Rayonier Advanced Materials Inc. (RYAM) Q3 2014 Earnings Report, Transcript and Summary

Welcome, and thank you for joining Rayonier Advanced Materials Third Quarter 2014 Teleconference Call. [Operator Instructions] Today's conference is being recorded. If you have an objection, please disconnect at this time. I would now like to turn the call over to Beth Johnson, Vice President of Investor Relations and Planning. Thank you, you may begin.

Thank you, and good morning. This is Beth Johnson, Vice President of Investor Relations and Planning. Welcome to Rayonier Advanced Materials' investor teleconference covering third quarter earnings. Our earnings statements and presentation materials were released this morning and are available on our website at rayonieram.com. I would like to remind you that in these presentations, we include forward-looking statements made pursuant to the Safe Harbor provisions of federal securities laws. Our earnings release, as well as our Form 10 registration statement filed with the SEC, list some of the factors which may cause actual results to differ materially from the forward-looking statements we may make. They are also referenced on Page 2 of our presentation material. Now let me turn it over to Paul Boynton, Chairman, President and CEO. Paul?

Yes, thanks, Beth, and good morning, everyone. Here with me today are several members of our management team, including Benson Woo, our CFO; Frank Ruperto, our Senior Vice President of Corporate Development and Strategic Planning; John Carr, Corporate Controller; and Tom Benner, our new Senior Vice President of Commercial. Tom leads our Sales and Marketing strategic sourcing and R&D groups. He joined us after 24 years with Solvay, where, for the past 4 years, he served as President of their silica business. And we're pleased to have Tom on the team. This is our first full quarter as a standalone company and we're very pleased to share with you our solid third quarter results. Our facilities performed well, sales volumes were in line with expectations and we generated a pro forma EBITDA margin of approximately 27%, which is right on track to achieve our full year guidance. Now let me turn it over to Benson to walk through more specifics regarding our quarter results. After which, I will discuss our outlook as well as our financial and strategic initiatives. Benson?

Thanks, Paul. Let me start by reminding you that all periods prior to the third quarter are reflective of carve-out accounting treatment. As such, the overall results may not be indicative of the standalone company. However, sales and production costs are comparable between periods. With this backdrop, let's look at Page 3 to review our financial highlights. This morning, we reported third quarter pro forma earnings of $22 million or $0.53 per share. The pro forma adjustments remove onetime separation and legal costs, as well as environmental charges from the results. For the third quarter, sales totaled $254 million, 19% above the second quarter and 12% above the third quarter last year. Pro forma operating income was $46 million for the quarter, 7% higher than the prior quarter and 22% below third quarter 2013. Our variance analyses for pro forma operating income are provided on Page 4 of the financial presentation materials. As you can see, for the sequential quarter, the $3 million improvement in pro forma operating income, from $43 million to $46 million, was primarily driven by higher sales volumes, with an impact of $7 million due to the timing of customer orders. These volume gains were partly offset by the $5 million impact of lower prices reflecting cellulose specialties mix and helped by a slight improvement in cost. Costs were below prior quarter as lower production expenses, including moderating wood and energy, but were mostly offset from the sale of higher cost inventory. In comparison to the prior year periods, pro forma operating income declined $13 million from $59 million to $46 million for the comparable quarter and $86 million from $221 million to $135 million for the year-to-date 9-month period, primarily reflecting lower 2014 sales prices and the timing of customer orders. These impacts are consistent with what we indicated previously, that we expect full year 2014 cellulose specialties sales volumes to be in line with 2013 volumes and that average pricing will be 7% to 8% below last year. The quarter and year-to-date results also reflect higher wood and energy costs compared to the prior year period, primarily due to weather and equipment issues in the first half of the year. As expected, while wood and energy costs have moderated in the third quarter, they remain above last year. Year-to-date results also reflect higher depreciation expense in the first 6 months of 2014 compared to '13. Moving to Page 5. We generated $68 million of adjusted free cash flow for the first 9 months of the year and ended the third quarter with $252 million of liquidity. As we indicated before, our priority is to reduce debt and strategically grow the business. Turning now to Page 6. Based on year-to-date results and looking into Q4, we reaffirm our previously communicated full year guidance. For the year, CS volumes will be comparable to last year, $265 million of pro forma EBITDA, fourth quarter pricing is anticipated to improve from third quarter levels due to sales mix, and as typical, fourth quarter cellulose specialties volumes are expected to be above third quarter volumes. At this point, let me mention a new initiative. We recognize that we are being challenged by current market dynamics. As a new standalone company, we are reevaluating our cost position to ensure that we are operating as efficiently as possible and are identifying opportunities throughout the company that will allow us to reduce our cost to preserve and enhance profitability. We will provide more information on this cost initiative in January as part of 2015 guidance. I will now turn the call back over to Paul.

