OMNOVA Solutions (OMN) Q3 2018 Earnings Conference Call Transcript

OMNOVA Solutions (OMN)
Q3 2018 Earnings Conference Call
Sep. 26, 2018 11:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the Omnova Solutions third-quarter 2018 earnings release conference Call. At this time all participants are in a listen-only mode. [Operator instructions] As a reminder, this conference is being recorded.

I would now like to turn the conference over to your host, Anne Noonan. Please go ahead.

Anne Noonan -- President and Chief Executive Officer

Thank you, Greg, and good morning, everyone. It's a pleasure to speak with you this morning. In a moment, I will provide an overview of recent operational developments and progress on our strategic priorities. First, I will turn it over to Paul to make comments on forward-looking statements, non-GAAP measures, and to summarize our financial performance in the third quarter and our outlook for the business.

Paul DeSantis -- Chief Financial Officer

Thanks, Anne. During this conference call, Omnova representatives may make forward-looking statements as encouraged by the Private Securities Litigation Reform Act of 1995. All statements in this conference call and in subsequent discussions with the company's management, other than historical information, are forward-looking statements. These statements represent management's current judgment on expectations for future results and other matters.

A variety of risk factors highlighted in the company's Form 10-K and in our most recent earnings release could cause business conditions and the company's actual results to differ materially from those expected by the company or expressed in the company's forward-looking statements. In addition, certain financial measures referred to during this call are non-GAAP financial measures. For an explanation and reconciliation of these non-GAAP measures, see our most recent earnings release and investor presentations published periodically on the company's website. Moving on to the results, here's a quick snapshot of some third-quarter highlights.

The specialty segment recorded another quarter of volume and adjusted segment operating profit increases, 2% and 4.2% respectively. Performance materials delivered adjusted segment operating profit of $2.2 million. This was an improvement from the second quarter of 2018, driven primarily by improved profit contribution from antioxidants and coated fabrics, but as expected was down from last year's results since last year's third quarter included recovery from raw material cost spikes in the first half of 2017. Overall, volume rate remained down as we continue our strategic exit from the commodity coated paper market.

Regarding butadiene and styrene, the company expects butadiene and styrene costs to remain flat through the fourth quarter. Until cost begins to decrease, we won't see margin recovery from the raw material escalation that occurred earlier this year. For reference, butadiene prices in August were up more than 75% from December of 2017. This morning, we announced the acquisition of Resiquimica for 28.5 million euros or approximately 7 times EBITDA before cost synergies.

We expect the effective EBITDA multiple will be significantly lower as cost synergies are realized. We are currently working to purchase accounting which will include a step-up in the asset base and result in higher depreciation. From an adjusted EPS perspective, we expect the acquisitions to be accretive in fiscal 2019. Given the uncertainty around the asset step-up, the modest level of short-term debt we're using to finance the transaction, and the seasonality of a coatings business, we expect the fourth-quarter adjusted EPS impact to be neutral.

We'll provide more clarity around our expectations for this bolt-on acquisition during our year-end earnings teleconference call. Net leverage improved to three times adjusted EBITDA from 3.3 times in last year's third quarter, driven by stronger cash generation. Cash flow from operations was $21.6 million for the quarter and $37.1 million through August, compared with $19.9 million and $28.2 million last year, respectively. We continue to monitor the near-daily developments in tariffs, particularly with China.

For Omnova overall, our exposure to Chinese exports and imports is relatively low. We're keeping a close eye on how these tariffs may affect our customers and will remain agile as the situation continues to develop. In summary, while we do not expect to recover the shortfall from third-quarter expectations during our fourth quarter, we still expect a strong fourth quarter compared to last year, and we're reaffirming our full-year 2018 outlook of continued growth in adjusted EPS. Thank you.

And I'll now turn the call back over to Anne.

Anne Noonan -- President and Chief Executive Officer

Thanks, Paul. Good morning, everyone. As always, I'm going to walk through the highlights of our 2018 third quarter in the context of our four overarching strategic priorities. Let's start by talking about our highest strategic priority, growing our specialties businesses.

