Avient Corporation

Good morning, ladies and gentlemen, and welcome to Avian Corporation's webcast to discuss the company's first quarter 2023 results. My name is Catherine, and I'll be your operator for today. At this time, all participants are in a listen-only mode. We will have a question and answer session following the company's prepared remarks. As a reminder, this conference is being recorded for replay purposes. I would now like to turn the call over to Joe DeSalvo, Vice President, Treasurer, and Investor Relations. Please proceed.

Thank you, Catherine, and good morning to everyone joining us on the call today. Before beginning, we'd like to remind you that statements made during this webcast may be considered forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements will give current expectations or forecasts of future events and are not guarantees of future performance. They're based on management's expectation and involve a number of business risks and uncertainties, any of which can cause actual results to differ materially from those expressed in or implied by the forward-looking statement. Please refer to the investor presentation for this webcast for a number of factors that could cause actual results to differ. During the discussion today, the company used both GAAP and non-GAAP financial measures. Please refer to the presentation posted on the AVN website where the company describes the non-GAAP measures and provides a reconciliation to their most comparable GAAP financial measures. Joining me today is our Chairman, President, and Chief Executive Officer, Bob Patterson, and Senior Vice President and Chief Financial Officer, Jamie Beggs. I will now turn the call over to Bob to begin.

Well, thanks, Joe, and good morning, everyone. Today we reported our first quarter results, which exceeded our adjusted EPS guidance as a result of better-than-projected margins in both segments. Key drivers included lower-than-modeled raw material costs and favorable mix as our composite offerings in end markets such as defense, telecom, and energy proved resilient in an otherwise challenging market. Last year, we substantially expanded our composite offerings and presence in these end markets with the acquisition of Dyneema. Dyneema is the world's strongest fiber and a globally renowned brand. It's an ultra lightweight specialty fiber that is 15 times stronger than steel, yet light enough to float on water. The acquisition closed on September 1st and integration is progressing exceptionally well. Just like everything we do, integration starts with safety. Our operational teams are collaborating on best practices, and we both share a common vision to run safely and efficiently. Our commercial teams have been collaborating, sharing technologies, customer needs, and opportunities for growth, as well as leveraging our broad geographies and diverse end market presence. Both organizations thrive on solving our customers' most difficult challenges. And I'm certain the complementary nature of our businesses will offer the opportunity for future revenue synergies. Culture is everything. And in times like this, it's even more important. And the cultural component of integration has been exceptional. I'm very pleased with the engagement between our two organizations and the willingness to come together. For our Dyneema associates, I think knowing they have found a home where they can thrive has made the integration seamless to date. From a performance standpoint, the business is proving to be resilient in the current economic downturn. That's due to both its unique value proposition as well as its strong position in the defense industry. As a reminder, ABM Protective Materials primarily serves three industries, the largest of which is personal protection or defense, which makes up about 50% of sales. These applications include body armor and helmets that leverage the Dyneema brand, protecting men and women in the military and law enforcement. This technology is perfectly designed for the demanding applications where failure is not an option. About 30% of sales come from marine and sustainable infrastructure. Dyneema is used in many essential applications, including anchoring oceanic windmills, aquaculture, and hoisting offshore cranes, among others. Requirements here are all the same, which is lightweight and high strength. Another growth area includes ropes and lines for ocean vessels, specifically LNG tankers. With the recent energy crisis in Europe, LNG tankers are in high demand. Industry forecasts are expecting 50 to 70 tankers will be built per year through 2030, with Dyneema poised as a leading and preferred brand. The remaining 20% of sales come from consumer applications. Dyneema is known as the longest-lasting, sturdiest component used to make everything from tents to shoes to outerwear. And if you ask around, to those who truly know these industries and the optimal material, they certainly put a premium on a product when it says Dyneema on the tag. That's a premium level of trust with differentiated performance. Overall, the Dyneema brand is one that we are proud to call our own. And as I said at the onset, we are very pleased with how well the business is performing in the early days of integration. I'll now turn the call over to Jamie to provide some additional remarks on our first quarter performance.