Thanks, Benson. With nearly 0.5 million tons of current production, we are proud to be the global leader in cellulose specialties. We maintain our position because of the quality and consistency of our products, surety of supply, superior technical support, low manufacturing costs and financial strength. However, being the leader does not insulate us from the realities of the current challenges in the market, and most significantly, over supply. As we have previously discussed and highlighted on Page 7, this situation is being driven by several factors. First is the expansion of capacity by current participants, including our own expansion. Second, weak pricing in the commodity viscose market. As viscose prices drop, the existing cellulose specialties players who also produce commodity viscose are enticed to shift some of their commodity production into more specialties. And third, the slower demand growth in certain end markets, including cigarettes. Now in response to these market dynamics, we're focusing on the following action items, as referred to on Page 8. First is preserving and enhancing our profitability. We will do this with a relentless focus on running our facilities efficiently and reliably. Reliable operations are low-cost operations. We will also implement broad cost-reduction initiatives. We are evaluating our corporate structure and expenses, operational and staffing costs, reliability enhancements to mitigate waste and capital investment for return projects. As a small example of the latter, you may have recently read that we entered into a cogeneration power and steam agreement with Chesapeake Utilities Corporation. They will build a confined heat and power plant on our site in Fernandina Beach, Florida. Upon estimated completion of this project in 2016, we expect to realize up to $2 million in annual energy cost savings. Additionally, in the near term, we will redirect a significant portion of our cellulose specialties expansion capacity to the commodity markets by entering into multiyear contracts for these commodities. This will limit our cellulose specialties capacity for a period of time and provide us with a price premium on our commodity sales. Second, we will focus on protecting and growing our existing cellulose specialties business by partnering with our customers on innovations to improve the efficiency of their operations and the quality of their products, thereby further enhancing our value proposition to them. As one example, we're working with a key customer on a project aimed at significantly increasing their manufacturing productivity with an ultrahigh purity product we're developing for them. We are also working to actively extend contracts with existing customers as those opportunities present themselves. For example, as we recently reported in an 8-K filing, we have extended a contract with a significant long-term customer. We are pleased to add another year to -- onto an already multiyear contract. We are also identifying opportunities to place additional cellulose specialty volumes into market segments we believe were underrepresented. Currently, we have more than a dozen ongoing qualification trials in either ethers or cellulose specialty applications. Third and finally, we plan to grow the company by identifying specific opportunities that align with our core competencies. These opportunities include partnerships that leverage our manufacturing operations, coproduct streams and R&D capabilities. Further, we're working with our board and outside resources to evaluate specific areas for acquisition growth in attractive markets that provide a pathway to leadership. We expect this analysis to be completed in the first quarter of 2015. To sum it up, we understand the realities of the current market, and we have dealt with similar dynamics before. We have always responded to such challenges and emerged as a stronger, more profitable entity, and we're actively putting ourselves on that path now. Let me turn it back to Beth to conclude the call.

