DuPont de Nemours, Inc.

Thank you for standing by. My name is Sydney and I will be your conference operator today. At this time, I would like to welcome everyone to the DuPont second quarter 2023 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 would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, again press the star and a 1. Thank you. Chris McRae, you may now begin your conference.

Good morning, and thank you for joining us for DuPont's second quarter 2023 financial results conference call. Joining me today are Ed Green, Chief Executive Officer, and Lori Koch, Chief Financial Officer. We have prepared slides to supplement our remarks, which are posted on DuPont's website under the Investor Relations tab and through the webcast link. Please read the forward-looking statement disclaimer contained in the slides. During this call, we will make forward-looking statements regarding our expectations or predictions about the future. Because these statements are based on current assumptions and factors that involve risks and uncertainties, our actual performance and results may differ materially from our forward-looking statements. Our Form 10-K, as updated by our current and periodic reports, includes detailed discussion of principal risks and uncertainties which may cause such differences. Unless otherwise specified, all historical financial measures presented today are on a continuing operations basis and exclude significant items. We will also refer to other non-GAAP measures. Our reconciliation to the most directly comparable GAAP financial measure is included in our press release and presentation materials that have been posted to DuPont's investor relations website. I'll now turn the call over to Ed.

Good morning, and thank you for joining our second quarter 2023 financial review. This morning, we announced quarterly results with revenue and operating EBITDA better than our previously communicated guidance. This performance reflects our team's ongoing strong execution while facing continued volume pressure and consumer-driven end markets, mainly electronics. In the second quarter, organic revenue declined We continue to see broad demand strength in industrial and markets, including water, automotive, aerospace, as well as healthcare, along with continued carryover benefit of pricing actions taken last year to offset inflationary pressure. Notably, operating EBITDA, operating EBITDA margin, and adjusted EPS were all up sequentially from first quarter. After nearly a year-long downturn, We also saw a sequential sales lift in interconnect solutions of 7%. We also continue to be proactive in taking additional actions within our control to minimize the impact of volume declines, given near-term slowdown in select end markets, while also focusing on optimizing cash generation. Turning to slide four, we continue to advance the number and value-added capital deployment. Yesterday, we announced completion of the Spectrum Acquisition, a leader in critical specialty devices for healthcare and markets. This acquisition fully aligns with our strategic objectives of increasing top-line growth through customer-driven innovation and expanding our industrial technologies growth pillar, while adding to our current offerings in the high-growth healthcare market. Spectrum is being integrated into our industrial solutions line of business where it fits nicely with our existing Livio franchise. With annual sales of about 500 million, Spectrum together with Livio and our Tyvek healthcare packaging business increases our total revenue in healthcare markets to about 10% of our portfolio with expected growth rates above the company average. Spectrum's year-to-date performance has been solid model estimates, which include an estimated operating EBITDA margin of approximately 22%. We are excited by Spectrum's complementary fit, and specifically our ability to leverage incremental growth opportunities, including synergies from cross-selling into complementary accounts, new and faster product development, and deeper design and co-development partnerships with OEMs. Further on M&A, we continue There has been good interest in the asset today. Regarding share repurchases, we expect we will complete the 3.25 billion accelerated share repurchase transaction launched last November within a month. We also intend to complete our remaining authorization through a new 2 billion ASR to be executed shortly thereafter. Regarding the water district settlement that was announced in June, public water systems, serving the vast majority of the U.S. population. Our portion of the settlement is about $400 million, and we expect final approval about six months following preliminary approval, which we expect to receive shortly. Regarding broader capital allocation goals, yesterday's closing of the Spectrum deal and the new $2 billion ASR essentially invested here last November. Our current capitalization remains very sound, and as a reminder, we have no significant debt maturities until November 2025. We are comfortable with a net leverage point around 2x as an equilibrium target going forward. Before I turn it over to Lori to review our financial performance, let me add that we remain excited about the visible growth complex challenges. To name just a few, strong growth is expected in the semiconductor industry with the ongoing global investment in new fabs. Overall growth in the semiconductor industry is anticipated to be high single digits over the coming five-year period. We have the leading materials to enable the next includes significant technology and support from the emerging generative AI revolution. Within water, we continue to drive growth in desalination and wastewater markets and in helping customers achieve their sustainability goals. Finally, our auto adhesives business is well positioned to continue to capture growth with its product offerings and electric vehicles.

