Atmus Filtration Technologies Inc.

Thank you for standing by. And at this time, I would like to welcome everyone to today's Atmos Filtration Technology second quarter 2024 earnings call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you'd like to ask a question during this time, simply press star one on your telephone keypad. Once again, star one. Thank you. I would now like to turn the call over to Todd Chirillo, Executive Director of Investor Relations. Todd, please go ahead.

Thank you, Operator. Good morning, everyone, and welcome to the Ethnisfiltration Technologies second quarter 2024 earnings call. On the call today, we have Steph Disher, Chief Executive Officer, and Jack Kinzler, Chief Financial Officer. Certain information presented today will be forward-looking and involve risks and uncertainties that could materially affect expected results. Please refer to our slides on our website for the disclosure of the risks that could affect our results and for reconciliation of any non-GAAP measures referred to on our call. For additional information, please see our SEC filings and the investor relations pages available on our website at agnes.com. Now, I'll turn the call over to Steph.

Thank you, Todd, and good morning, everyone. Our team delivered another strong quarter of performance, even as we see softness in many of our global end markets. On the call today, I will provide an update on our performance in the quarter, an update to our outlook for the year, and provide some insights on our growth strategy. Jack will then provide additional details regarding our financial performance. During the second quarter, we reached a significant milestone of one year as a publicly listed company. Whilst this is an important milestone, more important is our sustained strong performance over the last 12 months. I want to take an opportunity to thank all our global employees for their hard work and dedication to deliver consistently. This has positioned us to recently announce our first quarterly dividend and a share repurchase program. Capital return to shareholders is an important part of our ongoing commitment to strengthen total shareholder value. Now let's turn to second quarter financial results and our updated outlook for 2024. We delivered strong financial performance in the second quarter. Sales were $433 million compared to $414 million during the same period last year, an increase of approximately 5%. Adjusted EBITDA in the second quarter was 93 million or 21.4% compared to 80 million or 19.3% in the prior period. Adjusted EBITDA for the quarter includes 4 million of one-time standalone costs and 9 million for the same period last year. Adjusted earnings per share was 71 cents in the second quarter of 2024 and adjusted free cash flow was 34 million. Adjusted free cash flow includes 23 million of one-time separation-related items. Now let me provide some insight into our global markets, beginning first with the aftermarket. Softer freight activity continued during the second quarter, and we have yet to see a positive inflection. However, our strong performance is offsetting some of the market weakness and contributing to volume growth. Demand in the U.S. for fit markets is beginning to slow as expected. In India, markets remain strong, while China remains sluggish. Looking ahead to our outlook, I will start with aftermarket for both on-highway and off-highway, which represents approximately 80% of our global revenues. It is challenging to predict the timing of an aftermarket recovery. We establish our outlook for the aftermarket by considering a number of factors, including third party metrics and input from our global customers across the value chain. Compared to the prior year, we were expecting our overall global aftermarket revenue to be in a range of flat to up 5%. At a high level, this guidance reflects a declining market with strong market share performance and positive tailwinds from destocking, which occurred in 2023 and is not repeated in 2024. Let me provide some further detail regarding the assumptions underpinning this guidance. We expect our global markets for aftermarket to be down in a range of 2% to 4%. We are still experiencing year-over-year declines in freight activity and have not yet seen a positive turning point. Overall freight activity is expected to be weaker through the balance of the year than previously expected. In global off-highway, we are seeing softness across the world in construction, mining and agriculture markets. Offsetting market softness, we expect our outperformance to continue as we accelerate our growth strategy and continue to win new business. We expect our market outperformance to contribute 2% to aftermarket revenue growth. Adding an additional 2% of revenue growth will be the benefits related to destocking year over year. You may recall our customers were destocking from 2Q through 4Q in 2023 as supply chains normalized. Pricing is also expected to provide an additional 1.5% year-over-year increase. Let's now turn to our first fit market. In the US, our view of the heavy-duty market is unchanged, while we are seeing modest improvement in the medium-duty markets. We anticipate declines in the second half of 2024 in line with industry expectations. We are maintaining our outlook for US heavy-duty truck to be down 7% to 12% for the full year. In medium-duty truck, we are raising our guidance to flat to up 5%. Demand for trucks in India is expected to remain strong in both the on-highway and off-highway markets, while in contrast, market conditions in China continue to remain at weak levels. We expect new business wins, including the fuel filtration business of a global OEM we announced last quarter to partially offset some of the market weakness expected in our first bit business. Taken all together, we are raising our revenue guidance to now be in a range of flat to up 3%. Compared to the prior year, with global sales in an expected range of 1.625 to 1.675 billion. We expect continued strong operational performance and the benefits of our first half performance to carry through the year. We are raising our adjusted EBITDA margin 25 basis points and expect to deliver adjusted EBITDA margins of 18.5% to 19.5%. We are also raising our adjusted EPS outlook and now expect to be in a range of $2.15 to $2.40. Now I would like to turn to the capital return to shareholders we announced in July. We are pleased to announce this comprehensive capital return program as part of our ongoing commitment to strengthen total shareholder value. The strong cash generation ability of our business allows us to deliver high-quality solutions to our customers, invest in strategic growth initiatives, and now return capital to shareholders. We declared our first quarterly dividend of $0.05 a share and announced the authorization of a $150 million share repurchase program. Our priority for capital deployment remains focused on the execution of the four pillars of our growth strategy, for which I will now provide you with an update. Our first pillar is to grow share in first fit. We continue to win with the winners and have secured new vehicle platforms associated with the 2027 US EPA emission standards. We are leaders in fuel filtration and crankcase ventilation. These continued wins further demonstrate our ability to support customers and provide our industry-leading Fleetguard products to solve our customers' filtration challenges. Our second pillar is focused on accelerating profitable growth in the aftermarket. We are growing our share of the aftermarket by providing our customers with our technology-leading Fleetguard products where and when they need them. Our teams continue to aggressively pursue new business around the globe, allowing us to expand our share of aftermarket business. We have recently launched our filtration science campaign to raise our brand awareness and demonstrate how Fleetguard products provide industry-leading protection and uptime. Our third pillar is focused on transforming our supply chain. We continue to improve on shelf availability as we stand up our own fully dedicated distribution facilities. Over 80% of our volume is being distributed through dedicated Atmos warehouse facilities, and we are on track to have substantially all of our volumes on the Atmos network by the end of the year. We continue to drive out costs through investments in automation and efficiencies in our purchasing organization. Our adjusted EBITDA performance demonstrates the results of our continuous focus on cost reduction. At the midpoint of our guidance, we expect to expand adjusted EBITDA margin 340 basis points since the end of 2022, and our supply chain transformation has been a key component of this expansion. Our fourth pillar is to expand into industrial filtration markets. We are primarily focused on growing inorganically, and we continue to build our M&A pipeline and review opportunities. While we are excited about the possibilities industrial filtration will bring to us, we are taking a disciplined approach in evaluating potential targets. Our focus remains on creating long-term shareholder value, and we will move forward with acquisitions when we are confident we can deliver on this value. We will continue to keep you informed of our progress. Now, Jack will discuss our financial results in more detail.

