OM Group's CEO Discusses Q1 2013 Results - Earnings Call Transcript

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 |  About: OM Group, Inc. (OMG)
by: SA Transcripts

OM Group, Inc (NYSE:OMG)

Q1 2013 Earnings Conference Call

May 2, 2013 10:00 ET

Executives

Joe Scaminace - Chairman and Chief Executive Officer

Chris Hix - Chief Financial Officer

Rob Pierce - Vice President, Finance

Analysts

Ivan Marcuse - KeyBanc Capital Markets

Rosemarie Morbelli - Gabelli & Company

Chris Kapsch - Topeka Capital Markets

Operator

Good morning, and welcome to OM Group’s First Quarter 2013 Financial Results Conference Call. Information presented on the call may include forward-looking statements that are subject to uncertainties, risks, and factors which are difficult to predict. Actual results could differ materially from those expressed or implied. A more complete disclosure regarding forward-looking statements can be found at the bottom of OM Group’s Press Release or in their Form 10-K and applies to this call.

I will now turn the call over to Mr. Joe Scaminace, Chairman and Chief Executive Officer of the OM Group.

Joe Scaminace

Good morning, everyone, and welcome to our first quarter update call. Today, I am joined by Chris Hix, our CFO, and Rob Pierce, Vice President of Finance, whose responsibilities include Investor Relations.

You can see our standard Safe Harbor disclosures on slide two. Let’s get started on slide three as we are very excited to talk about the new OM Group and our first quarter results. From day one at OM Group, I have consistently articulated our strategy to move away from commodities and grow into value-added technology-based businesses. With the Cobalt divestiture completed at the end of the first quarter, we have successfully completed this transition. We are no longer constrained by earnings volatility and unpredictability. Today, OM Group is a completely different company defined by the following trades.

First, technology and innovation, our businesses all have significant technology and know-how that is harnessed to develop solutions for our customers. Innovation and new product development is one of the keys in our strategy to grow sales and profits. Second, we are now tapped into attractive end markets all over the world. We are well positioned to benefit from serving dynamic end markets like aerospace, automotive, electronic devices, medical, and renewable energy just to name a few. These key markets promise to outperform GDP over the long-term and will help us achieve our organic sales growth objective of 5% plus over the course of the business cycle.

Third, our strategy includes pursuing synergistic acquisitions. We will build out our existing business platforms through acquisitions that fit. Any acquisition that we make will meet our criteria. It will be at the right price. It will enable us to capture cost and growth synergies and it will create value for our shareholders.

Fourth, financial discipline has become embedded into the culture of the new OM Group. We are focused on maintaining a strong, more efficient balance sheet. This will occur by controlling costs and improving our profit margins. We have committed that our business development initiatives will cover our cost of capital within three to five years. And we have demonstrated our financial discipline and commitment to total shareholder returns by launching a share repurchase program.

Lastly, operational excellence is the cornerstone of our strategy. We are already seeing benefits from improved productivity, cost optimization, and lean initiatives. We have recently welcomed David Knowles to the executive team as President and Chief Operating Officer of the company. David brings a wealth of strategic and operational leadership experience to OM Group. And he will be instrumental in helping to drive continuous improvement across each of our businesses. We are really excited to have David as part of our management team. These key trades define the strategy of the new OM Group. They are the building blocks upon which we will grow our business and create long-term shareholder value.

Please turn to slide four, where we summarize our progress in the execution of our strategy. With the proceeds from the Advanced Material divestiture and cash on hand, we reduced our debt by $374 during the quarter. This further strengthens our balance sheet, reduces future interest costs, and provided the flexibility to execute our strategy. We have well underway the previously announced cost reduction initiatives to improve 2013 profitability and position the company for long-term success.

In the first quarter, we achieved cost savings of $2 million. And we are on track to achieve our $10 million to $20 million in savings on a full year basis. During the quarter we also returned $5 million of capital to our shareholders in the form of share repurchases.

