Olin Corporation (NYSE:OLN) Q4 2023 Earnings Call Transcript

Olin Corporation (NYSE:OLN) Q4 2023 Earnings Call Transcript January 26, 2024

Olin Corporation isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Aleksey Yefremov – KeyBanc Capital Markets:

Steve Byrne – Bank of America:

Chris Perrella – UBS:

Frank Mitsch – Fermium Research:

Kevin McCarthy – Vertical Research Partners: David Begleiter – Deutsche Bank

Mike Leithead – Barclays:

Mike Sison – Wells Fargo:

Jeff Zekauskas – JPMorgan: Vincent Anderson – Stifel

Matthew Blair – TPH:

Vincent Andrews – Morgan Stanley: John Roberts – Mizuho

Roger Spitz – Bank of America:

Operator: Good morning, and welcome to Olin Corporation’s Fourth Quarter 2023 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Steve Keenan, Olin’s Director of Investor Relations. Please go ahead.

Steve Keenan: Thank you, Andria. Good morning, everyone, and thank you for joining us today. Before we begin, let me remind you that this discussion, along with the associated slides and the question-and-answer session that follows, will include statements regarding estimates or expectations of future performance. Please note that these are forward-looking statements and that actual results could differ materially from those projected. Some of the factors that could cause actual results to differ from our projections are described without limitations in the Risk Factors section of our most recent Form 10-K, and in yesterday’s fourth quarter’s earnings press release. A copy of today’s transcription slides will be available on our website in the Investors section under Past Events.

Our earnings press release and other financial data and information are available under Press Releases. With me this morning are Scott Sutton, Olin’s CEO; and Todd Slater, Olin’s CFO. I’ll now turn the call over to Scott Sutton to make some brief remarks, after which, we will be happy to take your questions.

Scott Sutton: Thanks Steve, and good morning to all. In the fourth quarter, the Olin team delivered the four items that were promised, which were $210 million of adjusted EBITDA overcoming a negative $100 million EBITDA impact from our purposeful value accelerator initiative. Stopping the decline of ECU values as a result of our value accelerator initiative, completing the remaining purchase of 10% of our outstanding equity in 2023, and setting the company up for a 2024 that is better than 2023. We start that set up by making the first quarter of the New Year better than the fourth quarter of the past year. We are also very pleased that outside of the minor purchase price for the White Flyer acquisition, Olin’s net debt at the end of 2023 was essentially the same as the net debt at the beginning of 2023.

Since this could well be my last Olin earnings call. I wanted to remind everyone that Olin has a very unique value creation equation of lifting people to a higher level of fulfillment, delivering value on a contemporary basis through a novel idea pipeline and practicing absolute leadership in commerce. This unique value equation opens a long runway to a very positive future and our leadership team will take Olin there. The earnings and cash flow power of Olin is huge. So Andrea, that concludes my opening remarks. And now we can proceed to questions.

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Q&A Session

Operator: [Operator Instructions] And our first question comes from Arun Viswanathan of RBC Capital Markets.

Arun Viswanathan: So I guess, I just wanted to ask first on the guidance. So, it looks like you’re expecting some growth in ’24. How do you see that proceeding? Looks like your Q1 guidance is a little bit below where we were expecting. So, I know that you’re implementing the value accelerator initiative. So, maybe you can just kind of walk us through some of the growth you expect, as you move through the quarters in ’24?

Scott Sutton: Good morning, Arun. Happy to do that. I mean, we’re really forecasting some profit growth, right. And if you just walk through the three businesses, and I’ll just start with Winchester. I mean, we are right in the middle of doubling our military business and that is on-track both domestically and internationally. In the commercial side of that business, demand stays rather high. And on top of that, we have the White Flyer acquisition for a full year. And on top of that, there’s going to be a shortage of propellant across the industry this year and Winchester is well-positioned to take advantage of that. So, we feel really good about the profit growth in Winchester. Look, in Epoxy, it’s much more a self-help story.