With that, I'll turn it over to Lori.

Thanks, Ben, and good morning. Our focus remains on operational excellence and strong execution, and we are pleased to have delivered financial results ahead of expectations despite volume pressure in some of our most profitable lines of business in electronics. Turning to our financial highlights on slide five, second quarter net sales of $3.1 billion decreased 7% as reported and 4% on an organic basis versus the year-ago period. Currency results in a 1% headwind from dollar strength against key currencies, most notably the yuan and yen, and we also saw a 2% headwind related to portfolio changes. Breaking down the 4% organic sales decline, a 6% volume decline was partially offset by a 2% pricing gain, reflecting continued carryover benefit of actions taken last year to offset fraud-based inflation. Volume decline primarily reflects continued demand weakness in consumer electronics, coupled with inventory de-stocking across the channel, and some softness, including de-stocking in North American construction-related markets. Lower volume in these consumer-driven end markets was partially mitigated by continued strength in water, automotive, aerospace, and healthcare markets. Volume within electronics and construction end markets during the quarter was down 15% since the year-ago period, while the remaining industrial-based businesses were up about 4%. From a regional perspective, Europe sales in the quarter were up 4% on the organic basis, while North America and Asia Pacific were down 3% and 8%, respectively, versus the year-ago period. China sales were down 14% on the organic basis, driven mainly by the electronic demand weakness, but increased sequentially versus the first quarter. Second quarter operating EBITDA of $738 million decreased 11% versus the year-ago period, driven by lower volumes and the impact of reduced production rates in electronics as we aligned inventory with demand. Operating EBITDA margin during the quarter of 23.9% was down 110 basis points versus the year-ago period, driven by volume pressure, reduced production rates, and mixed headwinds in the high-margin semi-business. On a sequential basis, operating EBITDA and operating EBITDA margin were up from the first quarter. Decremental margins for the quarter was 40%, excluding the impact of absorption headwinds related to reduced production rates within electronics. Decremental margin was below 20%, enabled by aggressive actions taken year to date to reduce discretionary spend. Adjusted EPS in the quarter of $0.85 per share down 3% versus last year, which I will detail shortly. Looking at cash performance, I would first like to highlight that we have made a reporting change effective with today's second quarter results and are now providing cash flow disclosure separated between continuing and discontinued operations. This change is being made to improve visibility into cash flow generation and cash flow conversions of the ongoing businesses. On a continuing operations basis, Cash flow from operations during the quarter of $400 million, less capex of $123 million, resulted in adjusted free cash flow of $277 million and associated conversion of 73%. This reflects significant improvement versus last year on a comparable basis driven by lower inventory. Adjusted free cash flow included a benefit of about $80 million in reduced inventory and a headwind of about $200 million related to interest payments. Optimizing cash flow continues to be a top priority for us. While adjusted free cash flow and conversion improves sequentially, we still have work to do to get to our targeted levels and expect further improvement in working capital metrics by year end. Turning to slide six, adjusted EPS for the quarter of $0.85 decreased 3% compared to $0.88 in the year-ago period. Lower segment results more than offset below-the-line benefits, including a 19-set benefit related to lower net interest expense and a lower share cap. A higher tax rate and exchange losses during the quarter resulted in adjusted EPS headwinds of $0.08 per share. Our tax rate for the quarter was 23.7%, up from 22.6% in the year-ago period, driven primarily by geographic mixed information. Turning to segment results, beginning with E&I on slide 7. E&I's second quarter net sales of $1.3 billion decreased 14% as organic sales declined 12% due to lower volume, along with currency headwinds and an unfavorable portfolio impact of 1% each. At the line of business level, volumes for semiconductor