Continuing on slide five, we did have a great start to 2013 with first quarter pro forma adjusted EBITDA of $35 million and David Knowles is now on board. He will play a key role in driving this company forward. David will work closely with our business leaders and focus on organic growth and margin improvement. Additionally, he will work with our corporate development team as we identify synergistic acquisitions to further build out business platforms.

Earlier this week, we announced the divestiture of our Ultra Pure Chemicals subsidiaries representing another step to optimize our portfolio and sharpen our strategic focus. We expect this deal to close in the second quarter. In order to execute our growth plans a strong balance sheet is crucial. We ended the first quarter with $115 million of cash and $93 million of debt which is a net cash position of $23 million. In the second quarter, we expect to receive an additional $27 million from the divestiture of our Advanced Materials business and $60 million in proceeds from the sale of Ultra Pure Chemicals. This will put OM Group in an even stronger financial position allowing us to strategically grow the company and realize its full potential.

At this time I will turn the call over to Chris Hix to walk us through the details of our first quarter performance.

Chris Hix

Well, thank you Joe and good morning everyone. There are few moving parts in our first quarter results, so let’s start on slide six to see how the numbers came together, reported EBITDA of $37 million in the first quarter of 2013 and a GAAP EPS loss of $3.43. If you back out the charges related to cost reduction initiatives and cobalt business divestiture, that brings you to $41 million of adjusted EBITDA and $0.17 of adjusted EPS.

However, these results include a full quarter contribution from the cobalt business before it was sold. Backing that out and that’s the $35 million of adjusted pro forma EBITDA and $0.15 of EPS. The $35 million of EBITDA was a bit stronger than we expected for a couple of reasons, notably timing of shipments within our Magnetic Technologies and Battery Technologies businesses and some deferred spending and other one-time benefits.

Slide seven provides a more complete picture of first quarter P&L performance showing GAAP amounts as well as adjusted pro forma amounts excluding the cost reduction charges, the divestiture of cobalt business and first quarter contributions from the cobalt business. On a GAAP basis comparison net sales declined from the prior year mostly due to lower rare-earth and cobalt prices. In the prior year Magnetic Technologies realized rare-earth pricing benefits on the top line of $46 million and the bottom line of $25 million. As discussed in earlier quarterly calls these benefits dwindled in the second half of 2012 were largely offset by LCM charges in the second and fourth quarters of 2012 and were absent in this year’s first quarter.

If you neutralize the effects of rare-earth and exclude the cobalt business, sales declined 3% year-over-year, but adjusted operating profit increased slightly due to lower operating expenses including the $2 million of savings from our cost initiatives that Joe referenced earlier. On the same basis meaning ignoring cobalt and rare-earths sales increased 8% sequentially from the fourth quarter of 2012.

Demand in Q1 2013 was mixed across our end markets. The trends remain strong, certain industrial applications firmed. Overall, automotive remained a solid contributor but at less robust levels. And the key end markets of Specialty Chemicals including electronics, coatings and additives did not improve.

In Q1 2013, non-GAAP adjustments included the loss on the divestiture of Advanced Materials and $4 million of charges related to cost reduction initiatives. Below the operating profit line first quarter interest expense this year was about $8 million. This amount will be down significantly in Q2 due to the significant repayment of debt at the end of the first quarter. We also recorded an FX loss this quarter of $2 million or about $0.05 a share due primarily to the weakening of the euro against the dollar during the quarter. The effective income tax rate for the period excluding special and discrete items was 30% in line with our expectations.

Slide eight shows an overview of our cash flow. Cash flow from operations was an outflow of $18 million in the quarter, of which $8 million related to the Advanced Materials or Cobalt business. Excluding Advanced Materials, the use of cash and operations of $10 million was driven by higher working capital levels. Even though working capital efficiency improved, working capital increased due to sequentially higher sales compared with the fourth quarter of 2012.

