Ferro Corporation
Q4 2020 Earnings Call Transcript

Published: 2 Mar 2021

[Operator:]

Good morning and thank you for joining the Ferro Corporation Fourth Quarter and Full Year 2020 Earnings Conference Call. An archived replay of the teleconference will be available through the investor information section at ferro.com, later today and will be available for approximately seven days. I would now like to turn the call over to Mr. Kevin Cornelius Grant, Director, Investor Relations and Corporate Communications.

[Kevin Cornelius Grant:]

Thank you, and good morning, everyone. Welcome to Ferro's fourth quarter and full year 2020 earnings conference call. This morning, we'll be reviewing Ferro's financial results for the fourth quarter ended December 31, 2020. I'm pleased to be joined today by Peter Thomas, our Chairman, President and CEO; and Ben Schlater, Group Vice President and Chief Financial Officer.

[Peter Thomas:]

Thanks, Kevin. Good morning, everyone, and thank you for joining us to discuss Ferro’s fourth quarter and full year 2020 performance. Ferro delivered very good results for the fourth quarter. Performance was significantly stronger than the prior year quarter with increases in sales, gross profit and net income. Top line revenue and gross profit increased for the second consecutive quarter as demand for our products across the globe strengthened and the V-shaped recovery that we previously described continued. Adjusted gross margins expanded relative to the prior year quarter and third quarter of 2020. We expect this trend to continue as we bring additional innovative, higher margin products to market and reduce costs at the COGS level. Both our reporting segments, Functional Coatings and Color Solutions delivered increased sales in gross profit with the strongest growth coming from our automotive, industrial, construction, electronics and porcelain enamel product lines. We believe that Ferro’s fourth quarter performance sets the baseline for the company's performance going forward as we continue to increase the value proposition of our products and services. Full year 2020 versus 2019 comparisons are of course thrown off by the impact of the COVID-19 pandemic. Especially in the second quarter, many parts of the global economy were temporarily shuttered in response to the pandemic. As we previously have explained, Ferro generally continued to operate during this difficult time, although at a lower level, because many of our products and services were deemed essential or were sold into markets considered essential. As for those markets around the world, more heavily impacted by the pandemic, we stayed close to our customers, which informed our preparations as these markets began to recover.

[Ben Schlater:]

Thank you, Peter, and good morning, everyone. I would like to echo Peter's comments on how pleased we are with the company's performance in the fourth quarter and the completion of the Tile Coatings sale. The business delivered top line growth in the fourth quarter with continued gross profit expansion and lower SG&A spend. We're especially proud of Ferro associates around the world for what they accomplished in 2020. They exhibited exceptional effort to navigate the global pandemic and at the same time advance the extraordinary work necessary to complete the sale of the Tile business. I'll now discuss our consolidated financial results for continuing operations for the fourth quarter and full year 2020. Please note that the non-GAAP numbers I refer to are on an adjusted basis and growth rates mentioned are on a constant currency basis. All comparisons are versus the fourth quarter and full year of 2019. The financial highlights and results can be reviewed on Slides 3, 4, and 5 in the presentation accompanying today's call, which you can find on ferro.com in the Investors section. Turning to Slide 4 in the fourth quarter, net sales increased 3.5% to $260 million. Adjusted gross profit increased 3.7% to $80.6 million. Adjusted gross profit margins were 31%. Adjusted SG&A expense declined 11.6% to $45 million. Adjusted EBITDA increased 22.1% to $45.2 million or 17.4% of net sales, which is an increase of 227 basis points. And adjusted EPS increased 47.1% to $0.25. Now turning to Slide 5, I will go through our full year 2020 performance. Net sales declined 5.3% to $959 million. Adjusted gross profit declined 4.6% to $300.4 million. Adjusted gross profit margin was 31.3%, an increase of 20 basis points from 31.1%. Adjusted SG&A declined 6.3% to $186.9 million. Adjusted EBITDA declined 2.7% to $153.7 million or 16% of net sales, an increase of 46 basis points. And adjusted EPS declined 2.4% to $0.81. These results reflect certain non-GAAP adjustments for the fourth quarter, primarily related to legal costs associated with previously divested businesses, corporate development and optimization activities. I'll now provide more detail on the adjustments for the fourth quarter of 2020. First in cost of sales, we have adjustments of approximately $1.5 million, primarily due to costs related to optimization initiatives. In SG&A, we have one-time adjustments totaling $3 million in a quarter, primarily consistent for up-costs for legal, professional and other expenses related to certain corporate development and certain optimization initiatives, including the North American manufacturing optimization, and approximately $800,000 related to divested businesses and assets.