With that, I'd like to close the formal part of the presentation. But before I turn the call back over to the operator for questions, I want to remind you that we do not comment on the specific terms of contracts with any of our customers. As you likely know, certain changes to material contracts require disclosure per SEC regulations. But in order to maintain the confidentiality that our customers desire, as well as to safeguard competitively sensitive information, we will not provide any additional contract details. Thank you for your understanding. Now let me turn it over to the operator.

[Operator Instructions] And our first question comes from Michael Roxland, Bank of America.

Realizing the sensitivity you have around talking about the contracts, if you can answer it, great. If you can't, I totally understand. Can you give us a sense as to with respect to that contract that got renewed, as to why it was renewed only for 1 year as opposed to, let's say 3 years, which I believe the last contract was renewed for?

Mike, thanks for your question. This is pretty typical. We often renew, extend contracts for 1 year at a time, couple years at a time. We've had contracts in the past that were 3 years, that turned into 5-year, 6-year, 7-year contracts. But this is nothing out of the ordinary, it just happens to be the circumstances of this particular contract.

Could you -- last thing on this contract, and I'll leave it there. Can you give us a sense of how much tonnage was renewed? Did that customer renew for the exact same amount of tonnage, or was there any volume loss or gain for that matter?

Yes. Mike, and again, that's one of the sensitive areas we won't share with you at this point in time and we'll share all of that when we get to -- in total, when we get to our January call.

Got you, appreciate it, Paul. Just moving on, what's preventing the company from just indefinitely idling a line to get the high-alpha pulp market back into balance? I guess, said differently, why is the company is so determined to run every line at full capacity? I mean, from my vantage point I think it would be to the company's advantage to try to take a line down to get the market -- to get better supply balance in the market for pricing purposes.

Yes. I mean, we look at our financial returns on everything we do all the time, Mike, and certainly, our analysis says we're better off running as we're running today. We can take that expansion and redirect that as we're doing now, through multiyear contracts into the commodity market, and that's actually, again, good return for us. And I think, again, good return for our shareholders. So we'll always look at all our options, but right now our best option is to keep running like we're doing today.

Got you. Just quickly, 2 last questions. How do you intend to protect and expand cellulose specialty sales as you called out in the press release and also as you highlighted in the slide deck? Is that -- are you that concerned about sales or is it more about pricing? What can you do to really generate sales when you're dealing with this type of dynamic, where it's extremely competitive, where competitors are at your heels and where pricing is probably the only lever you have to try to maintain volumes?

Yes, and I think that's a point we're trying to underscore. It's not a pricing dynamic that we're kind of pushing on here. It's really the value that we offer our customers. And so that's really the key part of our initiative here is to continue to make sure that we're offering a product that does have a differentiated benefit to our customers in the marketplace. And then we highlighted one specific example where we're actually working very closely with a customer to increase their productivity, quite significantly, through a very unique product that we're developing for them. And then, again, that's how we're trying to drive that. But the message is that we're the leader in the market, we're going to continue to differentiate our products, but obviously we're going to make sure that we stay in this business for long term, which we clearly will.

Got you. Last question, I'll turn it over. One of your customers last week, again, noted that acetate tow demand is peaking in China. I think, Paul, you actually mentioned that cigarette demand has actually slowed as well, which I think is a little bit of a difference versus the last call. This customer noted that the slowdown, yes, it's due in part, partially, to a slowing Chinese economy but it also stated that it expects a lower level of acetate tow demand to persist for some time in the future, which to me signals that this could be a secular issue as well. So can you just talk about your expectations for acetate demand and whether they have changed from the 1% to 2% growth you've been expecting? And if there has been a fundamental shift in Chinese demand for cigarettes, why should we expect to see acetate growth revert back to 1% to 2%?