The third quarter was another good quarter for our specialty solutions segment which recorded its seventh consecutive quarter of year-over-year volume growth. Overall, sales of specialty solutions were up 6.1% with volume up 2% and profitability up 4.2%. This quarter, we saw a very good growth in our coatings business, as well as in our adhesives and sealants, elastomeric modifiers, and films businesses. The growth in coatings was primarily in North America and Europe as the market returned to normal patterns after weather caused a slower start to 2018.

Growth in the adhesives and sealants business was largely driven by Omnova's proprietary hydrophobic polymer platform, which is contributing to the success of our customers' construction-related product being sold in DIY stores. This win is a great example of the strength of our innovation pipeline and our customer-centric model. Growth in films continues primarily from our luxury vinyl tile customers to buy critical components of the tile from us including the wear layer and the print layer. Volume in laminates business was down slightly, so the mix was richer contributing to better profitability.

The RV market, which has contributed significantly to volume all year, has shown few signs of moderating growth as customers work through inventory and managed new model changeovers. This remains a good market for the company, and we will continue to grow through innovation and design and new products. Our innovation pipeline was again accretive to margins. The third-quarter vitality index was 22%, very close to our overall target of 25%.

Overall margins from new products and our vitality index were 230 basis points higher than last year, led by specialty solutions, which improved these margins from new products by 360 basis points. During the quarter, we introduced several new products including two new oil and gas products that are already showing sales traction. Pexotrol 332 is a synthetic polymer fluid loss additive for oil-based drilling fluids. When there's low dose rate, Pexotrol 332 represents an economical alternative to popular hydrocarbon-based products.

It complements our portfolio of high-temperature additives by providing similar performance at more conventional temperatures. Vericem DP536 is a super-plasticizer, based on our differentiated chemistry for wellbore cementing. Its main function is to reduce the viscosity of cement slurry, which supports the performance of fluid loss control additives improving cost efficiency. Additionally in August, the laminates business launched our new Echo product line at the International Woodworking Fair.

This embossed-in-registered, realistic wood grain product line targets kitchen and bath, retail and RV markets. The new range unifies the printed wood pattern with matching with wood grain texture, simulating the look and feel of an authentic piece of wood. And lastly, in our non-woven business, we unveiled our Tribute technology platform. This solution levers Omnova's unique ability to combine both resin binding and surface treatment innovations to deliver differentiated softness, fitness, lightness and durability, all while being lint-free.

By simplifying the production process and enabling differencing features, our tribute platform helps our customers deliver a cost-effective and environmentally friendly product. The innovation pipeline continues to well-positioned a fuel our growth. In short, we have another quarter of continued progress in specialty solutions as the momentum from our specialization strategy continues. Next, I want to provide a bit more granularity for performance materials and our path to 10% segment operating profit margins.

We were pleased to see the expected recovery in profitability from the second-quarter low point. We saw volume growth in antioxidants and tire cord versus last year through optimizing customer mix and profitability with some price improvement in tire cord compared to last quarter as pricing initiatives have begun to take hold. The closure of our Green Bay, Wisconsin, plant is on track, and we expect to start receiving benefits during the second half of 2019. As a reminder, as full realization, we expect $7 million to $8 million of profitability through net cost reductions on an annualized basis.

Earlier this year, we noted that our higher-margin performance materials businesses, reinforcing resins, antioxidants, and coated fabrics will receive additional will receive additional focus to help us on our path to 10% operating profit margins. For example, the new leadership team in coated fabrics through its innovation focus has developed and successfully gained listings for several innovative new products in the Southeast Asian automotive, North American marine and North American transportation markets. In antioxidants, we are levering our full return to production capability to continue to drive profitable growth and in both reinforcing resins and antioxidants, we have strengthened our sales force globally by dedicating specific individuals to support these businesses directly. The three businesses together represent approximately a third of segment sales and were accretive to our 10% operating profit margin target for the overall segment.

While performance materials remains challenged as we move Omnova to an asset-light footprint, we believe we are on a clear path to 10% operating profit margins. However, it is important to remember that today, 90% of Omnova's profitability and 62% of Omnova's sales are coming from the specialty segment. With respect to portfolio optimization, I'm excited to discuss our bolt-on acquisition of Resiquimica which we announced this morning. Resiquimica produces and sells polymer and resins for coatings and construction applications.

