Avient Corporation

Good morning, ladies and gentlemen, and welcome to AV Incorporation's webcast to discuss the company's third quarter 2023 results. My name is Victor, 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 go ahead.

Thank you, Victor. Good morning to everyone joining us on the call today. Before beginning, I'd like to remind you that statements made during this webcast may be considered forward-looking statements. 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 could 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 will use both GAAP and non-GAAP financial measures. Please refer to the presentation posted on the Aviant website where the company describes the non-GAAP measures and provides a reconciliation to their most directly 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 hand the call over to Bob to begin.

Thanks, Joe, and good morning. Today we reported our third quarter results and adjusted EPS was slightly ahead of our guidance despite lower than projected sales. We also updated our guidance for the full year to reflect our current view of the demand environment and weaker foreign exchange. Our prior guidance assumed we would start to see a modest recovery in the fourth quarter, but based on our current orders, that is not the case that we are lowering our demand expectations as we finish out the year. While we have adjusted our revenue projections, you'll see that we are expecting to grow fourth quarter earnings by 12% on a year-over-year basis as margin expansion more than offsets lower sales. Jamie will cover specifics in a moment, but I wanted to start with some general observations about the economy and markets and what we're hearing from our customers. Destocking appears to be nearing an end in many industries, with the exception of a couple that I'll touch on first, and I'll start with health care. Historically, this is an industry where we see growth nearly every year without fail. So it's unusual to be reporting health care sales are down, and I would further characterize this year as unprecedented. Sales in the quarter to health care was down about 25%. Our customers are telling us that this is related to their efforts to reduce inventory levels to more normalized pre-pandemic levels. And they simply built up too much over the last couple of years as a result of COVID response and the supply chain challenges that followed. In the third quarter, you can see the impact of negative mix for engineering materials when Jamie covers our results. We expect destocking and healthcare to continue in the next year. But the good news is that ultimate demand for healthcare services remains positive, and we continue to view it as one of our four key long-term growth drivers. The other industries where we expect weaker demand conditions to continue are those that are sensitive to interest rates, like building and construction and infrastructure projects, which slowed down in the second half of the year. In general, I certainly think there's uncertainty about the impact of higher interest rates, and whether or not countries like the U.S. find themselves in a recession that extends beyond manufacturing and industrials. Fortunately, employment has remained relatively strong, and we view that as a positive. Now, in the good news categories, defense and energy continue to perform well, and so far, transportation is also holding up. We've benefited in the Americas with composite applications in these end markets. We also believe we're benefiting from reshoring trends, particularly in Mexico, where we have been able to move production with ease based on where our customers ask us to. And lastly, I believe destocking and packaging, our largest end market, is nearing an end. A recent Wall Street Journal article highlighted that P&G expects a return to volume growth in 2024. That bodes well for us, and specifically for our European businesses, where 30% of our sales are to packaging customers. I had the chance to meet with our teams in Europe a couple weeks ago and overall the sentiment was more positive than it has been in some time. While the war continues in Ukraine, there is much less concern about energy availability in sharp contrast to a year ago when the region was worried about having enough natural gas stored to get through the winter. In total, we are expecting to deliver positive EBITDA growth in EMEA for the first time in a year over year in the fourth quarter. In fact, Europe will be contributing significantly to our bottom line results and the 12% increase in adjusted EPS we are projecting for Q4. Margin expansion is substantial as we have rationalized our footprint in the region, reduced administrative costs, and we are seeing lower raw materials. And I think this is a positive development in earnings momentum as we look ahead to next year. I also spent time with the AVM protective materials team while I was in Europe to celebrate the one year anniversary of our acquisition of Dyneema. Our composites portfolio makes up more than half of our specialty engineering materials segment and is one of our fastest growing areas of our portfolio. The integration of APM continues to go very well. Culturally, APM leaders share our commitment to investing in sustainable innovation and a strong desire to leverage all of our technologies to best serve customers and translate in those into new areas. And there are natural cross-selling opportunities between the businesses, and year two of integration will focus on accelerating those among our commercial and technical teams, and I'd like to share some examples with you. Half of Dyneema's business is in protective materials, providing lightweight, ballistic protection, and applications such as vests and helmets. But as you can see, helmets today not only provide important safety and protection, they also serve as a structural foundation for other components that aid in communications, audio and visual capabilities, and other equipment that assist with the mission. The customer relationships and expertise that APM has in this space represents a great opportunity for the broader Avian portfolio to further enhance the value we bring to the customers. As shown here, there are multiple components on a helmet that can benefit from our portfolio of colorants, additives, and NGR materials, with some examples including high-strength, lightweight mounting brackets, materials for electronic and communication components, and soft-touch thermoplastic elastomers for ease of fit and use. Defense was not an end market that we have served historically, but with our acquisition of Dyneema, we find a valuable foothold in the industry upon which we can grow. And it's also positive that we are a U.S. headquartered company where we believe we will have further opportunities with the U.S. military. The helmet you see here is just one example, and our portfolio is very well aligned for other applications in law enforcement and military-related products. We also have high durable strength materials currently enabling rugged outdoor equipment like tents, packs, and portable essentials, where we not only see growth opportunities in consumer, but the ability to translate those into military-grade specified versions. The slide here illustrates a combination of legacy aviant and Dyneema applications, and the beauty of cross-selling is that it goes both ways. Consider that aviant has long had a strong representation and outdoor high performance applications and leveraging these relationships we see further growth opportunities to cross sell and bring Dyneema technology to consumer. We're early in our exploration process but we're extremely excited about the potential that this presents and look forward to sharing more with you in the future in this regard. I'll now turn it over to Jamie to provide details on the third quarter results and our fourth quarter outlook before I make some closing remarks.

