Stepan Company

Greetings, and welcome to the Steppin' Company fourth quarter and full year 2023 earnings conference call. During the presentation, all participants will be in a listen-only mode. Afterward, we will conduct a question and answer session. As a reminder, this call is being recorded on Tuesday, February 20, 2024. It is now my pleasure to turn the call over to Mr. Luis Rojo. Vice President, and Chief Financial Officer of Stepan Company. Mr. Rojo, please go ahead.

Good morning, and thank you for joining Stepan Company's fourth quarter and full year 2023 financial review. Before we begin, please note that information in this conference call contains forward-looking statements, which are not historical facts. These statements involve risk and uncertainties that could cause actual results to occur materially. included but not limited to prospects for our foreign operations, global and regional economic conditions, and factors detailing our Securities and Exchange Commission filings. In addition, this conference call will include discussions of adjusted net income, adjusted EBITDA, and free cash flow, which are non-GAAP measures. We provide reconciliations to the compatible GAAP measures in the earnings presentation and press release. which we have made available at www.stepan.com under the investor section of our website. Whether you're joining us online or over the phone, we encourage you to review the investor slide presentation. We make these slides available at approximately the same time as when the earnings release is issued, and we hope that you find the information and perspective helpful. With that, I would like to turn the call over to Mr. Scott Behrens, our President and Chief Executive Officer.

Good morning and thank you all for joining us today to discuss our fourth quarter and full year results. To begin, I will share our fourth quarter and full year highlights. Luis will then provide additional details on our financial results and I will finish up with comments on our strategic investments and will also provide brief comments on 2024. For the full year, adjusted net income was $50.7 million versus a record prior year of $153.5 billion. Earnings for the full year were significantly impacted by an 11% decline in volume due to a slowdown in demand across most end-use markets, including significant customer and channel inventory destocking. While we believe the negative impacts of destocking are mostly behind us, we continue to experience destocking within our agricultural business at the start of 2024. The team did an excellent job controlling our cash expenses. Cash expenses were similar to the prior year due to proactive headcount and discretionary expense controls implemented earlier in the year and lower incentive-based compensation accruals. Additionally, we executed our voluntary early retirement program and other fourth quarter workforce productivity actions that will deliver savings in 2024. In 2023, our cash flow from operations increased to $175 million, representing growth of 9% or $14 million compared to the previous year. The improvement in liquidity was driven by reducing inventory levels while we continued with our significant level of investment in our strategic growth projects. In the fourth quarter, the company reported adjusted net income of $7.5 million versus $13.5 million in the prior year. Volume was up 3% versus prior year, driven by double-digit growth in polymers and 1% up in volume in surfactants. Within surfactants, we delivered strong volume growth in personal care from our low 1,4-dioxane investments. We also grew volume in the industrial cleaning end market and with our distribution partners. Latin American surfactants volume also grew strong double digits as we continue recovering the business. These gains were partially offset by continued customer and channel destocking in the agricultural end market. Expenses were similar to prior year due to proactive headcount and discretionary expense controls implemented earlier in the year and lower incentive-based compensation accruals. Adjusted EBITDA for the fourth quarter was $37.5 million versus $40.0 million in the prior year. The reduction of 6% in adjusted EBITDA was largely driven by surfactants and specialty products, partially offset by growth in polymers. Surfactant EBITDA was lowered due to an unfavorable customer and product mix, lower income in agricultural chemicals, and lower revenues within our biocide product line. Latin American surfactants experienced lower volumes and margins due to competitive imports. Specialty products was down versus record results last year due to pricing pressure and higher cost raw materials. Adjusted EBITDA for polymers nearly doubled due to strong volume growth. We continue to make significant progress on our cash objectives, delivering another $19 million reduction in our inventory levels during the last quarter of the year. We delivered $22 million of positive free cash flow during the quarter as we finished our heavy capital investment phase. In the fourth quarter, our board of directors declared an increase to the quarterly cash dividend of one cent per share, or 3%. marking the 56th consecutive year that the company has increased its cash dividend to stockholders. During the fourth quarter of 2023, the company paid $8.4 million in dividends to shareholders and $33 million in dividends to shareholders for the full year. The company did not repurchase any company stock during the year and has $125.1 million remaining under the share repurchase program authorized by the Board of Directors. We remain confident in the strength and diversity of our business and its ability to generate cash that will allow us to invest in our current business, pursue strategic M&A opportunities, and return cash to our shareholders. In summary, 2023 was a very challenging year for the company, but I am proud and grateful for the resilience and efforts shown by our team in executing the two biggest growth projects in the company's history while concurrently delivering our productivity gains and workforce action. Luis will now share some details about our fourth quarter and full year results.

