Atkore Inc.

I would like to welcome everyone to ADCOR's third quarter fiscal year 2024 earnings conference call. All lines have been placed in a listen-only mode. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question again, press star one. As a reminder, this conference is being recorded. Thank you. I would now like to turn the conference over to your host, Matt Lang. Fast forward. Vice President of Treasury and Federal Relations. Thank you. You may begin, sir.

Thank you, and good morning, everyone. I'm joined today by Bill Waltz, President and CEO, as well as David Johnson, Chief Financial Officer. We will take your questions after comments by Bill and David. I would like to remind everyone that during this call, we may make projections or forward-looking statements regarding future events or financial performance of the company. Such statements involve risks and uncertainties such that actual results may differ materially. Please refer to our SEC filings and today's press release, which identify important factors that could cause actual results to differ materially from those contained in our projections or forward-looking statements. In addition, any reference in our discussion today to EBITDA means adjusted EBITDA. and any reference to EPS or adjusted EPS means adjusted diluted earnings per share. Adjusted EBITDA and adjusted diluted earnings per share are non-GAAP measures. Reconciliations of non-GAAP measures and a presentation of the most comparable GAAP measures are available in the appendix to today's presentation. With that, I'll turn it over to Bill.

Thanks, Matt, and good morning, everyone. Starting on slide three, in the third quarter, organic volume was essentially flat year over year. We saw strength in our construction services business due to large mega projects and from solar due to increased production in our Hobart, Indiana facility. These gains were offset by broad pricing softness across most of the electrical business. we did not see a noticeable summer construction uptick in demand as is generally the case. Pricing was softer than expected due to the slower end markets, particularly for our PVC conduit business and higher concentration of large projects where pricing tends to be more competitive. Overall, selling prices were also down 4% sequentially from the second quarter. volume grew 8% sequentially and 4% year to date. The third quarter proved to be more challenging than we initially projected. While our net sales were within the range of the outlook we presented back in May, adjusted EBITDA and adjusted diluted EPS were both off the midpoint by 4%. Our lower than projected EBITDA was due to overall softer than expected market conditions. We believe the current market is flat to slightly lower than last year. However, this trend varies by major business. Another challenge we are facing is an increasing amount of imported steel conduit coming primarily from Mexico. There are currently provisions in place between both countries that are meant to limit the amount of steel conduit imports. The statistics reveal the amount of conduit shipped from Mexico into the United States far exceeds these negotiated limits. This reality has been acknowledged by others within the industry, prompting a call to action. These increased amounts of foreign steel conduit negatively impact our volume year over year, while the overall market inclusive of imports has grown year over year. We also continue to experience softness in the telecom and the utility markets. Despite the challenges we are facing in the market, we are progressing well in our own operations and are confident in our long-term opportunities. We are pleased to share that our production and shipments of solar torque tubes at our Hobart, Indiana facility improved meaningfully from the second quarter to the third quarter. We continued executing our capital deployment strategy during the quarter by repurchasing $125 million in shares, bringing our year-to-date total for shares repurchased to more than $280 million. On that note, I want to remind everyone that as we near the end of our previously approved multi-year $1.3 billion share repurchase authorization, our Board of Directors authorized a new $500 million buyback program in May, which will be available upon the completion of our existing plan. This new authorization is consistent with our commitment to returning capital to shareholders and reflects the Board's continued confidence in the compelling value of ACOR shares. In light of the challenging market environment, we are adjusting the midpoint of our fourth quarter EBITDA outlook. However, we remain confident in the long-term opportunities for our diversified product portfolio. Overall, our broad product portfolio provides essential elements for nearly all types of construction. especially those that support secular trends including solar power, data centers, artificial intelligence, infrastructure digitization, grid hardening, and support for the energy transition. The breadth of our product portfolio enables Accor to be resilient to changing and market demand while remaining a supplier's voice across our channel partners. With that, I'll turn the call over to David to talk through the results from this quarter.