Thanks, Bob. The translation opportunities we have in composites, as well as in the other key growth areas, provide a great segue in how the changes in our portfolio will improve margins over time. Let's start with the third quarter, where continued margin expansion was the highlight. Third quarter adjusted EBITDA margins were 16.3% compared to our guidance of 16%. This reflects a 90 basis point improvement over the prior year. As has been the case all year, we have been able to partially offset weaker demand conditions with favorable mix from sustainable solutions and defense applications, which has proven resilient in the current environment. Lower raw material prices, along with cost reduction initiatives, also factored into the margin improvement. Our adjusted EPS of 57 cents was slightly better than our guidance of 56 cents. While sales came in lower than projected due to slower demand and the strengthening of the US dollar, Margin improvement partially offset these impacts. EBITDA was short of guidance, but EPS was higher, as EPS benefited from lower depreciation expense associated with restructuring actions, as well as lower interest expense. We paid down $100 million of debt during the quarter and refinanced our term loans, which not only reduced the interest rate, but also extended its maturity from 2026 to 2029. The annualized impact of this refinancing will result in $10 million of interest expense savings. The third quarter EBITDA bridge reflects the impact of demand, price and mix, as well as raw material costs on a year-over-year basis. Starting with demand, customers remain cautious and closely manage inventory levels within the quarter. As Bob mentioned previously, we have started to lap some of the weakness that started in 2022, particularly in Europe, and that is reflected in overall demand, which is down less than in the second quarter. Also highlighted on this bridge is the impact of pricing and deflation. This is the second consecutive quarter we've seen raw material deflation on a year-over-year basis, and we continue to hold on to price for a net benefit. You will note that SEM had unfavorable mix during the quarter, which is primarily driven by healthcare applications. As Bob mentioned, healthcare demand has been significantly impacted this year by destocking as our customers reduced their inventory levels, which increased following the pandemic and supply chain disruptions. We recently did an analysis of our healthcare OEMs who are public, and their inventory as a percentage of quarterly sales is running about 80% today, versus pre-pandemic, these levels were closer to 60%. Most of these customers have made explicit comments about managing down their inventory levels, and we expect that destocking to extend it to 2024 before it's complete. Further down the walk, you'll see the impact of certain cost reduction activities taken earlier this year, including targeted European restructuring, and reduced discretionary spend, which provided a $13 million benefit in the quarter. Net price benefit and cost reductions more than covered wage inflation. When we started the year, we modeled a modest recovery in demand in the second half of 2023. We are not seeing that and have updated our guidance to reflect lower sales and weaker foreign exchange, partially offset by higher margins. For the fourth quarter, we project adjusted EBITDA and EPS of $112 million and 47 cents per share, which reflects an increase of 5% and 12% respectively over the prior year. Margins are expected to improve 230 basis points, which more than offsets weaker demand to provide earnings growth for the quarter and for the first time this year. As Bob highlighted, Europe is driving a significant portion of this improvement. This results in full year revenue of 3.13 billion and adjusted EBITDA of 500 million. 2023 adjusted EPS is now projected to be $2.30 compared to $2.40 as lower EBITDA is partially offset by lower interest and depreciation expense. The negative impact of a stronger U.S. dollar accounts for 3 cents of the change in adjusted EPS from our prior guidance. We are maintaining our free cash flow guidance of $180 million as we expect to benefit from working capital efficiency and reduce capital expenditures to offset the change in EBITDA. Through our transformational journey to a specialty company, our ability to generate strong free cash flow has remained consistent. We are confident in our ability to continue managing through the near term and about our long-term growth prospects as outlined in our sustainability day a month ago. In October, we increased our dividend for the 13th consecutive year, viewing this as an important element of value for our shareholders. And I'll hand the call back over to Bob for some closing remarks.