We’re not necessarily anticipating demand growth, but clearly the restructuring work that we did is applicable for a whole year. Our focus on systems is working. We don’t have to clean up inventory as much as we did in 2023. And we’re going to work on the illegal flow of products coming from Asia as well. So, then Arun, you really get to the biggest business CAPV, which I’ll just remind you has super fundamentals as you look out in the future. But it’s all about turning around the value of the ECU. And that’s the initiative we’re running now. We have a Slide number 4 that gives some indications that we’re having some success. I would say even on top of that, there’s less volume entering global trade flows today. Some customers are restarting assets that have been down.

So, even in that business, we expect Q1 to be larger than Q4, and we expect Q2 to be better than Q1 as well.

Arun Viswanathan: And then if I could just ask, is there any update on the search for new CEO [indiscernible]?

Scott Sutton: Look, Arun, I mean, I really don’t have an update on that. And I’m really sorry for that, because look, our shareholders and our Olin women and men, who have really built this value for those shareholders, they deserve a lot better than that from me. But I’m out of the process. That process is 100% run buy our independent board members only. What I can say is to the best of my knowledge, I’m not aware of any offer being extended out there yet to any candidate.

Operator: The next question comes from Hassan Ahmed of Alembic Capital.

Hassan Ahmed : Question just wanted to sort of go back to the value accelerator initiative. I mean, you were very specific in talking about limiting your market participation till February 2024. What gives you the confidence with regards to that sort of a timeline that you’ll start sort of potentially seeing a positive inflection there on after, particularly keeping in mind the macro housing the way it is and the like?

Scott Sutton: Look, we think that’s about the right time to make sure that this gets substantially turned around. I mean, already and again, I’m kind of referring back to the Slide number 4 right? We’ve seen the indicators of success. Certainly, in our business, we are having caustic price increases effective January 1st and even a bit before that already EDC export pricing has lift it significantly, but for the — some of the public trade indices, that’s still just projection, though it’s their projection, on our projection now, but we do need to make sure that materializes. So look, I mean, this as a real game of momentum and third derivatives and second derivatives. And we’re just going to make sure that we deliver a bit more behind that momentum and that’s why we’re extending it a bit into the first quarter.

Hassan Ahmed : And just wanted to get a bit more sort of quantitatively specific about the 2024 guidance that you gave. I mean, you’re sort of alluding to north of $1.3 billion in EBITDA in 2024. And if I were to just use sort of Q4 as a starting point, you did $210 million in EBITDA in Q4. So I annualized that and you’re at $840 million right? And to get to north of $1.3 billion, you need an incremental call it $460 million in EBITDA right? So I’m just trying to understand where that increment really comes from. I mean, I know that in the slides that you guys presented, you referred to the sort of — I mean, the value sort of enhancement initiative being call it a $100 million a quarter worth of a penalty. So is it primarily you guys sort of stopping to partake in that initiative post February, and most of that EBITDA coming from there? Or are you sort of looking for some margin help from the market as well?

Scott Sutton: Yes. I mean, sure. I mean, hopefully, you’ll give us a little bit on Winchester, and the fact that you broke over repeat Epoxy being a zero. So, I get your question for sure. I would also think a little bit about some of the math even behind this. We took our operating rate down to roughly 50% from around 60% in the fourth quarter and that was $100 million penalty. So, you might been imagine that as those rates very slowly creep up to match customers coming back online that’s sort of an equation for where you might be, $100 million penalty for one quarter to change the rates from 50% to 60%. If everyone’s paying attention, they’ll understand the math behind our operating leverage exactly. And it doesn’t take very much there to add $100 million or a couple of $100 million or even $1 billion as things get better maybe in 2025.

Operator: The next question comes from Aleksey Yefremov of KeyBanc Capital Markets.

Aleksey Yefremov: Scott, you talked about January 1st caustic soda price increases. Can you discuss on were those mostly, monthly customers or quarterly contracts or maybe spot and what is your outlook for caustic next few months?

