Q3 2021 Element Solutions Inc Earnings Call
Good morning, ladies and gentlemen, and welcome to the element solutions Q3, 2021 financial results Conference call.
There will be an opportunity to ask questions. During the question and answer session and you may registered to ask a question at any time by pressing the star and one on your Touchtone phone I will now turn the call over to her and Gokarn senior director of strategy and Finance. Please go ahead.
Good morning, and thank you for participating in our third quarter 2021 earnings Conference call joining me, our executive Chairman Martin Franklin CEO Ben.
Yeah, Oh, Carey Dorman in accordance with regulation FD or fair disclosure. We are webcasting. This conference call any redistribution retransmission or rebroadcast of this call any form without the express written consent of element solutions is strictly prohibited.
During today's call, we will make certain forward looking statements that reflect our current views about the company's future performance financial results and dividend policy.
The minutes are based on assumptions and expectations of future events that are subject to risks and uncertainties. Please refer to our earnings release supplemental slides and most recent SEC filings for a discussion of material risk factors that could cause actual results to differ from our expectations and projections. These materials can be found on the company's website in the investors section under news and events.
So these materials also include financial information that has not been prepared in accordance with U S. GAAP. Please refer to the earnings release and supplemental slides for definitions and reconciliations for these non-GAAP measures to comparable GAAP financial measures.
It is now my pleasure to introduce <unk> CEO of element solutions.
Thank you Arun and good morning, everyone. Thank you for joining <unk>.
Despite a problematic supply chain environment and turbulence in the automotive market. Our business is thriving we delivered net sales that were a record for element solutions with solid incremental margins and strong free cash flow this quarter, while faced with both logistics and supply chain disorder that drove increased costs and impacted demand.
Our people are embodying our culture, they're stepping up to challenges and showing commitment to our company and our customers. This is helping to ensure reliability of service and to mitigate raw material sourcing shortages in our own supply chain.
At the same time, our organization continues to focus on and deliver against strategic growth priorities.
As power electronics for electric vehicles, new customer wins from our core electronic and industrial market and sustainability solutions.
They're lying demand in our markets remains healthy and while supply chain dynamics will continue to create volatility over the next several months. We are more excited than we have ever been about the long term prospects for this company.
We closed our acquisition of <unk> on September one and are off to a running start with our integration work streams. The benefits of this combination in terms of growth opportunities and cost savings are becoming increasingly tangible just two months after closing.
While we still have significant work to do to realize the value from this combination and carryforward. Our current momentum through year end, we're energized by the way. These teams are working together.
Our increased product breadth and expanded set of commercial relationships are already unlocking incremental opportunities for us.
The electronics industry continued to grow in the third quarter bolstered by expansion in communications infrastructure consumer electronics, and automotive electronics Electronics segment posted monthly sales records this quarter, reflecting robust underlying demand and more importantly, strong commercial execution by our strategic sales and technical.
Service teams.
Customer engagement remains strong and customer investment in new capacity continues.
Our industrial business was impacted by automotive supply chain constraints, but grew year over year as we lapped a quarter thats still more significant impact from facility closures due to COVID-19.
We also benefited from strong demand in construction and other industrial end markets.
The surge in economic activity year to date continues to challenge a capacity constrained global supply chain and logistics network demand for logistics as far outweighing supply across nearly all transportation modes and regions exacerbated by Port Labor Labor bottlenecks and Covid related worker shortages.
Although our team has navigated the effect of these factors well when combined with negative mix impact they weighed on gross profit margins relative to the first half of the year.
Inclusive of metals, we saw raw material cost basket increased about 4% sequentially. While freight costs have continued to increase by several million dollars a quarter from their run rate exiting 2020.
We've action price increases these past several quarters to reflect rising costs, but we have not yet fully offset raw material inflation through price action.
Nonetheless, while costs are putting margin under pressure our adjusted EBITDA margins. This quarter were flat year over year and improved nearly a point on a metals adjusted basis.
This period of inflation may persist, but we continued to take actions to retain our strong margin profile.