Cash flow from investing activities includes $14 million of capital expenditures, $6 million of which was incurred in the divested cobalt business. Divestiture proceeds of $302 million were received in Q1 and we expect to receive about $27 million more in Q2 from working capital and other post-close adjustments relating to the deal. In the second quarter, we also expect to receive $60 million of proceeds relating to the recently announced UPC divestiture. Cash flow for financing activities includes debt repayments totaling $374 million and $5 million for share repurchases under the $50 million program authorization.

Turning to slide nine, the chart on the left highlights the effects from our debt pay downs on both debt and cash levels. We ended the quarter in the net cash position of $23 million. The expected additional inflows of $87 million in the second quarter relating to the cobalt and UPC divestitures will help fund the purchase price holdback of $75 million that we owe in August of this year to the sellers of VAC. This two-year holdback was part of the financing strategy of the transaction that saved almost $9 million of cash interest costs.

Joe mentioned earlier, our focus on operational excellence, including balance sheet efficiency. The chart on the right shows our progress with working capital as a function of sales of 32.4% at the end of the first quarter, the lowest level in over a year. We will continue to build our expertise and processes in this important area and could see further improvements this year.

The next few slides provide an overview of our business results beginning with magnetic technologies on slide 10. Customer demand in the first quarter was lower than the comparable prior year period, but sequentially higher than in the fourth quarter of 2012 due primarily to strengthening industrial applications and the benefit of shipment timing that is not expected to repeat next quarter. Other markets remain mixed due to weakness in the European economy.

Excluding the rare-earth pricing benefits in the prior year quarter, profitability was up year-over-year driven by lower operating expenses and the benefit of shipment timing. A portion of the lower operating expenses was driven by cost reduction and other lean initiatives, while about $3 million was due to one-time benefits that will not repeat in Q2. Overall, the EBITDA margin in the segment was 15% in the quarter or approximately 12% if you exclude the benefit of items that are not expected to repeat. Moving forward, the business continues to do develop its growth initiatives while at the same time improving its cost structure to strengthen its long-term competitive position.

Slide 11 summarizes the first quarter performance of our Battery Technologies business. Sales and operating profit both increased primarily due to higher volumes in defense applications and continued growth in medical applications. Q1 benefited from the shipment of orders that were expected to occur in Q2. As you know, this business is lumpy quarter-to-quarter based on the timing of shipments. At the end of the quarter, order backlog in this business was $128 million as compared to the $119 million at the end of Q1 a year ago. This data point supports our outlook for another successful year in the business in 2013. And at this point, we do not see any signs of material sequestration impacts, but continue to monitor the situation closely.

And our Specialty Chemicals business on slide 12, sales and profits were lower than a year ago, but on a sequential basis, were up slightly from Q4 of 2012. The chart on the right shows the volume performance of our Advanced Organics and Electronic Chemicals product line since Q1 of 2012. Our Advanced Organics product lines experienced a sequential seasonal bounce back from low fourth quarter 2012 levels, but were down a bit from year ago levels. Sales of our Borchi OXY product lines continue to increase reflecting a healthy pace of adoption for this new technology.

In our Electronic Chemicals product lines, demand for consumer electronic devices and PCs, which are the primary applications for our products remain subdued, as the business is focused on leveraging our superior technology and service capabilities to take market share. And in the first quarter, we secured a new customer that will contribute to second half performance. Just as with our other businesses, we are adjusting the cost structure of Specialty Chemicals to improve profitability in 2013.

Slide 13 highlights our previously announced cost reduction actions. In the first quarter of the year, we captured savings of $2 million, in line with our expectations and on track for the full year target of $10 million to $20 million. Savings next year should be higher as we enjoy a full year of benefits. Our focus on operational excellence goes beyond these actions and is also represented by the countless other productivity improvements and lean projects underway across the enterprise. Continuous improvement is truly becoming a way of life. As previously communicated, we expect to incur charges between $15 million and $20 million in 2013 related to our cost reduction actions. And in Q1 we incurred $4 million of such charges.