[Peter Thomas:]

Thanks Ben. Now I'll take you through highlights of our fourth quarter performance and our continuing operations reporting segments. We'll begin our discussion with the Functional Coatings segment. As a reminder, our Functional Coatings business formally was called Performance Colors and Glass and it now also includes our Porcelain Enamel business. In the fourth quarter Functional Coatings net sales on a constant currency basis increased 2% compared to the fourth quarter of 2019. On a sequential basis net sales increased 8.3% from the third quarter of 2020. Adjusted gross margins increased 50 basis points to 30.7% in the fourth quarter from 30.2% in the prior year quarter on a constant currency basis. Adjusted gross profit increased 3.6% from $49.4 million to $51.2 million compared to the prior year quarter and on a sequential basis, increased 19.2% from the third quarter of 2020.

[Ben Schlater:]

Thank you, Peter. Now, I'd like to spend some time reviewing our 2021 guidance. We expect to deliver sales growth in the range of 8% to 12%. Adjusted EBITDA in a range of $175 million to $185 million which would be up 14% to 20% in 2020. Adjusted EPS in a range of $0.90 to $1, an increase of 11% to 23% from 2020. Our 2021 guidance reflects foreign exchange spot rates as of December, 2020, which reflects our Euro to USD exchange rate of roughly $1.20. As a common practice, we have provided FX sensitivity in the guidance section of the earnings release. In 2020 Ferro, excluding discontinued operations generated approximately 35% to 40% of its revenues in euro and approximately 35% to 40% in U.S. dollars. We estimate that a 1% overall change in foreign currency exchange rates weighted for the countries where we do business would impact sales by approximately $5 million to $8 million and operating profits by $700,000 to $900,000. If you isolate for sensitivity on the Euro, a 1% change would impact operating profits by approximately $300,000 to $500,000. We expect net leverage at the end of the year to be approximately one times EBITDA. And with that, I will now turn the call back over to Peter to provide a few closing comments before we open it up to Q&A. Peter?

[Peter Thomas:]

Thanks again, Ben. As we move into the next phase of our value creation strategy, we are building on the transformation of our business over the year-over-year earlier phases. The three main strategic components of this stage of the strategy are; first, growth as a specialty materials company with niche, high value, high margin products and high growth markets. This includes broadening the use of Functional Coatings and Color Solutions products in areas such as medical equipment, high-frequency communications systems and containers for drinking water and food. We also are excited about expanding our involvement in the electrification of vehicles, where our applications are being designed into future prototypes. Second intensified emphasis on innovation, bringing to market new Functional Coatings and Color Solutions products and applications, we will redouble our efforts to address customer needs with creative solutions and market-leading products and services. And lastly optimization, we will continue to advance initiatives to drive efficiency, remove stranded costs and deliver overall margin enhancement across our global operations. We are enthusiastic about the opportunities before us in this phase of our strategy that mega trends with which we have aligned our company play to our strengths and innovation, product development and customer service. We are partnering with customers to develop certain products and independently developing other products. Our R&D investments have targeted applications for 5G, the Internet of Things, AVs, EVs and virtual communications. We also have invested in digital printing with organic and inorganic inks on various substrates, pigments for customized functions, such as infrared reflections, anticorrosives and pastes used in electronics, surface technologies for plastic lenses and automotive applications, healthcare apps, and telemedicine and eco-friendly materials. Viewed at a higher level, we intend to participate in green and smart markets as the shift to these preferences continues. As I mentioned earlier, Ferro also supplies Functional Coatings and Color Solutions that are in greater demand because of changes in behavior resulting from COVID. We expect many of these changes to remain as we move past the COVID era and into the next normal. So this provides a brief overview of where we see opportunity to extend our market leadership and develop new products and applications. We expect our company to grow at 1% to 2% above the relevant market with gross margins in the range of 35%. From an optimization perspective, the initiatives that we have implemented in recent years should provide a step-change contribution to profitability in 2021. Even so we see more opportunities to remove stranded costs, consolidate manufacturing facilities, reduce sourcing and raw material costs, and drive efficiencies in our logistics and supply chain. Our balance sheet in 2021 also will be substantially improved. Now that we have completed the sale of the Tile Coatings business, we intend to use proceeds from the sale to reduce debt. And by the end of 2021 as Ben noted expect net leverage to be at approximately one times. I look forward to sharing our continued progress with you during future updates. And now Ben and I will be glad to take your questions.