technologies decreased 19%, while interconnect solutions volumes decreased 15% versus the year-ago period. The decline in semi-tech resulted from a continuation of lower semiconductor FAB utilization rates due to weakened market demand as well as inventory stocking across the channel. Chip FAB utilization rates in the second quarter averaged in the low 70s on a percentage basis. The decline in interconnect was driven by continued leaked smartphone, PC, and tablet demand along with channel inventory stocking. Our PCB customers in China operating in the second quarter with utilization rates slightly improved from the mid-40s during the first quarter, which was a cycle low. The PCB market has been in slowdown for a year now, and we are beginning to see signs of improvement within our interconnect business, illustrated by first and second quarter sequential growth of about 7%, with further expected sequential growth in the third quarter. Sales for industrial solutions were flat on an organic basis, That's pricing and ongoing strength in broad-based industrial markets are offset by lower demand in largely consumer-driven areas, such as advanced training applications and those tied to electronic markets, including OLED displays. Operating EBITDA for E&I at $349 million was down versus the year-ago period, primarily due to volume declines and lower operating rates to better align inventory with demand, partially offset by reduced discretionary spend. Turning to slide 8, WMP's second quarter net sales of $1.5 billion were flat versus last year as organic sales growth of 1% was offset by a 1% currency headwind. Organic growth of 1% reflects a 5% increase in price resulting from the carryover impact of pricing actions taken last year, mostly offset by a 4% decrease in segment volumes due to declines in shelter solutions. At the line of business level, organic sales growth was led by water solutions, which was up mid-teens, on continued demand growth for water filtration, led by reverse osmosis and ion exchange resins, along with benefits from carryover pricing. Safety solution sales were up mid-single digits on an organic basis, driven by carryover pricing and volume strength in Kevlar and Nomex within aerospace and automotive markets, especially for EVs. coupled with Tyvek strength in healthcare. Shelter solutions were down 12% on an organic basis, driven by demand softness in construction markets, as well as destocking, although we do expect a reduced impact from destocking in the second half. Operating EBITDA for W&P during the quarter was $368 million, up 6%, while operating EBITDA margins of 24.6% increased 140 basis points versus the year-ago period. The improvement resulted primarily from net pricing, gains, and discipline cost control, which more than offset volume decline. Turning to slide nine, I will close with a few comments on our outlook and guidance for the third quarter and full year 2023. Regarding the demand environment, we continue to expect fairly steady demand in most of our industrial end markets within E&I and W&P, although we expect sales moderation in our water business due to slower demand in China. Within electronics, we saw stabilization and some early lift in our interconnect solutions business, with 7% sequential improvement in sales during the second quarter, and we expect mid-single-digit sequential growth to follow in the third quarter. We believe spending markets likely bottom during the second quarter, and we assume that net sales in the second half will improve slightly on a sequential basis. Given ongoing consumer electronics demand headwinds, notably in China, we have tempered the rate of second-half growth since prior assumptions. We are adjusting our full-year 2023 guidance to account for the slower cadence of recovery in electronics, including our actions to continue to reduce production to align inventory with demand. In addition, our third quarter and full-year guidance now includes the estimated contributions from Spectrum beginning August 1st. For the full year, we now expect net sales to be between $12.45 and $12.55 billion, operating EBITDA to be between $2.975 and $3.025 billion, and adjusted EPS to be between $3.40 and $3.50 per share. For the third quarter 2023, we expect revenue of approximately $3.15 billion, operating EBITDA of approximately $765 million, an adjusted EPS of approximately 84 cents per share. With that, we are pleased to take your questions and let me turn it back to the operator to open the Q&A.