These technologies overlap with and expand our current offerings in coatings and construction. The business which operates from an efficient Portugal-based plant fits well into our existing footprint, expands our reach into Portugal, Spain and North Africa, and increases our specialty manufacturing flexibility. With annual revenues of approximately 56 million euros, or roughly $65 million, this acquisition is expected to be a strong contributor to the specialty segment success. We intend to generate cost synergies as we streamline and standardize this business.

And the acquisition is expected to be accretive to earnings and margins in 2019. In addition to cost synergies, which include levering the new footprint to reduce reliance on outside tolling, there are significant opportunities as we integrate this business and share the expanded product portfolios and customer relationships. This is another important milestone on Omnova's path to becoming a premier global specialty solutions company. Finally, during the last several years, we have demonstrated our ability to sustain favorable cash flows and reduce our debt through our One Omnova initiative.

This, and our continued successful execution against our specialization strategy had led us to take a critical look at our capital allocation, including our targeted net leverage and our deployment of cash As a result, going forward, we will look to target a new net leverage ratio in the 2.5 to 3 times range. This added flexibility in our capital strategy will allow us to target strategic bolt-on activities similar to Resiquimica and to repurchase shares of Omnova's stock. In light of this revised capital allocation strategy, our board of directors has authorized the company to repurchase up to $20 million of Omnova shares. The program which will support our existing capital deployment strategy and enable us to drive attractive returns over the long term allows us to repurchase shares from time to time depending on business and market conditions and other factors like dilution from equity programs.

Our progress toward becoming a premier global specialty solutions company continues and we are building momentum behind that strategy. This quarter was another important step in that transition with the seventh consecutive quarter of year-over-year volume growth in specialty solutions, increased spe -- profitability in specialty solutions over the last year's strong third quarter, net leverage improving to 3 times EBITDA based on the strength of our cash flow, our bolt-on acquisition of Resiquimica which will further enhance our specialty offering, continued reductions in SG&A as we realize the $3 million of annualized savings from our One Omnova initiative and our revised capital allocation strategy including the announcement of a $20 million share-repurchase program. We continue to do the hard work necessary to deliver across all elements of our specialization strategies, and it has value for our shareholders. For our sales, marketing and innovation focus, we are well-positioned to fuel our specialty growth.

Through portfolio optimization, we are exploring opportunities to inorganically enhance our product offering. For our One Omnova functional excellence model, we continue to drive an agile and cost-effective, asset-light organization. And through disciplined capital management, we continue to generate cash and pay down debt and now when appropriate, return of capital to our shareholders. Thank you.

Paul and I are ready to answer any questions.

Questions and Answers:

Operator

[Operator instructions] Your first question comes from the line of David Begleiter from Deutsche Bank. Please go ahead.

David Begleiter -- Deutsche Bank -- Analyst

Thank you. Good morning.

Paul DeSantis -- Chief Financial Officer

Good morning.

Anne Noonan -- President and Chief Executive Officer

Good morning, Dave.

David Begleiter -- Deutsche Bank -- Analyst

Anne and Paul, can you discuss special solution the sequential EBITDA margin or operating margin decline and what drove that -- that decrease?

Paul DeSantis -- Chief Financial Officer

Yeah. So there was a little bit of mix that we traded away in terms of margin. So oil and gas was -- wasn't as strong in the third quarter, it had been in the prior quarters. And as a result, we saw a little bit of margin decline.

David Begleiter -- Deutsche Bank -- Analyst

Very good. And just on Resiquimica, any range for the expected cost of synergies and any potential on sale synergies for this business?

Anne Noonan -- President and Chief Executive Officer

Yeah. We have-our cost synergies basically are coming from sourcing, leveraging our SAP and bringing some tooling opportunities in, a little bit with duplication of personnel. So, our ranges will go from seven times pre-cost synergies to about five times post-cost synergy. And we do believe that with sales opportunities, we'll be able to bring this even further than that.