Thank you, Steph, and good morning, everybody. We delivered another quarter of strong financial performance. Sales were 433 million compared to 414 million during the same period last year, an increase of approximately 5%. The increase in sales was primarily driven by higher volumes of 3% and pricing of approximately 2%. We outperformed in many of our global markets through gains in market share. Gross margin for the second quarter was $132 million, an increase of $18 million compared to the second quarter of 2023. In addition to volumes and pricing, we also benefited from lower commodity costs. Selling, administrative, and research expenses for the second quarter were $60 million, an increase of $1 million over the same period in the prior year. The increase was primarily driven by higher people-related and consulting costs as we continued to stand up our own team and separate our functions from Cummins. Joint venture income was $8 million in the second quarter, flat to our 2023 performance. This resulted in adjusted EBITDA in the second quarter of $93 million. or 21.4% compared to $80 million or 19.3% in the prior period. Adjusted EBITDA for the quarter excludes $4 million of one-time standalone costs compared to $9 million for the same period last year. We continue to believe these costs will be in a range of $10 to $20 million in 2024 and be substantially complete by the end of this year. These one-time costs primarily relate to the establishment of functions previously commingled with Cummins, such as information technologies, distribution centers, and human resources. Adjusted earnings per share was 71 cents in the second quarter of 2024, compared to 63 cents last year. The results reflect higher interest expense from a full quarter of debt issued at our IPO in May of 2023. Adjusted free cash flow was $34 million this quarter compared to $35 million in the prior year. The higher cash usage was primarily related to increased working capital requirements. Free cash flow has been adjusted $5 million for capital expenditures related to our separation from Cummins compared to $2 million in the previous year. We expect one-time capital expenditures will be in a range of $10 to $20 million in 2024 and also to be substantially complete by the end of this year. As we noted in our last call, we are also adjusting free cash flow for working capital inefficiencies associated with the move from intercompany settlement terms with Cummins to standalone practices. In the second quarter, this adjustment is $18 million and relates to Cummins processing payroll on our behalf prior to the full separation, and we reimburse them on 60-day terms consistent with historical practices. As we have taken over the payroll process, these cash obligations are funded as incurred. We expect these inefficiencies will be mostly complete by the third quarter of this year and expect a full year impact of approximately 35 million. The effective tax rate for the second quarter of 2024 was 21.8% compared to 24.5% in 2023. The decrease was driven by a change in the mix of earnings between US and foreign operations. Now let's turn to our balance sheet and the operational flexibility it provides us to execute on our growth strategy and deliver total shareholder value. We ended the quarter with $161 million of cash on hand. Combined with the full availability of our $400 million revolving credit facility, we have $561 million of available liquidity. Our cash position and continued strong performance during the second quarter of 2024 has resulted in a net debt to adjusted EBITDA ratio of 1.4 times for the trailing 12 months ended June 30th. In closing, I want to thank our dedicated global team for all of their efforts as our momentum accelerates and we execute our growth strategy. Now we will take your questions.