Scott Sutton: Yes. Hey, Aleksey. Yes, I mean, look, I would say it’s some of all of that. In fact, even though we put January 1st, some of that success happened early, earlier than that. And while it’s across a number of customers, I mean, please understand that we still have a lot of work to do there. And caustic is a business that is still heavily tied to a trade index. And that trade index in the fourth quarter relative to the third quarter showed a decline. So, our pricing in the first quarter is going to change by the difference between those prior two quarters. So, we still have to get by that hurdle, and that’s why in the last quarterly earnings call, we said you’re really going to see this start to materialize in a bigger way in our second quarter results.

Aleksey Yefremov: And on the chlorine side, I mean, there’s a consultant’s view of declines for the year. What is your outlook and level of confidence in the outlook for the next few quarters as well?

Scott Sutton: Yes. Well, I mean the chlorine, and chlorine derivative sides are still the weaker side of the ECU. But what I will say is that, Olin’s average chlorine pricing in the first quarter relative to the fourth quarter absolutely goes up. Some of that is because we’ve been able to renegotiate pricing in some contracts that expired at the end of the year, some of that is because, we ran this value accelerator initiative, and the only way to pull out of the market was actually to pull out of some of our higher price business because it was more spot in nature, but at least on our base business that continues without a contract change, that pricing doesn’t go down either. Nothing is getting worse in terms of chlorine pricing.

Operator: The next question comes from Steve Byrne of Bank of America.

Steve Byrne: Scott, I was curious about this prolonged trough in PVC demand. Is that representing a bit of a challenge for you to negotiate maybe a partnering opportunity downstream post the end of the Dow agreement in another year?

Scott Sutton: I mean, look, I do think it’s extended it some right? But of course, with the change in our relationship with Dow at Freeport in 2025. We get a lot of excess capability coming back in our hands and we’ll have to decide what to do there and everyone already knows that that’s quite accretive for us for sure no matter what we do. So that comes available. I would say in addition to that. We have a tremendous amount of VCM that’s going through a pipeline to one customer and all of that ends in 2030 as well. So we’re getting close to being able to match up with a different PVC operator. So instead of spending $6 billion on a completely integrated world scale facility, someone has the ability to spend 20% of that to get in business in a world scale PVC plant. So I think the timing is okay. We wish it was a bit faster. But you’re right, I mean the situation in the world right now has just slowed down some of those activities.

Steve Byrne: And then just given this uncertainty about the new CEO, Scott, are you opposed to staying there in that seat or staying longer depending on this transition?

Scott Sutton: No, I’m not.

Operator: The next question comes from Joshua Spector of UBS.

Chris Perrella: It’s Chris Perrella on for Josh. Question, on the follow-up, I saw that the share repurchases slowed in the fourth quarter. What’s the outlook for share repurchases for 2024?

Todd Slater: We committed to repurchase approximately 10% of our standing shares in 2023, and that was consistent with what we achieved. We were relatively steady buyer through the year. We bought a little less than the fourth quarter, but consistent with the guidance that we had provided. As you look at our leverage free cash flow for 2024, you should expect us to primarily deploy that cash towards share repurchases. Our strong investment grade balance sheet and cash flow, enable Olin to continue to deploy our cash toward repurchasing our shares.

Chris Perrella: And then a follow-up, as you take the break-off the value accelerator initiative and you raised operating rates starting in March with as the current plan. I thought there’d be a larger step up in EBITDA earnings for the Chlor Alkali business. And I’m just curious, given the puts and takes there, it seems like it’s not up much that $100 million penalty should be coming back a bit faster. Can you just kind of walk through how that penalty lifts?

Scott Sutton: Yes. I mean, Chris, look, it’s a really good observation. I mean, I would just keep two things in mind. I mean, number one, we’re continuing to run that initiative for up to two-thirds of the first quarter. But also on top of that, it goes back to that caustic pricing phenomena that I talked about whereby the first quarter pricing that we print is determined by the difference between the fourth quarter and the third quarter, and that’s already known to be a drop. So, we have to overcome that as well.