Thank you, Bill, and good morning, everyone. Moving to our consolidated results on slide four, in the third quarter, net sales were $822 million, and our adjusted EBITDA was $206 million. We delivered a strong adjusted EBITDA margin of over 25%. Our tax rate declared was just under 22%. As a reminder regarding the year-over-year comparison of our tax rate and adjusted diluted EPS, the change in our accounting treatment for the solar credits associated with the IRA in the third quarter of fiscal 2023 drove a tax benefit that lowered our effective tax rate to less than 9% as we recognized three-quarters of the expected benefits in Q3 of 2023. During the third quarter last year, we changed the accounting treatment from what we had recorded in the first two quarters. This change reflected the benefit of the credits as a reduction of tax provision rather than a reduction in cost of sales. This lower tax rate also helped contribute $0.50 to our higher than expected adjusted EPS of $5.72 last year. Turning to slide five in our consolidated bridges, our volume in the quarter was essentially flat compared to prior year, while net sales were at the midpoint of our guide. Our third quarter results were below expectations. While we saw sequential growth in net sales during the quarter, we did not see a lift from the seasonal construction demand. Typically, our third quarter benefits from the seasonality, and we see sequential profit growth. The net impact from solar credits was a reduction in EPS of 37 cents year over year. As mentioned in my comments on the previous slide, our change in accounting a year ago added 50 cents to EPS. Moving to slide six, our year-to-date volume increased 4% compared to the prior year with contributions across the portfolio. We continue to see growth in our overall PVC products category. Our metal framing products also contributed to growth as they benefit from data center expansion. Our year-to-date performance has been impacted by continued softness in the telecom market. As Bill outlined earlier, our steel conduit business has met resistance from a significant increase in imported conduit. Our year-to-date volume has been negatively impacted by this surge in imports. That said, we remain confident in the long-term potential of our diversified portfolio. We expect that our portfolio of value-added products, along with our resilient business model, will continue to provide us with sustainable growth opportunities as our markets stabilize. Turning to slide seven, those segments had strong EBITDA margin performance in the third quarter. Our electrical segment achieved 30% margins. Price versus cost continues to be unfavorable on a year-over-year basis. Last quarter, we acknowledged that in addition to the PBC price compression, We also experienced year-over-year declines from our HCP business, which continued this quarter. Our S&I segment EVO margins continued the trend of sequential improvement since the first quarter, achieving just under 14% in the third quarter. This improvement is due in part to better operational performance at our Hobart, Indiana facility. Turning to slide eight, we continue to execute our capital deployment model supported by robust cash flow generation. The strength of our balance sheet allows us to be flexible in the ways we deploy capital to deliver value for our shareholders. With that, I'll turn it back to Bill to talk through some updates relating to our FY 2024 outlook, as well as our views on FY 2025.

Thank you, David. Turning to slide nine. While we achieved three consecutive quarters of adjusted EBITDA over $200 million in fiscal 2024, we currently believe that Q4 will be lower than this trend due to ongoing softness in the overall market, which has led to a more challenging pricing environment. As we look forward to the fourth quarter of fiscal 2024, we are amending the midpoint of our adjusted EBITDA outlook to $145 million. Our fourth quarter outlook reflects a continuation of or an acceleration of several factors that have impacted us, most notably the pricing dynamics in PVC and import issues in steel conduit, in addition to the overall soft markets diminishing volume growth. As I've discussed at the start of the call, we expect the softness and overall market to continue into the fourth quarter, which impacts both volume and price. Further, domestic manufacturers of steel conduit are likely to face continued pricing pressures to compete with these elevated and increasing steel conduit imports. Turning to slide 10. We have updated our key bridging assumptions for the full year, which is reflective of the items mentioned earlier, which are likely to impact our fourth quarter performance. We are currently in our annual planning process. As we look beyond fiscal year 2024, we now believe that FY25 will be our new earnings base. We expect to see EBITDA improvements from some of our growth initiatives related to solar, HDPE, water, construction, and our regional service centers. Some of these initiatives are still significantly below our original expectations in where we expect these businesses to operate in the midterm, but we do anticipate them to contribute positively year over year. For the remainder of the business, we expect to see continued productivity improvements and overall modest volume growth in the low single digits with a possibility of higher growth as new switch peer capacity comes on board and further supported by the prospect of a lower interest rate environment. The larger question that remains is what the pricing environment will be as we progress through FY25. We expect the environment to remain challenged through the remainder of this year and into FY25. Although there are many uncertainties at this time, And we will have a more important perspective in November. Our initial EBITDA estimate for FY25 would be around $650 million, given the market environment. However, this estimate could go higher if construction activity in the areas such as residential and utility starts to improve. We anticipate having strong free cash flow and will continue to be investor-centric in our capital deployment strategy. We remain focused on preserving our history of transparency and will continue to provide updates on key topics that impact our business. Before we go into Q&A, I also want to address the announcement we made relative to David's departure. Accor has been extremely fortunate to have David's leadership over the past six years. Under his leadership, Accor has created a balanced capital employment model, enabling acquisitions, internal investments, stock repurchases, and quarterly dividends to drive value creation for our shareholders. David will be missed, both as a colleague and an ACOR teammate, and we truly wish him the best in his next chapter. Thank you, David. Looking ahead, ACOR has a strong model for organizational leadership succession planning, which enables a smooth transition. We are fortunate to have two incredibly strong leaders in John Deisser and James Alvey, who will assume the roles of Chief Financial Officer and Chief Accounting Officer, respectively, as of August 9th. We look forward to all that is to come with this new phase in ACOR leadership. John and James are working closely with David to ensure a seamless transition, and we are fortunate to have a deep, and talented financial team that will help support John and James as they get up and running in their new roles. With that, we'll turn the call over to the operator to open the line for your questions.