Thank you, Scott. My comments will generally follow the slide presentation. Let's start with slide five to recap the quarter. Fourth quarter adjusted net income was $7.5 million, or 33 cents per dilute share, versus $13.5 million, or 59 cents per dilute share for the fourth quarter of last year. Specifically, the adjusted net income for the fourth quarter excluded deferred compensation expenses and environmental reserve changes. Both items were similar to the prior year for a total of $2.7 million after tax. Finally, we recorded restructuring charges of $6 million after tax. This includes our workforce productivity program as well as non-cash asset and goodwill impairments. The deferred compensation figures represent the net income related to the company deferred compensation plan, as well as cash settled stock appreciation rights for our employees. Because these liabilities change with the movement in the stock price, we exclude this item from our operational discussion. Slide 6 shows the total company net income breached for the fourth quarter compared to last year's fourth quarter and breaks down the decrease in adjusted net income. Because this is net income, the figure is not adhered on an after-tax basis. We will cover each segment in more detail, but to summarize, we deliver excellent operating income growth in polymers and lower operating results for surfactants and specialty products. Slide 7 focuses on the surfactant segment results for the quarter. Surfactant net sales were $370 million for the quarter, a 19% decrease versus the prior year. Selling prices were down 22%, primarily due to the pass-through of lower raw material costs, unfavorable product mix, and competitive pricing pressures in Latin America. Volume increased 1% year-over-year, primarily due to strong double-digit growth in personal care from our low $1,400 investment. We also grew volume in the industrial cleaning and market and with our distribution partners. Latin America's surfactant volume also grew a strong double digits as we continue recovering the business. This growth was largely offset by lower demand within the agricultural end market due to continued customer and channel inventory stocking. Foreign currency translation positively impacted net sales by 2%. Surfactant operating income for the quarter decreased $6.9 million. mainly due to the product mix and lower unit margins in Latin America due to competitive pressures. Now, turning to polymers on slide eight. Net sales were $147 million, a 1% decrease versus the prior year. Volume increased 10%, driven by a 12% increase in global rigid polyols and higher demand within the specialty polyol business. Rigid polyols experienced a strong growth in all regions. Selling prices decreased 15%, primarily due to the path through of lower raw material costs. Foreign currency translation positively impacted net sales by 4%. Polymer operating income increased more than four times versus prior year, primarily due to the 12% increase in global rigid volume and margin improvements. Finally, specialty product operating income decreased $3.9 million. This decline was mostly attributed to lower unit margins, and volume within the NCT product line. The lower unit margins were primarily due to a competitive pricing pressure. Turning to slide nine, for the full year, adjusted net income was $50.7 million, or $2.21 per dilute share, a 67% decrease versus a record $153.5 million, or $6.65 per dilute share in the prior year. Total company volume declined 11% due to lower demand and significant customer and channel inventory disrupting across most of the company and markets. Adjusted EBITDA for 2023 was $180 million, a decrease of 40% versus a record year in 2022. The decrease was largely driven by the volume reduction and lower overhead absorption. Resulfactant segment delivered operating income of $72 million, down 56% compared to prior year, driven by a 9% reduction in volume. The polymer segment delivered operating income of $61 million, down 27% versus the prior year, driven by a 14% reduction in volume. Finally, the specialty product segment delivered operating income of $11.5 million, down 62% versus prior year, driven by lower volumes and margin contraction due to competitive dynamics. The company full year effective tax rate was 17% in 2023 versus 22% in the prior year. This year over year decrease was primarily due to R&D tax credits and stock-based compensation awards over a lower pre-tax base. We are projecting a higher effective tax rate for 2024 due to an anticipated disallowance of GILTI deduction and foreign tax credits, resulting from the expected election of bonus depreciation for our Pasadena capital investment. Moving on to slide 10, we continue making significant progress on our cash position. We have increased our efforts to lower working capital and reduce capital spending to adapt to the current business environment. For the year, cash flow operation was $175 million, up 9% versus prior year. During the year, we deployed $331 million again in capital investments, debt payments, and dividends. Finally, we reduced inventory by $102 million versus Q1 2023. The company's full-year capital spending was $260 million versus $302 million in the prior year, inclusive of our low 1.4 dioxin and Pasadena investments in the U.S. For 2024, we are projecting that our capital expenditures will return to historical levels while still executing the final phase of our Pasadena project. Now, beginning on slide 11 and 12, Scott will update you on our strategic priorities.