Chris Perrella: All right. So, it’s just a lag in the contract pricing?

Scott Sutton: Exactly.

Operator: The next question comes from Frank Mitsch of Fermium Research.

Frank Mitsch: Interesting on the parlay chart reaching a high of 25% in the fourth quarter. Obviously, part of that is the initiative to ramp back your own operating rates. Where does that stand now here in January and what are your expectations for that metric through the quarter?

Scott Sutton: Yes. Hey, Frank. Yes, I mean, you’re right. I mean it’s — I think it’s very interesting that for 25% of our volumes were out there selling, we were buying those from third parties. And it might just tell you about the strength of Olin that we can do that. We can go run our assets at 50% utilization. We can take care of all those items and still have positive levered free cash flow even in the fourth quarter. So, I mean, thanks for the observation on that or the hints of the observation. I mean, I would say that, look, we’re still doing a lot of that, because we’re still running that initiative. I do think through the year, as we very slowly and incrementally may lift rates a little bit, you might see that percentage decline back some. We’re unlikely to be at a 25% purchase of all of our volumes from other parties over a long period of time, it will probably settle at something lower than that.

Frank Mitsch: And then as you assess the underlying market demands by region, you had indicated the last time that things were rather slow and so forth. How is it standing here in January, and what are your expectations? What is actually embedded in terms of underlying demand? If you think about ’24 being better than ’23 overall?

Scott Sutton: Yes. Well, I mean look in Winchester there’s a demand increase in military just sort of put that one to bed. We haven’t planned on any demand increase in Epoxy, right. That’s a self-help type of work. Even in Chlor Alkali, very limited demand recovery. But I will just say that sentiment is a little bit better here at the start of the year, customers are restarting. Two of our larger customers that have large off-takes have been down for many weeks and in fact they are restarting. There is some light confidence, I’d say in homebuilders where at least maybe that doesn’t go the wrong way. So there’s just not a lot of strength in demand built in our outlook, Frank.

Operator: The next question comes from Kevin McCarthy of Vertical Research Partners.

Kevin McCarthy: Scott, I’d welcome your updated thoughts on the shape of the Epoxy cycle. If I look at Slide 8, it appears as though your prices eroded in 4Q versus 3Q. How do you think that will trend in the first quarter? And then, I’m also interested to hear your thoughts on Epoxy’s in Europe. We’re reading about disruptions in trade routes relative to the Red Sea and purchasing managers seem to want to kind of get ahead of those longer lead times and increased tensions and friction and so forth. How do you see the next quarter or two shaping up for Epoxy?

Scott Sutton: Look, I mean, we’ve announced price increase and we’re getting some price increase. And in fact, if you really looked at what’s happened over the last few months has been more of a wash tub bottom. It really hasn’t declined further. In fact, even the trade publications now are saying that this is a bottom. Believe me, we absolutely say that this is a bottom. And the disruptions for trade routes that is starting to have an impact, particularly in Europe. So there’s a lot of momentum for the start of lifting prices again through Epoxy. It’s going to be slow though. I think, what you’ll end up seeing us do is sort of take that wash tub and profit up a little bit. I wouldn’t expect something really, really fast there, but we’re going to change the slope of that curve.

Kevin McCarthy: And then curious on EDC, we’ve seen those prices percolate higher notwithstanding weakness in downstream PVC resin. How much headroom is there before you kind of run into that PVC ceiling, so to speak?

Scott Sutton : Well, I mean, particularly the export PVC pricing is not good and you’ve seen EDC lift, but there’s still a substantial gap left even when PVC is this low. And that’s one of the focuses we’ve had and one of the initiatives we’ve had is to try to close that gap. And we were never really successful at closing that gap. So there’s still room there to move it some more relative to PVC.

Kevin McCarthy: And if it is the last call, Scott, congrats on all that you’ve been able to do with the company in less than three years and look forward to keeping in touch.