At this time, I would like to remind everyone in order to ask a question, press start, then the number on your telephone keypad. We'll pause for just a moment to compile the Q&A roster. Your first question comes from the line of Andy Koplowitz with CD Group. Andy, your line is now open.

Andy Koplowitz Good morning, everyone. David, thanks for all your help.

Andy Koplowitz Thanks, Andy. Appreciate it.

Andy Koplowitz So, obviously, you revised higher the amount of price versus cost normalization to $325 million this year versus the initial $250 million. But could you give us your latest thoughts on what the overall price-cost normalization could end up being versus that initial estimate you gave us of $585 million? I think you said, Bill, 650 is your initial estimate of EBITDA for 25. When we think about the exit rate in Q4 of 145, can you give us some color? What would be the puts and takes versus that run rate in 25? Anything to quantify would be helpful.

Sorry, Andy. Obviously, two very important questions. I think when you look at the 325 this year, I will remind everyone that a portion of that does include HTPE, which would not have been in our original estimate of the 585. So if you assume somewhere around 35 plus million dollars or so of that price cost is in the 325, we would have been just under 300 this year. So you add that to the 250 last year, you're at 550 or so against the 585. Given where we are right now, what we saw last quarter and what's built into our Q4 forecast, you would expect next year to be, you know, over 200, you know, 200, 250 type of range. And then you will see some benefits from our initiatives coming up. Obviously, you'll see some from solar year-over-year, our global megaprojects, so on and so forth, Andy. Very modest kind of volume built into that 650 number, which is what Bill mentioned. So hopefully that helps out.

It does. Bill, maybe you could elaborate a little more on what changed in the environment between last quarter and this quarter. I think last quarter you did talk about a weaker start to the construction season, but it seems like conditions on the ground got a fair amount worse. Did you see any more project delays than you thought? Did your customers start destocking? And you do have pretty severe decrementals in Q4 versus Q3. Is that just all prices or is there something else going on?

Yeah, Andy. I'll say yes to all of the above. So in other words, you have to remember kind of either our products or our markets. We serve all markets, and we're proud of that. Things like data centers are really strong and moving ahead and so forth, as David just spoke about, as we go into next year and solar and so forth. But obviously markets, whether it's commercial construction, I assume from you or other shareholders, at least we get in the second half and all the other long-term secular Trends but right now for most of our markets and especially we call down the one page the deck where we showed the percents the one or two key markets but that's where like okay we serve everything but if you're PBC you know hey it's utility and residential and they're just not sub developments being built at this The specific markets that drive us most are much quieter. I do think there's job delays. I would have to start speculating on, you know, how much when the Fed starts cutting interest rates that that should pick up, you know, even into next year. But the markets, and whether you look at public companies, you know, whether a distributor or others that have commented in our markets, but I can tell you from talking without naming them, these two of the top 10 largest distributors that are private are seeing the same thing we're seeing, quite frankly, I think, worse than we're seeing. So there is a little bit of us using our RSCs and so forth that it's a down market and market in the markets we serve right now. And that is driving more price competition, Andy, than we thought that, again, i can't control obviously what our competitors do is they try to fill factories or listen to somebody else saying here's the price you need and reacting to that david did call that out i think in our prepared earnings as we looked at this quarter um you know to say hey if the markets are weaker and they are and as you know obviously it's a crystal ball but as we go into next quarter i'd rather get out in front of it now and pick numbers that obviously exceed, probably like every quarter, and then just focus on our fundamentals, which I'm absolutely so convinced of our people and the long-term strategies.