Thanks, Jamie. Well, the year isn't over, and we're obviously focused on delivering in the fourth quarter. But as we look ahead, I'm encouraged to see destocking come to a conclusion in many end markets. There remain some question marks related to healthcare and interest rate-sensitive industries, but overall, we expect a return to growth in 2024. I'm very pleased to see the EBITDA expansion in Europe in the fourth quarter and see that as a positive heading into next year. And lastly, over the last few years, we have done an exemplary job of managing price, initially to overcome significant raw material inflation, and now with lower raw material costs, we see that as a potential tailwind heading into next year. Our performance in this regard reflects the specialty nature of our applications and the important steps we have taken over the years to upgrade our portfolio. We're obviously very positive about our growth potential, and in September we hosted a virtual sustainability day to highlight the opportunities we see in this area. The objective was to provide detailed context around the megatrends supporting long-term demand for our portfolio and specific product examples of where we are helping our customers achieve their sustainability goals. As a reminder, our four key growth drivers now account for 60% of total company sales. There are sustainable solutions, composites, healthcare in emerging regions. Combined, these growth drivers support a 6% long-term revenue growth rate. These projections are based on our historical performance as well as a deep understanding of the megatrends that support the long-term advancement of these areas. This includes customer sustainability goals and government mandates that rely on our material science know-how and formulation expertise to achieve them. At our sustainability day, we summarized our portfolio into three categories, reduce, renew, and preserve. And each of our segment presidents talked about the real challenges our customers face as they incorporate more sustainable solutions, as well as we showcased several product examples that highlight the performance characteristics of our formulations. We also provided data from independent sources that support the key megatrends that will drive demand for these applications. For example, we believe we are well positioned to take advantage of the infrastructure investments such as the Broadband Equity Access and Deployment Program that could take hold in 2024 and increase demand for our composite applications and fiber optic cable and related applications. And the same is true for the Inflation Reduction Act, which could translate into increased demand for our existing infrastructure as well as building new renewable energy sources. Other legislation mandates and customer poll are also in play in Europe, driving the increased need for material solutions that lightweight, reduce carbon footprint, and enable recycling. If you didn't watch our sustainability day live, I encourage you to go back and do so with a replay. The feedback has been consistent in that it helps investors gain a broader appreciation for the depth of our materials and the underlying external factors that will continue to create demand for them at a rate of 8% to 12%. We also reiterated our long-term objective to expand margins. We've come a long way from the 5.4% in 2006 to the 16% margins we have today. The growth in sustainable solutions, composites, healthcare will play a meaningful role and further expanding our margins to 20% on a total company basis. And expanding margins to 20% is just one of the strategic objectives that we have as a company, which you can see here and that we share during our Sustainability Day. With that, we happen to now open the line for any questions.