[Kevin Cornelius Grant:]

Thanks, Peter. With that, operator, let's open up the call for questions.

[Operator:]

Thank you. And our first question comes from Rosemarie Morbelli with G. Research. Please proceed with your question.

[Rosemarie Morbelli:]

Thank you. Good morning, everyone.

[Peter Thomas:]

Good morning.

[Rosemarie Morbelli:]

And congratulations for closing 2020 on a strong note and for successfully closing the sale of Tiles.

[Peter Thomas:]

Thank you.

[Ben Schlater:]

Thank you.

[Rosemarie Morbelli:]

So, Peter, you gave us a quick laundry list, if I can call – if I can use that term, of all of the areas you are planning to grow into. I can't write that fast. So I was wondering if you could talk about new Ferro’s most attractive end-market, which should touch on a lot of them, but in a more organized fashion for me to understand, and the main areas of growth within those particular markets and in terms of not just descriptions of the products, but also the potential for top line growth and their profitability level.

[Peter Thomas:]

Okay. So that – there are a bunch of questions in there. So let me try to answer it from a high level first because we have to be very careful around some of the things that we speak of regarding our technology and innovation, because we're aligned with many of the technology leaders that you may be aware of out there. And we do have a lot of confidential – confidentiality agreements in place, unlike the old days. What we’ll speak to is the framework looking for which we would talk about in our Investor Day. You would think of this particular portfolio is a market plus 1% to 2% historically, that would be on revenue. That means that we're looking at 4% to 5% at a minimum. We've talked about in our prepared remarks, 35%. I would think that a range, if we were doing an Investor Day today would be 34%, 36% or 37% range. And of course, EBITDA margins of that 20% range and of course cash conversion of 50% to 60%. So let's leave that as a framework for us going forward, starting today with the genesis of the new Ferro. Again, those numbers do not include any additional opportunities from the plethora of pipelines that we have, including organic growth, inorganic growth, technology growth with its own separate pipeline, optimization pipelines, and the like. We have many opportunities for creating additional shareholder value. And of course, with the type of balance sheet that we spoke of, meaning adjusted for the end of the year at 1.3 or less than 1 times by the end of the year, you can see why we're pretty excited with the optionality as I mentioned around those pipelines of creating additional shareholder value. When we talk about the areas to focus on, I think that you have to look at where the emphasis is being placed with the business for the next three to four to five years. And I won't give you like values for a lot of reasons. What I can tell you is that our current vitality index right this second, we ended the year at 21%, which is best-in-class. We’re looking at that for this year, as well as a starting point. We have an organic pipeline that would show a five-year sales of anywhere between $400 million to $500 million. We have an innovation pipeline of whether it's new to Ferro, newly creative products with advantage customers or those technology customers I referred to earlier. That pipeline is reasonable at this point. I don't want to get too specific with that. But what's important to note is the organic pipeline is at a gross margin of about 40%, but that innovation pipeline can be between 50% and 60% at a gross margin level. So you can see why we feel very comfortable about discussing a range of gross margins, maybe up to 37%, because with the perfect storm of the vitality index, from the base organic pipeline, the innovation pipeline, the optimization activities, all coming together, like they are, in 2021 for that which we started two or three years ago, we have another evolution of the next three years of another set of those activities. So the continuance of lifting the portfolio at the gross profit level is pretty significant. When we look at focus, and what we would ask the shareholders to really think about would be the following areas. And this is going to sound quite a bit different as with the old Ferro. If you go back and listen to our calls and transcripts from 2013, 2014, 2015 and 2016 versus what you've heard the last three or four quarters, there's no doubt that people would understand that there's been a significant transformation with the company. So what we would ask everyone to focus on, our shareholders, is the thought we would talk about the following. You should focus on digital printing across many applications, many substrates, different types of equipment, different types of printing heads and the like. We're talking about many digital aims and printer combinations on various substrate with both organic and inorganic things. And we have pigments and colorants for digital applications. And we've may have a side tagline going forward that Ferro will digitally color the world. I mean, you have to think about what we're doing in these areas. You know that we