Thank you. And at this time, I would like to remind everyone in order to ask a question, press star, then the number one on your telephone keypad. Once again, star one. And in the interest of time, we ask that callers limit your questions to one primary question and one follow-up. Thank you. And we will pause just a moment to compile the Q&A roster. And it looks like our first question today comes from the line of Joe O'Day with Wells Fargo. Joe, please go ahead.

Hi. Good morning, everyone. Thanks for taking my questions. You know, clearly really good EBITDA performance in the quarter. And, Jack, it looks like EBITDA was up $12 million sequentially on revenue. That was up $6 million. So you talked to price, volume, and cost, but could you kind of break that down a little bit more, and in particular, what you saw on the cost side? And then related, it does look like guide implies that the EBITDA margin doesn't stay as strong in the back half of the year. So any bridge details there?

Yes, maybe I'll start on the sequential bridge, Joe. Thanks for the question. Good morning. So I would say, you know, really, as we bridge from you know, the first quarter to the second quarter, it's really primarily a volume story. You know, volume was up, you know, about $8 million in total revenue, which converted to, you know, about a 30 basis point benefit. In addition to that, we also saw some benefits from an absorption standpoint as we had really strong performance across our manufacturing footprint in the second quarter. And as we look towards the back half of the year, we would expect some softening in terms of hours in the plants and production levels. So that's really what drove. We did have a few other moving pieces. If you recall, we had some headwinds from a freight perspective in the first quarter, which did not repeat in the second quarter, and a little bit of tailwinds from warranty. But mostly it was a volume story in the plants and just really strong performance in the second quarter and really the first half overall. Maybe I'll turn it to Steph if you want to talk about kind of the first half, second half story.

Yeah, I think that's great. Hi, Joe. Good morning. You know, firstly, as I talked about in my market outlook, I think we see a drop off in the second half relative to the first on volume. And the driver of the margin associated is really very much volume related. So the two big drivers of the volume decline, second half versus first half, is really firstly the first bit decline, which we've been discussing for some time now and is broadly aligned with previous expectations. But in addition to that, I would say on the aftermarket side, freight activity, we were expecting to turn positive by now. We've been in a long and subdued decline on freight activity, but that turn in the aftermarket or freight activity, we're now seeing later in the year of 2024 and perhaps early into 2025. So really, you know, volume drivers leading to a lighter second half relative to first half that is driving the margin outcomes. I certainly acknowledge that it implies a challenging decremental margin environment. We have certainly delivered strong incrementals as well, and this still implies a midpoint of 19% adjusted EBITDA in our guide, and that delivers strong incrementals year over year is how I'm thinking about it. We are still establishing a standalone company. Obviously, the cost structure that goes with standing up a separate company and separating activities from comments. We expect to see growth into the horizon, so don't really expect to be taking short-term cost out, if you like. Hence, the decline you see in margins in the second half is really directly related to the volume story.

Got it. Those are helpful details. And then, Steph, I wanted to touch on, I think, some really good color related to aftermarket and what you're seeing in that market. I guess when we think about the components of growth and think about visibility into the rest of the year and aftermarket for you, I would think that the pricing is in place at this point. The D-stock is a comp situation. And so the swing factors seem like it would more so be related to outperformance and market trends. And so could you just talk about the visibility that you have into continued outperformance versus the market and how you think about the variability of the market into the back half of the year?