Please turn to slide 14. We benefited from a strong first quarter this year and expect increasing benefits from our business initiatives including our cost reduction programs. However, we continue to experience weakness in Europe and certain end markets and we will no longer have the profits from our UPC business after the divestiture closes, which we expect will occur by June 30. After considering all factors, we are reaffirming our 2013 EBITDA forecast of $120 million to $140 million.

Digging into the details a bit, we expect Q2 EBITDA to be lower than Q1 due to shipment and expense timing highlighted in my earlier comments about our Magnetic Technology and Battery Technology businesses. Especially chemicals, we expect higher EBITDA driven by seasonally higher sales and as mentioned earlier we have opportunities to further improve working capital efficiency.

Finally, interest expense, it’s going to be significantly reduced because we paid off most of the debt. Now, I would like to turn the call over to Joe for closing remarks before we move to Q&A, Joe.

Joe Scaminace

Thank you, Chris for that report. And I will leave you with our thoughts on slide 15. As Chris highlighted in his financial summary, we are off to a great start in 2013, and I am really excited about the road ahead of us. We are well positioned with value-added business and attractive end markets, a very strong management team and the financial capacity to execute our strategy. We move forward as the new OM Group with a clear strategy and vision for our future. And we are confident in our ability to achieve our ultimate goal of maximizing shareholder value. This concludes our prepared remarks, and I would like to ask the operator to please open up the call for questions.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from the line of Ivan Marcuse from KeyBanc Capital Markets. Your line is open.

Ivan Marcuse - KeyBanc Capital Markets

Hi, thanks for taking for my question. Real quick and on this one-time deferred cost, how much was that and which segment did that hit, was that all in the magnet business?

Chris Hix

Yeah, I think we highlighted in particular – good morning, Ivan, its Chris. We highlighted in particular the $3 million of cost in the Magnetic Technology segment.

Ivan Marcuse - KeyBanc Capital Markets

Okay, but then that will and whatever those costs are they are going to start hitting – they are going to hit the second quarter?

Chris Hix

The business has done really an excellent job of promoting its cost reduction initiatives for the long-term, but it is also taking short-term actions to improve the business performance, but that piece of it is not the sustainable piece.

Ivan Marcuse - KeyBanc Capital Markets

Got you and then how much did the timing of shipments help you out?

Chris Hix

I don’t think we have got a precise figure on that, but as we guide down from the $35 million in Q1 to Q2, I guess I would estimate it was probably a similar contributor as the deferred cost.

Ivan Marcuse - KeyBanc Capital Markets

Okay, so really you had about $4 million in restructuring costs that hit it and you had $3 million the other way in deferred cost and then a couple of million from shipments, so overall but still profitability stayed in sort of above the 13% to 14% in EBITDA margin, is that the right way to think about it, is that sustainable?

Chris Hix

Ivan is your question with regards to the Magnetic Technologies business or the enterprise?

Ivan Marcuse - KeyBanc Capital Markets

Magnetic.

Chris Hix

Right. And so the Magnetic Technologies business is, I think I commented in my prepared remarks once you factor out all these moving products, we think it was about 12% EBITDA margin in the business in the first quarter.

Ivan Marcuse - KeyBanc Capital Markets

Got you. I must have missed that. If you – what gives you the confidence now that you are going to be able to start – that you are going to be able to add acquisitions or grow your existing platforms going forward and so does that imply that you have a pretty good backlog of possibilities? And then if you look at returning of cost to capital in three to five years, isn’t that a bit of lay-up seeing cost of capital right now, the interest rates are it has to be pretty low or how do you look at that?