bought Dip-Tech that has a certain technology, certain equipment, certain heads, certain links in our largest market segments. So we jumped the chasm twice on covering glass for many applications. Then you have to look at smart cars, right? We have a broader offering in very familiar end-markets like sensors, LIDARs, a big application for us, communications, satellite applications, low frequency monitoring and measuring, those types of activities and applications are very much in our innovation portfolio. We look at the digital Internet of Things and 5G is the third segment. We certainly have superior materials for low temperature co-fired ceramic products for antenna fitting to 5G applications everywhere. And you can see the success that we're having with the COVID environment, where that's been accelerated. We also have, the fourth would be, I would say the next-generation LED lights. We have glass and ceramic materials with superior heat conduction and insulation properties, another big area, very important, and we're gaining traction with that starting actually in the fourth quarter. Next, we all have to be concerned about environmental. I think there's a responsibility for companies to really have programs around environmental applications. We continue to look at everything in our portfolio and challenge ourselves what can we do modifying or extending our different MBUs or product lines in a way that we create a more environmentally friendly Ferro. And of course, one way we can do that quickly is with more organic colors and inks. And we have developed a whole range of next-generation and organic green chemistries that you'll be hearing about as we move through the course of the year. And again, energy efficiency, I mean, another big, big word, our market segment. And again, Ferro’s portfolio lends itself nicely to that. We have materials for weight reduction and IR reflective applications. We have enamels that absorb sunlight energy and create a mechanism for greater electrification properties, and again, this is all in the electronic side of our business. And of course, how about healthcare? We have advanced glass materials for medical applications. We have coating materials for medical devices. I mean, that's the new Ferro, that's the genesis phase. So those would be the top seven areas that we are really focusing on. And we mentioned it in the prepared remarks, there's a redoubling of technology effort in these areas. And if you really isolate what I've just mentioned on the seven segments, and you look three to five years out, you would probably see another paradigm shift in this business with our success on developing both jointly with high-tech companies and those that we can cross-fertilize with ourselves to offer those to leaders and/or create even new market opportunities. So I'm not sure if that answers everything, but understand, we have to be somewhat furtive with the type of information we can communicate with everyone because of the constraints we have on secrecy agreements.

[Rosemarie Morbelli:]

I understand. And yes, it is very helpful. And I was wondering just one additional quick question, well, actually two. First of all, what would need to happen for you to reach the high-end of your EBITDA range in 2021? And then could you quantify the benefits from the optimization and the stranded costs that are left to eliminate in 2021?

[Peter Thomas:]

Yes. And so let's start with the high-end of the EBITDA. I mean, what we've said is that we have pretty good visibility for the first half of the year. I can tell you, and we all can tell you that our order book is pretty defined for the first half. Why do I say that? If you look at – let's look at two important components because we separate, that which is back order and that which is lead time oriented. So with at least five of our MBUs, I can tell you that with five of them, there's probably an average of a couple of months of back orders. And if you look forward, in some cases, a couple of the MBUs, we may orders on the books already in August and September, July, and August, and two to three months out. So we feel pretty good about what we're seeing for the first half of the year. As it relates to the second half of the year, I mean, there are a lot of comments. Every one is saying that there's uncertainly, and there is, but I will tell you uncertainly doesn't necessarily always be negative. Uncertainty means uncertain either way. People need to be careful of using that as just a negative kind of a headwind. I'm not saying it's negative, I'm not saying it's positive, what I'm saying it's either way. So if we have a second half that is really good, we may be able to hit that upper range. But at the end of the day, what we've done with this is we've taken a look at our order book, we've looked at the backlogs, we feel good about the first half of the year, and we feel reasonably good about what we're seeing today in a way that fits into that range. So that's kind of how we see the year. Again, uncertainty isn't always negative, but it's not always positive. It's neutral for us. And what was your other question? Optimization? Yes, the optimization about – Rosemarie, you there?