Bill, just one more quick one for me. You mentioned increased import pressure in steel conduit. Can you give us a little more perspective on how much of an impact that is having on the business? We know metal conduit is 20% of your business, but since you called it out, is it having an even bigger impact on your business than that? And I think you are seeing increased competition within core PVC, but is it really the steel stuff that hits you more this quarter?

Yeah, Andy, you did. That's where, again, I assume every company does, but trying to be transparent. As we go from our fiscal Q3 to Q4, I don't want to rank, but I'll just say it's in the top two of challenges in the following way. Just to give more color here. There's always almost for every product when customers ask, is there an import? Well, yeah, there's a little bit of like cable. I'm making up a number, but one low single digits, 1% or something coming from Canada. Steel conduit had been that way, and it's grown over 10 years or so from 3% to 5% now to, quite frankly, somewhere around 20%. And still a there still is a preference for made in the usa the quality of the products and everything else we don't have electrical contractors here you know that appreciate our brands and want to support american made but it's grown to the point that whether i moved first or my domestic competitors have moved to the point that you just can't tolerate a 15 price decline in that product line and these are all rough numbers it's on the quote job So as we factor that back into our business here to respond, you know, at some point you can ignore 5% market share. You can't, you know, at some point you just can't ignore competition coming in and undercutting the market. So I'll wait and answer yes. Yeah. Thank you, sir.

Thanks, guys. Thanks, Andy. You too.

Your next question comes from the line of David Tarantino with KBank Capital Markets. David, your line is now open.

Hey, good morning, everyone. Good morning. Maybe just to start out to put a little bit of finer point on the price normalization, can you give us some color on kind of the incremental 50 million of headwind in the outlook, just kind of how you think the breakdown is by the incremental headwinds, like how much is

of the import headwind versus incremental pvc and hdpe pressures yeah so i'll try to and then david can give me more color or whatever us more color but i do think it's probably split if i had to like cradle it i'd give a little bit more to metal conduit that andy just asked about i mean and that is a it's a trend that i mentioned to andy that it's not like these guys can't last quarter they're going hey we have to start reacting to this and we are and our you know customers see it so that's probably first then it's probably PVC and HDP again I want to emphasize a little bit beyond is there other products dropping five percent like year over year yes but there's also products going up five percent so um you know almost a long-term normalization know a bunch of our products do move around small sign wave and when again i reference almost david's comment from last quarter volumes pick up into next year as a lot of people expect um i'm assuming a stronger market and you know we actually could get price but right now going into the year or even next fiscal year in this quarter it's tougher than we expected at the moment

Paul Cecala, Okay, great Thank you and then maybe could you give us an update on the ramp of the solar torque to facility, how has it progressed versus expectations from last quarter, I know it's early, but maybe could you frame how you're thinking about this into next year.

Paul Cecala, yeah it's positive with i'll do this and that the challenge, first the chat the only challenge, which is not a new thing is we expected to be here pick a time nine months ago. But from the standpoint of, and don't hold to exact what quarter and so forth, but we're ramping up at double digit percents. You know, our customers are still out there. I think some of the customers, I don't want to speak for them, have a little bit of challenges, you know, on getting utility hookup with solar and stuff like that. But there's enough opportunity out there. We're watching those things, but there's enough opportunity for us that, you know, we're growing. I'm really proud of the team. I mean, albeit that we should have been here before, but at this stage, we're ramping up in every facet as expected. And then, David, to your kind of follow-on question, is our David CFO reference, as we look into next year, yes, we may have pricing headwinds, but we do have a lot of these growth initiatives. I should add, it's not in the prepared remarks, but at least $50 million, if not more, of incremental EBITDA going into next year. Yeah, we are on track out of the team, and obviously there's still pressure to continue to pick up on that number, but things are going well if I look at quarter over quarter for the last couple of quarters.