Thanks, Bob. First quarter sales and overall demand were in line with our expectations. Adjusted EBITDA of $134 million was $9 million better than forecasted and led to the $0.08 beat on adjusted EPS. Improved profitability for both segments drove the bottom line expansion. In fact, EBITDA margins exceeded guidance by 100 basis points as sustainable solutions and composites continued to demonstrate resilient demand, providing favorable mix. Decelerating inflation in certain raw materials, particularly hydrocarbon-based raw materials, along with ongoing cost reduction initiatives also factored into the improvement. EBITDA bridge shows the impact of demand, which was in line with our expectations. Customers remain cautious and continue to closely manage inventory levels. And while we are seeing some deceleration in inflation, this bridge highlights that on a year-over-year basis, our input costs remained higher and that our pricing continues to cover this inflation. Certain cost reduction activities, including targeted European restructuring, provided an $8 million benefit to the bottom line this quarter. We've had a significant amount of change to our portfolio over the past few years with the acquisition of Clariant and Dyneema, along with the divestiture of our distribution business. This is the first quarter where those changes are fully represented in our actual results and is a good opportunity to highlight the diversity of our portfolio. Here you see our sales and EBITDA breakdown by our two segments in the bar chart to the left. You also see the diversity of our end markets and regions represented by the two circle graphs to the right. The portfolio transformation has given us broad in-market exposure that reduces cyclicality and a geographic presence necessary to serve multinational OEMs. Our foundation is stronger than ever, which is helping us weather the current macroeconomic environment. The following slide reflects the first quarter year-over-year changes in sales by region, excluding the impacts of foreign exchange. The overall demand environment is fairly consistent with what we projected earlier this year. In Asia, although China ended their COVID-related restrictions in December, spiking infection rates at the end of the year and into the first quarter likely played a role in delaying a rebound in economic activity. We expect moderate and continuous sequential quarterly improvement in Asia as the year progresses. Demand in Europe is relatively stable at the current level, not getting worse, but not really getting much better, with the exception of automotive, which was up double digits compared to prior year. We're seeing increased softness in the U.S. across most end markets, particularly in building and construction and consumer markets. The inventory destocking in the U.S. started a little later than other regions and will likely affect the first half of 2023. In Latin America, specifically Mexico, demand was down only slightly as we believe the region is benefiting from reshoring from Asia. And as we dig deeper into the end markets within those regions, There are a few that are holding up more consistently and better than others. They include energy, telecommunication, defense, and transportation. In terms of energy, there's an increased focus around the world to improve the quality of the electrical grid, including strength, capacity, and reliability. Capital investments are being made to update aging infrastructure with a large portion that is over 25 years old. These updates include replacing materials such as wood and steel with alternative composite technologies that are stronger, more durable, and corrosion resistant. We serve customers that support the electrical infrastructure with components made from composites such as primary and secondary insulators, distribution and transmission poles, and cross arms. In addition, we provide ballistic resistant protective barriers to improve the physical security of electrical substations Recent and unfortunate attacks against substations have the full attention of government agencies and public utilities, which have accelerated their efforts to protect vital power generation and transmission equipment. Telecom is another industry where there is significant worldwide investment, especially as connectivity trends require faster speeds and greater coverage. For example, the USB program alone designates $42 billion to close the digital divide by increasing fiber optic cable deployments with a Made in America provision that will bring high-speed internet to all. Recall our fiber line acquisition in 2019 was a strategic initiative to better align us to the growing needs of the major telecom providers. We see this area continuing to grow as connectivity between devices only expands from where we are today. The rollout of fiber optic cables and expanding the availability of 5G technology helps drive this growth. We're also providing solutions that are used for ancillary equipment and telecommunications, such as junction bolts that house fiber optic nodes using our NYMEX products and our Maxim product line to protect fiber optic cables when they are buried. The defense end market is also expanding, given the demand for Dyneema used for body armor, helmets, and other safety gear to protect soldiers and police around the world. While the current geopolitical environment is unfortunate, the unparalleled performance of Dyneema is trusted to protect the world's finest from the realities of war. As Bob mentioned at the beginning of the call, half of our protective materials business goes into personal protection. With the highest strength to weight ratio of any material and leading protective qualities, it makes Dyneema the material of choice for environments where optimal safety is the priority. Finally, sales for transportation applications have grown double digits over the prior year first quarter. Automakers continue to work through the backlog that was created by significant supply chain issues over the past year. In addition, regulations continue to accelerate fuel efficiency where applications decrease energy usage and lower emissions. For example, our engineered materials primarily through our composites applications provide lightweight solutions that increase fuel and battery efficiency. and help transport materials safely and efficiently. Our color formulations are used in vehicle interiors where manufacturers look for durability, consistency, and style. Our portfolio transformation has been purposeful to allow for the breadth of end markets you've heard about today. As we navigate through the current macroeconomic environment, the diversity of end markets and geographic presence will help us perform through the cycle. It also puts us in a position to accelerate growth as things improve. Now I'll turn it back over to Bob to discuss our outlook for the second quarter and the full year of 2023 guidance.