Scott Sutton : No, thanks a lot. It’s really not me though. It’s this team and this employee group.

Operator: The next question comes from David Begleiter of Deutsche Bank.

David Begleiter : Scott, just on the Blue Water Alliance, can update us on how it performed last year and what’s the expected EBITDA contribution in 2024?

Scott Sutton: Yes, I mean, look, I probably won’t give a forecast of the EBITDA contribution. But I mean, clearly that does appear indirectly in our financials and it wasn’t a positive contributor in 2023, which was actually the expectation, right. It’s sort of the first year. There’s a lot of purposes for Blue Water, we don’t intend for it to be a wild direct contributor of profit. But the value to time one and the value in the overall product levels of Olin is there. I mean part of our parlay work that we’re doing now and we just had that discussion being 25% of our business it is associated with Blue Water. So, it will likely improve this year, but it’s not going to be a major direct contributor relative to the size of the rest of our business.

David Begleiter: And just again on Epoxy, what’s the path back to mid-cycle earnings given the amount of oversupply in the marketplace today?

Scott Sutton: Well, I guess it depends on what you call mid-cycle in that business. But I’ll just say it’s a multiyear path and maybe leave it at that.

Operator: The next question comes from Mike Leithead of Barclays.

Mike Leithead: First question on Winchester. You’ve obviously talked Scott, about the earnings improvement likely this year. Could you first remind us just how big military is relative to your overall kind of sales mix in this business? And second, it is an election year. Does that normally change commercial order patterns or do you see that impacting at all commercial sales volumes?

Scott Sutton: The military side of that business now has become about as big in rough terms as the commercial side of that business. In fact, in the third quarter of 2023, it was actually bigger than the commercial business for the first time in history. So, I think a good way to think of it is, it’s sort of half and half from a sales perspective. It’s not quite as profitable as the commercial business, but that’s roughly the sizing of it. Yes. What was the second part of the question?

Mike Leithead: The presidential election.

Scott Sutton: Yes. I mean that kind of uncertainty along with other things that are out there in the marketplace. So I mentioned this challenge on propellant supply to the whole industry. Those two things coming together are likely to cause a run on ammunition.

Mike Leithead: And then second question, I want to parse apart, what are the comments or bullets you have in the slide deck, Slide 4? Well, I think you said customer requests for merchant chlorine has increased. Should we interpret that that customers are coming to you asking for more products, but not at a price or an economics you’re willing to sell at? Or can you maybe expand upon that a bit?

Scott Sutton: Yes. I think the way to interpret that is that when we pull back from the market some just because we’re running our initiative, we’re not going to participate in a poor quality market. After we did that, that caused some customers, some not even the same customers that we may have pulled back from to come ask for more volume. Again, it’s just an indication that we can have an impact by taking that kind of action. And it’s an indication that we had the opportunity to turn back on some of these assets though at a very, very incremental amount only and do some additional business.

Operator: The next question comes from Mike Sison of Wells Fargo.

Mike Sison: I guess just to clarify, if you would need to get your operating rates in calves between 60% and 70% at some point, maybe the second quarter and beyond to get to your guidance of $1.3 billion or better. And I mean, in demand there to do that, I guess, it’s a follow-up question or do you need demand to get better to do that?

Scott Sutton : Yes. Well, I don’t know that we need to get back to the levels that you spoke of. I mean, remember Winchester and Epoxy are going to do better and we expect CAPV to do incrementally better as well. I think adding anything back to our rates, maybe below the numbers that you spoke of gets us there. When you take that in combination with the fact that look we don’t have another $100 million penalty from not being able to run our VCM unit for a whole quarter, for example. So when you put those two things together, I don’t think we need to get there. By 2025, I think we need to be in the 60s.

Mike Sison: And then what — I’m just curious, what would prevent you from moving or operating itself? I mean, I know the consultants, they have ECU margins kind of down sequentially. They might not necessarily be right. But what would prompt you not to be able to raise your operating rates heading into 2Q?