Thanks, Luis. I will focus my comments on our cost and cash management initiatives and on the progress of our major capital investments and strategic priorities. Despite continued pressure from general cost inflation and higher expenses related to our major growth investments in Pasadena and low 1.4 dioxane, our cash expenses remain flat year over year. Throughout the year, we took proactive actions to control costs and also successfully executed a significant productivity program that led to a 9% increase in cash generated from operations. As you may recall from our October earnings call, we anticipate returning to positive free cash flow generation this year now that we are approaching the end of our heavy investment phase. The cost reduction activities initiated last year, along with additional productivity and cost-out programs underway in 2024, which are centered around improved operational performance across our manufacturing network, are expected to deliver $50 million in pre-tax savings in 2024. Moving to slide 12, construction at our new El Constellation production facility in Pasadena, Texas is approximately 80% complete, and we expect the plant to start up in the third quarter of 2024. The underlying El Constellation business that supports the Pasadena investment continued its volume growth during 2023 and at a very attractive unit margin. despite the continued destocking activity happening within the agricultural chemicals market. As you know, we have increased North American capability and capacity to produce ether sulfates that meet new regulatory limits on 1,4-dioxane. Recently installed assets in our Milldale facility are now mechanically completed. New contracted low 1,4-dioxane volumes have already started shipping from the site and should grow as we reach full installed capacity during the first quarter of 2024. Steppen now has the largest installed low one-point oxygen production capacity serving the North American merchant market, which will enable Steppen to maintain and grow our North American sulfonation business in 2024 and beyond. In early 2024, our Millsdale site encountered operational interruptions due to a series of power disruptions from our external power provider compounded by a period of extremely cold weather in January. The plant was able to successfully restart most unit operations. Our phthalic and hydride and polyol unit operations were more significantly impacted by the unplanned outage, and we expect to be back to full production in PA polyols shortly. Moving to slide 13, as we look to 2024, we believe volumes and margins will improve due to continued recovery in rigid polyols demand, growth in surfactant volumes driven by new contracted business, along with the expected recovery of the agricultural business in the second half of the year, and lower overall raw material costs versus 2023. Our cost reduction activities are expected to deliver $50 million in pre-tax savings in 2024, which will help offset future inflation, increased expenses associated with the planned commissioning of our new Pasadena alcoxylation assets, and higher incentive-based compensation expenses. A combination of anticipated market recovery, executing our strategic initiatives, and the aforementioned cost reductions should position us well to deliver adjusted EBITDA growth and positive free cash flow in 2024. We remain confident in our long-term growth and innovation initiatives. This concludes our prepared remarks. At this time, I'd like to turn the call over for questions. Daniel, please review the instructions for the question portion of today's call.