[Kevin Cornelius Grant:]

No.

[Peter Thomas:]

Is she dropped? Okay. All right. Okay.

[Operator:]

Our next question comes from the line of Mike Sison with Wells Fargo. Please proceed.

[Mike Sison:]

Hey, guys. Nice finish to the year there.

[Peter Thomas:]

Hi, Mike.

[Ben Schlater:]

Thanks, Mike.

[Mike Sison:]

In terms of your sales growth outlook, Ben, 8%to 12%. Can you maybe talk a little bit about seasonality? 2Q obviously you've got an easy comp. But with the new portfolio, is it similar in the past where 2Q would be the strongest, and then 3Q, then the 1Q and 4Q are kind of on the outside?

[Ben Schlater:]

Yes, that's right. There's not a lot of change, Mike, to the seasonality of the business. You're right to point out, obviously 2Q is the easiest comp, but the balance of the course would be similar to how they would look historically.

[Mike Sison:]

Right. And then in terms of your guidance, I recall you should get a good portion of cost savings in 2021 to hit. And it just seems to me that you're not giving credit for sales growth, or maybe there's some conservatism as you noted, Peter, it's tough to really understand what's going to happen in the second half of the year. So any other sort of factors that are in the guidance for 2021 that may be a negative that we're not seeing?

[Ben Schlater:]

Yes, so I think that there's – let's start with some of the positives, right? I think we expect momentum from both growth as well as the optimization as you would expect. And then we would expect some headwinds principally in the second half of the year from raw materials. And then we expect some headwinds from SG&A for two reasons, right? The year-over-year SG&A spend, adjusted spend for us was down about $12 million. $2 million or $3 million of that was comp and we would expect that piece to come back. So that would be part of it. And then the balance I would say of the SG&A spend is, look, we did a good job in 2020 of really getting rid of a lot of discretionary spend. A lot of that will stay out of the business, but some of that will come back as sales growth comes back, as we look to now reinvest into the higher end from a technology perspective, that sort of thing, some of that's going to come back. But I would say those are the two things that would create headwinds. Obviously, it doesn't outweigh the positive from both the growth and the optimization, but those are probably the pieces you're missing, Mike.

[Operator:]

Our next question comes from the line of David Begleiter with Deutsche Bank, please proceed.

[David Begleiter:]

Thank you. Good morning. Ben, can you kind of give some of the key cash flow items we should be looking for in 2021?

[Ben Schlater:]

Yes. So from a cash flow perspective, Dave I think what we've said is we expect to be from a net leverage perspective about one times by the end of 2021. From a CapEx perspective, base CapEx would probably be around $20 million. We're not going to get into all the details relative to working capital taxes, interest, that sort of thing. Those would be typically what you would normally expect from an interest rate perspective and from a working capital perspective. And then total CapEx, we would expect to be somewhere around $44 million. So we've got $20 million to $25 million of project type spend for the different types of projects that we've talked about in the past, the various optimization projects, et cetera. And then when you boil all that up you're going to get to about 1x by the end of the year.

[David Begleiter:]

Very good. And Peter just on capital allocation, what are the share buybacks rank in your preference for allocating some capital back to shareholders?

[Ben Schlater:]

So, Dave I will start and then Peter can chime in. Look, I don't know that it's different than it's been in the past. Obviously now the balance sheet is much stronger. And so we will obviously be looking at a range of opportunities, but I think we would look at that, like we would look at anything else with respect to capital deployment and on a return basis. So, we'll look opportunistically at share buybacks as we will repayment of debt, as we will M&A.

[Operator:]

Our next question comes from the line of John McNulty with BMO Capital Markets. Please proceed with your question.