Yes. So, Mike, this question started emerging in our last call and we made some comments on it then. And we said, look, we're going to have to do a little more digging. And we've done that, the team's been out there, we talked to our customers, we've talked to all the tobacco companies, for the most part. To some degree, I wouldn't say all tobacco companies, but many of the tobacco companies, just to try to get a better feel for this as well. And I don't think our viewpoint is too different than what you're hearing in the marketplace. I think if you just took a look at cigarette stick consumptions, we believe, from our discussions with most of these tobacco companies, there has been a decline year-to-date. So we're pretty consistent on that viewpoint. And with that, China consumption flat. Some key markets in Southeast Asia, like Vietnam and Indonesia, are actually up. And most western nations, as well as Russia, are down. And we can't say whether this is an ongoing trend or not. But we do believe, from our discussions with the Chinese, which represents about 40% of stick consumption out there, that they will return to slight growth in 2015 as they readjust their mix to better serve the middle markets, the average consumer. Their combined plans, also, to phase out polypropylene, there's still a little bit left of polypropylene in their market, along with their efforts to make filters longer on certain brands. We think that this could put acetate demand, acetate tow demand in China, in the coming periods, about 1% to 2%. And therefore we believe that global acetate demand could be in that 0% to 1% in the coming periods. And therefore that is different than our 1% to 2% before, but we think it could be flat to slightly up. But what we're not accounting for in these estimates is the inventory buildup that we have seen in China and I've heard commented on by others. And we think that'll take most of 2015 to work through that inventory buildup. And I can't say, at this point, how that affects any of our customers or us at this point in time. So I know that was a lengthy answer, Mike, but hopefully I covered it.

Next question from Chip Dillon, Vertical Research Partners.

First question is, you mentioned some of the mitigating steps. And I maybe missed some of the details, but you mentioned a contract with someone, I guess, to supply, I'm not sure if it was fluff or viscose. But could you just elaborate on that a little bit and sort of -- I sense it's sort of a bridge to kind of get you through this time, before the markets are big enough for you to sell more of the high-alpha pulps. But could you talk a little bit about that? You mentioned that there was a contract or something you had signed.

Yes, Chip, I mean we've always said that we're not going to push our product into the marketplace. We're going to feather it in as the market is ready for that. And as such, as we look at the market the way it is today, that we said we're going to shift some of our commodity, some of our product, into the commodities areas. And with that, we're going to enter into some multiyear contracts to do so. And we also noted that it'd be a substantial amount here in the near term. And we'll come out with more specifics on that in January, but we just want to make sure everybody understands the direction we're going, is that we're actually going to tie that lineup into contracts here for the near term. And that helps our profitability, certainly, against the spot market. And in fact, it limits our capacity as well.

Okay. That's helpful. And I know, in the past years, you guys have tended to give us guidance on the forward look on cellulose specialties prices. I think it mostly had been in the fourth quarter call in late January, early February. Last year, you gave us a look in December. And I didn't know, based on sort of how you sensed the negotiations are going this year, when you think you'll be in a position to kind of give us an estimate. And maybe even at this time, not by contract of course, but just on an overall average basis where you see the cellulose specialties prices ending up, on average, for next year versus this year.

Yes, Chip, we almost always give that guidance in our fourth quarter call in January. Last year was the only exception, we moved that up to December. But otherwise, we give that in the January time frame. Our discussions are good, they're healthy, they're ongoing and I really have no more flavor to add to it at this point.

I understand. But so you're suggesting it will probably not -- you'll probably go back to the old practice and let us know on the fourth quarter call?

Yes. We'll give it in the fourth quarter, in the January call.

Okay. And then lastly, I know last year's guidance was down 7% to 8%. And it looks like, just from the slides, that you were down a little over double digits in this third quarter. Now I know you mentioned the mix issue. So do you think it'll come back with the mix in the fourth quarter so that you end up in that same range or has there been any real surprise there versus what you all were expecting last December for the full year '14 as a whole?

Yes. For our full year, our guidance is still good at that 7% to 8%. And as Benson mentioned, that was just purely a mix in sales, and again, not uncommon and you will see that net out of that 7% to 8% down for the year.

