bob just detailed for you. Helping us achieve these goals will be the capture of expected synergies and benefits from projects in the new business and our doable commitment to controlling cost and on improving operational and manufacturing processes in our legacy business including cost improvements from previously announced programs. These initiatives place us in a strong position to realize greater operating leverage when volumes from our industrial sector customers improve. In closing, a rebound in industrial sector demand along with our continued success in winning municipal drinking water business and mercury removal contracts plays to our strengths and competitive advantages in high end segments of the market rounded in our premium brand, our customer stickiness and our technical expertise. All of which points to better results in 2017. So with that we'll turn it over to your questions.

Thank you. [Operator Instruction] Our first question comes from the line of David Cater of Baird.

Hi guys, it's Tyler Frank from Baird, thanks for taking the question. Could you give us little bit more color on where you stand in terms of Coast Guard Type Approval, or linking your balance to other systems and what needs to occur as you look over next six to 12 months? And then going beyond that, can you talk a little bit about market demand here in the U.S. Do you think that demand based on your expectations for potential regulatory changes or other factors will fill the capacity here in the U.S. given yourselves and the other conventional players in this year?

This is Steve, with respect to our U.S. Coast Guard Type Approval endeavor we expect to conduct the first stage of that testing in March, it'll followed -- and that's our land based testing and then it'll be followed by other tests necessary. We expect to wrap all of that up before the end of the year and submit our filing to the Coast Guard during the fourth quarter. As it relates to demand, what I'll say is that we've seen since the low point in Q3 of last year a dramatic increase in the number of bids that we're been asked to submit. To frame that it's probably four times the activity that we had only six months ago, so we're quite encouraged by the bid activity, we feel like so long as the compliance schedules remain as set forth currently and including the Coast Guard's recent compliance action taken in a vessel here at the U.S. Coast in the state of Washington that these things all point favorably to a year with good results for us to the extent these things stay as they are.

Great and then what are your expectations for the overall market demand here in the U.S. for activated carbon? And do you think the mercury market will expand more given the current administration or what are your thoughts going forward on run rate [ph]?

Yes, we'll need to talk a little bit about 2017 again in terms of demand and where we see it going I mean and again 2016, we're not happy with it, it was a bad year. But as we noted in our remarks and I'll just review hose again, that we're cautiously optimistic that the industrial sector indeed will start coming back in 2017, we can benefit from that. Absence of those high-end products, we tend in our plans to replace those with lower margin products which we did last year and hence that put some pressure on the margins, but again we can -- we're looking forward to that market coming back simply because it's big for us, it's 30% of our share, and also these are markets we know well and the customers prefer us as the partners in that area. But when you add to that the opportunities we see in PFC removal we're very excited about that, mercury removal as you heard us talk about and the contracts we won last year, but even the ballast water, as we just talk come September 8th, we believe that that's going to have a significant improvement on our sales going forward, which is yet difficult to quantify, but bid activity would indicate that that will be the case, so all of that will help fill up the capacity that we have and do it with the highest margin possible.

Our next question comes from the line of Gerry Sweeney of ROTH Capital.

[Technical difficulty] sale on that for a minute, maybe peel back the onion a layer. What is driving that, is that just general hiccups in U.S. philosophical [ph] stand on -- from an economic standpoint, any sort of view on that?

Hey Gerry can you repeat the beginning of the question, I don’t know if you're on your cellphone it's coming in a little bit garbled.

I apologize.

That’s okay.

Could you -- I wasn't [technical difficulty] question in the Q&A.

Sure, okay.

But I just wanted to see what was -- what is [technical difficulty], is it general pickup in U.S. [indiscernible] demand, are the client's seeing that. Just wondering if you could provide a little bit more details.

Yes, most of the customers in this sector for us are chemical company and refineries. And they use our products in three ways, they use it as part of their processing, so when they make their products, they use it as part of their waste water treatment, and in some cases they use our products when they have remediation projects that they have to complete. And so when you look at 2016 and look at the chemical industry, you can see a direct correlation with down turn in demand for chemical products and when you look now going into 2017 you see that there is some optimism on that. That front that 2017 will be a better year for them, and hence for us as well. We do sense their pessimism, cautious pessimism -- well cautious optimism I should say, like ours and we will see again how that turns out over few quarters. But again, data for us would indicate that things could be looking up.

Okay that’s helpful. And speaking on the I guess potable water sales, I know, if my [indiscernible] is correct, probably demand, there was some extension, still there was I guess some [technical difficulty], are you generally seem to have [indiscernible], is that picking up or is that stabilized, how does that play into be higher price?