David Begleiter -- Deutsche Bank -- Analyst

Thank you very much.

Operator

Your next question comes from the line of Edward Marshall from Sidoti and Company. Please go ahead. Edward Marshall, your line is open. Check your mute button.

OK. We'll move on. Your next question comes from the line of Jon Tanwanteng from CJS Securities. Please go ahead.

Jon Tanwanteng -- CJS Securities -- Analyst

Good morning, Anne and Paul. Thank you for taking my questions.

Paul DeSantis -- Chief Financial Officer

Good morning, Jon.

Jon Tanwanteng -- CJS Securities -- Analyst

Did I hear you correctly that you don't expect to recapture margins as input price is stable in the next quarter -- or in this quarter? Are you having issues passing prices through to customers?

Paul DeSantis -- Chief Financial Officer

No, what happens with our margin is when raw material prices move, we reset our prices based on that, we cap -- recapture shortfall in margins as it comes down. So if you look at what happened last year, we had a spike in raw material prices in kind of the second quarter, the early half of the year. Then those raw material prices came down, and we immediately recaptured that margin. So when our raw material -- when our prices reset, they reset to the, effectively to the average price, we recapture the margin shortfall as those margins come down -- as the raw material prices come down.

And so, based on the volatility when those prices move, that's when we get that recapture.

Jon Tanwanteng -- CJS Securities -- Analyst

Understood. That's very helpful. And then just regarding Resiquimica, I think Anne answered my question on the synergies, but over what time frame do you expect to achieve that by?

Anne Noonan -- President and Chief Executive Officer

Well, we believe the business will be accretive in 2019. We will achieve most of those synergies over the next couple of years, I would say.

Jon Tanwanteng -- CJS Securities -- Analyst

OK. Great. And then finally, nice to see the buyback. Just give me a little bit more color on what drove that decision.

Is it you -- you're having trouble finding more uses for cash such as accretive M&A or is this just [Inaudible] new strategy in operations going forward and the visibility you have?

Anne Noonan -- President and Chief Executive Officer

I think it's the latter, Jon. We're happy with our cash generation today, and we believe it allows us to do some of these bolt-on acquisitions. So, we believe we can do the acquisitions plus now return cash for our shareholders. And additionally, we can address some share of dilution from equity.

And frankly, several of our shareholders have been asking us to do it. So, they're kind of the key reasons why we're doing it at this time.

Jon Tanwanteng -- CJS Securities -- Analyst

Got it. And just one follow-up, are you planning to reduce share count overall?

Paul DeSantis -- Chief Financial Officer

Yeah. Share count, share count, if -- as we buy that $20 million dilution from equity is nowhere near that high. So there would be some reduction in share count.

Jon Tanwanteng -- CJS Securities -- Analyst

Great. Thank you very much.

Anne Noonan -- President and Chief Executive Officer

Thanks, Jon.

Operator

Your next question comes from the line of Rosemarie Morbelli from Gabelli & Company. Please go ahead.

Rosemarie Morbelli -- Gabelli & Company -- Analyst

Thank you. Good morning, everyone.

Paul DeSantis -- Chief Financial Officer

Good morning, Rosemarie.

Rosemarie Morbelli -- Gabelli & Company -- Analyst

So, going back to Resiquimica, and I may not have done it correctly, but if you paid 7 times and you paid 28.5 million in euros, it means that EBITDA was $4.1 million. And based on Anne's comments recently, maybe if you paid only 5 times, then we go up to $5.7 million. This is really a substantially lower EBITDA margin than your specialty business. And therefore, I am just wondering, why are you expecting them to contribute to margin expansion? It looks to me as though it will lower the margin.

Anne Noonan -- President and Chief Executive Officer

Yeah. Great question, Rosemarie. Basically, first of all, we got a very value-accretive price on this. And when you look at the margin, we believe with the cost synergies in place, we'll move the margin points by about 400 basis points, and then we do believe that we have not put in any of the captured sales upside here.