Given raw material scarcity and logistics difficulty, we have built and retain safety stocks and inventory to help us meet customer demand given ongoing supply chain shortages.
While this is impacting our cash flow conversion, we believe that that impact is transitory.
The fundamental requirements for working capital in this business are unchanged and we expect this buildup to release in the future when supply chain stabilize.
On slide three you can see a summary of our third quarter financial results.
We grew the top line, 13% organically year over year and grew adjusted EBITDA by 29% on a reported basis.
In constant currency terms third quarter, adjusted EBITDA grew 25% and adjusted EBITDA margins were roughly flat to the same quarter in 2020.
While the first few weeks of the quarter benefited from lapping the global manufacturing shutdowns that accompanied COVID-19 in 2020 underlying growth also continued to compare favorably against pre pandemic levels.
Notably relative to comparable third quarter 2019 figures, we grew net sales, 11% organically and adjusted EBITDA, 14%.
Operating leverage on higher volumes offset the headwinds from increased metal prices higher logistics costs and a return to more normalized opex levels. As we continue to exit from crisis period cost containment measures of 2020 and early 2021.
Adjusted EBITDA margins were roughly flat year over year, and our Opex as a percent of net sales was lower versus the third quarter of 2020.
We expect a modest sequential increase in opex in the fourth quarter as countries continue to reopen.
Our adjusted EBITDA margin was 26% when excluding the impact of the $111 million of pass through metal sales in our assembly solutions business well.
Well pass through metals create volatility in our reported margins year to date incremental margins. Excluding this impact have been steadily in line with our long term targets.
Our third quarter is a testament to the power of persistence and productive collaboration our customers are happy to have us back visiting in person technology roadmap conversations had accelerated many of our offices have reopened unleashing significant collaborative energy.
We remain deeply grateful to our colleagues who have remained focused on supporting our company and our customers.
Carey will now take you through our third quarter performance in more detail Carey.
Thanks, Dan Good morning, everyone.
Starting on slide four we review the key drivers of organic sales growth in Q3 across our verticals.
The electronics segment grew net sales by 11% organically in the quarter with all three verticals again growing in the double digits.
Circuitry solutions grew 14% organically driven by persisting strength in high end electronics and memory markets.
The more typical <unk> seasonal uplift in demand return due in part to new higher end mobile launches.
We did however, see some softness in a few high end margin product areas like the delays in production schedules.
This is delayed not lost business.
Our semiconductor solutions business grew 12% organically driven by strong volume increases across communications and automotive end markets.
Sales value for wafer plating and advanced packaging solutions were also driven by inflation in precious metal prices, which are generally pass onto our customers.
Assembly grew 10% organically.
Demand here came from continued strength in the broader electronics markets and growth in our power electronics products, which mainly serve the electric vehicle supply chain.
Our Asian business, where most of our sales are generated in this vertical with stronger than Europe and the Americas.
While we continue to improve the margin mix within our assembly portfolio the impact of increased pass through 10 prices muted the otherwise strong margin uplift would have seen during the quarter.
Constant currency adjusted EBITDA margins in electronics segment decreased only 60 basis points. Despite the impact of these metal prices.
This result was driven by volume based operating leverage and positive product mix, which have largely offset raw material price inflation net of the pricing actions, we've taken and the return towards more normal operating expense levels.
The industrial and specialty segment had an even stronger quarter growing net sales by 15% organically driven by a strong macroeconomic environment and the lapping in the beginning of the quarter of widespread production shutdowns in 2020.
Graphic solutions grew organic sales by 19% due to improving conditions in CPG market as companies are investing in new packaging design products and promotions.
We saw volume increases from existing customers and strong commercial execution driving new wins across several geographies.
Industrial solutions grew Q3, net sales and 17% organically.
On a year over year strength in construction and general industrial end markets, but sequential softness in automotive demand.
In the first half of 2021. This business remained relatively insulated from the demand impacts of supply chain disruption. However, we now believe the magnitude of the recent production rate decline due to material shortage. It has our customers preparing for a more protracted slowdown.