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. We'll pause for just a moment to compile the Q&A roster. Your first question comes from the line of John McNulty from BMO Capital Markets. Your line is open.

Hi, good morning. This is Bhavesh Lodaya for John. Maybe on the water business, the water business tends to be a bit less cyclical compared to your other businesses. Can you add some color on what is driving the softness in China? What changed there since maybe last quarter and what kind of recovery do you expect maybe over the next couple of quarters?

Yeah, we we think the next couple quarters are just a But, you know, as that business has done quarter in quarter out, it grows at a pretty nice clip, and I expect as China improves some, you know, that growth rate will pick up also. Remember, 70% of that business is renewable business, you know, that's steady.

So I think a couple quarters, maybe a little later in China is what we're seeing.

Got it. And then in electronics, great to see the inflection coming in the interconnect solutions. We have also seen some positive MSI data points. What are you hearing in SEMI's technologies? When do you expect an inflection there? And maybe any color on your order books for electronics that you are seeing this quarter so far?

Yeah, so just back to the IC. that being a downturn in the first quarter, it was really when it bottomed. And then we did see 7% sequential pickup and we're expecting mid single digit pickup by the forecast we had for the third quarter. So obviously, you know, that's starting to come nicely off the bottom. The semi one is the one we tempered a little more in the second half. We look like we hit the bottom in the second quarter. We're not, gauging much upturn in the third quarter. Instead, we're assuming we have another quarter, you know, kind of near the bottom or just very slightly up from that. And then we think somewhere the inflection point is more in the fourth quarter, but it's hard to tell what month you actually see it. So we did pick it up a little bit in the forecast in the fourth quarter, but not significantly. So that's the thing we kind of tapped down when we gave you the guidance here today. But I think we've seen the bottom in semi and we're seeing the lift begin in ICF, not Remember, ICS is still negative. It has a ways to come back still, but it was down over 20%, and we're starting to ride it back. Those will still be negative in the third and fourth quarter on a year-over-year compare.

I appreciate the time. Thank you. Thank you.

Your next question comes from Christopher Parkinson from Mizuho Securities.

Great. Thank you so much. If we circle back very quickly to the ICS side, there's been a bit of a difference between how China handset sales have been trending of late versus the rest of the Western world in terms of how to think about that. I'd love some comments on how to think about that into the second half of the year, as well as you do have a few customers with some potential new launches in the second half. So just in terms of the normalization process, it would be very helpful to get some commentary on how to think about that as it turns more into the second half. but probably more importantly, even in the 2024, based on kind of the renewed, I'd say, much lower bar than we've seen in the past, let's say, year and a half or so. Thank you.

Yeah, let me comment. I'll turn it to Lori. I don't want to we know which phones we're in and we're in a better position than we were last year. Not that we were in a bad position at all last year, but we feel like we're in a good position with the launch of the new models coming in. We know what we're in in those phones. And by the way, clearly one of the things I think you all know we're in is the Capcom technology for the 5G antenna is a key component for us, along with some other components, but that's a key one. Or you want to just talk about the timing of

Yeah, on the smartphone and broadly the consumer electronics recovery, that was part of the revision that we had in the second half. So our original expectations on a four-year basis for smartphones would be down about 1% and PCs down about 7%. We revised expectations on each piece of those markets along with industry forecasts for smartphones down to be more in the 5% range and PCs probably low double digits. But that does embed year-over-year growth in the fourth quarter. So it sounds like one more quarter of year-over-year down in the third quarter, and then recovery in the fourth into a more normal market, and most likely setting up for a strong 2024 if those markets are completely through the destock and returning to more of a normal demand and growth pattern.

That's very helpful. And just as a very quick follow-up, just on the W&P side, you know, you've seen some very, very solid growth out of water solutions. but you did have some comments as it pertains to kind of the second half based on some fairly difficult comps, to my understanding. Can you just hit on kind of what's the outlook for this business? Is your commentary solely a function of just the difficult comps, and you'd expect kind of a reacceleration in 2024? But if you could just hit on that kind of that cadence and how we should be continuously thinking about that business in the long term, that would be very helpful. Thank you.

Yeah, because I think the way to look at it, that business concern, you know, we have a big installation we're doing and all that. So it's not going to be every single quarter, but generally that business grows, you know, kind of mid to high single digits pretty consistently. Now, this past quarter, we had even a better quarter than that on the growth rate. So again, it can be lumpy, but when you kind of smooth out the whole year, I think that's the way to look at it, you know, kind of in that 6% to 8% growth range, you know, when you smooth out the year. And look, I expect, you know, China activity will pick than we had in the second quarter. And, you know, I think, again, it's a consistent business. You know, and it has been since we've had it. So I would expect it to continue to grow in that range.

Yeah, and to Ed's comment on the lumpiness, if you put a two-year stack on the volume, we're up high single digits every quarter. So there is lumpiness from comments around sometimes some project work going on. But in general, it's really strong growth for us. And there's no change in our go-forward forecast, especially with the requirements that are going around on sustainability and the access to clean water. Those are the key growth drivers for us.

And the key here is there's a replacement business that's 70% of the business, so that adds to the consistency of it.

Your next question comes from John Roberts from Credit Suisse.