Scott Sutton : Yes. Well, if we weren’t having success moving product values, then we would keep running this initiative. But we’re having success changing the direction of our product pricing.

Operator: The next question comes from Jeff Zekauskas of JPMorgan.

Jeff Zekauskas: Earlier in the call, you spoke of a large contract that can end in 2030. Did that customer indicate that they didn’t wish to renew?

Scott Sutton : What I would say is that’s the natural expiration of that contract. And we’re currently in a dispute with a very significant value lift opportunity. So we’ll just have to see where that goes by 2030.

Jeff Zekauskas: And then secondly, can you just compare general demand conditions in the cost caustic chain to the chlorine chain. And in your curtailment of production, are you making a larger difference to the chlorine side or to the caustic side and why?

Scott Sutton: Yes. Well, I mean, right now, Jeff, the chlorine and chlorine derivative side is weaker for us. So, we generally set our participation according to that weaker side. And so we’re having an impact. But more than likely, the bigger part of the impact will be on the stronger side because you end up really shorting that demand profile more.

Operator: The next question comes from Vincent Anderson of Stifel.

Vincent Anderson: So, maybe you have a different view, but it looks like China is probably still planning a fair amount of capacity up and down the Epoxy value chain over the next few years. So, to me at least it would appear that trade protections might be necessary even if we did see some amount of demand recovery. So, I guess to turn that into a question, are you still considering trade cases in Epoxy? And how important is sort of your renewed focus on fleshing out your derivative portfolio as a balance to the operating leverage on the base resin assets?

Scott Sutton: Yes, sure. I mean, no, we’re absolutely doing more than considering that, right. I mean, look, effectively this is illegal product trade flows coming into both Europe and the U.S. And this has to be stopped. And for some of the reasons that you said, it’s likely to continue. So, we’re absolutely going to pursue that. I think in terms of getting rates up, we’ve reduced our on the ground capacity quite a bit and we’re using our systems portfolio to get some operating leverage back across our base resin. I think that was the second part of your question.

Vincent Anderson: Yeah, it was. And very helpful. Thank you. If I could ask one other one, maybe too early on this, but we’re reading about the Chinese ramping up capacity of sodium ion battery production. I’m curious if you’ve seen any meaningful change in their sodium markets, whether that’s coming from the caustic side or maybe they’re using soda ash, but just anything you can shed a light on because it’s still a bit of a black box on our end?

Scott Sutton: Yes. And I probably can’t help that much on that specific of an item, right? But what I can say is the ramp up of battery production and battery recycling is probably the largest growth item we have across our Chlor Alkali portfolio. There is a demand for more caustic in many of those applications. There is also an additional demand for hydrochloric acid in those as well. So, it’s probably the premier growth item over the next 10 years in this business.

Operator: The next question comes from Matthew Blair of TPH.

Matthew Blair: So Slide 8 shows caustic holding as a strong side of the ECU again this quarter. I think in the past you said you like it when that gap is pretty wide. Could you talk about what you’re seeing in the market now? And is that gap widening out or is it narrowing?

Scott Sutton: Look, give me a little clarification. I missed the gap between what two things.

Matthew Blair: The gap between chlorine and caustic and ECU and which is the strong side and which is the weak side?

Scott Sutton : First of all, Olin does do better when there’s a difference in the supply demand profile on the chlorine side of the ECU versus the caustic side of the ECU. Just because we can act on one versus the other. The only challenge that we really that is when both are bad and they’re equal. That’s the hardest profile for Olin to act on. So we don’t have a problem with one being weak and one being stronger. That’s the way we’re set up now. Caustic is stronger, flooring is weak, but overlaying that is just general weakness and that’s why our earnings are down.

Matthew Blair: And then, I thought it was interesting. You mentioned that in general Winchester is a bright spot and talked about military being a big opportunity. I think the slides mentioned that military demand was actually down a little bit in the fourth quarter, quarter-over-quarter, even given this period of global instability? What are you seeing in Q1? Is that starting to rebound?