We continue to expect that automotive demand will largely be deferred versus being lost altogether.
Exceptionally low inventories and strong consumer demand suggests a potentially strong pipeline of industrial business next year and beyond.
Offshore solutions net sales declined 9% organically in the quarter down $1 million sequentially and year over year.
Energy prices have trended higher in commentary from E&P companies optimistic investment in drilling and production activity has yet to materially pick up.
Constant currency adjusted EBITDA margins in the IMS segment increased approximately 30 basis points in the quarter as operating leverage on higher volumes and pricing actions.
That negative mix impacts from lower automotive demand and raw material inflation.
We saw a modest increase in SG&A driven by midyear merit increases a pickup in customer related travel and the inclusion of one month of <unk> results in the quarter as well.
Turning to slide five we generated $81 million of free cash flow in the quarter and over $175 million a year to date period.
Uses of cash this quarter included our semiannual bond payment several strategic growth Capex projects and additional working capital driven by strong net sales growth and our investment in inventory.
We now expect our inventory safety stocks to remain elevated into 2022, but believe these level should normalize overtime.
On a full year 2021 basis, we expect free cash flow of at least $265 million with the reduction.
<unk> from prior expectations, driven primarily by working capital.
We increased our cash interest expectation modestly to reflect the add on to our term loans, which funded a portion of the Quebec acquisition and we also increased our capex expectations to reflect the exciting investments, we're making behind capacity to support power electronics and our other business growth.
Our markets are expanding and we are excited to have organic capital allocation opportunities that meet our hurdle rates and position the business for continued success.
Our balance sheet remained healthy in Q3.
Net leverage at quarter end was three one times on a trailing 12 month basis, reflecting the add on term loan for the financing of the <unk> acquisition.
However, this reflects the contribution of only one month of MTR earnings.
On a trailing 12 month basis, including a full year contribution of <unk>. Our net debt ratio would have been two nine times at quarter end.
We expect to be under three times on a reported basis by the end of the year.
Our consistent cash flow generation and leveraged well inside our three five times targeted ceiling provide us with meaningful capacity to continue to prudently deploy capital and with that I'll turn things back over to Ben Ben.
Thank you Gary.
Turning to our outlook for the balance of 2021, our updated guidance is on slide six.
Our markets remain generally healthy and our teams are executing well against our strategies to capture value beyond market growth.
Inclusive of a full quarter of <unk> results, we expect fourth quarter 2021, adjusted EBITDA to be approximately $118 million with a contribution from covance year of approximately $8 million.
Electronics demand remains strong.
The weak auto market, while the negative impact on our industrial segment relative to previous expectations. While typical seasonality is responsible for the balance of the sequential decline.
As you know our fourth quarter last year benefited from the robust recovery from Covid shutdowns and later than typical new handset platform launches so the year over year comparisons more challenging.
We are updating our full year 2021, adjusted EBITDA expectation to a range of $515 million to $525 million inclusive of four months of <unk> results. This equates to roughly $505 to $515 million excluding <unk>.
Notably we expect to deliver results within our previously stated guidance range for the full year of 2021, despite an incrementally worse automotive backdrop and less favorable FX environment.
We continue to expect full year adjusted earnings per share to exceed $1 35, which is approximately 40% growth year over year.
In the context of our strong earnings growth and our expectation for continued growth from here, we expect to increase our dividend again this quarter. The second time, we will have done so in calendar year 2021.
We believe 2022 is shaping up to be a year of robust growth.
Given the dynamic environment its early to provide guidance, but the overall outlook is positive.
We don't co venture for the full year in 2021, we would have expected 2021, adjusted EBITDA taking into account the synergies we expect to realize during this first year to be closer to $560 million and we expect organic growth off of this base next year, given the secular trends in our electronics business and <unk>.
<unk> cyclical recovery in our industrial business and our proven ability to outgrow both markets through strong execution.
We continue to have high conviction around the megatrend powering our end markets and a demonstrated ability to invest prudently behind them.