Joe Scaminace

Ivan, on the first question, we have got great confidence in our ability to grow the company, not just through synergistic acquisitions, but through opportunities we have. The best way for me to describe that is that with the commodity businesses out of the portfolio with cobalt now in the rightful hands of where it should belong, I guess a good way to look at this is that the windshield has been cleared. And we have got just fabulous optics now on the businesses that we are engaged in. We’ve got David Knowles on board who has a great background in just looking into these businesses. And so there is really a two-prong way to look at this acquisitions being one route, which I will address in a second. But we think that there is clear opportunities for improvements in these businesses to go out and gain additional productivity lean out from our operations and certainly develop technology that we are going to be able to sell into these markets that we are already in.

On the other side of that, we are very cognizant of properties now that are absolutely synergistic with these businesses. So, the pipeline is building. Obviously, we are being really prudent in what we are looking at out there because we are selective. These aren’t platform acquisitions any longer. When you look at VAC and EaglePicher, when they came into the company, we didn’t have really anything to add to that. So, our next deals will be synergistic and to your point on cost of capital, we are cognizant of that, but we are going to be looking at paying the right price for these. So, I will let Chris to answer that further.

Chris Hix

Yeah, Ivan when we talk about cost of capital, we tend to take a longer term perspective and in terms of the debt cost and equity cost, so we are not looking at today’s historically low interest rates and we are making that commitment.

Ivan Marcuse - KeyBanc Capital Markets

Okay. Then if you look at your guidance of $120 million to $140 million in EBITDA, how much of that that hit that guidance is depended upon a recovery in Europe, and how much of a recovery in Europe do you need to hit that or is it just mainly you need it to be stabilized?

Chris Hix

So, the way I would answer that is, there is a number of key moving parts. We have got the cost reduction initiatives that we have announced. We have got other growth initiatives inside the business. And then there is the overall health of the markets themselves. In previous commentary, we have stated that if you see the European economy not make additional improvements and that puts a little bit of pressure within the guidance range, but we still achieved the guidance that we have got out there.

Joe Scaminace

And with the lower cost structure going into that, any improvement in the European economy will be magnified in our earnings.

Ivan Marcuse - KeyBanc Capital Markets

Okay, and then I will get back – two more quick questions, I will get back in the queue. Within your corporate expense, how much – was there any impact from a change in executives in the corporate expense this quarter. And then how would you expect that expense to trial out throughout the year, do you expect it to decline with the cost savings you have or do you think this $9 million is sort of a run rate here?

Chris Hix

Yeah, well, I guess what I would observe is there is not much change in the first quarter due to any sort of significant changes there. David Knowles joined us in April, we have got as you know a lot of other cost reduction initiatives going on. So, I think our costs rolling forward in the corporate office, it should be somewhere in that $8 million to $9 million range on a quarterly basis.

Ivan Marcuse - KeyBanc Capital Markets

Okay, thanks. I will get back in the queue.

Operator

Your next question comes from the line of Rosemarie Morbelli from Gabelli & Company. Your line is open.

Rosemarie Morbelli - Gabelli & Company

Thank you. Good morning all.

Joe Scaminace

Good morning.

Chris Hix

Good morning.

Rosemarie Morbelli - Gabelli & Company

Could you talk about what was behind your decision to sell the UPC business? It sounds to me as though operating within the semiconductor environment, this is not necessarily a commodity business, could you help with that and the profitability of that business and therefore the dilution?

Chris Hix

Yeah, Rosemarie clearly when we talked earlier about our strategy of selling our commodity based businesses that included businesses that did not have significant differentiation and the ability for this company to continue to invest capital to grow that business relative to the other businesses that we have. So, we struggled with that, we have struggled with growth. We have struggled with allocating capital to that business. And in some respects, we can look at it as one level. We move from the cobalt and the nickel business that we sold in 2007. So, this acquisition actually came in with the Rockwood piece that we brought in 2007. And if we would have our druthers back then we were really attracted to the electronic chemical piece, which is a much higher technology piece, it has value-added components to it and better growth prospects. So, every business has its rightful owner. And we were able to find the rightful owner for the Ultra Pure Chemical business.