Hi, it's Jim Coccagno. I’ll take a short of that question. So our potable water sales, we're actually pleased with those. They've grown year-over-year and we expect that to continue into 2017. It's really across all the drivers but the one area that we are really happy about it is PFC demand. So in our potable water sales as we look at it there is the carbon and service side and the equipment. I would say that one thing that has occurred is the ratio between carbon and service and equipment has shifted a little bit more on the equipment, as a lot of the PFC jobs require a [technical difficulty] equipment investment upfront. And we will continue to see that, we'll expect that to continue in 2017, but we are actually excited about the potable water sector and when that could bring, what it has brought in '16 and what it will bring in '17.

Tyler asked earlier about some of Trump's policies and I failed to answer that, but I would like comment, because I think it adds to what Jim just said and Trump has been very clear that looking at the infrastructure across the country and trying to bring that back to some normal standard is one this priorities and I was just in Washington DC a few weeks ago and water infrastructure is one of those areas that congress is really interested in hearing more about and what our thoughts are and of course we think this could be a strong area for activated carbon as we try to clean both large municipalities, but also small rural communities that need clean drinking water.

Sure, and you know the PFC business is -- I mean it's started picking up earlier of this year. I mean could you remind us maybe how big of an opportunity of market it potentially could be?

Yes, we haven't given that number. The markets evolving. So I can tell you the market is kind of split into a drinking water market which is really the opportunities that we're seeing today. It's the most urging side of that the opportunity and then for the more longer term there are remediation opportunities, that was with a large consulting engineer company two weeks ago and asked the question about size and length, and from the length they see this market being around for a long time, 10 plus years. There is a lot of contamination specifically at DOD sites, so drinking water first but this opportunity is going to be around for activated carbon and Calgon Carbon for a long time on the remediation side. It's a good opportunity, we continue to win the lion's share of the business, our products are proving out to be the best in the business and we expect to continue to win our share of that going forward, there is a lot of activity.

[Operator Instructions] Our next question comes from the line of Jim Coll of Lombard Securities.

I was just curious across all division how many sales persons do you have and are they salaried or commissioned or both?

Yes, let me explain that first in the U.S. and then I'm go globally. In the U.S., we're pretty much structured by business units, so we have sales reps who focus on the municipal business, we have sales reps who focus on the industrial business, and we have sales reps that focus on ballast water and our specialty carbons business. So they're trained in these areas and go after that, they are salaried employees, but they do have bonus programs that we offer them incentives based on various metrics that we deem is in the best interest of shareholders. So, in United States from a number perspective, because we do have some hybrids as well who do both marketing and sales, but I would say 30 to 40 in the U.S. roughly and that's complemented by distribution. Around the world we treat our organizations more like distributors, in the sense that they multi-sell across all the various businesses and in Europe we probably have --.

Over 20.

Over 20, and we just added some additional sales reps with the new business to the tune of probably about 10, and in Asia I would say we have a lot of agent and distribution network, we have our own sales reps, that total probably about 20?

Yes.

And again all of which are salaried employees.

Could you just comment on the share repurchase, is that suspended and if so is that dependent on share price?

We'll firstly I'll say that returning capital to shareholders is a topic that the Board of Directors in each and every Board meeting discusses and how that's used. And again we mentioned to you that we spent 18.1 on dividends [Multiple Speakers] 10 on dividends and 8 on shares repurchases. Bob, you want to comment too?

Yes for now the share repurchase is suspended. Our focus at this point is to continue looking at the continuing our dividend to give back value to our shareholders and looking at our capital allocation in more detail to try and balance our capital spending versus debt versus share repurchases, so even though it's suspend at this time, it's still open to further actions, but at this point due to the acquisition it is suspended for the near future.

Okay thank you, that’s very helpful. Appreciate it.

Our next question comes from line of Michael Gaugler of Janney Montgomery Scott.

Few questions on your main segment. On the legacy carbon service business, margin degradation in the last few quarters, just wondering if you could give us some guidance on what we should be looking for in 2017?

Michael, we talked a little bit about some of the challenges in the margins and we will go from there a bit. Obviously global competitive market, it was very evident in 2016 and even as we go into 2017. So that’s still there, enforces us to act accordingly. Product mix in terms of the fact that I mentioned earlier that with the softening of the higher markets require high end products, we supplement that with lower margin products and that indeed was the case in 2017 which had -- or 2016 which had an impact on our margins. The industrial sector is big for us. So again with 30% of our sales and with the down turn you saw that again was a high margin area that just wasn’t as big in 2016 as we like and we hope to come back. And the other factor to bring into it, with the PFC market and particular with ballast water, the more of the equivalent we sell, we traditionally said that those come with a lower margin and we did have a lot of equipment that accompanied our PFC carbon sales last year. So that played a factoring in it as well [technical difficulty].