To wrap up I'd like to thank all of our stakeholders for their continued support of element solutions and in particular, our talented and dedicated people who help make this outstanding quarter possible.
With that operator, please open the line for questions.
So at this time, if he would like to ask a question. Please press the star and one on your Touchtone telephone you may remove yourself from the queue at any time by pressing the pound key.
Again, if you would like to ask a question today. Please press star and one and we will take our first question today from Steve Byrne with Bank of America. Your line is open.
Yes. Thank you Ben your comments about <unk>.
More constructive after having a couple of months with them now.
My question for you is is Europe.
Your outlook on on that acquisition, improving more because you see opportunities for productivity or is this really more about cross selling or pricing power.
The outlook from here.
Thanks for the question, Steve maybe the answer is both.
The Columbia business outperformed the forecast we bought the business off of it has strong momentum despite a weaker automotive backdrop and obviously automotive is a part of that business. The teams are coming together really really well from a commercial perspective identifying great opportunities.
The relationship strength is very complimentary so certain accounts, where <unk> had great relationships.
We had weaker relationships and vice versa. So we see a really compelling growth opportunity from the business and then from a synergy standpoint as well.
The savings opportunities are becoming more tangible and we've got line of sight to delivering in excess of what we've committed to in terms of cost savings in a reasonable period of time, so both growth and savings are making us more encouraged there.
And any acceleration in any of that or seasonality to take into consideration too.
To help us estimate what the 2022 EBITDA contribution might be.
Simply you know Forex your EBITDA estimate for Q4.
There's a little bit of variability associated with that driven by automotive right automotive is a key variable that will determine the level of growth in that business.
But it's not a bad estimate to take a little bit more than than four times eight because <unk> is a slow quarter Q4 is a slower quarter and then add some synergies on top of that.
We've tried to do that math for you guys and giving that baseline of about $5 60.
Before organic growth into next year.
Okay. Thank you for the interest.
One risk I wanted to drill into whether you see any potential that some of your sales.
Sales in the auto end markets might have been driven by.
Inventory build by your customer is that a is that a potential headwind going forward.
It's hard to quantify.
What's gone into units versus what's waiting to go into units, but the latent demand from the automotive space in the west gives us confidence that there's significant growth potential when the supply chain stabilize that will overcome any potential inventory build.
Yes.
Okay. Thank you.
Alright.
Thank you we will move next to Bob Court with Goldman Sachs. Your line is open.
Thank you Ben you guys had noted I guess through most of the year your sales into the auto chain werent reflective of production levels.
Should we then think there might be a lag as production comes back I noticed G. M added some shifts and overtime shifts and talked about supply improving is there going to be a little bit of delay to seeing that reflected in your business do you think.
Yeah.
I don't think that there would be a material lag when not if but when the auto market.
It comes off of this period of weakness.
Our customers have slowed down materially here in the last month, and a half and we expect that to persist into the fourth quarter, but we know they're all.
They are all ready for that market to recover and some of the outperformance we saw relative to automotive is clear.
<unk> is clearly being driven by other aspects of our industrial business.
Our construction related business, our machinery and heavy equipment related business has been posting high double digit growth on a sequential basis and thats whats the offset some of that automotive.
Pressure the other thing I'd note is that content per vehicle is increasing in our industrial solutions business as well as our electronics business and so this isn't just a unit story its value in excess of units that should allow for us to outperform unit growth when unit growth returns.
Got you and then.
And the graphics business, you guys mentioned, particularly in North America strength.
The omission of talking of of Europe is that a function of it's just not as big of a business or is there something about your customers in those markets that haven't responded in a similar fashion to North America.
The graphics business is performing very very well it had it had a great quarter on a year over year and sequential basis.
That business was just better in North America than in Europe, but it wasn't poor in Europe at all that that performance is being driven by new investment from CPG customers and really strong commercial execution. We are winning a lot of business there and we're poised for another year of good growth in graphics into next year.
Great. Thanks for the help.
Thanks, Bob.