Thank you. Ed, is it fair to say that Delrin will be a private equity transaction? It would seem to be hard for a strategic to do a closing by year end at this point.

Yeah, we're pretty confident we'll close it by year end. I would just say private equity has been interested along with strategic, but I don't want to get into any more than that at this point.

And then secondly, there's been some challenges to the 3M PFAS settlement. Are you anticipating having to go through a similar process with your settlement?

Yeah, you know, John, what happened here was very typical. I don't think by what, you know, we're hearing that there's going to be a problem here. We're thinking in the very near future, we get preliminary approval from the judge. And as we said in our prepared remarks, it would be about six months after that preliminary approval from the judge where we would then be finished with that and make the payment.

Thank you.

Your next question comes from Steve Tusa from JP Morgan.

Hi, good morning. Hey, good morning, Steve. Can you just give us a bit of an update on the – I know these businesses aren't the most raw material centric anymore, but maybe just a bit of an update on the raw material outlook for this year. I'm not sure if you called it out in the beginning of the call, the $100 million you were talking about before.

yeah so that was a net headwind between price and rods and so we did increase that to about 140 million from our view of 100 million so we have seen a step up in the expected benefit from deflation um to remind you it was brownlee 800 million last year of a headwind that we saw and so we've got obviously a fair bit of room to go to get all of that money back but we're making really nice progress initially a lot of the deflation is coming from the energy and logistics side you know you can see what the the natural gas prices have done from the peaks that we saw in the third quarter of last year. And with the stabilization in the supply chain, we're seeing nice improvement in logistics. So the one piece that we're working through is just the timing of when that falls through the P&L. So we actually, in the first quarter predominantly, a little bit in the second quarter, actually saw some headwinds from the carryover, from the escalation in 2022 from a P&L perspective. And as we head into the back half of the year, we'll start to see those bend. from a procurement perspective, drop into the P&I?

Yeah, Steve, it kind of takes four to five months on the roles to work its way through into our system that we build a customer. So, you know, some of this we're obviously going to see now in 2024. But the procurement team has been working very aggressively. And Laurie and I meet with them on a very consistent basis because it's a big part of teeing up 2024 for us. And by the way, Steve, just as a side note, the margins on E&I Remember, not much of the walls were any, and I, we only raised prices as we rebound.

And is there any risk around anything you're seeing in pricing in W&P that when you look out to the second half or in the next year, any aggression on pricing in those businesses?

So very small. The one area we're going to give up some pricing

Okay, great. Thanks a lot. Thanks, Steve.

Your next question comes from David Begliter from Dutch Bank.

Thank you. Ed and Laurie, how much did Spectrum add to Q3 and 23 guidance?

Yeah, so in total, it'll give you about a little north of $200 million in sales at a 22% margin. It's pretty consistent across the month, so you'll take two months of it in Q3. From an EPS perspective, it's really only about a penny on a full year basis once you factor in the loss of the interest income from the cash that we paid for the deal. So it's more of an EBITDA function versus an EPS position.

Got it. And just on destocking and shelter, where do you think we are? I know you said we're close to the end here or it's moderating. How much further do you think we have to go in shelter solutions, destocking? I think it's

You know, one of the big box guys, by the way, was doing a rebalancing of all their inventory by moving it around to different stores and regions. That's how they were doing it. And they were pretty much through that process.

So I think at the end of third quarter, we're kind of there. Thank you. Yeah, thanks.

Your next question comes from Mike Leathead from Barclays.

Great. Thanks. Good morning, guys. First question, your corporate and retained business came in a bit better than it historically has. Can you just help us unpack what happened this quarter there and just how that should trend going forward?

Yeah, so we had a really strong growth within corporate M&M. It was driven by the effusive piece, which is the largest segment of it. And it's really from the EV growth and the overall auto build growth. So auto builds were up about 16% in the second quarter. We would have posted a similar number. And we see really nice performance in the EV. So that's what drove the improvement here over here primarily.

Great. And then second, just on ENI, you talked about reducing production rates to help manage inventory. Do you expect that to still be some degree of drag in the second half to earnings? And then just relatedly, how should we expect working capital to finish out this year?

Yeah, no, we're definitely going to take the absorption this quarter. We're in now third quarter, about $40 million. baked into the plan that we've given here today.