And so, with other opportunities that we haven't even identified yet around the footprint, so as we said, we're bringing some things we're tooling today back in but additionally, we make products today in the U.S. that it will now be able to be made in that facility, which we're transferring over all the time. So those costs are not built into the comments I said. So, over time, we expect that we'll get over that 15% operating profit margin.

Rosemarie Morbelli -- Gabelli & Company -- Analyst

OK. That is helpful. Thanks. And then you talked about seasonality.

What is with the chemical seasonality?

Anne Noonan -- President and Chief Executive Officer

Seasonality is typical coatings, Rosemarie. It's usually pretty low in coatings in the fourth quarter. Second and third quarter tend to be more of our coatings season.

Rosemarie Morbelli -- Gabelli & Company -- Analyst

Okay. So similar to yours.

Anne Noonan -- President and Chief Executive Officer

Yes, yes, very similar.

Rosemarie Morbelli -- Gabelli & Company -- Analyst

And looking at performance material. In your comments, you mentioned that about one-third of those particular product lines are the most attractive segment. What kind of a margin do they have compared to the 3% overall for the quarter and your target of 10% for the -- of the longer term?

Anne Noonan -- President and Chief Executive Officer

Well, we don't really disclose individual product-line margins but what I will say is they're accretive to the 10% operating profit margin overall.

Rosemarie Morbelli -- Gabelli & Company -- Analyst

OK. All right. And then lastly, if I may. Regarding new products, if you look at your current pipeline, what kind of potential -- what kind of potential revenues can you generate over the next three to five years from those existing potential? Not new ones.

Anne Noonan -- President and Chief Executive Officer

Well, we calculated every five years especially with new products-basically, they're commercialized in the next five years. So we are consistently saying we would like that with 25% of our revenue each year.

Rosemarie Morbelli -- Gabelli & Company -- Analyst

OK. All right. Got it. Thank you.

Operator

Your next question comes from the line of Laurence Alexander from Jefferies. Please go ahead.

Dan Rizzo -- Jefferies -- Analyst

Hi. It's Dan Rizzo on for Laurence. How are you?

Paul DeSantis -- Chief Financial Officer

Hi, Dan.

Anne Noonan -- President and Chief Executive Officer

Hi, Dan

Dan Rizzo -- Jefferies -- Analyst

Hey, you mentioned about optimization and I know you're talking about M&A, but I was wondering if there are product lines that still exist or orphan product lines or non-core stuff that you're thinking about de-emphasizing or selling? I mean, is that part of the mix as well?

Anne Noonan -- President and Chief Executive Officer

Yeah. As we've always said, Dan, we will continue to optimize the portfolio and at the right time. There's a couple of things around that. We would look at divesting those that are less accretive to the business, obviously.

When we look, though, at some of these underperforming like tire cord, I'll give you an example here, it's kind of stuck in our facilities. It's not one that we can easily separate. But what we're looking at there is actually repurposing some of those reactors to put our higher-margin products in there that then will allow us to bottom slice out some of the low-margin customers from that particular product line. So, it's a combination of always looking at optimizing the portfolio as we go along.

Dan Rizzo -- Jefferies -- Analyst

OK. And then, I'm sorry, you mentioned the inventory destocking in laminates. So, I'm sorry, what end market did you say that was in?

Paul DeSantis -- Chief Financial Officer

I couldn't hear your question, Dan. Could you just say it one more time?

Dan Rizzo -- Jefferies -- Analyst

In your prepared comments, you said you mentioned inventory destocking, I think, as a headwind in laminates, I was wondering what market you're referring to. I missed that part.

Paul DeSantis -- Chief Financial Officer

We were in the RV. We were talking about RV.

Dan Rizzo -- Jefferies -- Analyst

OK. OK. Thank you very much.

Operator

Your next question comes from the line of Curt Siegmeyer from KeyBanc. Please go ahead.

Curt Siegmeyer -- Keybanc Capital Markets -- Analyst

Hey, good morning, Anne. Good morning, Paul.

Anne Noonan -- President and Chief Executive Officer

Hey, Curt.

Paul DeSantis -- Chief Financial Officer

Hey, Curt.