Thanks, Jamie. Our second quarter guidance is for revenue and adjusted EPS of $845 million and 60 cents, respectively. This does reflect slightly higher margins than we projected at the beginning of the year based on the mix and impacts of decelerating inflation we experienced in the first quarter. We are maintaining our full year guidance of $530 million of adjusted EBITDA and adjusted EPS of $2.40. This factors in a more conservative growth rate in the second half, given the uncertainty around demand levels and timing of economic recovery. Jamie provided a number of comments about regional and end market observations in her remarks, and I will just emphasize that Many customers continue to tell us that they are sitting on more inventory than they'd like, so that we assume some level of destocking remains, particularly in end markets like building and construction in the U.S., but we're also seeing this in traditionally resistant markets or recession-resistant markets like packaging and healthcare. With respect to expected cash generation and the balance sheet, we reaffirm our prior estimate of full-year free cash flow of $200 million and to end the year with net debt to adjusted EBITDA of 2.9 times. While we are focused on the near-term macroeconomic environment, nothing has changed our view on the four key long-term growth drivers that we discussed at our Investor Day in December of 2021. They were sustainable solutions, healthcare, composites, and high-growth regions such as Asia and Latin America. At the time, we did deep dives into the megatrends that support why we expect these areas to provide long-term revenue growth above GDP, the largest of which is sustainable solutions, which now represents one-third of the total company's sales. We frequently get questions about how customers are viewing sustainability in light of the economic downturn. To address this in detail and provide a more contemporaneous update, On our technology, we will be holding a virtual sustainability day for investors on September 20th. We will provide a deeper look into our sustainable solutions portfolio, not just the what we offer, but the how our materials are solving our customers' challenges. You'll hear about consumer trends and customer sustainability goals that are shaping and driving our material science innovations. Despite a myriad of economic, geopolitical, and public health impacts to business around the world, our sustainable solutions portfolio has grown substantially since 2016. We're excited for what's ahead, as sustainability needs apply to every industry, each with its own set of demands or challenges. Common themes are reducing CO2 emissions, eliminating plastic waste, and increasing the use of recycled content. Yet each industry requires different specifications and certain attributes to achieve the desired effect for the end consumer. Our diverse portfolio, backed by our deep material science know-how, positions us well to capitalize in these shared goals. This helps our customers and leaves our planet a better place. At our Sustainability Day, we will discuss the eight ways we help our customers meet their sustainability goals. and how our investments in this space will drive long-term growth. Over 80% of our new product pipeline is dedicated to sustainable solutions, which will enable us to meet not only the needs of today, but also the challenges our customers face in the future. So to wrap up, our team is aligned and executing as we manage through this downturn. We are doing so by optimizing our cost structure, staying close to our customers, and prioritizing free cash flow. As Jamie said, our portfolio is stronger than it has ever been to perform through this cycle, and we are positioning ourselves for long-term success by continuing to invest in the future and aligning our innovation platforms to our four key growth drivers. With that, I want to say thanks for your time today. We'll open up the line for questions.

To ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again.

Please stand by while we compile the Q&A roster. Our first question comes from Frank Mitch with Fermium Research.

Your line is open.

Hey, good morning. I'm not going to lie, Bob. Aziz and I are a little bit disappointed that the Sustainability Day is virtual. You guys have been known for giving out some pretty good swag, so just wanted to throw that out there. But, of course, we're going to be excited to hear what you have to say on that day. You're guiding 2Q sales to be flat. Jamie, in the preamble, if I listen to the geographies, it seems like Asia is getting better. Just curious as to why you're thinking that sequentially your sales will be flat with 1Q.

That's a great question, Frank. So as we take a look at Asia sequentially progressing slightly better, we also see the U.S. in an environment where things may be slowing down, as Bob mentioned in his comments, with inventory destocking and consumer demand, as well as building and construction. So when we take those factors together and Europe being roughly flat sequentially, that's how we get with flat sales.

Are you seeing that right now here in the month of April and your order books for May? I'm just curious on that.

Yes, that's why the guidance is what it is.

Okay, fantastic. And you mentioned the RAS are still a bit of a headwind, but you're seeing some deflation on the hydrocarbon-based. How would you handicap RAS? that progressing into 2Q, 3Q, and your ability to hold on to pricing so that your margins continue to expand?

When you look at the EBITDA bridge, Frank, you can see that there's about $8 million of inflation year over year. It's the same bridge we've been presenting now for a year or so. So you can obviously look back in time and see that that is decelerating. I think as we look forward, it's possible that that becomes a little bit of a benefit for us. I think we're sort of being conservative with respect to how much of that manifests itself over time. But I do think that starts to turn to be a little bit of a benefit. And I think we're doing a really good job of handling price and environment. The one thing that's really important to Just remember is that most of our raw material costs are still anywhere from 35% to 50% higher than they were 18 months ago. So it's still a pretty high-cost environment.

Thanks so much.

Thank you. One moment. Our next question comes from Mike Harrison with Seaport Research Partners. Your line is open.

Hi, good morning. I wanted to ask a couple questions about the Dyneema business. It sounds like that the integration and the contributions from that business are kind of exceeding expectations. I'm just curious, what have been maybe some of the positive surprises as you look at the I guess, the team and the operations or maybe the markets and solutions that came with that dynamic business?

I don't know if I would necessarily put it in the surprise category. Obviously, we had the chance to get to know the management team ahead of completing the acquisition and felt very good about them and what they were bringing to our organization. I just have nothing but positive things to say about Them their passion for the business and culture is everything and we really are Fitting together very well. That's a huge plus so I don't put it in the surprise category per se, but I think it's a great Reason why the integration is going so well the defense industry is actually the Industry that has grown the most in the first quarter, which I think just reflects demand in those specific areas. So I Maybe not also in the surprise category, but something that I think is a testament to their technology and their position in that space with a very unique set of offerings and personal protection. So I'm not sure I've got anything necessarily to put into the surprise category, Mike. Things are going really well, and that's what we expected.

Maybe let me ask it a different way. I don't believe you've given a revenue synergy number, but maybe just talk about how you're thinking about Dyneema revenue synergies today versus when you acquired it. I know sometimes those revenue synergies can take time to materialize, but are there some opportunities that are maybe moving faster than you had anticipated?