Yeah, well, we saw a nice improvement inventory in the second quarter, about $80 million of a reduction. We'll look to continue to drive that down as we get into the end of the year. We had an improvement sequentially in both cash generation and cash conversion. We'll look to continue to improve that as we get into the back half of the year. Our third quarter is typically our strongest quarter for cash generation because we don't have an interest payment which we have in the second and the fourth quarter. We pay our annual bonus in the first quarter. So the third quarter is the clean-in from that perspective. And just a note that I had mentioned on the script is to make sure that you thought it. We'll move to a continuing ops basis presentation in cash flow. So we'll take out all the noise from the discontinued ops components, which are primarily in this year the funding of the escrow account, which will take place at some point in the second half, and then the funding of the other MOUs So, we'll pull that out and just kind of focus on continuing operations and make those cash generation.

Great. Thank you.

Your next question comes from Josh Spector from UBS.

Yeah. Hi. Thanks for taking my question. I guess first I wanted to ask on the 3Q guidance. So, you know, if we look organic sales and EBITDA, you're kind of guiding flat sequentially. But you're talking about ICS up mid single digits. Sounds like raw materials could be a little bit better to help. Typically with ICS up, you get a mixed benefit there. So, you know, what drives that flat EBITDA? What are some of the offsetting items that would keep EBITDA flat versus having it up sequentially on an organic basis?

Yeah, so the three biggest items that we had mentioned first being the water deceleration. So we see some moderation in water as we get into the back end of the year coming off of a really strong quarter in the second quarter. We had also mentioned that we do expect to have to get back some price primarily in the shelter business of in water. And then the third, probably smallest piece, but something worth raising was we do see some small destocking within biopharma. So it's been pretty well telegraphed across some of the

other players um and we are starting to see that a little bit within our liveo business in the industrial solution um business and ki okay now that's helpful and i guess when i think about ics and look into 2024 so i haven't done the full math but maybe organic you're down something like 10 this year i i guess when we look at smartphone growth pc growth there's not a massive inflection next year there's better growth forecasted maybe low single digits. I guess, how do you think about that ICS business performing relative to that? Do we overbuild some inventory so we don't get the full bounce back, or do you expect it stronger? If you could frame that, that'd be helpful. Thanks.

Yeah, I mean, it's kind of hard to say at this point how the restocking potentially could happen in those two spaces. We would expect it to perform nicely alongside the market. The one tailwind that will happen for us in a year-over-year perspective on EBIT double, we won't have those absorption headwinds that we had in 2022. So the predominance of those absorption happens for reasons within both ICS and SEMI, so those create tailwinds for us as we head into 2023. Okay.

Thank you.

Your next question comes from Vincent Andrews from Morgan Stanley.

Thank you, and good morning. I'm wondering if you can speak just a little bit about the cost work you've been doing, kind of past, present, and future, just looking at the income statement. I've got SG&A down about $76 million year-to-date, R&D down 32, and then sundry expense down 40. Maybe you can kind of contextualize those decreases and how they'll play out over the balance of the year and which segments presumably we're seeing the most and the ones that are having the most macro concerns. And maybe just also remind us what sundry expense actually is.

Yeah, so the predominance of sundry is really not even in operating EBITDA. So it's where our interest income comes in. It's also where some gains on asset sales that don't get reported in operating EBITDA or adjusted EPS come in. So it's not really primarily related to our operating business itself. And there's detail in the queue when that comes out tomorrow about what all of the other specifics are. But that's not really a reflection at all of any of our efforts to control discretionary expense. From that perspective, though, we have been very aggressive on controlling discretionary spend to minimize the decrementals that we've been posting, and I think we've done a nice job doing that. So in the first half, our decrementals, as reported, were 40%. But if you take out the headwinds from the absorption that we've been driving to reduce inventory, we're more down in the mid-20s. And so that's really a reflection of the aggressive actions we've taken From both, we did a small restructuring to be able to reduce some headcounts primarily in the G&A space and really trying to keep R&D and marketing and sales pretty clean. And then we have been taking some reductions to our annual discretionary compensation or bonus. And so that's what you're seeing more so coming in through the R&D line. That would be a piece of that. And then on the SG&A line would be the small actions that we took to reduce headcount as well as the discretionary expenditure.