To ask a question, please press star 1-1 on your telephone and wait for a name to be announced. To withdraw your question, please press Start 101 again. Please stand by as we compile the Q&A roster. One moment for our first question. Our first question will come from the line of Mike Harrison from Seaport Research Partners. Your line is open.

Hi. Good morning. Can you hear me okay? Yes. Perfect. Thanks. I wanted to see if you could provide some more detail on what you're seeing in the packaging and market. As you acknowledged, it's a very important market for you, particularly in Europe. And it's very encouraging to hear that you expect the stocking to kind of run its course. But what are you seeing in terms of order pattern trends? What are you hearing from customers? And I'm curious, are there differences between what you're seeing in the food and beverage market side and personal care and maybe some other parts of that packaging market?

I think first of all, customers have all told us that they expect the balance of this year to be weak. We kind of have that reflected in our guidance, but we are hearing from them that there is less of a focus on just inventory reduction and maybe more of a focus on inventory management. So maybe not such a specifically stated goal to try to reduce inventory beyond where it's at, which I think is a good thing. I believe directionally they are planning for growth. I mean, obviously, if I just referred to someone like P&G, it's just one of many customers that we have. And that might could be in the areas of personal care as well as consumer food and beverage packaging. I think all of those are actually going to start to show a positive trend. Those are historically very resistant. that food and beverage packaging is historically recession-resistant, and I think that will prove the case when we get into the beginning of 2024.

All right, and then just in terms of the healthcare de-stocking that you're seeing, obviously a very unusual dynamic, and your analysis suggests that that's going to continue to Is this a consumables issue? Is it an equipment issue? Is it both? And I guess just maybe give us a sense of what keeps you confident that healthcare should continue to be one of your strategic growth areas.

I mean, look, for the most part, you know, what we do can be viewed as probably part of the consumable or disposable space. in terms of minimally invasive catheter tubing, drug delivery devices, and related packaging. We do some medical equipment, but the prior descriptions of what we're doing, it really makes up most of what we're doing in healthcare. And I mean, look, I just think overall that the system just had too much inventory of all those things on hand, largely in response to COVID, and then, of course, the supply chain challenges that followed. I have had some conversations in the healthcare industry where, you know, look, we're encouraged. We know that people are still actually seeking medical care. I think with employment numbers being strong, that's going to continue to be the case as long as people have access to insurance and so on. So I think the real demand is actually there, and the systems, hospitals themselves, as well as OEMs, are just trying to work down their inventory.

All right, thanks very much.

Thank you. One moment for our next question.

Our next question will come from the line of Frank Mitch from Fermium Research. Your line is open.

Thank you, and good morning. Appreciate the level of details. I was wondering if I could drill down a little bit more into the sales miss for 3Q and the 10% down guide for 4Q. The last conference call, Bob, you indicated that you thought pricing would be flat in the back half of the year. And in fact, that's how it looked like the third quarter came in. So that 5% delta on the sales line. Can you talk a little bit more about how much of that might have been volume versus FX? Because I know I think FX was also an issue there. And then on the 10% down, I assume you're still calling for flat pricing in the fourth quarter. So then how much of that is also kind of volume and FX in terms of a decline?

Do you want to?