Well, I think the opportunities, there are some that exist with, I just think, a cross-sharing of information across our existing customer base, particularly in the consumer space where, you know, Legacy Avian is very solid in that regard. About 20% of Dyneema is in consumer. Obviously, consumer market is down right now for everybody, so That might present a near-term challenge, but one where I see opportunities in very short order. I think it's really more longer-term about bringing technologies together and creating some new solutions that could be used across the aviant advanced composites businesses where we can leverage some of the technology that we have with ultra-high molecular weight polyethylene from Dyneema.

All right, and just a quick last one for me. In the engineering materials business, it looks like you got only $6 million of price mix. That's about 2% year-on-year. Is that the segment where we could expect you to give back some pricing if raws are moving lower? I guess maybe just a little more detail on what's going on with pricing in EM.

I think we always have to be flexible with respect to price and consider the competitive dynamics that exist. As I mentioned maybe a moment ago to Frank, look, we're still sitting on substantially higher costs than we were a year and a half ago, so we have to be mindful of that too. But I wouldn't draw any distinction between EM or color in terms of which you know, in terms of their price elasticity, if you will. I'm not sure there's a real demarcation between the two.

All right. Thanks very much.

Thank you. One moment for our next question. We have a question from Vincent Anderson with Spiegel. Your line is open.

Yeah, thanks. So I was hoping to dig in maybe a little bit more on BEAD just because all these government initiatives kind of have their own nuances. So curious what this looks like from kind of a timing of fund disbursements, any minimums in that spending plan specifically designated to things like hardware, and can you detail the domestic sourcing benefit components?

And I think the business of ours that benefits the most from that will be the fiber line business, which supplies composites into fiber optic cable and infrastructure build out. Obviously, we are excited about the incremental investment that's coming. I'm not sure how much of that's going to find its way into 23. My sense is that we'll see more of that in 24. just with respect to how long it takes for those kind of things to actually make their way into the spending universe. So hopefully that helps.

Yeah, no, that's good. Thank you. And then, you know, I wanted to maybe break down the restructuring efforts in a little more detail if possible. I think this is around the time after a large acquisition that you would start to see things like footprint rationalizations and And then maybe just related to that, it wasn't long ago we were talking about labor shortages, so curious if headcount is a significant component of those restructuring efforts.

Yeah, so first of all, just to be clear, I mean, the restructuring efforts have nothing to do with Dyneema. Restructuring efforts really relate to, you know, bringing together the legacy Poly One and Clarion businesses and things that we had always planned to do. with respect to some facility consolidation. That was really delayed because of COVID and what was going on with supply chain challenges and issues in 21 and so on. And so now we're finally doing those things. And that's really the preponderance of what makes up the restructuring costs in Q1. You know, from a labor standpoint, I do think that things are improving. And obviously, that was incredibly stressful. at the end of 20, but certainly throughout 21, and I feel like we're finally getting some relief there. All right, perfect. Thanks so much.

Our next question comes from Michael Sasson with Wells Fargo.

Your line is open.

Hey, good morning. Nice start to the year, Bob. It sounds like, you know, 2Q Vaughn is going to be down a lot again, somewhere in the first quarter. What do you think fundamental demand is sort of running at now? And how do you think about the stocking efforts? I mean, when do you think it'll sort of subside? And are you assuming it subsides heading into the third quarter?

So, I mean, our demand assumption is, you know, we were down about 14%. in q1 assuming roughly the same level in q2 so it's really kind of flat if i just think high level in terms of how that's playing out um look from a destocking standpoint it seems like many customers really still feel like they've got a lot of inventory on hand i know some of that's anecdotal i can't tell you what percentage of customers that is but we certainly hear that routinely. And so I think that that's going to weigh on things for Q2. There are maybe an end market or two like building and construction where there's still more to come, particularly in the U.S. And one of the, I think, themes of our observations over the last few months has been that we still think there's more to come in the U.S. versus Europe and Asia, which is probably flattened out. I guess that's the best way I could answer that by region and end market, Mike.