Rosemarie Morbelli - Gabelli & Company

And the valuation, Joe, that you expect from it, what was their EBITDA?

Joe Scaminace

Yeah, the EBITDA for 2012 is about $8.1 million.

Rosemarie Morbelli - Gabelli & Company

Okay, and then I have stepped away from OM Group and all of the changes that you have made because I never knew what I was going to wake up to. But it looks as though we are now dealing with a consistent portfolio, and I was wondering they seem to me as of they are not really related to one another. So, were you specifically building a base from which to grow and to add synergistically as you just mentioned, but am I missing something in the connection between all of those operations?

Joe Scaminace

Rosemarie we have been remarkably consistent from day one about our intentions to change the company. We talked about we used terms like transformation, we used terms about moving up the supply chain away from the dirt, away from any type of orientation that we had in the original portfolio because we just could not maintain predictability and sustainability. So, clearly as we look ahead the businesses that we have amassed here, while they are not totally related to each other, for example EaglePicher and our Specialty Chemical business, there is a great relationship in terms of the metrics that we are looking to run these businesses at, the type of capital allocation algorithms that we have in place, the balance sheet that we have to be able to run a effective company. So, we have a portfolio of businesses right now, which we have a clear line of sight on. We think that we now have the ability to add acquisitions that are no longer platform acquisitions that would enable us to sell commodity piece, we have already done all that. So, the consistency going forward I think is going to be very strong.

Rosemarie Morbelli - Gabelli & Company

And what kind of an organic growth rate do you expect from the different operations?

Joe Scaminace

Yeah we have stated that we would like to see a 5% plus growth rate in our revenue over the course of the longer business cycles Rosemarie. Obviously, we are going to be working the revenue line and the profit line together with these businesses. And don’t forget we have got a leadership team now that is going to be looking for commonality, common threads, common measures between these businesses.

Rosemarie Morbelli - Gabelli & Company

And just as a clarification, is that 5% solely volume or you anticipate price to be in it?

Joe Scaminace

I think it will be both.

Rosemarie Morbelli - Gabelli & Company

Okay. Thank you very much.

Joe Scaminace

You are welcome.

Operator

Your next question comes from the line of Chris Kapsch from Topeka Capital Markets. Your line is open.

Chris Kapsch - Topeka Capital Markets

Close enough? Yeah, just want to ask you a question about the hire of David Knowles, I am just wondering I know its early days for him, but wondering what his key imperatives will be how, will his progress be measured and how will he be gets compensated for those efforts?

Joe Scaminace

Yeah, Chris, David is going to be responsible coming in as President and Chief Operating Officer of the company, Dave will absolutely be involved with the four businesses – the three businesses we will be reporting directly to David and he will be responsible for working very closely with them to achieve the kind of goals that we’ve set for the company which are revenue goals and margin goals and looking to improve the return on invested capital in all of these businesses across the board. And in addition to that he will be working with our business development team to identify the potential for acquisitions to come in work an integration plan and that will primarily be his main responsibility. David also has a breadth of experience in his past positions of having been involved in transformations prior to this and having a great successful track record.

Chris Kapsch - Topeka Capital Markets

Okay, that’s helpful. Thanks. Thanks for the additional context. Also just curious on the VAC business, obviously significant European exposure, Euro zone auto builds were weak in the – very weak in the first quarter. And so this business could be viewed as having done surprisingly solidly against that back drop. I am just wondering how granular you can get in terms of like how that business performed versus say the auto build backdrop. And part of the story with this business obviously is that you are increasing the penetration content per vehicle as they roll out advanced models and so forth. And this is just an example of that sort of playing through just wondering if you can get a little more granular on how the auto piece of the VAC business did in the quarter against that backdrop.