[John McNulty:]

Yes, thanks for taking my question. Maybe a follow-up to that, Peter you had a huge period where you did a lot of M&A, and I think that was part of what helped to really kind of transform the portfolio. It seems like you're a little bit more or maybe a lot more heavily on innovation side. I mean, how should we think about your appetite for M&A as we look forward? Because you've certainly proven you can do it, but it also seems like maybe that's not necessarily the lead thing that you're thinking in terms of how you grow the portfolio. So I guess, how should we think about the opportunities for that?

[Peter Thomas:]

Yeah, that's a good question. Again, the way we framework this John, is we have three pillars of our genesis phase. And again, one of it is growth, the next is technology and the third is optimization. At the end of the day, nothing has really changed with the M&A activity. We have so many different M&A targets, that hasn't changed and even though we were going through the sale process and closing process of tile, that doesn't mean that we were sitting around doing nothing. Our M&A team was split between that, which worked on the tile business and that which continue to socialize acquisition targets as soon as we closed, we can jump back into at least in an incremental way, starting to do what we – where we ended off, which is look for innovation platforms, the bolt-on. Remember the 20 acquisitions that we did in four and a half years, we've always stated that they were not acquisitions of companies. We acquired over 30 different technology platforms to round out our technical base. So right now, we were – looking at a handful of opportunities that we now can certainly engage. Like I said, it's not like we have to start the machine up, it's been going, it's been festering, it’s been on a low boil until we start it up. And again, there are plenty of opportunities, but we would probably start off in a way that where we ended. Where we look for smaller type of capability fillers, however with the new balance sheet we've always been clear that we feel a good range for the business and everyone concerned, we would have a leverage of about 2.5. So, sitting there at less than one, that's something that looks good, but it may not be the best for the business. So what we would not do is go out and just for the sake of doing a big deal and blowing up the balance sheet because we're in that position, that would not be something that's prudent for anybody. We have a profile, a business that's really created, John, an environment where some of the bigger deals that we may have looked at in the past or may be coming on the market or in the market or whatever, however you want to look at it. If those businesses don't profile like we do in terms of growth, in terms of gross margins, in terms of cash conversion and in terms of EBITDA margins, we kind of shake them out of the funnel and have thrown them away. Because we don't need those types of deals any longer. There are a bunch of things that we can do around M&A. So our appetite hasn't changed at all. Maybe the types of targets that we're going after will be a little more scrutinized in terms of just how much we want to extend. We don't want to do anything to dilute the financial metrics of this company at this point.

[John McNulty:]

Got it. It makes sense. And then I guess, a second question would just be on the raw material front, just given all the changes in the portfolio. Can you remind us of kind of what the major raw material baskets are? And then just given all the, I mean, admittedly kind of crazy dynamics that we're seeing across a host of kind of raw material slates. I guess, can you speak to whether you're seeing any supply chain disruptions or any kind of outsized inflation that we should be thinking about that rolls in the first half of the year?

[Peter Thomas:]

Yeah, I think Ben hit it on his last answer on the second half, but there are a couple of very important points. I mean, you have the types of raw materials that put us at a disadvantage state with the tile coating systems business to an extent have gone with them. But with us, I think we've been very clear on things like cobalt, titanium, nickel, chrome those types of things. We – there are announcements of raw materials. Lithium is another one for the RemainCo business. So what Ben mentioned, there are some increases that are coming through. However, what we're doing in this environment is that we're putting pricing strategies together. Like we always do in light of making sure that we do everything we can to cover those as quickly as possible. And in this case, our strategies around RemainCo be, may be not just covering, we try to put plans together that preserve margins and you have to look at the industry structure, maybe pricing is a little more sticky but certainly we're seeing like everybody, there are some raw material increases. And you mentioned supply chain disruptions, I'll tell you one thing that's I think it's talked about, but you're not hearing maybe a lot of is the, everybody's ability to get containers particularly with movements back and forth with China. So that seems to be a little disruptive, securing containers, the container prices are inflated a bit and the like. But a lot of those can be passed on through cost pass-throughs and like, but be clear that we do see a raw material increase it does present, one would argue is a headwind, but we're doing everything we can to try to minimize the negative impact of raw materials. Ben, did you want to add more to that?