The FX for the quarter, it's about $5 million of the total, and I'll have to look at that for the fourth quarter. I think that was in total, it's $0.03 in total from an EPS perspective, and they combined in the SPAC half, and it's $45 million in the fourth quarter for bringing down.

Okay, so more sizable in 4Q. And in terms of, again, on this 10% down sales for 4Q, how is your visibility on orders for the quarter? I mean, what sort of expectations are baked in in terms of, you know, let's say when Europe shuts down or whatever, any sort of color that you can provide on how you built up into that 10% down sales would be helpful.

Yeah, I mean, look, we... I mean, first of all, this whole year, visibility has been even shorter than normal. And, you know, we're not a backlog business, but typically we've got good visibility 30 to, you know, sort of 40 days out. Let's call it 30. You know, when I look at where October orders are for November, it's aligned with, you know, our expectations and the guidance that we just gave today. with some of what you just said, you know, Frank acknowledging that there will be some plant shutdowns at the end of this year, Europe, and so on, and holidays. That's really all included in the numbers that we provided today.

Okay, and then in terms of the plant shutdowns, I know you were talking about your customers, which is what I was asking about, but in terms of your own plant shutdowns, there was a 3% sequential decline in PP&E. I assume that that's a result of plant restructuring in Europe. Where do you stand on those shutdowns?

Yeah, so those are really all related to the timing of previously announced facility closures that finally came to conclusion and now you're seeing the benefit of less depreciation expense. We're really through that. There's one last facility that we continue to work on as part of the legacy clarion poly one combination that could come into next year. And then I'm sorry, I wanted to come back to one of the very first things that you said about price, because that assumption is correct. You know that we basically have got that assumed to be flat as we go through the end of this year. We did have some unfavorable mix that we highlighted for engineer materials. That'll probably be the case for Q4 as well. The pricing should be about a push.

Great. Thanks so much.

One moment for our next question. And our next question will come from the line of Michael Sison from Wells Fargo.

Your line is open. Michael, your line is open. Michael, if you could please disconnect and try dialing in using the US toll number or use the call me feature, that would be great. Thank you. We'll go ahead and move on to our next question. One moment. Our next question will come from Vincent Andrews for Morgan Stanley. Your line is open.

Thank you, and good morning. You know, raw materials have been a good news story in the back half of this year in particular, helping, you know, drive some nice margin improvement. Is it fair to say that raws will probably continue to be a benefit through the first half of next year and then probably flatten out? Maybe we just start there.

Yeah, I mean, look, I think a lot of that, of course, depends on ultimately what happens with with demand but um you know if we're still in a relatively low demand type environment then i would expect the you know level of benefit that we are seeing right now does continue into the first half of next year and obviously when you just look at the bridge schedule that jamie presented that's a pretty significant um pretty significant benefit and tailwind so hopefully that is the case but i mean obviously with the uh we do expect growth in 2024 which could take that down a little bit.

Okay. And just, you know, as we think, it's obviously a little earlier to talk about the full year of 24, but, you know, as we think about 4Q, the way that it's going to come in, you know, do you think that's the sort of starting point for 24, that 1Q maybe is just a bit better than 4Q, or do you think 1Q could actually have a nicer step up from the 4Q exit rate?

I mean, look, typically our first quarter and second quarter are the strongest of the years. Um, Europe is typically the strongest in the first quarter and I'm expecting a good, you know, first quarter. So you would see a step up from Q4 and Q1 simply because of, of seasonality and demand patterns that we see there. Um, you know, as I was setting my prepared remarks, you know, I really am sort of pleased with what we're seeing with Europe right now. Anybody else is saying that or thinking that, but a lot of it's been because of what we can control. You know, with the facility closures, with the cost reductions, and doing what we're doing with price, margins are, you know, overcoming the lower sales. So I see that as a positive going into 2024.

Great. Thank you very much.

Yep.

One moment for our next question.

And our next question comes from Kristen Owen from Oppenheimer. Your line is open.