So let me talk about the outperformance. We do feel that we've demonstrated outperformance in the first half in share in aftermarket. And we see that the way that we've assumed in our guide, we believe that will continue here through the second half and we have strong confidence in that. And so I'd say that continuing at this trend. I think the variable that is a little more unknown for us is just really when does the freight activity turn? There's a lot of uncertainty in the market around that. I think it's certainly a prolonged downturn period that we're experiencing. And so right now we've assumed that happens into the back half here of 2024. I think there's just a question of how that plays out. But we've taken a view that we're not going to see much recovery of that inside 2024, and we're going to still see downwards pressure in freight activity And that's what's implied in our guide.

Got it. Thanks very much.

Thanks, Joe. And our next question comes from the line of Tammy Zakaria with JP Morgan. Tammy, please go ahead.

Hey, good morning. Thank you so much and very nice quarter. So a couple of questions. Just following up on that aftermarket question from before. So how much was aftermarket down globally in the first half versus the 2% to 4% decline you expect this year? The genesis of my question is, do you expect the global aftermarket to be worse than the 2% to 4% in the back half?

Yeah. Good morning, Tammy. Great to speak to you. And thanks for the acknowledgement on the strong quarter. I guess two dynamics playing out here that I would club together. I'd broadly say our downturn on market in the first half in aftermarket was about 2%. We offset that by just under a percent in D stock in the first half. What we're going to see in the second half is still strong downturn, so down between that 2% to 4% at the 3% at the midpoint. And then you've got destocking playing a positive role that offsets that slightly more here in the second half. We saw destocking really start to start with our customers last year in the second quarter and you know customers did that at different pacing throughout the year and it it spread out through the fourth quarter so so that's the two dynamics that play similar similarly declining market conditions offset by um you know more favorable tailwinds on d stock in the in the second half

Thank you. That is very helpful. So the follow-up question is, when I look at the guide, full-year revenue guide, to get to the midpoint of the sales guide, the back half needs to be down, call it about 1% year over year, versus the growth you've seen in the first half. So Are you expecting back half to be down year over year? Is that the trend you're seeing quarter to date?

That's right, Tammy. And the big driver of that is the first fit market decline. So particularly in heavy duty truck or class A trucks, that has certainly been implicit in our guide, but that's the big driver of the decline year over year.

understood okay thank you thanks tammy and our next question comes from the line of rob mason with baird rob please go ahead yes um yeah again uh nice work steph and jack um maybe circle back again just to the aftermarket business uh so just so i'm clear You raised the outlook for the full year and aftermarket from flat to two to flat to up five. And again, it sounds like maybe the market conditions are a little bit worse. So it sounds like share gains are better in your outlook. Could you put a little more color around that in terms of where you're gaining share, whether it's domestic or international, whether it leans more on-road versus off-road, or products in particular, just a little more color there, please.

Absolutely. Good morning, Rob. You know, certainly, I just comment on the overall. I think you've crafted it right. We've tried to give a more complete picture in our opening comments this time on aftermarket. So I think we may have got ourselves caught up a little bit in the comparisons between the calls of flat to five versus the flat to two. The flat to two really reflected a view of the market story previously only. And now we've tried to give the more comprehensive view of aftermarket revenues. So if you think about a midpoint we were assuming of market previously of 1%, we're now saying that it's, you know, between two to four down. So a midpoint of three down. That's what we've seen is the sort of decline in market conditions in the aftermarket, completely driven by a push out of, you know, a positive inflection of freight activity. So that's just a link to the market story. We've continued to see ongoing share gains in the aftermarket is how I would describe it. Very strong in North America from a geographic perspective is where I would characterize it. Really driven, I would say, by a combination of the activity of improving our distribution network, access to our products, You heard in my opening comments that we've been very deliberate on building brand presence with a new campaign on filtration science and how our flea guard products protect. And I really think that the combination of these factors are building greater awareness of our product in the aftermarket, coupled with a much stronger distribution capability to be able to service that. It's how I would broadly characterize those wins.

That's very helpful color, Steph. Appreciate that. Just as my follow-up, could you speak to the expansion of your capital allocation strategy here, I guess, in the near term in terms of how you might be looking at share repurchases versus M&A, just, I guess, given what you may have right in front of you in the M&A pipeline? Sure.