Okay, great. Thank you.

Thank you, David. Thank you, David.

Your next question comes from the line of Alex Rigel with B Reilly. Alex, your line is now open.

Thank you. Good morning. You referenced softness in the telecom and utility market. I suspect that was year over year, but my question is, how are these markets performing sequentially?

Really flat, actually, Alex. I mean, minor little bits of increasing in quotes, which I think maybe is a precursor for better volume kind of going into maybe next quarter, next year, but As we sit here today, I would say not a meaningful sequential increase.

And then, I don't know, Alex. David just answered for us, and that's what's most important. But just to triangulate it without calling out, obviously, any other companies. There are distributors and so forth that mentioned their weakness in this market. If you looked at Dodge, they're predicting utility to be down 6% this year or so. Yeah, and again, I don't think anyone's going to question the long-term secular trend of electrical and heavy utilities and solar and everything else. Right now, and as we go into next fiscal year, it's a little bit more challenging than what we probably expected a year ago.

And then, can you talk a bit about inventory on hand or in the channel and where that stands and Is some of the price weakness due to excessive inventory, is it all sort of demand-driven based upon competition and imports?

I'll start. Here's where I would say the following. Now, I'll almost tie it back to utilities because one of the, again, well, two of the top largest customers. We're talking to customers all the time. is with specifically utility they actually figure again lots of things hooking up to the grid weather putting in trenches that contractors are backed up and that's what's even slowing down distributors but overall my sense is that if you were to look back let's say two or three years ago or whenever normal was before covid the actual inventories out there are about in line now that said with pricing pressure no distributors would like the worst thing they can do is buy and devalue stock they just don't make enough money to have that happen so i think distributors in general are trying to wait and even cut below normal level so i wouldn't say there's extra inventory but i would say if you could round off a week right now distributors and again we're delivering well but frankly so is our competition delivering well that you just don't need to have quite the level of stock

And Alex, I would say that going into the quarter, I think everyone felt like their inventory levels were somewhat normal under their sense. But I just feel like their activity going out the door is less than they expected. And therefore, they probably do think that they have a little bit more inventory than they did. So I think they felt like they were kind of in the middle of that right now. And they probably want to leak a little bit of that out, if that makes sense.

Helpful. Thank you. Thanks, Alex.

Your next question comes from the line of Din Dre with RBC. Din, your line is now open.

Thank you. Good morning, everyone. I'll also add my congrats to David. That sounds like a fabulous opportunity. And then congrats to John and James.

Thank you. Thanks, Din, for David.

Thank you. I want to circle back on the situation of the Mexican steel conduit. I guess that constitutes dumping. And just to make sure I heard the number correctly, Bill, you said it now represents 20% of the market. Is that the right number? Yeah, it's the direction. Okay. But if the tariffs were enforced, what would that number be?

Oh, so let me go without getting too geeky here because I could go for hours on this one. It's around 20%. Obviously, it can go up from there, down as in Mexico versus a little from some other country, all those other factors. In two minutes or less, what happened when NAFTA switched to USMC, they took down the 25% tariff that was part of NAFTA, and they agreed to not have, quote-unquote, a word, any surging occurring. And over, since that was done in the They picked baseline of 2015 to 2017. We're up around, and again, depends on what year and things, seven-fold since then. So it's grown, you know, 50% a year, but it's compounded to the point of being significant. So if you go forward, Dean, and say that hypothetically the current administration or a different administration was to implement back to what USMCA requires, already written into contracts or to put a tariff in, that number could drop substantially. And that's why it's hard to gauge next year with pricing. We don't have that built into our deal where we did mention the 650. So again, that's where in November we'll have a little bit more clairvoyancy on administrations, interest rates, and things like that. It's a little tougher to predict forecast right now.