Okay. And then longer term, if you do get, or at some point, I assume volumes will come back, let's hope. Do you still feel good about the longer term EBITDA levels that you wanted to hit when you were doing the Dyneema deal? And can you maybe just walk us through what needs to happen to get to that level?

Look, I do. I think that, you know, when we put the businesses together, you know, we had a pro forma view of about $650 million of EBITDA. That was at the beginning of 2022. And, you know, I also would say that that was at a margin level of about 17.5% to 18%. I think both of those are achievable within a reasonable amount of time as the economy recovers. That's not our stopping point on margins. As you know, our long-term goal is to get to 20%. I felt like we made good progress this quarter with respect to doing better than expected in that regard.

Thank you. Yep.

Our next question comes from David Wong with Deutsche Bank. Your line is open.

Hi, good morning. First, I guess, how much of the $8 million cost reduction in Q1 is related to cholera and synergy? And I guess, how should we think about that in Q2 and maybe second half?

So I think it's about maybe $3 million or so that are incremental, specifically related to Clarion, and the other is just a more broad-based set of cost reductions.

Okay. And then I guess the current guidance implies a 9% EBITDA improvement in the second half. Assuming demand stays at the current level, do you expect price costs will be enough to drive that type of growth? And if not, I guess, what other levers do you have to offset a weak demand situation?

Look, I do think that there's, you know, I think we're continuing to be conservative with respect to our margin expectations. You know, things play out the way they have here in the first quarter. There's a possibility that we would do better in that regard. We have continued to balance that, though, with just uncertainty around the demand environment. So there is more to come, I think, with respect to margin improvement that could help us offset that, which I think are the primary things that we're focused on executing in the near term. To the first question about where some of these cost reductions are coming from, more of that will come into the second half of the year with some of the plant rationalization that we had planned

Thank you.

Thank you.

Our next question is coming from Kristen Owen with Oppenheimer & Company. Your line is open.

Hi, this is Jason Vernoff on for Kristen Owen. I was wondering if you can walk us through your free cash flow assumptions for the remainder of the year.

Sure. From a free cash flow perspective, there is the slide in the webcast which talks about cash flow from operations of $350 million. There's a slight benefit in working capital, but most of that came through in the fourth quarter of 2022. And then as we take a look at CapEx, we do have some additional expenditures that we've assumed in 2023, primarily related to the synergy capture and plant rationalization. that Bob mentioned on the last question, in addition, an investment in our IT system. So that really is the high-level overview of cash flow for 2023. So we'll end up with $200 million of free cash flow. Those assumptions have not changed from our first quarter guidance that we provided.

Got it. And just as a follow-up, in your prepared remarks, you talked about some of the end markets where Avian wins. And it's interesting to see that industrial transportation and telecom were favorable contributors in the quarter. Can you provide a bit more color on what you're seeing from a demand perspective in those categories? And maybe if you could talk about the sequential trends in those end markets from 4Q to 1Q? Thank you.

Maybe just one clarification. Industrial was not positive. That was actually down. We focused on defense, transportation, energy, and telecom. And in terms of them being up in the first quarter, that is the sequential order of that. So defense was up the most, followed by transport, energy, and telecom. Hopefully that kind of clarifies that defense was up the most at about 20%, 25%, transportation being up 11%, and energy, telecom, all those single digits.

Thank you.

Our next question comes from Lawrence Alexander with Jefferies. Your line is open.

Hi, everyone. It's Dan Rizwan from Lawrence. It's just a couple of questions on Dyneema. You did talk about the revenue synergies. I was just wondering what the kind of how the sales process works, where how long it would take really to kind of see the benefit of potential revenue synergies from between your business and a new Dyneema acquisition?