Sure. I was really excited to be able to launch the capital returns program. I know it's something I've been asked about for most of this year as we started out 2024. So I feel really good about that. As I think about the share repurchase program, this really gives us now the mechanics and the tools to be able to return cash to shareholders as we move forward and balance that against our stated capital allocation priorities of investing in the growth of the business. And obviously, you know, the flexibility that comes with a share repurchase program alongside M&A is a really good tool for us from our perspective as to how we do that. Look, I think as this plays out, we'll be able to give more clarity. I think what we can give is clarity here right now is it's great to have the tools and the mechanism in place to deliver on a share repurchase program. We'll obviously balance that against opportunities that we see in the M&A pipeline to give us enough dry powder to be able to act on growth opportunities that will create value for shareholders. So that's how I characterize it right now. As the quarters play out, obviously, we'll be able to give further color to this. But really pleased to be able to have this mechanism now in place.

Sure. Sure. Thanks, Steph. Appreciate it.

All right. Thank you, Rob. And our next question comes from the line of Andrew Obin with Bank of America. Andrew, please go ahead.

Thank you. This is David Ridley laying on for Andrew. Could you just maybe give us an update on your progress in adding independent distributors to the Fleet Guard network?

Sure. Good morning, David. You know, we've spoken many times about the strength of our channel to market. We have a particularly strong path to market and channel partners across the U.S. And then that positioning differs across the world is what I would say. And so I think our focus on independent channels and adding those largely has been in more emerging markets like Latin America, as an example. And we've certainly been aggressive there in identifying new partners, and that has contributed to fueling our growth in that region in particular. And then I would say we're focused very much on other emerging markets as to where we'll look to build those independent distributor channels. Certainly there's still some opportunities still do that in the U.S. and we, you know, expect to still pursue some of those opportunities here in the second half and beyond. But I would say we've got a very strong channel position here in the U.S. that we look to leverage further.

Thank you. And then maybe a quick one for Jack, just a clarification point. Does the guidance now have a 1.5% price for the year, or was that just an aftermarket specific comment?

Yeah, so that's the full year picture, David. You know, obviously most of the pricing activities generally occur in the aftermarket, so that's that 1.5 heavily weighted towards the aftermarket. And that's, you know, up from, you know, approximately 1%. the beginning of the year so obviously that that difference is uh you know a very modest um pricing action taken for the second half thank you very much thanks thanks andrew or excuse me david and our next question comes from the line of jerry revich with goldman sachs jerry please go ahead uh yes hi uh good morning everyone um jack

Hi. On gross margins, just to come back to the quarter, you had a massive step up sequentially this year, over 30% gross margins on pretty similar sales, which I think is well ahead of normal seasonality. So what about the business accelerated 2Q versus 1Q? Is it normalization of costs? Is it new price increases? And then as I think about that within the context of the back half guide, obviously you folks have a track record as a public company now continually beating expectations. So it does sound like that's part of the framework for the guide, unless you tell me there was something not recurring in the quarter.

Well, good morning, Jerry. Thanks for that. I'm going to ask Jack to take the piece on margin step up, and then maybe I'll circle back on the guide comments.

Yeah, absolutely. So, Jerry, there's really a few different things at play, as I was describing to Joe. So there is a bit of a volume step up sequentially. There really is no impact from a pricing perspective sequentially from Q1 to Q2. And then there's a few bits and pieces of favorability. So a little bit of favorability from freight, same on materials, same on warranty, all of which taken together contribute to a healthy step up. And then the last piece and probably the biggest piece is just strength in the manufacturing cost environment. That's both evidence of, you know, really strong production, you know, that contributed to the strength in our ability to deliver for our customers over the first half. And you can see a little bit in our elevated inventory balances as well. You know, as we think about then the, you know, One time, if you will, and there's really nothing one time. There's just a collection of favorability. And then the rest is the volume story from a first half, second half standpoint.

Yeah. Yeah. So and I might just take up this point on the guide and the comments you made. We believe the guide is a prudent guide as we still head into a declining environment here in the second half, declining on first bid and, you know, class eight truck production. and not seeing a positive inflection on freight activity really driving downside in our aftermarket versus our previous guidance position. So, in terms of the margin performance associated with that, we've certainly been discussing that, I would say. And the way I would characterize it, I don't see a lot of flexibility that I have in the short term to take out fixed costs. Jerry, we're a brand new company standing up a capable organization that can deliver on our commitments and while we're separating from Cummins. And so certainly no intention to sort of pull out fixed costs here in the short term. And we do see, you know, recovery of the markets that we're talking about and we want to be well positioned. to continue to grow through that cycle in a business that is not very cyclical, frankly. Like we're a large aftermarket content, and so we really want to be continuing to position our business for long-term growth.