Curt Siegmeyer -- Keybanc Capital Markets -- Analyst

Hey, in the specialty solutions segment, you guys called out strong volume growth in a number of markets, coatings, adhesives and sealants, films, elastomeric modifiers, and so forth. But total volume growth was only 2%. So, I was just wondering, with so many categories contributing passively -- positively, was there another market segment that maybe pulled down the overall kind of growth average?

Anne Noonan -- President and Chief Executive Officer

Yeah, I think if you look at it, as we said in our prepared remarks, laminates was down year over year, and that was largely driven by RV, just moderating the growth given to inventory adjustments in the RV area and basically a wet spring and summer. Also, oil and gas was down a little bit year over year because-but it's been very strong for us all year. So, it's not a full-year basis. It should be very strong.

It's really just timing of orders in oil and gas, not a demand issue.

Curt Siegmeyer -- Keybanc Capital Markets -- Analyst

And then just to follow up on the specialty EBIT margins, I know you mentioned oil and gas as one reason for the sequential moderation. But when you kind of look at 6% organic growth and only 4% EBIT growth year over year, is that entirely the oil and gas situation or is part of that raw materials as well?

Paul DeSantis -- Chief Financial Officer

Yes, I mean, there's some-yes. I mean, there was some movement in raw materials as well. I mean, it's-but, yes, it really is the underlying mix of the different businesses that we were selling and the relative margins in those underlying businesses. We didn't really see-there wasn't any -- any giant large move or one way or the other.

And overall, we saw the volume continue to increase as you said. We were about flat to margins compared to last year when we had a very strong margin, third quarter. So, on a sequential basis, there's just some mix in business that's driving that.

Curt Siegmeyer -- Keybanc Capital Markets -- Analyst

Great. And if I could, just a quick follow-up, can you remind us what percent of your debt is floating?

Paul DeSantis -- Chief Financial Officer

100% right now.

Curt Siegmeyer -- Keybanc Capital Markets -- Analyst

It is 100%. OK. Thanks, Paul.

Paul DeSantis -- Chief Financial Officer

Thanks, Curt.

Operator

Your next question comes from the line of Edward Marshall from Sidoti & Company. Please go ahead.

Edward Marshall -- Sidoti & Company -- Analyst

Hey, guys. Just want to...

Anne Noonan -- President and Chief Executive Officer

Hey, Edward.

Edward Marshall -- Sidoti & Company -- Analyst

Just wanted to talk about one point on the business before we get to the capital on capital structure. I'm curious, what about the tire cord, I know that you've put in some price improve-price elements in 2Q or at the end of 2Q, beginning at 3Q. I am -- kind of, give us a sense if did they take hold, did you see that improvement as that will drove proportionately improvement in Performance Materials?

Anne Noonan -- President and Chief Executive Officer

There are a couple of factors on performance materials but let me address tire cord first. So we did see some price traction on tire cord but frankly, the profitability is still unacceptable. And that's why our next step here will be to repurchase assets that we currently make tire cord into some of our more higher-margin products, particularly in [Inaudible] and so that should over time here get back to the profitability we want there. In performance materials, I would say that AO coming back strong because we got through the plant issues we had last year.

And in coated fabrics, we have new business that has been basically generated and is online to come on here in 2019 and the end of 2018. So both AO and coated fabrics was a volume and profit play, so they contributed to the improvement quarter over quarter.

Edward Marshall -- Sidoti & Company -- Analyst

Got it. So I wanted to ask, that $20 million repurchase will go to the capital structure, for a second. What's the timeline that you kind of anticipate that? I mean, is that something you anticipate before the end of the year? Is that something that kind of just flowed through? Is it opportunistic? Any thoughts you can put on.

Paul DeSantis -- Chief Financial Officer

Sure. Yeah. We have discretion to do that when we think it's the right time to do it. So it's depending on how we look at the market, how we look at-where our stock is trading, how we look at our other cash needs in the business will have an impact on how that $20 million get spent.

And so that's something that we are going to continue to evaluate, but I really can't say more than that.

Edward Marshall -- Sidoti & Company -- Analyst

I guess I want to make sure that this is not-you're not satisfied with the level of debt that's on the balance sheet currently. I know you added another transaction but I just wanted to get your sense on that.