Scott Sutton : Yes. And I understand your comment. That was just a sequential issue and it’s really only order pattern related and delivery related. A lot of those deliveries into the military application are very large and they’re very discrete. So that’s only an order pattern issue. Again, I would just compare year-on-year-on-year and there’s substantial lifts year-on-year-on-year.

Operator: The next question comes from Vincent Andrews of Morgan Stanley.

Vincent Andrews: On the cash taxes, my recollection is that those that increase was also supposed to be the case last year and I think you mentioned defer into this year. So is this year that increase I think is $80 million is that definitive for 2024 or is there some chance to further defer those?

Todd Slater: I wish, I could sound very optimistic and say there’s a chance to defer. I don’t believe that will be the case. And we would expect that $80 million we paid out roughly during the middle of this year.

Vincent Andrews: And then also on that same Slide 9 and the primary uses for cash flow, the third one being the Alliance and JV opportunities. Is there sort of a rough amount you could suggest that could go towards those this year or max amount?

Todd Slater: At this point, they would be very small. We do have a hydrogen joint venture that we do have a little bit more that will be paid during this year. So that is a small number relative to any of those cash flow numbers.

Operator: The next question comes from John Roberts of Mizuho.

John Roberts: Thank you, and best wishes as well, Scott. I think acetone prices spiked during the quarter. Is that just the normal co-product dynamics with the weak BPA market for Epoxies or is there something else going on there?

Scott Sutton: Yes. I mean principally that’s it. You’re right. I mean phenol acetone co-production a little bit like chlorine caustic. And we sort of transferred some of our model that we run in the ECU world into our phenol acetone production and marketing scheme. And so you’ve seen us take advantage of that and get some value out of assets.

John Roberts: And then at Lake City, do you think there are any political risks to being able to use the excess capacity for commercial production? The New York Times had a pretty high profile article during the quarter?

Scott Sutton: No. I don’t think there’s any risk there at all. I mean, what I will say is that, look, I mean, there’s always this sort of backdoor play to try to go after the second amendment of the constitution in the U.S., and that’s what that is. And those kind of things are not likely to be very successful. I just go back to the fact that probably in this country, there’s 26,000 gun laws on the books. Still sports shooting is the largest participant sport in the country just below exercise. Okay? And coming after ammunition, there’s probably an unsuccessful road that some might follow there.

Operator: The next question comes from Roger Spitz of Bank of America.

Roger Spitz: I’m assuming you’ve idled some of your electrolyzers or perhaps full trains to get to the 50% operating rates. Will there be material restart cost as you move your operating rates up? I guess membranes can be finicky or you mainly idling just your asbestos diaphragm spectralizers?

Scott Sutton: No, there’s no incremental cost. We can move those up and down rather quickly. And in fact just a smaller point for you that’s pretty interesting is the diaphragm systems relative to the membrane systems are very easy to go up and down. That’s an advantage of asbestos diaphragms or other kinds of diaphragms relative to membrane system, very easy to turn on and off.

Roger Spitz: And secondly, historically, ammunition sales, commercial ammunition sales have been higher when the Democrats are have the administration versus Republicans. Do you have any view of how much EBITDA is in Winchester attributed to the fact that we currently have a Democratic administration?

Scott Sutton: Well, I would say not really. I would say it’s more attributed to the fact that there’s at least 15 million new participants doing sport shooting in this country and every month, I forget how many, maybe someone will tell me how many months in a row that the mix background checks have been above 1 million guns a month, but it’s like 40 million or 50 million maybe even more. I just can’t remember the number and that trend continues. And that’s driven a lot more participation in the sport.

Operator: As there are no further questions, this concludes our question-and-answer session. I would like to turn the conference back over to Scott Sutton for closing comments.

Scott Sutton: Well, I would just say thanks very much to everybody for attending today. Thank you.

Operator: Thank you for attending today’s presentation. You may now disconnect.