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. As a reminder, that's star 11 to ask a question. One moment while we compile the Q&A roster. Our first question comes from Mike Harrison with Seaport Research Partners. Your line's now open.

Hi, good morning. Good morning, Mike.

Good morning, Mike.

So I wanted to start out with a couple questions on surfactants. You mentioned a lot of the volume growth there was related to recent low 1,4-dioxane investment. Can you just maybe give a little bit more color on where those assets are in their ramp, what the customer response has been, and I guess if you can talk at all about what the margins or returns have looked like there compared to your expectations.

Sure. Yeah, so, Mike, over the last 18 to 24 months, we've gone on a heavy investment phase for 1,4-Dioxane capability. We did install new assets at both our Winder, Georgia facility and two separate production units at our Millsdale facility. All three of those assets are now up and operational with the last asset at Millsdale, which is going through final commissioning and startup this quarter. But volumes have sequentially been ramping up as we brought each of those three independent assets up over the last 12 months or so. In terms of margins, I think it's patient.

Mike, I don't know if you were waiting for other context on volume growth in surfactants. So personal care grew a strong double digit due to the low 1,400 investment that Scott was mentioning. We had a strong double digit growth in Latin America as well in surfactants. We grew with our distribution partners, high single digits, mid to high single digits, We grew in institutional cleaning as well. So the plus 1% that you see in surfactants is coming from a lot of places with good growth, but unfortunately, of course, offset by the de-stocking in ag. So if you exclude the de-stocking in ag, surfactants grew 5%, which is a pretty robust number.

All right, thanks. That's very helpful. And maybe a little bit more detail on what you're seeing in Latin America. Obviously, the ag business is dragging there, but I think you mentioned some pricing pressure, some share loss related to imported products. So just curious if you can talk about any actions you're taking and kind of what the path to better earnings in Latin America surfactants might look like.

Yeah, sure, Mike. Yeah, you're absolutely correct, as we've shared on prior calls. You know, with the supply chain disruptions in the second half of 2022 and customers were looking for security of supply, they, I think, enticed in imports early in 2023, which caused some of our margin and share issues. But I'm happy to report we are recovering our share in the marketplace. And margins should continue to gradually improve going forward.

And Mike, one thing that happened in 2023, and that's why margins are depressing in Latin America, is a competitive situation, but also carrying high-cost raw materials. So actually, we just flushed out the last high-cost material in January. But that was a big drag for the region in 2023, and that should improve in 2024.

All right, perfect. And then I guess switching over to the comments you made on the Millsdale facility and the power disruption and operational issues you had there. I think it'd be helpful if there's any way for you to quantify the impact there. But I guess my broader question is, you know, I thought we had gone through some improvements at Millsdale to reduce the potential impact of power disruption. So maybe just an update on where we are in terms of improving resiliency there.

Let me give you the numbers, and then Scott can also expand on the situation in Middlesex. At the end, Mike, it's a small number vis-a-vis, you know, the EBITDA of this company. So we're projecting probably around $5 million of EBITDA impact in Q1. Again, we are still understanding all the details, doing the final sixes. some extra tolling expenses, so we don't have a precise number now, but it's going to be roughly 5 million EBITDA impact in Q1.

Yeah, and Mike, in terms of, you're correct in terms of this has been a focused area of investment over the last couple of years to improve the operational reliability in the winter months. And I can say the site, based on our prior investments over the last two years, fared much better with these power disruptions in the month of January. As I mentioned in my earlier comments, the PA polyol assets were more impacted than the broader site was. And we have obviously more work and more investment to do to fix the areas within the PA polyol. that were disrupted, but overall, I think we're pretty pleased with the improved resiliency we've been able to do through investments over the last couple of years.

And we're working now in partnership with our external power supplier because that was the driver of this situation. So we need to improve resiliency on that side as well. And I forgot to mention, I think Scott talked a lot about PA. So the majority of the $5 million will be in the polymers business.