Yeah, by the way, one other question. We've really put the word out to our team, hey, while we're in a tougher environment here, we'll come out of it nice. But, you know, just watch anything on the discretionary side.

Okay. And then just as a follow-up, Ed, nothing happening presumably on the bolt-on M&A side of the table for the rest of the year? Any thoughts there?

No. No, I don't think you'll see anything, obviously. pause. We love where we've got the balance sheet at. As I think Laurie mentioned on the call or I did, you know, we're going to have leverage X and an E or somewhere around 2X. That's where we want to be. And, you know, we're in a great spot. I don't feel like we need to do anything.

So we are where we got to where we need to be.

Okay. Excellent. Thanks very much.

Your next question comes from Frank Mitch from Fermium Research.

Hey, good morning. Ed, I had the Riverhouse Benedict at Odette's on Sunday. It was very nice, so congrats on that.

Oh, thank you. I haven't had it yet.

You haven't had it yet? I highly recommend it. I highly recommend it. Hey, following up on the M&A question, auto adhesives is still in your corporate line item. When might we expect that to be folded back into the – into one of the businesses and or is that a candidate for divestiture?

No, it's not a candidate for divestiture. It's very core to us. We like the position we have, especially with the EV opportunity we have. And we're already obviously seeing a lot of wins there. The growth rate's been phenomenal. So we like that business. And by the

won't see anything in the next couple of years okay thank you and then if i if i look geographically i mean europe uh has been up uh year over year uh based on price uh what are your thoughts in terms of uh in terms of volume growth in in that region yes the volume growth in general in europe is about flat um

I would expect a similar performance as we get into the back half of the year. Really, the region that's been the toughest for us has been Asia Pacific, which we've been highlighting, which obviously is China. The price piece, though, it will start to wane as we get into the back half of the year. So we saw it kind of cut in half as we went from Q1 to Q2. And then as we get into Q3 and Q4, it would be flat, slightly negative, given

Great. Thank you.

Thanks, Rick.

Your next question comes from Steve Byrne from Bank of America.

Yes, thank you. The EPA has estimated several thousand water districts that would need to comply with the proposed MCLs. My question for you is, Ed, you mentioned you think you could get final approval on the settlement in six months or so. Do you need a certain fraction of those water districts to opt in? And can you comment on how that is going? And do you have a view on how they will comply? Do you expect they will mostly use carbon or do you think some of them might employ RO or ion exchange, you know, your technologies?

yeah so look we there's a percent um that have to call it opt-in um or we can walk away from the settlement um so I mean that's a very high percentage and we think um just a bit to tee it up that um you know that that will not be a problem um remember a lot of these water districts have been being talked to by the plaintiff's side of this this isn't hasn't been done in a vacuum So, you know, it's they've been talked to along the way here to get to this preliminary settlement. So I think shortly, as I said, we will get it approved by the judge on a preliminary basis. And then you work all the opt ins to make sure you get that done. And then you have final approval once you hit that threshold. So, you know, it's really up to each of the different different water districts how they're clean up any PFAS that's in there. So I don't want to comment on that.

And then you mentioned that 70% of your water business is renewables. I was just curious, what fraction of that are you selling directly to the customer versus going through an intermediary

service provider and do you have an interest in changing you know that fraction by getting more aggressive in your own sales force i don't see any change in our go-to-market strategy the predominance of his direct um as we go to the customers and put the projects in place and we're just replacing the filters um which is where the recurring revenue comes from so this is a um as we had mentioned earlier on the call you know kind of is a high single-digit grower for us. A lot of opportunities we go forward around the sustainability and then the access to clean water.

Thank you. Thanks, Steve.

Your next question comes from Arun Viswanathan from RBC Capital Markets.

Great. Thanks for taking my question. I just wanted to ask about the electronics market here. Could you just elaborate on, you know, the destocking, the volume trajectory, I guess, from here? I think previously you'd expected this year to be the main, you know, volume negative hit. You'll be facing easier comps next year. Do you think you should grow in kind of, say, the mid-single-digit level for next year, or where do you expect electronics volumes to be next year? Thanks.