[Technical difficulty].

Mike, this is Steve. You broke up, but I think I understand your question to be what droves the fourth quarter losses in the equipment business and in that regard I would mention a couple of factors. One, obviously our sales levels remain low owing to the ballast water slowdown and we expect that to improve. That said, in the fourth quarter we also and for the full year we had some warranty charges in several of our businesses in the equipment segment. Those totaled for the year just over $1 million and a good bit in the other half was in the fourth quarter. So that was one of the driving factors for the loss for the year. We don’t think that those are events that we will repeat, we have remedied those situations. And I’ll take the opportunity to mention that our backlog as we entered the year was pretty low. But we have won almost $20 million of equipment project bids. We haven't entered into the contracts yet for those wins, when we do, they'll be reflected in backlog. So we expect this business to defiantly improve in 2017 owing in part two the number of recent bid wins that we've had.

Okay. I apologize, not sure if the problem is on your side or mine on the line.

It's better now Michael.

The reason I ask was, I look back over the last couple of years and you've pretty much run at a breakeven to a slight loss in the equivalent segment and I was just wondering if you will be gearing up ahead of the September and anticipated better sales in the back of the year and maybe that would drive higher expenses?

We geared up for the September expectation many years ago. We maintained our workforce in the large part to remain prepared to the opportunity, because as you know when the opportunity comes it will be here for a limited period of years and we wanted to prepared at the [technical difficulty] to capture as much of the market as we could. So, the business has been burdened, the loses that we've suffered over the past several years, however modest were as a result in part of our having a workforce ready for this opportunity and that continues.

[Operator Instructions] Our next question is a follow-up from Gerry Sweeney of ROTH Capital.

I assume you're just mentioning on the PFC side, a lot of it was related to equipment. I assume the more equipment you get out there, the continued follow-on sales of activated carbon will continue, so it's a -- equipment leads to sales and then activated carbon continues to follow it, is that a fair assumption?

So, Gerry that's absolutely right. And with PFC's in particular, so we get our equipment out there like our carbon in it and one other thing that is driving our success in PFCs is the future reactivation potential. People want the containment gone, they want it remediated and there is not a lot of technologies out there for activated carbon that you can destroy the containment through reactivation. So we would expect in the long terms that this initial PFC opportunity will lead to longer term reactivation sales.

I don't know if you want to get into it, but I imagine that 20 million, I'm not sure exactly how much is all equipment or how much is activated carbon, but this for the sake of argument, if it was $20 million worth of equipment what sort of the follow through on activated carbon product sales on an annual basis or?

Well Gerry, that 20 million I referenced across a number of different volumes in our equipment business, some of which won't have anything to do with activated carbon. But we had said previously and I think this holds, as we look at equipment sales for the PFC market they probably comprise 75% of the total initial value with carbon being the other 25%. But as Jim mentioned, the reactivation that occurs is an ongoing opportunity that's carbon only.

And the change outs you can say of the carbon has really yet to beat determined and will depend on the amounts of containment in the waste streams, so it's really hard to tell at this point on.

Okay I figured it would be that, would still be variable, but also -- And the just on ballast water, how is that market competition sort of seating up? And then you had also mentioned if the timeline today is in place, I know there is some mumblings of extension moving things around et cetera. and that really won't come into play I believe, there was going to be a meeting held in July, but what's the opportunity like, what are you hearing on the extension front, anything that you can provide a little bit more granularity would be great.

Gerry, I'll first address competition. I actually think it's probably not heating up, it's cooling down. I think a number of companies and I think we talked about 60 competitors been Type Approved, perhaps there is a third or less of them that will be viable long term, that's what our Intel is telling us, it's been a long wait, it's been a financial burden for many competitors who don't have the financial backing to be able to stand in the market and so on that front it's a positive and on the IMO implementation front, there will be meetings this year where I would expect there will be a discussion about a deferral. For now there is no provision for it. So we will do watching it closer and certainly hope that the regulation stays in place. We were really encouraged by the Coast Guards enforcement action in late January, I think that's a good sign and we know also that the Coast Guard is less receptive to granting the extensions without good reason. So I think we see some positive market forces there currently as well.

Okay great. I’ll appreciate it, thank you.

At this time, I am showing no further questions. I would like to turn the floor back over to management for any additional or closing remarks.

Thank you, Maria. Thank you everybody for joining us on the call today. I just want to let know that our Form 10-K will be filed sometime next week. And the management here will be available for follow up questions, if you would like to call in. Thank you.

Thank you, ladies, and gentlemen, this does conclude Calgon Carbon Corporation fourth quarter 2016 earnings conference call. You may now disconnect.