All right, very helpful. And then that last question for me is more of a high-level question. Just on the 2024 outlook, you call out a number of positive drivers and talk about EBITDA improvements to come, which I think we all understand that. But maybe just a little bit of additional detail or color about how we should think about the cadence of earnings in 2024. It seems like maybe at some point there should be a meaningful step up or positive inflection point. Just curious if you can maybe help us understand what the timing looks like on that potential inflection.

Great question, Mike. And as we mentioned in our prepared remarks, we are still expecting this stocking enact to continue in the first half. and we're expecting a revamp of the ag business in the second half. And so that's one of our key drivers. Second, I would say the $50 million productivity program already kick in, but you are going to have, you know, a gradual ramp-up of that program, so you should expect to deliver more savings in the second half than in the first half. And the third thing that I would say, of course, Pasadena is one of our key building blocks for the second half and for 2025. And still, you know, starting off the plant is not going to be All positive at the beginning. You need to spend some money. But those are the three big building blocks that we see. And, of course, I mean, you know that we have a seasonality effect on the polymers business, where typically Q2 and Q3 are stronger with all the construction activities. So that skew there means the EBITDA is more in the second half.

yeah and mike i would uh also just point out you know the underlying core business outside of those specific uh uh initiatives that uh we just went through you know has demonstrated sequential growth in q4 so distribution i and i uh polymers that will continue to should continue to incrementally grow uh through the quarters going forward but really the second half of the year is when our new assets come online in pasadena And as Louis said, that's when ag destocking is supposed to subside.

All right. Very helpful. Thanks very much.

Thank you. One moment for our next question.

Our next question comes from Vincent Anderson with Stiefel. Your line is now open.

Yeah, thanks. Good morning, everyone. I wanted to follow up on a, yeah, good morning. I wanted to follow up on a couple of Mike's questions. I think first and foremost, I was hoping to get some more context on agriculture, but really more your confidence in, you know, a second half recovery, given we're still seeing a lot of pressure in Brazil, you know, on both the safrinha corn acres and then just overall farmer financial positions.

Yeah, so, Vincent, the good news is the macro trend is there, and if you've been reading some of the downstream agricultural companies, you know, the demand in the field remains, right? So this truly is the stocking activity that we're going through right now. I think, and what we've had read and have talked to with our customers, the second half is when we should start to see the improved volumes. Now, the rate of that ramp up and the geographical cadence of how that happens, I do think you're right. Brazil could be probably the slowest to recover or work through that destocking, but our ag business is global in nature. North America, Europe, and Asia are all important for us. we have good anticipation that we'll start to see those volumes recover in the second half.

And this is 100% in line with the feedback that we're getting from our customers. I mean, this is 100% in line with their forecast.

Okay. No, that's good to know. I just called out Brazil because I think you pointed to that as a specific area of pressure recently. But, no, that all tracks. And then kind of going back to the Latin American business, I think you kind of framed it as, you know, imports were incentivized by supply chain disruptions. But, you know, if I recall, those were, you know, Chinese imports. They can be tough to compete with once they kind of get a toehold in. So are you comfortable with where you're running those assets from a margin perspective right now? Or, you know, if the imports don't play nice, let's say? Is there more room for you to compete, you know, being a domestic supplier, or is this something that you're going to have to continue to monitor pretty closely?

No. You know, I think we feel pretty good, Vincent. As Luis mentioned, with that inventory hangover in the first half of last year, we were chewing through high-cost raw materials, which really impacted margins as we competed in the domestic market down there. But all things equal, our customers prefer to buy from local supply. And when raw material valuations are matching where market pricing is, I think we're going to win that game. And I think our Q4, where we reported double-digit volume growth, is demonstrating that. And we expect that to continue, quite frankly. But yes, margins can always improve. We're not... happy or pleased with where the margins are currently at in Q4, but we expect those to continue to improve as we go forward.