And as a reminder that is star in one if he would like to ask a question today, we do ask to allow everyone an opportunity to ask a question. So you do limit yourself to one question plus one follow up question.
We'll go next to Karen to prune with Mizuho. Your line is open.
Hi, good morning.
Good morning.
I just I just wanted to dial in a little bit more in the quarter. It seems like you took a lot of actions that helped to offset some of the supply and logistics headwinds in Europe. You are taking further actions on the raw materials side.
By building inventories at the end of the year I just.
This environment persist a little bit longer than we expect can you just talk about leverage in the quarter that you pulled them maybe any additional levers you can pull to offset this in the near term.
Yeah, absolutely so.
Raw material price inflation, and logistics cost inflation, where material impact in the quarter, which was expected we have been taking price over the course of the year, we're not quite caught up from a raw material inflation perspective relative to the price actions, we've taken but we have taken pricing youre seeing that through the P&L and we will continue to.
As necessary to support margins.
Logistics costs were a couple of million dollars of a headwind sequentially.
And we expect that to also persist we haven't taken price relative to logistics as yet I would note however that our EBITDA margins on an organic basis.
Year over year over a point and a half that's been hidden by the pass through metal impact of metal price inflation has been staggering this year and so you see that.
In our reported margins, but excluding the impact of metal, we've actually improved our margins year over year. Despite all of this inflation. So we are getting the price that we're trying to take.
But we've got a bit more of that to do.
Great and then just a quick follow up on the electronics side. I mean, you mentioned the investments that we're seeing from the customer perspective in terms of Capex I mean should we be thinking about that creating a demand poll maybe in the back half of next year and into 'twenty three and just how are you positioning yourself maybe when shares.
Some of these new investments come online.
Yes, so our business has been executing exceptionally well commercially in the electronic space and in our other businesses as well.
We have one more business year to date than we won in all of 2020, just as an example.
So we are winning large.
Large customer engagements, our capex is higher in part because we're investing in equipment to support customers' new line builds and so that's what gives us a lot of confidence and conviction.
Just in the secular trends that are supporting our business, but in our ability to.
To participate disproportionately from them.
Great. Thank you so much.
Okay.
And we will go next to John 10, one thing with C. J S Securities. Your line is open.
Hi, Good morning, guys. Thank you for taking my questions and nice quarter and being able to hold the line on the guidance for the year, that's pretty impressive considering what's going on in the industry right now.
My first question is just in your discussions with customers are they telling you to expect any easing in supply chain constraints as we head into next year do you have any kind of visibility at all is there any sector specific commentary that we should be thinking about.
So.
I think the customers, particularly in the automotive side.
We're really trying to we're optimistic entering the third quarter that things will get better by the end of the year and clearly.
That hasnt happened and so on.
Our customers are dealing with the reality that a recovery in automotive is going to be delayed at least into 2022 in terms of visibility towards that recovery. We don't have a ton we see the demand.
And I think we all see the demand.
When you look at dealer inventories.
And used car prices, but.
When that when the bottlenecks that are that are creating the supply issues here will be resolved as your guess is as good as them.
Okay Fair enough and then just on the topic of.
Price increases have you been seeing any pushback from customers at all I know you said you haven't been able to pass the logistics costs through is there a reason for that or is that just something that's down. The line do you expect to realize those over the next one or two quarters.
Bear with UBS Your line is open.
Yeah, Hi, guys. Thanks for taking my question I guess, just first to maybe follow up on on the price costs dynamic and specifically an industrial so assuming that you are getting pricing and if we assume that metals prices and roars kind of stabilized where they are.
Is there anything you would add to that 360 EBITDA like base for next year for price recapture from price cost headwinds this year.
So I'm trying to understand that question Joshua so.
Are you, saying we is there additional earnings growth from additional price actions that would that would support or you know or.
A number of above 560.
Yeah, I guess another way to ask is where where would you say pricing is now in an industrial is that covering starting to cover the medals costs and just trying to think if pricing stays where it is and raw materials stay where it where they are is that enough to recover and grow margins absent vol.