Got it. But still, I know you've got a lot of moving parts between PVC and the steel situation. The previous expectation was price normalization might be reached towards the end of calendar 24. That now feels like that's being pushed out. Based upon what you know today, where do you see the best case price normalization that would happen? Look, I know it's not a fair question, the Mexico. From what you know today, where would normalization happen?

Here's how I would answer, Dean. First, the caveat, but then I'll get to your question, is I and David have mentioned for six years now on calls, we live in a world with two weeks or less backlog and pricing changes every day. But with the fine print there of a forecast, One of the comments I made in my prepared remarks is that we think next year would be the baseline. So to say could some pricing drag on, up, down, maybe. But I think as you look forward and say organic growth, one of the things we didn't call out as much is productivity. That's actually strong, higher than budgets. Even with slightly more inflation, we have strong net productivity. And you look at our growth initiatives that will, you know, as the gentleman earlier said, David asked about Hobart that are kicking in place and our global mega projects that I think next year is the baseline. So I'm not going to put a pin in pricing, but I think it will become de minimis enough that the other things will drive ahead and we get back on track of growing earnings, which obviously will be a strong reflection point for our stock that goes with every other fundamental of our company.

All right. I appreciate that. And just last question. Do you have any comments on some of the noise we're hearing about pricing and PVC? I hate to use that word, collusion, but we're really trying to figure out, can this be substantiated? Maybe if you could just start with some comments there.

Yeah. So I'm going to tell you, first is if you saw some of this stuff going around, it's from a short seller, says they're a short seller. And Dean, to your question you've asked over the decade, I am so proud of our internal pricing mechanisms, weekly calls, scatter diagrams, apps that tell us pricing that we drive our business. And I'm going to claim that report is unsubstantiated from the conclusions it tries to make.

We would agree. Thank you.

Thanks, Steve. Thanks, Steve.

Your next question comes from the line of Chris Moore with CJS Securities. Chris, your line is now open.

Hey, good morning and congratulations as well to David. Most been answered, but maybe just one more on pricing. Certainly seems like on a relative basis since the pandemic began, pricing on PVC has increased more than any other product. Obviously, it's come down significantly. When you look at relative price risk for fiscal 25, Is it still fair to think that PVC pricing, you know, still represents, you know, kind of the biggest pricing risk moving forward?

Yeah, I'll give it a little bit more color, but the answer is yes, Chris. And again, if you go back to COVID time, with supply-demand constraints, which drives our business, this has been a constant theme since REAC or existed. All of our products that I can think of all went up in margin. So did both our competitors and other industries, maybe not as much. But then with PVC, if you go back to around COVID, you also had a hurricane hit. And at my time, it could be a little off here. But four or six months later, you had the freeze in Texas. So we just had an abnormal thing that therefore allowed more opportunity for someone to say, hey, drop your pricing. pick it 3%, 5%, try to fill my factory, then if you're up 10%, you know, there isn't as much opportunity for somebody to try to drop their price. So long winded reason, that's the dramatic thing that's happened in PVC. But yes, I do think it's PVC. And then, you know, we'll see how metal conduit plays out. But at least in this quarter, I think we appropriately scoped that. And to Dean's earlier question, or I'm going to put words in Dean's mouth, you know, administration's focus on the future on just enforcing a contract that's already been there that quite frankly, some of our very large corporate competitor CEOs have called out in their earnings.

And Chris, one other thing to remember during that COVID time, not only was there a supply chain disruption, but there was very strong demand. For me, I think that we don't talk enough about the demand aspect of pricing. If we had that type of demand right now, I don't think we'd be talking about pricing like we're talking about today. So I think in that regards, the reason why we would say PVC for next year is probably just more uncertainty around the PVC market for next year as it goes in and affects pricing.

Yeah, David, and I don't have the number in front of me, but just to echo that, and again, everybody, these are public stuff, but to go single-family homes, It's an average market if you look at some of the information, but no sub-developments are being built. And I'm winging a number here, but if you get back to 1.2 million a year starts versus 900,000 starts, all this stuff, people unfortunately look at you know how are they doing on volume what did they estimate whoever their bosses and stuff above them and you start getting the fed dropping rates and residential picking up some ifs there that way we didn't take these into forecaster next year but pricing could easily go up but at this stage you know i want to still stay around what we just said at the 650 this stage and chris one other aspect and

Bill referenced this a little bit in his opening comments. When you look at the market right now, kind of the overall construction market, it is made up of large projects becoming a larger piece of the overall activity. And when that happens, two things happen. One, typically larger projects are a little bit more price competitive to begin with. But when there's not all these other opportunities, kind of broad construction activity, it gives you less opportunity to do your pricing by location and so on and so forth. So I think that element right now, we're feeling that in Q3 and going into Q4.

