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OM Group, Inc. (OMG)
Q3 2012 Earnings Call
November 09, 2012, 10:00 am ET
Joseph Scaminace - Chairman & CEO
Chris Hix - VP & CFO
Mike Harris - First Analysis
Chris Kapsch - Topeka Capital Markets
Rosemarie Morbelli - Gabelli & Company
Previous Statements by OMG
» OM Group's CEO Discusses Q2 2012 Results - Earnings Call Transcript
» OM Group's CEO Discusses Q1 2012 Results - Earnings Call Transcript
» OM Group's CEO Discusses Q4 2011 Results - Earnings Call Transcript
» OM Group's CEO Discusses Q3 2011 Results - Earnings Call Transcript
I will now turn the call over to Mr. Scaminace, Chairman and Chief Executive Officer of OM Group.
Good morning, everyone, and welcome to our third quarter earnings call. Today, I am joined by Chris Hix, our CFO and Rob Pierce, VP of Finance, whose responsibilities include Investor Relations.
You could see our standard Safe Harbor disclosures on slide two, so let’s get right into the details on slide three. I am pleased to report that we've delivered exceptionally strong cash flows in the third quarter of 2012. The $96 million of cash flow from operating activities was the highest quarterly total in nearly four years and the second highest total in the past decade. We accomplished this milestone in the face of challenging macroeconomic conditions, demonstrating again, the strong cash flow profile of our company.
Our great cash flow this past quarter added to an already strong balance sheet. During the third quarter, we elected to use some of our substantial cash balances to repay $72 million of debt ahead of schedule and we ended the third quarter with $325 million of cash and $594 million of debt. After the end of the quarter, we repaid an additional $100 million. These repayments deployed our cash efficiently and effectively to reduce future interest costs.
Our liquidity position remains rock solid. And along with expected future cash flows, a US tax refund of $37 million that we received in October and our untapped revolver of $200 million, we have the capacity to execute our strategy.
As we anticipated, sales and profitability were down compared to a year ago as difficult economic conditions more than offset solid results from our most recent acquisition. On our Q2 call, we discussed our expectations for a slowly firming cobalt price in Q3 based on the up tick seen in July and sentiment for the remainder of the quarter. However, the cobalt price later trended downward and ultimately the average Q3 price came in below the average Q2 price significantly impacting Advanced Materials and enterprise results in the third quarter.
On the other hand, Magnetic Technologies and Battery Technologies, both had favorable results, demonstrating the power of higher value added and more predictable businesses in our portfolio. We now generate a significant portion of our sales and earnings from more stable, non-commodity businesses.
Slide four provides an overview of our business portfolio. Advanced Materials, our cobalt franchise, contributed $8 million of adjusted EBITDA during the quarter, less than we’ve typically seen, because of cyclically low cobalt prices. This is a great business, with growing volume demand and market leading positions, but it does have significant exposure to these volatile metal prices.
On the right side of the chart are our three transformative platforms that we’ve built by executing our strategy. Magnetic Technologies, Battery Technologies and Specialty Chemicals. These businesses contributed $49 million of adjusted EBITDA in the third quarter of 2012, over 85% of the consolidated total excluding corporate expenses.
Magnetic Technologies is an innovator that gets rewarded for it's technology. It's a market leader working closely with customers to meet complex applications and requirements and it is very well positioned in diverse end markets.
Our next transformative platform that we acquired, Battery Technologies has also demonstrated it's capacity for innovation, both in legacy markets such as defense and aerospace to newer areas like metal, medical, oil and gas and commercial aviation.
Within our Specialty Chemicals platform, we’ve transformed our advanced organics business in to a technology driven innovator, solving industry problem with new technology like Borchi Oxy. Our electronics business continues to be known for its market leading solutions for print and circuit board and hard disk drive applications while also developing newer chemistries for photovoltaic applications. Most of our performance is now driven by our transformative platforms. These are businesses with multiple patents for organic growth and synergistic growth through acquisitions to create shareholder value.
Please turn to slide five; our strategy clearly provides our company with the ability to grow profitably and sustainably. As these charts demonstrate, the acquisitions we have made in recent years provides a strong foundation for growth and enable us to deliver solid results.
Sales have increased, and we are now positioned in more diverse and attractive end markets. Adjusted EBITDA is also up year-over-year driven by the strong results for Magnetic Technologies and Battery Technologies.
You need to consider that without these acquisitions, our exposure to cobalt prices in our Advanced Materials segment would be significantly higher on a relative basis compared to the enterprise as a whole. Instead, as a result of our strategy that we have executed, we have lessened the relative impact of cobalt pricing on our overall results and we delivered an increase in EBITDA in spite of lower cobalt prices. The final set of bars shows the cash flows in each period; 2011 flows were good, 2012 cash flows have been exceptional.