Okay. And one last one. You mentioned that you're going through a review, possibly looking at ways to enhance the company through acquisitions. And I was just curious, just sort of given the beginning state of Advanced Materials, with the debt load, and maybe being sensitive to your stock price if equity were to be part of the equation. Should all that suggest that what you're looking at would be something that would be kind of an incremental tuck-in type acquisition, maybe the division of someone as opposed to a big company? Or should we think in other terms, just sort of given the obvious limitations because of the balance sheet right now?

Yes. I think -- this is Frank Ruperto. I would tell you that we're in the middle stages of this review and we'll be through with that in the first quarter. As you know, Chip, acquisitions are very opportunistic. And so we'll have to assess the value that any acquisition would bring to us, relative to the size of it. And so I think, from a leverage perspective, obviously we're focused on adding some good value businesses where we can then go deep in those sectors. But if there was something that came to the fore that was bigger and we had a way that created shareholder value to do that, I think we'd have to think about it and discuss it with our board.

Next question is Steve Chercover, D.A. Davidson.

Mike, first question is with respect to master limited partnerships. It seems to be all en vogue for anyone who operates a craft pulp mill and I don't see why you wouldn't be eligible as well. Have you done any preliminary investigation?

We haven't. Frank, you want to go ahead and...

Sure. We've spent a lot of time with outside resources discussing the MLP situation and opportunities there and its applicability to us in the near term. Obviously, the Perry Capital letter created a lot of focus on craft paper mills, et cetera. I think, in general, right now, as we've discussed this with outside experts, as well as discussed this internally, it's probably not the most optimal structure for us in the near term. That being said, we continue to look at it and we'll continue to look at it over time because circumstances change. And if we decide that, that is the way that creates value best for the shareholder base, then we will look very, very hard at it. But we have not ignored it. We've spent a lot of time on it. We've discussed it at all levels. And I think, at this point, given our size, given the recent structural change we've just gone through with the spinoff, and given the focus we have on operational excellence and continuing to focus on our business and profitability, it's probably not something that we would do in the near term.

And switching gears, earlier this year, you thought you were in a position to add approximately 30,000 tons of specialty volume. Obviously, you weren't going to push that into the market. Do you still believe the market's growing at 50-odd thousand tons a year and conceivably we can see some volume growth into 2015?

Yes. Specifically on 2015 growth, again, we'll talk about that in January. Yes, we still believe that the market is growing in that range. We said about 45,000 to 50,000 tons with again, subtracting off, if we kind of say that the acetate side is maybe 0% to 1% versus 1% to 2%. It's maybe slightly below that now, Steve, and so that's probably the update on our guidance. But we certainly see that in ethers and we see in the other specialty cellulose areas, decent growth in particularly some key pockets there. We see that opportunity for growth. And again, that's why we're out there working so hard with so many different trials right now, to see if we can't capture some of that growth.

And when you talk about your partnership, for instance, with that one company where you're trying to really make their process more efficient, would they need less of your product in the long run if you do that?

No, I don't think so. I think really it helps this particular customer. It limits their need for capital investment and expansion in their facility, and that's really their interest. So they're growing and this gives them a way to grow without adding a significant capital.

Okay. And final question. On the commodity side, the increase in Q3 realizations. Is that a function of rising prices or better mix or just diminished spot activity?

And I'm sorry, on the commodity side, just make sure, on volume, are you speaking to, Steve?

No, I was looking at selling prices going from $651 to $699, I'm reading this graph.

Yes, I think it's a combination of mix and some price improvement out there.

Because I mean you had to kind of, I don't want to say bash your way back into the market. But after the Chinese duties, clearly, you changed your strategy. So I was just wondering if the relationships are normalizing and it's not just selling spot tonnage.