Great. Thank you so much for taking the questions. I wanted to follow up on that last one and just sort of outline some of the puts and takes for the margin coming into 2024. I mean, I'm looking at the adjusted EBITDA margin bridge that you provided at Sustainability Day here on slide 19. Just thinking about the puts and takes for 2024, sort of those items within your control on the margin side.

Yeah, I mean, so there one is, I mean, kind of just do the math, right? And maybe as a follow on my, my previous response. I mean, if you just look at where we are on the bridge and Q3 and assume flat raw materials going in there next year. You know, you should see some similar comparisons until you get to really. You know, the middle of next year, which I think is true. There's a little bit of cost action that has yet to. Um, you know, that will come into 24 because those actions, you know, came into fruition this year, either partway through the year or later in the year. And then, um, lastly, just, you know, one additional facility. Uh, that we're looking at that was always part of the original, uh, clarion poly one sort of synergy plan. Those are things that. You know, I look at right now, you know, I'd say that's in our control. I'd also say, look, so is, uh. you know, so is pricing. And I think we've done a really good job of that over the last few years. I view that as a strength. I think that's a great sign on our portfolio and think that's in our control for next year as well.

Fantastic. That was part of my follow-up question. So I'll ask a different one then. We've spent a lot of time talking about Europe, but I recall you mentioning some potential green shoots out of Asia and earlier in the year. I'm just wondering if you can provide an update on that region. Thank you.

Yeah, I mean, look, I think, you know, at the beginning of this year, everybody was really optimistic that, you know, when Asia, you know, sort of came out of the COVID protocol, specifically China, you know, that we would see a return to growth. A little bit of that we did see at the beginning of the year. We saw an uptick in you know, requests for color design, color match, and so on, which is usually a pretty good leading indicator that additional business is coming. But China's really kind of had some fits and starts this year and has largely, you know, not, you know, reached what we thought would happen. So I kind of view that as sort of flat or unchanged probably to where we were just a few months ago. So not much to report there at this point. I know there's some discussion around, you know, government stimulus ultimately that could always take place, would be, should be a positive, I would think, if that happens. But until it does, we'll see.

Great. Thank you so much.

Sure. Thank you. One moment for our next question. And our next question will come from Lawrence Alexander from Jefferies. Your line is open.

Good morning. So I wanted to touch on kind of the longer-term growth targets you laid out at the Sustainability Day, and you've been talking about, you know, for several quarters. How has the destocking affected your confidence in that? Maybe another way to put it is, you know, how much of the sales lost to destocking this year do you expect to get back in 24, 25, you know, if and when demand trends normalize? Or do you just see kind of that longer-term target now being applied to a lower base?

Yeah. Look, ultimately, I see this playing out over a cycle where the growth rates that we presented inclusive of, you know, 23 will be achievable going forward. So, in some of those cases, obviously, we're down in 23. Just to give you some perspective on that, You know, Lawrence, obviously, with our guidance, you can see what total sales are down in third quarters, down 15%. So far this year, sustainable solutions have been down around five or six. It's kind of hard to get excited about a negative, but obviously holding up well. So I do think that that helps to support the long-term growth rate, that it's really not down so much in 23%. Look, in terms of how destocking comes to an end and what that means for demand really has yet to be seen and play out yet. I really can't put any specific numbers to 2024 yet on how I think that plays out. But I am, look, I'm optimistic and positive about composites and about sustainable solutions returning to growth next year.

Thank you.

Thank you. One moment for our next question. And our next question will come from the line of Vincent Anderson from Stiefel. Your line is open.

Yeah, thanks. Good morning. So not to belabor the price versus raw material conversation too much more, but as I'm working through expectations on your mix, on a mix that now includes significantly more pigment than historically, I'm kind of curious, if you're able to optimize your color offerings around maybe a lower-cost pigment mix, in a way where, you know, intrinsic physical properties on a resin input wouldn't allow that kind of flexibility on your part?