I think it's a spectrum of things. I think there's an opportunity in consumer to do things in relative forward order. That's really just taken Dyneema and or Avian technologies into existing customers where specification challenges are not as significant. I expect that that specification period is longer. That can take over a year and a number of applications, particularly in defense or energy. So it really does depend, Dan, I think, on which end market that is. So certainly more to come, but it can be time-consuming.

So I guess your traditional products can be used in personal protection. There is a revenue synergies there, or I mean, I understand how their products could potentially cross over. I was wondering just how it goes both ways.

I want to be careful there because obviously Avian doesn't have anything that was like Dyneema and isn't going to be doing a revenue synergy in that direction to do something that they do. for personal protection, vehicle and body armor and so on. I don't mean that, but there is an opportunity, I think, with other technologies for different applications in those industries. So that's where I think some potential can exist.

Okay. All right. Thanks a lot.

Thank you. One moment. We have a question from Davis Sunderland. With Baird, your line is open.

Hey, good morning, team. Thanks for taking my question. I wanted to ask another question about end markets and specifically the call-out for transportation. Could you just maybe expand a little bit more on the opportunity there and maybe any long-term changes that we should expect in the end market mix? Thank you.

Certainly. I mean, for us, you know, transportation is – you know, let's say eight to 10% of sales roughly. And it's one where we really focus on, I think, two applications, two things in particular. A lot of that is the color and aspects of the interior packaging, just so as there are, you know, incremental vehicles produced, we benefit from that. I also think there's a lot that goes into that from a sustainable solutions perspective. or broadly around lightweighting and materials from an engineer materials perspective. So in general, I think what the automotive industry, transportation industry is performing well, we benefit simply from that demand improving, but also with respect to, you know, material replacement.

Thank you.

And it looks like we have a follow-up from Mike Harrison with Seaport Research Partners. Your line is open.

Hey, just a couple of other follow-ups. On the Q2 guidance, with the revenue being flat compared to Q1, but it seems like you expect earnings to be a little bit lower than what we might have expected, even though you might be getting some benefits from deflation. So, can you help us understand, I guess, what's baked into the margin outlook for Q2?

So, first of all, I think that we are being conservative with respect to, you know, our raw material assumptions and margins in that regard. There are some things that actually will go up a little bit as we project them today, like possibly higher interest expense in the second quarter versus the first quarter. I think we mentioned perhaps at the last quarter that just sort of part of our cost reduction plan that we had that senior executives and directors were not getting merit increases this year. However, the preponderance of our population is. below the director level, and that all kicks in in April. So there's just some things like that that really create that difference between roughly $134 million of EBITDA to $130 million of EBITDA from Q1 to Q2.

All right, thanks. And then on the sustainable solutions opportunity, obviously that's something you've talked about for some time. But you've talked in the past about being constrained by the availability of recycled plastic material. I was hoping maybe you can give us an update and maybe a little bit of a preview of a September event, just talking about how you're seeing that recycled content opportunity play out.

I mean, I still think that is true. I mean, it is a major constraint. I think that with the With investment in additional infrastructure around mechanical recycling, that gets better. I think that takes time and probably has some level of exponential effect as those things come online. So as I just sit here and I look at 23 versus 22, there's no real significant change to that. But I do think that happens in the outer years. But we will spend more time talking about that at the September 20th day. That was something that we covered back at our investor day, which was to talk about the sustainability goals of brand owners and OEMs and the gap to meeting that because of the lack of recycled content. So that'll be front and center as part of what we talk about. Look, the compound annual growth rate of sustainable solutions through 22 was, you know, 10 or 11%. And honestly, I think if we actually had that recycled content, it would be even better. So it's just one of the reasons why I continue to feel good about that long-term growth rate.

All right, sounds good. Thanks very much.

Okay, thank you. I think that was our last question, so we appreciate everyone's time on the call today. Obviously, there'll be an opportunity to connect after our second quarter results and look forward to also hosting those who can join us for our Investor Sustainability Day on September 30th. Thank you.

This concludes today's conference call. Thank you for participating. You may now disconnect.