Yes. I think, again, it's a bit of mix and you see it there. It's absorbent materials and commodity both kind of rising up across the board. And I think it's just -- we didn't have to bash anybody to get back into the market. But I think things have settled and we saw some good pricing, and it's probably just reestablishing where we want to be in the market and who we want to partner with.

Next question from Paul Quinn, RBC Capital.

Just you mentioned the multiyear contracts for commodity DP. Just wondering whether that is also going to apply on the fluff side and what the difference in margin would be between those 2 products for you.

Yes, Paul. Yes, and we said it's for the commodity products in general. So yes, we're including both viscose and absorbing materials in that bucket. And right now, the return on both of those, it's pretty similar. And so it's really a matter of what we think is best to serve us in terms of return operational efficiencies and everything else. So it's probably going to be a combination. It may weight a little more heavily on the fluff side, but it'll be, definitely, both into that mix.

Yes. So looking at your Slide 11 there, where you've got it looks like fluff volumes are double that of commodity viscose. Is that suggesting you're -- that's just a stronger market or is there any margin difference at all right now?

It's a stronger market. There may be some slight margin benefit to be in that market right now. So we focused in on it. Obviously we've got some very good products to serve that market, with some good customer relationships as well. The MOFCOM, China duty background also probably helps us kind of focus a little bit outside of that particular market. And so, again, fluff looks a little more attractive.

Yes, good to see your cost decrease in Q3 here. Just if you could give us an update as to what you expect in sort of the major cost buckets of fiber, chemicals and electricity going forward. And then I know Benson's working to come up with an outline as to what the eventual cost bucket could be if you focus on reducing cost now that your volumes are kind of capped on the specialty side. But how material is that cost bucket?

Yes. Again, we'll give you details of that cost bucket, as Benson mentioned, in our January call. And we're not in a position to provide guidance, going forward, on the different costs either. But as Benson talked about and spoke to, certainly saw some easing in our wood costs in the third quarter relative to Q1 and Q2, quite substantially. They're still elevated, Paul, above 2013, but they've come down quite a bit like we thought they would. And obviously, we'd look to see them ease a little bit here in the fourth quarter. But as far as 2015, we'll give you that direction on our best estimates in January.

Okay. And last question I had, you mentioned the dozens of qualification trials, in the ethers and other specialty products. How big a priority is that and where do you expect to be 5 years down the road in terms of mix?

Yes. And we mentioned over a dozen different trials going on right now in those areas. If you look at our market penetration, in ethers for example, which is a good growth area, 4% to 6%, we're probably 7%, 8% of that market. So we're almost insignificant there, and we think there's some great opportunities for us. So it's a key priority for our sales and marketing as well as our R&D teams, to see if we can't grow that business. And additionally, we're looking into those other cellulose specialty markets that we talked about, tire cord, filtration and others. And we've got some good trials going on there as well. So I would think, in 5 years, you'll see those percentages go up significantly to where we are today.

Next question from Roger Spitz, Bank of America.

In terms of CS filter tow business, do you have a view on whether you're maintaining share or losing share or gaining share? I note that Sateri has been expanding their CS volumes.

Yes, and I think we've noted that for the year. We haven't broken it down by share, updated that in any specific way. But for the year, we said our sales, CS sales, will be comparable to the prior year. So we're pretty steady state at this point in time and if we go out there and adjust anything, we'll adjust it in the coming periods. But overall, I'd say the view should be pretty steady state on our business.

Okay. And I guess it was during the call that it appears to be announced, as Sateri just announced, it apparently agreed to sell its VSF business in China for $620 million, presumably leaving it just for this Brazilian DWP business. Not to catch you off the cuff, but do you think that, that might change the competitive dynamics in either the viscose and/or specialty merchant markets?

Yes. Roger, I don't have a good feel for what that would do. And I mean, I think the best -- those questions are really probably best guided to them and what they're trying to do at that. I'm not too sure.

Next question, Daniel Rohr, Morningstar.