Excellent. Good to hear. And then I've just got two really quick ones. You mentioned the biocide business being a little bit of a headwind. Does that just continue destocking, or is there maybe some customer concentration on that portfolio that's creating one-off headwinds?

Yeah, it was really customer concentration and just rolling off some of the, you know, COVID types of activity and business that came off in Q4 of 2022. Okay.

Thanks. And then last one is just anything remarkable to report on the kind of annual polyol negotiations this year?

No, nothing new to report now.

Nothing new to report now, Vincent. You know it's a very competitive business. We are good margin stewards in the marketplace, and we will continue protecting volumes and margin. All right. That's all from me. Thanks, guys.

Thank you. One moment for our next question. Our next question comes from David Silver with CL King and Associates.

Your line is now open. Yeah, hi. Good morning. Thank you.

Morning, David.

Morning. A couple of things. I don't think this was asked. If it has been, I apologize. But During the quarter, you called out, or in your remarks and in the release, growth on the rigid polyols side was called out, and double-digit growth, all regions, et cetera. And I'm just wondering if you could go back and maybe kind of speak to that just a little bit. In other words... In my opinion, I mean, that's more construction and durable goods related, like industries that have not necessarily been the strongest lately. And I believe you called out North America and Europe, where maybe the UK has just indicated they're in a technical recession and the German market hasn't been especially robust. You know, you called out the volume growth. You called out higher margins, I believe, or per unit margins. So what is, in your opinion, driving that growth? Is this a share gain situation? Or what type of drivers should we be thinking about for that portion of your polymers business?

Good question, David. What I would say is remember that this talking for this particular business started in Q4 2022. So what you have, you have the effect of not this stock in impact. And that's why you see the 12% in rigid policy. There are still a lot of growth opportunities for the market, for the market with all the construction activity that needs to happen and with all the re-roofing that needs to happen in the U.S. If you look at the pipeline and the backlog of projects on re-roofing in North America, it's still pretty strong. And that should provide market growth for the next three to five years. So there is still, this is not like we're in a peak and we're good. This is just a reflection of not destocking. And what we believe and what our customers are also saying is with roofing and construction activity, there is still plenty of opportunity with energy conservation, with all of that. This industry should be healthy for the next few years.

Okay, great. I was hoping to change the subject to your question. capex budget for fiscal year 2024. So, you know, the midpoint of your range is almost exactly half of what was spent in 2023. You know, if I was just to take the midpoint of maybe 130, I was hoping you could maybe talk about that in terms of how much of that is what you might consider sustaining. And then more to the point, for the non-sustaining, for the discretionary portion of the $130 million or so, could you just kind of highlight, you know, where the discretionary CapEx is being directed? So, in other words, I'm guessing 1,4-Dioxane and anything remaining with Pasadena is in there, but also wondering, you know, does rigid polyols need some incremental capacity there or Where else, you know, should we be looking for, you know, where the discretionary portion of your CapEx budget for 2024 is being directed? Thank you.

Yeah, David, this is Scott. Yeah, no, you're spot on. And the $130 million is... is inclusive of us finishing the last final touches on the Pasadena and the one for dioxane investments. Definitely the minority portion of that $130 million. In terms of other discretionary spends, I would call them incremental opportunities where we may be modifying reactor sets to produce or execute on this customer specific opportunities or certain product line extensions. I would not characterize anything in that 130 outside of Pasadena and 140 Oxane as significant discretionary spend. And it's important for us to get these new assets fully up and running and start generating returns against them, right? So consider it a pause in 2024 for any new major incremental capital discretionary projects. And I'll leave it at that.

Okay, thank you for that. Luis, I did want to ask about the debt structure and if you could just remind me of the total debt that you have at the end of the year here, north of half a billion. If you could just remind me, how much of that would you consider variable in terms of either fixed rate or something that's been locked in with derivatives? where you know your interest costs are highly predictable and then what is the balance that might be subject to uh fluctuations in short-term you know base rates or indices thanks uh good question david look uh as you saw 654 million in gross debt

500 million 520 40 net there when when you include the 130 that we have from cash and if you think about our debt the majority is fixed and it's uh i would say 65 70 of that and you know we fix a lot of debt during covet at a very attractive interest rate so below three percent and we also uh uh did some derivative for a hundred million dollars also hedging uh below three percent so The majority speaks at a very attractive rate.