<unk> in that business next year I.
I see so so raw material prices have inflated over the course of 2021, and we have a bit more work to do to support you know the.
Very strong margin we had in the first quarter for example, so I I wouldn't be counting on incremental price to contribute growth.
Over and above that 560 to growth above that 560 is going to be driven.
By volume Uhm and to some extent mix as our mixes increasing as we move more into Eevees uhm.
The other thing I'd note you referred to metal price, specifically, we pass through most of our mental price and so while it has an optical impact on margins. It doesn't have a dollar impact to profitability dollars.
Okay fair enough and just trying to contextualize a truck electronics year to date is very strong growth I I don't know if you have the data to say what what you think of unit growth was underlying your volume growth and what's your out performance has been there year to date.
<unk>, it's a driver that new wins or more content penetration.
And does that rate change of that outperformance right change when we start to think about 2022 better or worse.
Sure. So the best indicator I would say for our electronics business is printed circuit board volume growth.
Circuit Board expectations for 2021 are up from call. It high single digits to 14, 50% and we're growing in excess of that clearly, which does as an indicator of outperformance.
As we look at what the key indicators are in 2022, we see we expect handset unit growth, we expect significantly more five G. Handset. So there's more content per unit.
And we expect to continue to outperform by several points given our commercial executions. So we've got a lot of conviction and underlying growth and our ability to outperform.
Okay. Thank you.
And we will go next to Chris caps with loop capital markets. Your line is open.
Yeah. Good morning, just a follow up question about your electronics business in your formal comments and I guess response to another question about the new business when the dressing that are printed circuit boards based in ecosystem, you mentioned I get a good amount of new business in being higher on a year over year basis year to date can you <unk>.
Talk about the cadence of this activity on a sequential basis has the you know the the level of a quoting activity been steady is it improving what what's going on in sequential basis.
Yeah. So the seasonality we see through the top line is also reflected in the seasonality we see in terms of the customer engagement and so customers are are <unk>.
Seeking rfps and doing technology roadmap exchanges more towards the beginning of the year in advance of <unk>.
Platform launches towards the tail end. So so some of that commercial activity has slowed down but that's what we would have expected at this point through the year.
And.
So.
We feel good that we built in growth based on our wins in the period to date for next year and beyond.
Okay, and just as a as a follow up do you think your you know it sounds like your your inclination is that your gaming chairs based on these new new account specifications or Windsor turnkey system.
Suffocation can you just talk about that and is there any change in the competitive behavior I guess with your key compare they're in the process of being required. Thank you.
Sure thing, Chris So so for starters from an industry perspective, there's much more growth in the high end higher technology.
Headboard space in there in the lower end, so just naturally by virtue of diverging growth rates. The higher end is where the share gains are occurring or the higher end participants participants are growing Sharon where one of those.
So we would expect our share to grow just organically by virtue of industry dynamics that said, we are getting traction in markets that we have underpenetrated that were strategically investing behind and we've made it very clear to the industry that we are open for business and investing aggressively behind our <unk>.
Business.
And very very focused on that and so we feel like we've got an opportunity to take some share and.
The calculation of share it takes a little while and has done in in hindsight, but.
Data points do do seem positive in that regard.
Okay. That's helpful caller. Thank you.
We will move now to Duffy Fisher with Barclays. Your line is open.
Yeah, good morning, <unk> or anything just a question around the contractual pass through on the metal and you know maybe a few of the other raw materials that are contractual because they move so much can you help us size dish here within your carbs, how much do you think is gonna be cognitive contractually move with pride.
This versus you know those you would actually physically you have to go out and try to get price to all set.
Yeah, it's a.
Good question Duffy so we.
We report the pass through metals in our assembly business at $110 million in the quarter.
We have other metals that are pass through.
Palladium gold.
Other precious metals like that that aren't captured in that.
And what we report so altogether, it's several hundred million dollars of metal that we're passing through and I would've.
Ballpark.
There's been inflation of about $200 million in that basket.
Whereas the balance of our Cogs are not contractually pass through.