Paul, at an Investor Day a few years back, your predecessor remarked that tasters at cigarette companies can distinguish a flavor difference, between the acetate tow of one producer and that of another. Would you affirm that statement?

Yes, Daniel, that's what we have been told. I've been in those facilities and I assume it's true. I've heard the same thing. So I'm not a smoker so I couldn't tell you whether -- it seems to be difficult, but they seem to be pretty well confirmed that they can detect a difference, yes.

All right. So if a acetate tow customer wishes to switch to another supplier, does it require approval, either implicitly or explicitly, from the cigarette manufacturer that it's ultimately selling to?

Yes. I mean, that's a good question for our customers. But I do believe they'll tell you, yes, they typically take it all the way to the end user. And again, I think, the question's probably better for others, but that's our understanding.

Got you. One more. As you assess prospective acquisitions, what sort of hurdle rate do you have in mind with respect to return on invested capital?

Yes. We're looking at hurdle rates that are obviously in excess of our cost of capital as we move forward here. So I think it's got to be something that is compelling well into the double-digit numbers, clearing our cost of capital and providing some incremental return over and above that.

Okay. But to the extent you believe your stock is undervalued, I don't want to put words in your mouth, wouldn't the hurdle rate considerably be higher than your cost of capital since buying back stock would be an alternative?

We look at buying back stock and other alternatives holistically. And so, at this point, we've determined that maintaining our strategic flexibility is better than buying back stock in the company, because we've got to look to grow the company for long-term shareholder value purposes. But it's something that we have to consider, obviously, as we look at all aspects of an acquisition.

[Operator Instructions] Next question from Bill Hoffmann, RBC Capital Markets.

I just wonder if you could talk a little bit more about the split that you've got between the fluff and the viscose markets. You talked about entering into some viscose contracts. What about on the fluff side? And do you have any sort of volume targets that you want to put out there in the market, really, just to give the market some sense of how much of your production capacity will go into those segments?

Daniel (sic) [Bill], we said that we are going to go pursue contracts on both fluff and the viscose side, and we'll do that as we see which we think are better returns for us. In terms of guidance on how much that is, we haven't given that, other than the fact that we said it'll be substantial against that new expansion we have. So we'll come back and firm that up after we put these contracts into place and we'll talk about that in January.

And then just with regards to the viscose-specific contracts. Can you just give us, regionally, where those customers are?

Yes. We haven't given any kind of guidance or understanding where those contracts are. So we probably won't expand upon that.

Okay. And then just one last question, with regards to the move into some of these other markets, ethers, tire cords, filtration, obviously there's a lot of trialing time, et cetera. Any thoughts on being able to move into commercial production levels in those other segments?

Yes. We have actually picked up some business, even in this year and it may be small amounts, so they can happen anytime. These trials didn't start yesterday. Some of these programs, we've been working on for more than a couple years now. That's kind of how this business works. And so, again, we've got -- and certainly we've stepped that up here in the past 12 months. So there's a lot of ongoing effort and it's hard to say when they'll all, or any, will kick in. But certainly, we are positioning ourselves to move forward as soon as possible.

What's the general range of timelines from getting certified to selling to those markets? Is it anywhere from 1 year to 2 years or 6 months to few years? Any sense of that?

Yes. I can't say there's a general sense. On some customers out there, that we've worked with from the past, it can be almost fairly immediate. They can just say let's go ahead and run some trials of the product that we know we've run very successfully in the past. Others, they may say, yes, we did the trials, it looks good. We'll wait for an opportunity, when we think it's appropriate, commercially, for them to bring it in. And some others we've just worked with them technically. I can think of an example. It took us 5 years of trials to get in there. So there's a whole range of different things. So, no, I can't say what is typical.

At this time, I have no further questions.

This is Beth Johnson, I'd like to thank everyone for joining us. Please contact me with any follow-up questions. Thank you.

Thank you, that does conclude the call for today. You may disconnect your phone lines at this time.