Paul DeSantis -- Chief Financial Officer

In terms of-so I think let me make sure I understand. So when you say satisfied with our level of debt, do you mean too high, too low, the right leverage ratio? I'm not entirely clear what you mean by that.

Edward Marshall -- Sidoti & Company -- Analyst

How do you view the balance sheet-how do you view the debt on the balance sheet today?

Paul DeSantis -- Chief Financial Officer

Yeah. OK.

Edward Marshall -- Sidoti & Company -- Analyst

And what's your expectation?

Paul DeSantis -- Chief Financial Officer

So, I mean, you've seen us paying down debt. And if you think about a return on paying down debt, that gives you the cost of debt is 5%, you get a 5% return on that. So when we started to think about our uses of capital, the primary and best use of capital, we think, is investing in our business in an organic basis and we've been doing that, and I think you probably noticed we've been pretty tight with that spending. So year to date, we've only spent $12 million or $14 million of capex.

So annualizing that number we're not going to get to our $25 million. So we're really spending what we think we need to spend on that. The next step is a value-creative acquisition; we just announced one. We think that we're going to get good returns on this acquisition and especially as we start to really bring it into our portfolio and extract the synergies.

So the next step looking at what we would do with that cash is to say, all right, are there opportunities in our own stock either to offset dilution or maybe go a little further, depending on what we see, before we get to paying down debt, especially because we're now looking at another year of good cash generation. And so we think we're at the point now where we look like a lot of other companies like us who are returning cash to shareholders, as well as doing bolt-on acquisitions and the like. And so we went through that analysis and we thought now is a good time, we thought the $20 million was an appropriate number for us. And we'll look at it and see how that works over time.

Edward Marshall -- Sidoti & Company -- Analyst

Right. Does that mean that you will pay down debt next year or will not?

Paul DeSantis -- Chief Financial Officer

So we may pay down debt. So, for example, we took on a little bit of debt to buy Resiquimica, and it's very likely we'll pay that down out of our cash flow that we continue to generate. So we'll be trading around that debt. We're watching our EBITDA.

We're watching our debt. And we're watching all the uses of cash, but we wanted to make sure that we have a balanced approach to that cash.

Edward Marshall -- Sidoti & Company -- Analyst

Got it. OK. Thank you very much.

Anne Noonan -- President and Chief Executive Officer

Thanks, Ed.

Operator

[Operator instructions] And at this time, there are no further questions.

Anne Noonan -- President and Chief Executive Officer

OK. Thank you for your questions. This has been a very busy quarter for Omnova but one in which we feel we've made important progress against our strategic initiatives. Our specialty segment is continuing to show growth in both profitability and volume.

We are working through significant changes in our [Inaudible] materials business to ultimately deliver 10% operating margins and consistent cash flow. The bolt-on acquisition of Resiquimica is an important milestone for us as we continue to drive our specialization strategy. And as a result of disciplined capital management and sustainable cash generation, we have reevaluated our capital allocation strategy, and our board of directors has approved a $20 million share-repurchase program. Thank you for taking the time to participate in our third-quarter earnings call.

We look forward to speaking with you next quarter to review our full year and our continued progress against our strategy to drive the business to a premier global specialty solutions company.

Operator

Ladies and gentlemen, a digitized telephone replay is scheduled from 1 p.m. Eastern Time today until October 10 at midnight. Also, an audio replay will be available on the Omnova Solutions' website, www.omnova.com, until noon Eastern Time on October 10. [Operator signoff]

Duration: 34 minutes

Call Participants:

Anne Noonan -- President and Chief Executive Officer

Paul DeSantis -- Chief Financial Officer

David Begleiter -- Deutsche Bank -- Analyst

Jon Tanwanteng -- CJS Securities -- Analyst

Rosemarie Morbelli -- Gabelli & Company -- Analyst

Dan Rizzo -- Jefferies -- Analyst

Curt Siegmeyer -- Keybanc Capital Markets -- Analyst

Edward Marshall -- Sidoti & Company -- Analyst

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