[Ben Schlater:]

No. I think that's right. I mean, we're not really seeing anything from a supply disruption perspective. I think the team has done a nice job there to sort of keep that attack, particularly in 2020. I mean the big raw materials in terms of RemainCo are going to be some of the stuff that we've talked about in the past, cobalt, chrome, zinc, bismuth is going to be in there, boron and that sort of thing. So we're not obviously buying as much cobalt as we did when we had the tile business but it still remains one of the top two or three for us.

[Operator:]

And our next question comes from the line of Mike Harrison with Seaport Global Securities. Please proceed with your question.

[Mike Harrison:]

Hi, good morning.

[Peter Thomas:]

Hi, Mike.

[Mike Harrison:]

Wanted to ask about the digital printing business, it kind of headline the list of seven or so different areas that you're very excited about. I know you guys bought the Dip Tech business back in 2017. But it seems like that is a business that really could be poised for significant growth, given not only recovery in commercial construction, but kind of the turnover that may be going on in commercial spaces if you will and maybe the refining that needs to happen or redesigning of some of those spaces. So can you talk about kind of the, the opportunity that you see for digital printing overall and maybe specific to commercial construction as you look at that market recovering in 2021?

[Peter Thomas:]

Yes. So I think you have to look at digital printing at a higher level. You have to look at digital printing, not like you may remember in the old days with tile where it's just colored inks, organic, mostly inorganic or organic water-base on ceramics. When we talk about digital printing, it goes beyond that it could be digital printing on for electronic applications. That move away from whatever you used to think about, digital printing with Ferro. You have to think about another digital printing kind of component could be fluorescent laser marking printing or etching with lasers and that's all digitally apply to us. When we think of digital, we think of things like that. Not to mention, there are – we also mentioned that we have all kinds of other substrates that can be printed on, whether its fiber board, plastics, decals. There are a whole bunch of other things that we're working on very quietly over the last couple of years. It's not like there's a single focus with that one technology on industrial glass. I mean that isn't, what would be the future. The future is how do you apply everything as much as you can digitally, I mean, you could look at particularly in electronics industry. I can tell you some very fascinating digital printing with precious metals and the like on different substrates that can be burned off. I mean, the digital printing concept for us isn't historically what you would think. And as I mentioned on the onset, because we're involved in so many different type of maybe esoteric type applications, we really can't get into – I'm not going to be able to quantify, I'm not going to – we're not going to sit here and say that particular pipeline is X and it has certain things I can give you that, like I did, it's bigger, it's emerging, it's a certain percentage of our organic already. We're already seeing traction and the gross margin for those things are 50% to 60%. So we can framework that concept with right this second, because of a lot of reasons we just cannot be real definitive other than the fact that we take all that data and we've done what we feel is good for the shareholders, 4% to 5% growth which would be historical market, plus 1% to 2%, gross margin is between 34% to 37%, EBITDA margins of 20% close to it and of course the cash conversion. Remember this is all asset light, heavy touch types of applications, small volumes, high margins, it's very proprietary in a big scheme of things on the value those products create for the end user relative to what we're doing. It isn't like the big deal. It's a question of moving the technology, jumping the chasm twice. And that's what we're doing, but don't think of digital, like you might think of in the old days, it's just a different type of animal.

[Mike Harrison:]

Understood. And then on the Color Solutions business, you saw really nice year-over-year growth, but that margin was pretty similar to where it was last year. Can you just talk about some of the margin drivers that you saw in this quarter and maybe how to think about Color Solutions margin performance into 2021?

[Ben Schlater:]

Sure. Yes. Hey Mike, it's Ben. Look, I think from a Color Solutions perspective they've benefited from the Americas optimization initiatives, probably the most significantly so far. Functional Coatings will benefit – benefited in the last half of 2020 and will benefit again more in 2021. But a lot of what you're seeing from a margin perspective is really the optimization. And then obviously as the volume comes back we get better fixed cost absorption. So I would say those are the two biggest drivers.

[Operator:]

And there are no further questions at this time. I'll turn the call back to you for closing remarks.

[Peter Thomas:]

We’d like to thank everyone for joining us on the call today. We appreciate your interest in Ferro. And we look forward to discussing our results with you again in next quarter.

[Operator:]

That does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your lines.