Extremely helpful, guys. Maybe just the last one for me. So 650 is obviously a target, could come up, could come down. Any kind of EBITDA margin range that accompanies that?

Okay.

David, do you want to? I think basically the way that we try to approach the 650 is we feel like that's kind of the minimum base, Chris, going into next year. So I think that's, you know, our viewpoint as we sit right now. I do believe that going into November, we'll know a lot more. The team here will know a lot more going into November, you know, with, you know, The uncertainties that exist right now. Yeah.

But I think to the margin thing, we focus more on year over year and quarter X, you know, questions that we answered earlier versus trying to do a margin depending on, you know, obviously margins somewhat dependent on this could help us on what our revenue is and, you know, things like steel costs. Again, I want to emphasize cost is the least factor of things of market demand, competitor actions, and, you know, our value prop. But, like, steel costs are dropping, so one could think our revenue could be down if we make even the same price per ton. But, again, Chris, the specifics we'll get into. Broadly speaking, not too far out. No, I'm not foreshadowing anything, correct.

Okay. I appreciate that.

I mean, one thing we could mention, I mean, SLI is starting to get up into that mid-teens again, which I think is certainly helpful also for the enterprises.

Got it. I appreciate it. I will leave it there.

Thank you, Chris.

Our final question comes from the line of Chris Denkert with Loop Capital. Chris, your line is now open.

Hey, thanks. I just echo again, congratulations, David, and thanks for all your help here. I guess, you know, first off, and sorry for specifics, but I guess as far as the Hobart ramp goes, any sense that you can give us for, you know, kind of what the utilization rate is today? Obviously, you said, you know, we're hoping to get there sooner, but are we at, you know, 50% utilization today and that continues to ramp fully into 25?

Yeah, no, it's higher than that, Chris, without getting into a precise number. And then you got two things going. So definitely north of 50%. But I'm... plus reminds them we give you a wide range here but like to use the 70 so yeah but i don't want a lot because chris there's a little bit with almost like my answer to mexico with dean and so forth is you know we get in at this thing called oee the account the fact that preventive maintenance and that number the account that we're not working we're you know starting a third shift but we're not working four shifts ie around the clock with weekends and know smet event or you know how quick we change over and so forth so we're ramping up it's definitely above your 50 number but as we go into next year there's still growth again not lucky numbers but could we grow 20 30 percent the answer is absolutely that volume god that's extremely helpful thank you um and then just you know finally for me i guess any update on kind of

program funding timing? I know New York and California have finally got some stuff stood up. Any anecdotal commentary there or kind of how that could impact HDPE volumes into next year?

Yeah, so great question, Chris. All the questions are great, but I can't imagine if we would have went through the sell-side questions and not hit that. I think cautious optimism. I'm going to put it, which we've always said in 25, I'm going to put it, because it all gets on when, you know, like what's the rampant call of success. I'm going to put it more into calendar 25 than fiscal 25. But to your point, two states have approved it. Other states are closed. whether it's the people making the fiber optic or one of our very large competitors in that segment, you know, are all saying the end of this calendar year and so forth. So I think we've been cautiously optimistic in our guide. We're going to expect to see profit pickups from next year. But I will say, you know, it's definitely going to be a ramp through 25 and 26.

Thanks again so much for the color. Thank you, Chris.

This concludes the question and answer session. I would now like to turn the call back over to Bill Waltz for closing remarks.

We shared today our perspective on several challenges that are currently impacting us and that may continue to impact us in the midterm. Despite these challenges, we have conviction in our people, our strategy, and our processes which are the three fundamentals of our business system and enable us to remain resilient and focused on the future. With that, thank you for your support and interest in our company. We look forward to speaking with you during the fourth quarter call in November. This concludes the call for today.

This concludes this conference call. You may now disconnect.