Okay, great. And then last one, if I could. But I was hoping to just get a tiny bit more color on the workplace productivity programs that are the biggest part, I guess, of the $50 million cost reduction program. So I guess there were some start to it here, but you do have kind of a growing global network here, and I'm just kind of scratching my head, and I'm wondering if you could qualitatively maybe just point out one or two areas where you see the most opportunity to get from where you are now to the 50 million, I guess, run rate in cost reductions over the next year or two. Thank you.

Good question, David. Look, the majority of the $50 million comes from the operational side, right? For example, logistics. The team is doing a great job on reducing our logistic costs. And, of course, the market is... is in favor of that so our logistic cost is going down 25 30 percent uh a procurement savings on on raw materials uh uh improving the operations in in the whole supply chain in our plans to reducing efficiencies that we have so 70%, roughly 70% of the $50 million is on the operations side. And then only 30% is the workforce productivity that we already executed. This was already the program that we announced last year with the early retirement program and some reductions in force. So that's the other 30%.

Okay. Thank you very much. I'll get back in queue. Appreciate it.

Thank you. As a reminder, to ask a question, please press star 11 on your telephone and then wait for your name to be announced. Again, to withdraw your question, please press star 11 a second time.

One moment for our next question.

Our next question comes from Dave Storms with Stonegate. Your line's now open. Good morning.

Good morning.

Just wondering if I could ask about kind of what you're seeing upstream from a raw material standpoint, both from a cost and sourcing lens, and how you expect that might change over these next coming quarters.

Good question, Dave. When you think about raw material prices and pricing, I think we're in a pretty good position. As you saw Q4, despite our sales down 15%, our cost of goods sold is down 17%. So we basically almost hold gross margin flat-ish, you know, $66, $67 million, despite the 15% drop in sales. And you see oil now relatively stable, right, in the 70 to 80 range. And what we have seen is our raw material prices have stabilized. There are a few pockets where they are still coming down a little bit, but the 80 for the 20 is stable, and this is why, you know, we are catching up on the margin side.

Yeah, and I would just say, you know, overall capacity in the chemical industry is much looser than it was 12 months ago, 18 months ago, right? So there's greater optionality and opportunity to really work on your raw material costs in the current environment.

Very helpful. Thank you. And then just also, uh, what's the customer acquisition environment looking like? It sounds like you defended your market share pretty well and, you know, continue to defend your market share pretty well. Uh, is there potential to expand into more, you know, uh, clients, you know, either tier ones through threes?

Yeah. So, uh, that's obviously a big part of our growth strategy within the surfactant business is to continue to, uh, service and sell uh more tier two and tier three customers even last year in the uh the challenging market we had financially uh we grew our net customers within surfactants by over 500 new customers uh and those are around the world that uh that truly um value our technical service our formulation expertise and our broad product lines And that continues in a difficult, challenging market. So we're very excited that our sales and R&D teams continue to do a great job bringing new customers into the company.

That's perfect. And then just one more quick clarifying question. Luis, I think you mentioned earlier that you were through most of the high-cost inventory. Was that specific to surfactants inventory, or did that include – polymer and specialty. Yeah, it's both. It's the three businesses, sorry. It's the three businesses. Perfect. Very helpful. Thank you very much for taking my questions.

Thank you, Dave.

Thank you. I'm showing no further questions at this time. I would now like to turn it back to Scott Behrens for closing remarks.

Thank you very much for joining us on today's call. We appreciate your interest in ownership in Steppen Company and please have a great day.

This concludes today's conference call. Thank you for participating.

You may now disconnect.