Okay, super. I appreciate it. And then, you know, Gay, can we just follow up on capital deployment policy? You know, one of the big opportunities we've discussed over the past couple of years for your business, separate from Cummins, was to build out the industrial filtration part of the franchise. And given the dividend and the stock buyback authorization, I'm wondering if you can comment on, hey, is the M&A pipeline maybe less robust than we thought over the past couple of years? And what does that tell us about the M&A opportunity set over the next 12 to 18 months?

Thanks for that question. You know, we always viewed that capital returns to shareholders will be part of the mix of our overall shareholder value creation. And so we always expected to be doing this in time. Feels good to be doing that a year out of the gates with a modest a modest dividend return and the balance of that being a flexible program around share buybacks. Obviously the world of M&A is opportunistic somewhat and based on the opportunities that present themselves so we really wanted the balance of this capital returns to be you know in share buybacks so that we could balance capability from an investment perspective to be able to invest in M&A opportunities as they presented it. In terms of our progress there, we are making really good progress. I'd say building the M&A muscle, the strength of our pipeline. We've continued to look at a number of opportunities and work through diligence processes on those, and we continue to do so. And we will balance our foresight to M&A opportunity with returns to shareholders. But very much the premise is here, we are looking to enter into industrial filtration to grow our business, to increase overall shareholder return. And that's our driver. And it's certainly not growth for growth's sake. And so it's taking time for us to find exactly the right targets there, which is how I would describe it.

I appreciate it, Steffa-Jack. Thank you.

All right. Thank you, Jerry. And one final reminder, again, if you'd like to ask a question, star one on your telephone keypad. And our next question comes from the line of Bobby Brooks with Northland Capital. Bobby, please go ahead.

Hey, good morning, guys. Thank you for taking my question. I just wanted to kind of double click on the buybacks. So it sounds like the buybacks is more opportunistic than programmatic. I just given your commentary earlier on that, you know, buyback is maybe a swing, the swing factor with how heavy you lean into a buyback would be with the M&A opportunities, or am I maybe reading into that too much? And it's just, it'll be a mix of both, you know, maybe a base programmatic approach and flex harder or lean harder into it and, you know, what M&A looks like.

Thanks for the question. You know, I think our priority right now is to get a framework in place to be able to, you know, return cash to shareholders. And certainly, you know, we'll look to act on that in an opportunistic way is a good way to describe it coming out of the gates. And then I expect us to be able to get a clearer view of exactly what that looks programmatically out into 2025 and beyond. And we'd be able to share more as we shape that. I think right now the way you should hold it, it's good to have the framework in place. There'll be a base level that we look to build as programmatic that we'll communicate more on as we go forward. And then there'll be a balance that is based opportunistic against our M&A options.

Got it. That's great, Paula. Thank you, Steph. you know, could you just maybe remind us, so obviously there was the tail end of the quarter was lower, you know, raw material costs. Could you just remind us what, you know, what maybe are the three most important raw material costs to the business?

Okay. Yep. Hand that to Jack.

Yeah, absolutely. So, I mean, the biggest is steel, Bobby. And so we've seen, you know, the index bumping along a little bit, but we do expect, you know, overall for the year, a favorable trend. impact for our business. As a reminder, as you're, you know, kind of tracking the index and thinking about the impact to our financials, there is about a three-month lag, so about a quarter lag relative to movement in that index. The next would be kind of plastics and resin overall, as you think about our products. And then there's, you know, a number of other, you know, small categories, if you will, media, packaging, things like that.

Got it. Thank you. Yeah, I'll turn it over, turn it back to the Q. Congrats on the great quarter, guys. Thanks, Bobby.

Thank you. Thanks. Thanks, Bobby. And that is all the questions we have today, so I will now turn the call back over to Todd Chirillo for closing remarks. Todd?

Thank you. That concludes our teleconference for today. Thank you all for participating in your continued interest. As always, the investor relations team will be available for your questions after the call. Thank you and have a great day.

Thanks, Todd. And again, ladies and gentlemen, that concludes today's call. Thank you all for joining and you may now disconnect.