And we've been pursuing price in each of our businesses and successful in getting price in each of our businesses to offset.
Where those raw materials have inflated.
Great. Thanks, and then when you look at your auto business. You know next year. Obviously, you have an idea kinda wins you have an idea you know E V hybrid stuff like that how much faster.
Do you think you can grow volume than the market next year.
And you know get <unk>, let's say that number is three per cent faster does does that change whether autos are up 5% are down 5% or is that really you know kind of a win your add on as we go forward yeah.
Difficult question to answer but.
About 25% of our business is automotive oriented that's captured in both the industrial surface treatment business and in our electronics business and the reason that we have confidence we can outperform units and auto because we're seeing increasing content per vehicle in both of those businesses with significantly more content in any vehicle versus an internal combustion engine.
<unk>, so one and a half two times the content on an electric vehicle versus an internal combustion vehicle and.
Over the long term our expectation that content per.
E vehicle grows to 3% faster than unit growth so.
Depending on each vehicle penetration.
You could see in excess of three per cent outperformance to units.
And I don't see a big.
Difference if units are up 2% or 5% for example, or more in that equation.
I think the bigger variable E V penetration out of the unit growth.
Perfect. Thank you guys.
Thanks Duffy.
Suddenly it will take our final question today from Angel Castillo last Morgan Stanley. Your line is open.
And your last few your line is open please check the mute function on your phone.
Hi can you hear me.
Yes.
Sorry about that hey, good morning. Thanks for taking my question. So just wanted to circle back on the safety stock discussion one could you give us a little bit more color as to what is kind of typical inventory days and maybe where have you kind of moved up two and two as we think about you mentioned I think next year, continuing order to save just talking to get into.
It's part of the base.
Do you need to build more though or are you or we kind of at the right level and it's just about kind of maintaining this higher safety level.
Yeah. Thanks for the question is is Carey.
Normally in our business, we see inventory days between the mid to high sixties getting closer to 70, depending on on the quarter, we actually haven't creeped up that much I think we're a few days higher than we were if we look at our our average over the course of several years we.
Year to date, we've built something like 40 or 50 worth of safety stocks.
We intentionally did that we think that's the right thing to do to support our customers. It's what's important at top line growth and obviously, we think that inventory will.
Be easily sellable into into next year and beyond.
As we think about the rest of the year, we're anticipating a small.
Least of working capital too.
Deliver that free cash flow that we've got it too that's really more driven by the sales sequential sales expectations than it is anything if you can't release of safety stock.
For next year I would expect when we television supply chain constraints.
Reduce that taking stock will release, and we should see a much better conversion to free cash flow from your doctor.
[noise] understood. That's very helpful. And then in terms of growth next year. So yeah that was very helpful. Thank you for providing the base that we should think about it as we've kind of contemplate that within kind of a broader scope of your organic growth trajectory that you've outlined in the past and investor days I think it was roughly 4% could you give us kind of cargo with us.
As we think about 2022, I know I know, it's early but.
What kind of gets you to be above that are below that in in kind of a is that the right way to think about 2022 four from our organic basis sure. So the the.
The basis is EBITDA before the synergies, we would expect our electronics business to grow in excess of it's stable longterm right just given the stable longterm right. We communicated in our prior investor now given the inflection we've seen from the secular trends that are driving that business really gaining traction in the past two years the bigger.
Burial at the automotive industry and when it begins to recover.
If we if it recovers towards the first half of the year you could see significant outperformance relative to that long term target for from the automotive portion of the business and if its recovery is delayed and supply chain issues persist you can't count on significant growth from that part of the business. So automotive is going to be the biggest.
Abel as to the magnitude of outperformance relative to that long term growth rate.
Thank you.
Thanks Angel.
And this does conclude our Q&A session for today I will turn the call back for any additional or closing remarks.
Thanks, very much everybody for joining we look forward to seeing and speaking with you in the days and weeks to come.
Have a good day.
This does conclude today's program. Thank you for your participation you may disconnect at anytime.
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Okay.
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