Joe Scaminace

Yeah, Chris you are absolutely correct that the auto build numbers were not as strong as we would have liked to be. Although we did have sequential growth quarter-over-quarter in the VAC business and the applications for magnets in automobiles continues to accelerate due to miniaturization, due to required power by smaller motors and the like. So, while I can’t give you the granularizaiton you are looking for in terms of numbers, I could just continue to reiterate the fact that we are getting increased participation, increased penetration. And I would go as far as to say we are looking for penetration beyond just Europe here. We are looking to get penetration into the North American automotive market and other parts of the world.

Chris Kapsch - Topeka Capital Markets

Okay, thanks. And then just a question on the – on sort of the cash flow statement if – on the page eight of your presentation, I think backing out the Advanced Materials business, it looks like your CapEx would have been $8 million, and so obviously I don’t want to annualize that but I am just wondering if I think people are sort of expecting maybe higher full year CapEx and sort of $8 million in the first quarter might imply on an annualized basis. So, wondering if you are rethinking what the CapEx for the pro forma enterprise might be looking like going forward?

Chris Hix

Yeah, we had identified I think previously communicated a range of about $40 million to $50 million of CapEx for the year. And I think we are still comfortable with that range. That range included a little bit of investment in the UPC business, which – because some of that investment would happen after the business is sold. So, that will pull it down a little bit and then the rest of our performance within that range will depend on the pace and timing of some of the projects that we have identified.

Chris Kapsch - Topeka Capital Markets

Okay, thank you for that clarification, Thanks guys.

Joe Scaminace

Thank you, Chris.

Chris Hix

Thank you, Chris.

Operator

And your next question is a follow-up from Ivan Marcuse from KeyBanc Capital Markets. Your line is again open.

Ivan Marcuse - KeyBanc Capital Markets

Great, thanks. Couple of quick ones, interest expense, so how do you look at that, will that be at zero at the end of the second quarter or how is this going to flow through and how do you look at that, how should we sort of think about the interest expense line?

Chris Hix

Well at the end of the quarter we had $92 million or $93 million of debt outstanding and our intention is I think we have previously communicated is to corral our cash from around the world in a tax efficient way to pay that debt down, having said that the receipt of $27 million for the sale of our cobalt business in the second quarter of this year and $60 million for the sale of our Ultra Pure Chemical business should position us nicely to retire the remaining debt.

Ivan Marcuse - KeyBanc Capital Markets

And I think you said this in your prepared remarks, but I don’t know I guess I am a slow typer, but did you when will that $75 million outflow for VAC which quarter do you anticipate that will be coming out?

Chris Hix

That happens in August, so it will be in our third quarter.

Ivan Marcuse - KeyBanc Capital Markets

Okay. And then my last question is even after today’s – now with Advanced Materials out of the portfolio and even with today’s pretty strong movement here, your stocks still continue to trade, your book value I think is about around $33 and your stock is still about 20%, 25% below that. So, how do you look at the existing goodwill in the intangibles on the balance sheet, your stock hasn’t traded near $33 in a while. So, do you have to take a write down on that or if you could defend that and you look at there is a disconnect between here and the market, do you accelerate your buybacks?

Chris Hix

Ivan, I think that there is a growing view on the value of OM Group is being hired than where it’s trading today. Certainly, we have demonstrated our conviction in that through some share repurchases in the first quarter. And we think that as we continue to demonstrate the performance of the new OM Group that we should be rewarded and all of our investors should be rewarded for that. So, we’ll continue to monitor that closely in terms of the share repurchases if we think it’s the right thing to do for investors, we will continue to do it.

Ivan Marcuse - KeyBanc Capital Markets

Okay, great. Thank you.

Joe Scaminace

Thank you, Ivan. Okay, I believe that concludes the question-and-answer period. And I just want to conclude by thanking all of you for your interest in the company. I could just reiterate how excited we are about the new OM group going forward. We have got great optics going forward. We have a great leadership team, and we think a great investment thesis. So, have a good day everybody. Thank you.

Operator

Ladies and gentlemen, thank you for your participation. This concludes today’s conference call, and you may now disconnect.

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