Yeah, so we... You know, as we had mentioned, we believe within ICS that we'll continue to see sequential improvement as we head into Q3, and then even a little bit of potential improvement as we head into Q4. In the semi, we don't see a material bump in sequential sales until we get into the fourth quarter, but definitely the year-over-year volume headwinds will start to ease, and we see full-year overall ENI organic growth of about 10%, and that's primarily a volume reflection. within that segment. So it's probably a little early to call what 2024 looks like. You know, I think there's a pretty good sense that it would be positive just given that you won't have a DSTOC going on. And even if the demand is flat, which would be hard to see, you don't have that headwind from a DSTOC here over here. So we're really encouraged that we head into 2024 from the tailwinds that we'll see from not only market recovery and electronics, but also the lapping of the absorption habits that we've taken this year to control inventory. And then the further benefit from deflation as it fully runs through our P&L are kind of the key components that we're keeping track of.

Great. Thanks. And just real quickly on the share buyback plans. So you'll be completing the 3.25 very soon. Could you just describe how we should think about the other 2 billion? that you commence shortly thereafter. Would that be done ratably, or how should we think about that, how it flows in? Thanks.

Yeah, so it'll be a similar structure as to the first 3.25. Yes, we'll complete that within a month, and then shortly thereafter, we'll execute the $2 billion ASR. So you'll get 80% of the shares up front, and then you'll get the 20% cleanup in the back, and it probably will take us about six months. about a quarter for every billion dollars of shares that you're taking out.

Thanks. Thanks. Your next question comes from Mike Sisson from Wells Fargo.

Hey, good morning. In terms of semi-technologies and interconnect solutions, I think historically after a destocking event, you do see some restocking. But, you know, given it's taking so long for the destocking to end, how do you think that plays out this time around? Is there any differences between the regions on that?

Yeah, I mean, it's hard to say what everyone's going to do with respect to the restock after coming through such a significant destocking. So they might change their normal pattern just because of how severe this one was. So probably a little too early to say what's going to happen from a restocking perspective. It looks like all... to a nice recovery next year. I mean, everyone wants to keep stocking and listen to most calls and it doesn't even matter what point you all are going to with the stabilization that's happening in the supply chain. You know, generally everybody seems to be in that zone.

Got it. And then just a quick follow-up. You know, E&I has historically been above 30% for EBITDA margins and to sort of get back there, is it just simply getting all the volume back?

Yeah, it's it's really two things to get in the volumes back. But remember a point I think I made earlier when Steve Tooth was on the EBITDA margins X, the absorption in the second quarter were already over 30%. So the absorption is what pulled it down. The charge we took there could have sounded the 26.6 ish number. So we know we can even in a softer volume environment, we're running it a little north of 30. And as you said, and I

Got it. Thank you. Thanks.

Your final question comes from Patrick Cunningham from Citibank.

Hi. Good morning. Is there any updates to your expectations for $20 million in synergy capture from Spectrum, and what should we expect for the cadence there?

Yeah, no updates to that. We still expect $20 million. It probably will take the better part of 12 to 18 months to get the full 20 million out. I mean, obviously for us, this is more of a revenue synergy opportunity as we bring the two portfolios together and merge our expertise in biopharma with their expertise in medical device from a revenue synergy perspective.

Got it. That's helpful. And how do you expect the healthcare business to trend throughout the year, both on the legacy and the spectrum side? There's been some commentary pointing to pockets of destocking as companies deplete safety stocks. Have you seen any of that from any of your businesses?

Yeah. So our Livio business, I think Lori mentioned this a little while ago, in the biopharmacy, we're seeing some destocking there. And I heard I think six other companies have Just to correct that a little bit. And, you know, it was another one of those markets, just like Semi. I remember I was getting calls from CEOs in the healthcare business that, you know, we need more, we need more. And, you know, I think just like Semi, everyone overshot. And there's a little bit of a correction going on there. But I'd say that's probably the third and fourth little correction there. As Lori mentioned earlier, the spectrum numbers are kind of right on where we thought they would be. So they look like they're keyed up for the year we thought they were going to have.

above company average, certainly above GDP.

Great. Thank you. Thank you.

I now turn the call over to Chris McRae for concluding remarks.

Okay. Thanks, everybody, for joining our call. Just for your reference, a copy of the transcript will be posted on our website once available. This concludes our call. Thank you.