Not sure I completely got that question, but what I would say is that, I mean, first and foremost, you know, I would say our customers are very much focused on And we're just talking about the color space. So they're very much focused on sustainable solutions, being able to use more recycled content and making things more easily recyclable. That's certainly the brand owner focus. But they also focus on cost. So to the extent that they want to look at alternate materials that could result in some cost savings, I mean, we've always been agnostic, can't we, with the underlying base resin they want to use or the formulation. It's really just ultimately up to them with respect to what formula works for them to achieve the performance characteristics they're looking for. I don't really see that as a meaningful headwind at all, really, to price. I think that's still fine as long as we're delivering what they need us to, specifically, again, around those two areas of sustainability.

Okay. All right. Helpful. Thank you. And then this one will be a little bit simpler. When I think about your cross-selling opportunities in Dyneema, would you expect to focus really around expanding sales where you've already commercialized Dyneema into a specific application, or would these be potentially more novel? And if so, just kind of curious what kind of prototyping capabilities you have or would consider investing in to drive adoption in a new application?

I mean, look, fortunately, I do think there's a lot of opportunities there, maybe specifically if you're just looking at pulling Dyneema into more consumer space. It really starts with customer introduction and increasing awareness of the material and its capabilities. We have a great design team at Avian that just really looks at how to use different materials for customer needs, and so that is getting increasingly, I have to say, more incorporated into that analysis. And then, you know, from this idea of a prototyping, a lot of times our customers have that capability and like to do that just to see how materials perform themselves. So oftentimes I'd say that's a partnership with our customers. But it really starts with awareness in terms of what the material can do and how it can benefit them, particularly as it relates to increasing strength or reducing weight.

All right. Excellent. Thank you. Thank you. One moment for our next question. And our last question will come from Mike Sison from Wells Fargo. Your line is open.

Hey, good morning. Bob, I apologize if I missed this, but was volume down in the third and implied volume for the fourth?

Yeah, so it's down about 15% in Q3. Implied is about 10 in Q4. Really, that sales reduction is principally Demand is a little bit of an FX good guy. I think they're catching up on that.

Got it. And then for the fourth quarter, you know, if I take your EBITDA outlook and annualize it, you're running, you know, fairly below, you know, 2023 lows. But I, you know, it did seem like you felt you can grow EBITDA in 24. You know, how do we think about, you know, improving on that run rate as we head into the first half of the year? And then is there anything else that you have to generate growth into 24?

Yeah, I mean, so when I look at the fourth quarter, it's obviously the first quarter this year where we are showing year-over-year EBITDA growth. I just really can't emphasize enough, again, like sort of how I'm feeling positive about Europe and what we've been able to do with margins there. And so... I see that probably as the first thing just going into next year as a positive. We've got good momentum in that regard. I might be redundant here, but raw materials staying where they're at is also a positive going into the first part of next year. There's a little bit probably on the cost side, really, if it just comes down to what we can control. Anecdotally, customers are giving us feedback. They do think that You know, destocking is coming to an end, and I think that bodes well for, you know, the sales side picking up in the first quarter.

Right. Okay. And then do you have sort of deflation that sort of helps you in the first half of the year that just sort of flows through?

Yeah, I mean, that's what I'm saying. Like, raw materials sort of stay flat where they are, and we're just looking at year-over-year comps. I mean, you could take the EBITDA bridge that we had for the quarter and kind of look at that and know that second quarter was the first time we really had any deflation this year. Third quarter is obviously a bigger number, so you can kind of model out how that will flow into the first half of next year.

Got it. Okay. Thank you. Thank you.

We appreciate everybody's time and attention this morning, and we'll look forward to updating all of you with our year-end results when we get there. We'll be at a few conferences here this fall, so maybe get the chance to see some of you in person at that time.

Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect. Everyone, have a great day.